Hershey Gears Up to Report Q2 Earnings: What's in the Offing?

HSY has a trailing four-quarter earnings surprise of 19%, on average. In the last reported quarter, the company’s bottom line topped the Zacks Consensus Estimate by 14.6%.

Factors Likely to Influence HSY’s Upcoming Results

Hershey’s second-quarter performance is likely to have benefited from continued strength in its core confection business, supported by resilient consumer demand and sustained investments in media, merchandising and innovation. Management entered the quarter expecting spring shelf resets, increased shelf facings, optimized shelf placement and a refreshed price-pack architecture to improve retail velocity. Seasonal programs such as S'mores and Summer Sweets, along with innovation including Reese's OREO in the take-home aisle, also likely supported consumer demand and strengthened marketplace execution.

Another factor likely to have supported the quarter is the continued momentum in Hershey's expanding snacking portfolio. At its last earnings call, management projected meaningful distribution growth for core salty snack products, continued expansion of Dot's Snack Mix and increased brand-building efforts for Pirate's Booty through updated media and packaging initiatives. The company also continued investing in innovation across confection, refreshment, protein and salty snacks, while brands such as LesserEvil, Dot's Pretzels and Reese's Filled Pretzels continued to build on strong consumer momentum, providing additional support for overall business performance. The Zacks Consensus Estimate indicates a 17.1% increase in revenues of North America Salty Snacks for the quarter under review.

Profitability is likely to have improved during the second quarter. Management expected a meaningful recovery in gross margin to begin in the second quarter as pricing actions, productivity initiatives and transformation savings increasingly offset commodity cost pressures. The company planned to step up advertising and consumer marketing investments following timing-related shifts in the prior quarter while continuing to invest in technology and organizational capabilities. Management guided for second-quarter adjusted earnings per share to increase at least 15% year over year, driven by improved pricing relative to commodity costs despite higher business reinvestment.

However, the quarter might have faced several temporary headwinds. Management had indicated that shipment timing benefits recognized in the first quarter would reverse in the second quarter. The favorable impact of Easter timing and inventory stocking in the Middle East and the Asia Pacific is expected to unwind. The company continued to monitor consumer spending pressure, evolving health and wellness trends, SNAP program changes and broader macroeconomic uncertainty, all of which might have tempered demand and weighed on quarterly performance.

Earnings Whispers for HSY

Our proven model does not conclusively predict an earnings beat for Hershey this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here.

Hershey carries a Zacks Rank #3 and has an Earnings ESP of -3.42%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With the Favorable Combination

Here are three companies worth considering, as our model shows that these have the right combination to beat on earnings this time around:

The Vita Coco Company, Inc. COCO currently has an Earnings ESP of +2.11% and a Zacks Rank of 1. The consensus estimate for the quarterly revenues is pinned at $205.9 million, which indicates 12.9% growth from the figure reported in the prior-year quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Vita Coco’s upcoming quarter’s EPS is pegged at 51 cents, which implies 27.5% growth year over year. COCO delivered a trailing four-quarter earnings surprise of 21.9%, on average.

Primo Brands Corporation PRMB currently has an Earnings ESP of +16.51% and a Zacks Rank of 2. The consensus estimate for the quarterly revenues is pegged at $1.76 billion, which indicates a surge of 1.8% from the figure reported in the prior-year quarter. 

The Zacks Consensus Estimate for Primo Brands’ upcoming quarter’s EPS is pegged at 34 cents, which implies a 5.6% decrease year over year. PRMB delivered a trailing four-quarter earnings surprise of 1.4%, on average.

Monster Beverage Corporation MNST currently has an Earnings ESP of +2.61% and a Zacks Rank of 3. The consensus mark for the upcoming quarter’s revenues is pegged at $2.42 billion, which indicates a decline of 14.5% from the figure reported in the year-ago quarter. 

The Zacks Consensus Estimate for Monster Beverage’s quarterly earnings per share of 59 cents implies an increase of 13.5% from the figure reported in the year-ago quarter. MNST delivered a trailing four-quarter earnings surprise of 9.6%, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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