Hershey, Hitting New 52-Week Lows (HSY)

Hershey Company (NYSE:HSY) is actually putting in new 52-week lows, and not even a new coffee chocolate with Starbucks (NASDAQ:SBUX) is helping the chocolate-maker’s shares.  The company posted sales of $1.05 Billion, almost identical to 2006, and its net income was $0.01 GAAP and $0.35 EPS before charges.  Unfortunately, even though First Call was expecting $0.35 EPS and $1.07 Billion in revenues, that is well over a 10% drop from last year.  Adverse dairy prices and the slower-to-improve economy were the culprits, and that global supply chain transformation was a significant charge.

The outlook is the main issue here.  The company forecast is now expecting sequential improvement in organic net sales that will result in full year 2007 growth in the low-single digit range. But Hershey said that higher dairy costs will continue to pressure margins for the balance of the year, and branding investments will result in a mid-single digit decline in earnings per share-diluted from operations for 2007. 

Let’s pretend the company managed to actually hit the estimate of $2.45 for fiscal 2007.  Even after the near 3% drop today, that represents a forward P/E ratio of 19.8.  If it can meet the 2008 target of $2.68, its forward P/E for 2008 is going to be 18.11.  It sure doesn’t sound like the company is expecting to hit at least 2007 estimates, so that theoretical forward P/E ratio is lower then reality.  Unfortunately this is somewhat comparable to Coca-Cola NYSE:) and Pepsico (NYSE:PEP), but those businesses are solid and growing.  For Hershey, anything south of $48.96 will mark a new 52-week low close and even worse if you look at a two-year picture.

As a reminder, Hershey is one of those companies that is also immune from excessive outside control or influence and is deemed equally immune to any hostile outside buyout as super-shares are controlled by the founding family members.

Jon C. Ogg
July 19, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.