Will Hershey (HSY) Q1 Earnings Beat Estimates Amid Cost Woes?

The Hershey Company (NYSE:HSY) is scheduled to release first-quarter 2019 results on Apr 25. The renowned chocolate provider has a mixed record of earnings surprises over the trailing four quarters.

Let’s see how things are placed ahead of the upcoming quarterly results.

What to Expect?

The Zacks Consensus Estimate has remained stable in the past 30 days at $1.48, which reflects close to 5% growth from the year-ago quarter’s figure. The consensus mark for revenues is $1,985 million, reflecting a rise of 0.7% from the year-ago quarter.

Factors Impacting Results

Hershey is likely to benefit from acquisitions in the quarter to be reported. Incidentally, the company’s top line is steadily gaining from Amplify Snack Brands, which was acquired in January 2018 in a bid to gain a solid footing in the fast-growing market for healthy snacks. Also, Hershey acquired Pirate Brands from B&G Foods (NYSE:BGS) in September 2018 to augment its snacking business.

Markedly, during the fourth quarter of 2018, Amplify and Pirate Brands boosted sales in the North American unit by almost 4.8 points. Also, net impact from buyouts and divestitures boosted sales growth by 3 points during the quarter. We expect these buyouts to continue serving as a tailwind to the top line in the quarter under review.

Hershey’s sales are also set to gain from regular innovations to meet consumers’ demand. In this respect, Hershey's Gold and Reese's Outrageous, which were launched in 2018, have been doing well. Hence, we expect these factors and the rising chocolate demand to drive results in the to-be-reported quarter as well.

However, escalated freight and logistics expenses along with greater trade and packaging investments have been hurting Hershey’s gross margin and profitability. In fact, increased costs are a headwind for many food companies like TreeHouse Foods (NYSE:THS) and Campbell Soup (NYSE:CPB) , among others.

Nevertheless, Hershey's SKU rationalizing efforts are likely to yield. Also, the company is on track with its Margin for Growth multi-year program, which is anticipated to improve overall operating margin through supply-chain optimization, a streamlined operating model and reduced administrative expenses. In 2018, the company generated savings worth $90 million from this program. Further, management continues to expect overall savings of approximately $150-$175 million from the margin for growth initiative, which is likely to be reflected in the quarter to be reported. Such efforts along with its strategic pricing initiatives are expected to help Hershey offset cost-related hurdles and aid the bottom line in the first quarter.

What the Zacks Model Unveils

Our proven model doesn’t show that Hershey is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Hershey carries a Zacks Rank #3, its Earnings ESP of -1.91% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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