Shares of Hershey Co. (NYSE: HSY) have jumped more than 6% on the news of the $23 billion takeover of Wm. J. Wrigley Co. (NYSE: WWY) by Mars Inc. and Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A) as investors bet that the maker of the eponymous chocolate bar won't stay independent for long.
Hershey, though, is a basket case thanks to soaring commodity costs and hopefully the growing interest in healthier eating. That will heighten the pressure on Hershey management to do a deal with Cadbury Schweppes Plc. or find another sugar daddy (pun intended).
"The deal would have clear strategic logic, as Cadbury, the world's biggest confectionery group, lacks presence in the U.S. chocolate market, while Hershey is looking to expand overseas," according to the news service.
During the first quarter earnings conference call, Chief Executive David West sounded upbeat, saying the company was "making progress, while it is slower than we would like, we do see the initial signs of improving marketplace trends." He has high hopes for new products such as the Hershey Bliss. Investors, though, may not be patient.
The Hershey Trust Co., the chocolate company's largest shareholder, has resisted buyout offers in the past from Wrigley and has vowed to keep the company independent. You have to figure that the trust's board will change its tune at the right price.
Hershey (NYSE: HSY) has a market cap of $7.9 billion with long term debt of $1.5 billion.
HSY reported Q1 consolidated net sales of $1.6 billion on April 24. The Hershey Trust Co. holds the largest stake in HSY.
The WSJ reported Mars and Warren Buffett's Berkshire Hathaway (NYSE: BRK.B) were close to a pact to acquire WM. Wrigley Jr.Co (NYSE: WWY) for more than $22 billion according to people familiar with the situation.
HSY May option implied volatility of 25 is below its 26-week average of 27 according to Track Data, suggesting slightly less price uncertainty.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Net income at Pepsi increased to $1.15 billion, or 70 cents a share while sales soared 13 percent to $8.33 billion. The company benefited from strong international sales. It also reaffirmed 2008 guidance of "high-single-digit net revenue growth" and earnings of at least $3.72. Analysts were expecting profit of $3.73 on revenue of $42.85 billion, according to Thomson Financial.
"We delivered a strong first quarter," said Chief Executive Indra Nooyi in the earnings release. "During the quarter, we faced the challenge of a macroeconomic slowdown in the U.S. and continued global commodity inflation, but the strength and breadth of our global footprint and portfolio helped us deliver strong first quarter results."
The picture at Hershey was hardly sweet. Net income fell to $63.2 million, or 28 cents per share, compared with $93.5 million, or 40 cents, a year earlier. Total cost and expenses rose to $1 billion from $942.7 million. Revenue rose $1.16 billion. Analysts had expected profit of 39 cents on revenue of $1.17 billion. The chocolate maker also reaffirmed its profit of $1.85 to $1.90 on sales growth of 3 to 4%. Wall Street consensus is for profit of $1.84 on revenue of $5.09 billion.
The problems caused by food inflation have only begun.
After hitting a one-year high of $55.90 last April, the stock hit a one-year low of $33.54 in January. This morning, HSY opened at $37.94. So far today the stock has hit a low of $36.31 and a high of $37.94. As of 11:30, HSY is trading at $36.42, down $1.93 (-5.0%). The chart for HSY looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in five weeks as long as HSY is below $40 at May expiration. Hershey would have to rise by more than 9% before we would start to lose money. Learn more about this type of trade here.
HSY hasn't been above $40 since December and has shown resistance around $39 recently. This trade could be risky if the company's earnings (due out on 4/24) are a positive surprise, but even if that happens, this position could be protected by resistance HSY might find around $39, where it topped out over the past week.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HSY.
MOST NOTEWORTHY: Hershey Foods, Genentech and Garmin were today's noteworthy downgrades:
Bernstein downgraded Hershey Foods (NYSE: HSY) to Market Perform from Outperform, citing commodity cost pressures & slowing volume growth.
Thomas Weisel downgraded Genentech (NYSE: DNA) to Market Weight from Overweight after the company reported Q1 results, due to Avastin growth concerns and a lack of meaningful drivers of long-term revenue growth until 2009.
Oppenheimer cut Garmin (NASDAQ: GRMN) to Perform from Outperform on concerns regarding PND pricing and the company's profitability dynamics.
OTHER DOWNGRADES:
Blackrock (NYSE: BLK) was downgraded at Goldman to Neutral from Buy and to Market Perform from Outperform at Wachovia.
"It's time to go value investing," says contrarian Eric Roseman, adding, "It's time to sink your teeth into America's oldest confectionary company" -- The Hershey Corporation (NYSE: HSY).
The editor of the industry-leading Commodity Trend Alert explains, "We love chocolate and want to own a great brand name that is likely to be acquired or partially acquired by a competitor at this low price." Here is his review.
"There's nothing more satisfying than a candy bar -- well, almost. I get even more excited about finding a great company or, in this case, a chocolate franchise selling at a distressed price, paying a nice dividend and home to shareholder activists seeking to boost their return on equity.
"We have regularly sought to identify distressed or contrarian blue chip stocks since 2001. The bottom line has to be deep-value and a strong catalyst for change as corporate earnings perform a 360-degree turn.
"Over the last two years, Hershey's common stock has been a real dog. HSY has shed almost half of its value since 2006, as investors grow frustrated with its board, ownership structure, faltering sales and a rudderless earnings strategy.
