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Hershey’s Flat Sales Outlook Dampens Investors’ Mood

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Consistent performance until now

Hershey (HSY) is one of the very few food companies that has impressed investors with its balanced top and bottom line growth recently. The company, through its iconic portfolio of brands, has reported higher sales, bucking the sluggish industry trend. Meanwhile, higher pricing, efficient cost-control, and supply chain reinvention have further helped the company report higher profitability. The company has managed to gain market share and has witnessed higher sales in North America, which is in contrast to most of its peers including Mondelēz (MDLZ), Kraft Heinz (KHC), and Kellogg (K).

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Sales to remain flat in 2H17

Despite a strong 1H17 performance, Hershey’s management lowered its sales outlook for 2017 as an anticipated slowdown in North America is likely to hurt overall sales growth. Hershey now expects its top line to improve 1% for the full year, down from its earlier guidance range of 2%–3% growth.

The company expects its 2H17 sales to remain flat compared to the prior year period as overall weakness across the industry and tough YoY (year-over-year) comparables are projected to affect its sales growth rate.

Meanwhile, earlier-than-expected shipments during 1H17 will further pressure second half results and could restrict the stock’s upside potential. Also, the planned rise in advertising and SG&A costs could hurt margins.

However, Hershey will continue to benefit from the rollout of innovative products and the barkTHINS acquisition. Meanwhile, the company’s in-store merchandising and display strategies and efficient marketing during Halloween and winter holidays could further supplement its sales.

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