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Could a Tough Operating Environment Dent Hershey’s 1Q18 Results?

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Challenges persist

Hershey (HSY) is expected to announce its 1Q18 results on April 26, 2018. Analysts expect the company’s sales and EPS (earnings per share) to show YoY (year-over-year) improvement. However, persistent challenges could dent the company’s financials.

Hershey’s 1Q18 sales are projected to benefit from growth in its core brands such as Reese’s, Hershey’s, Kisses, and Kit Kat. However, a shorter Easter season and its planned SKU optimization are expected to subdue its growth.

Hershey’s bottom line is expected to benefit from lower tax rates as well as cost and productivity savings. However, higher manufacturing, packaging, and distribution expenses could hurt its margins and its EPS.

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Stock performance disappoints

Analysts remain skeptical of the prospects of packaged food manufacturers in the US. They expect a soft sales environment, inflation in commodity prices, increased brand investments, and shipping cost headwinds to affect their financials. Analysts expect these factors to restrict the upside of these stocks.

Given the near-term margin headwinds, Credit Suisse and Deutsche Bank lowered their price targets for several food stocks, including Hershey, Kraft Heinz (KHC), J.M. Smucker (SJM), Mondelēz (MDLZ), and Kellogg (K).

The stock prices of food manufacturers traded in the red on a YTD (year-to-date) basis on April 17, 2018. Hershey’s stock price has fallen 14.8% on a YTD basis. Kraft Heinz, General Mills (GIS), and Campbell Soup (CPB) stock recorded YTD declines of 20.7%, 23.7%, and 11.6%, respectively. Kellogg, J.M. Smucker, and Mondelēz stock fell 6.2%, 3.0%, and 2.1%, respectively, during the same timeframe.

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