Everyone loves ketchup (well, then again, I'm sure there are a few out there who don't). But should everyone love Heinz's (NYSE: HNZ) latest earnings missive?
I say the earnings were respectable, if not utterly spectacular, in the third quarter. The top line moved up a robust 14% to $2.6 billion in sales; operating income increased 8%. The bottom line, however, was, eh, okay -- $0.68 per diluted share for this Q3 versus $0.66 per diluted share for last year's Q3. A two-penny increase isn't a reason to party, I suppose. Then again, Heinz isn't one of those companies that inspire you to throw a party upon an earnings release. Like Hershey (NYSE: HSY), Campbell Soup (NYSE: CPB), General Mills (NYSE: GIS), Kellogg (NYSE: K), and Kraft (NYSE: KFT), it's a consumer foodstuffs name backed by a portfolio of well-known brands that people gravitate toward every day in supermarkets across the globe.
Here's the thing about Heinz, however: it sports a yield of approximately 3.3%, and it is in the middle of a tight 52-week range. That is definitely an attractive situation for the stock. Heinz is being perceived as a safe, recession-proof play. I'm not sure anything is truly recession-proof, but I do think the yield is impressive, and I think that such a stock may continue to hold steady, and even outperform, in this environment.
I'm not a fan of soup; never had the stuff in my life. But I notice that Wall Street is liking Campbell Soup's (NYSE: CPB) stock today; at the time of this writing, the shares are up a little over 6%. Guess there's money to be made in that soup stuff, no matter what I may think.
For the second quarter, Campbell saw a 7% rise in net sales. Earnings from continuing operations were $0.67 per diluted share for the quarter compared to $0.65 per diluted share for the year-ago period. Gee, that doesn't sound like such hot growth. But as some articles have observed, Campbell's stock has been sold off in recent months, so this is sort of a buy-on-the-news scenario. Plus, total soup sales increased 4% in Q2, and the baking/snacking segment increased its top line by 8% -- those iconic Goldfish crackers will not be stopped, let me tell you. And you know what else is doing well? Those V8 V-Fusion beverages. I've been drinking a ton of that stuff lately; those drinks really are superb. Gross margin was down, though. I don't like that, but I do enjoy the fact that operational cash flow increased for the first half of the year: that metric came in at $442 million...in the previous comparable period, Campbell booked $328 million. Campbell recently decided to dump its Godiva brand.
I didn't find this earnings report so exciting, but Campbell Soup is like Kraft (NYSE: KFT), Kellogg (NYSE: K), General Mills (NYSE: GIS), and Hershey (NYSE: HSY) -- it has a valuable portfolio of foodstuffs that people buy every day, and it pays a dividend that should go up over time. It's not my favorite dividend-reinvesting name right now, but it'll be around for the long term. And even though I am not helping out investors by shunning soup, I do have to reiterate my love for those V8 Fusion drinks -- believe me, I'm aiding the company significantly on that front.
The relationship between Hershey Co. (NYSE: HSY) and Wall Street has been sour for a while. Shares of the chocolate maker have plunged more than 30% over the past year amid concerns about rising commodity prices and the growth of healthier eating habits. Now, the confectioner is raising wholesale prices by an average of 13% on one-third of its domestic product line effective immediately [subscription required].
Chocoholics are paying the price for higher costs for raw materials, fuel, utilities, and transportation.
The move comes less than a week after the Pennsylvania company reported lousy fourth quarter results and gave investors disappointing guidance. In addition, the No. 1 candy maker recently bowed to pressure from law enforcement officials and said it would stop making Ice Breakers Pacs mints after some complaints that the candy might be mistaken for heroin or cocaine.
How Could One Man Cost a Company Over $7 Billion? How could this possibly have happened? One of the biggest frauds in financial-services history apparently was carried out by a 31-year-old trader in Société Générale's Paris headquarters, whom multiple news sources have identified as Jerome Kerviel. Many are left to wonder about the lucrative but risky equity-derivatives business. Société Générale's Fraud: What Now?
America's Fastest Growing Tech Companies Even in a rough market, these companies are poised to soar. Topping the list is Google, followed by Salesforce.com, Ceradyne, Euronet Worldwide and Falconstor Software. America's 25 Fastest-Growing Tech Companies - Forbes.com
Candy-making behemoth Hershey (NYSE: HSY) moved under the earnings spotlight this morning to report a (gulp) 65% decline in fourth-quarter profit. The company banked $54 million, or 24 cents per share, compared to a year-ago profit of $153.6 million (65 cents per share). Excluding items related to changes in the firm's global supply chain, the firm would have earned $124.1 million, or 54 cents per share, a penny shy of analysts' consensus estimate of 55 cents.
Sales for the reporting period were virtually flat, at $1.34 billion, narrowly edging past the Street's expectations of $1.31 billion. For all of 2007, HSY sales came in at $4.95 billion, a modest $2.5 million advance from 2006 sales.
Shares of Hershey Co. (NYSE: HSY) have jumped more than 6% on the news of the $23 billion takeover of Wm. J. Wrigley Co. (NYSE: WWY) by Mars Inc. and Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A) as investors bet that the maker of the eponymous chocolate bar won't stay independent for long.
Hershey
Here are some highlights from this past week's 
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Candy-making behemoth 
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