For Immediate Release
Chicago, IL – February 3, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Hershey (HSY), United Parcel Services Inc. (UPS), Chesapeake Energy (CHK), Anadarko Petroleum Corp. (APC) and Devon Energy Corp. (DVN).
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Here are highlights from Tuesday’s Analyst Blog:
Hershey Beats, Raises Dividend
The Hershey Company (HSY) reported results for the fourth quarter and full year with quarterly earnings of 55 cents per share. Earnings were 9 cents above the Zacks Consensus Estimate and up 52.8% year over year. Profits were primarily driven by price increases and supply chain efficiencies.
Net sales for the quarter increased 2.2% year-over-year to $1.4 billion, driven by favorable pricing and improvement in the international business, which includes a 1% favorable impact from foreign currency translation. Furthermore, management stated that core brands such as Hershey’s Kisses are responding to the investments in advertising (which was up approximately 50%), in-store programming and merchandising. In the channels measured by syndicated data, U.S. market share during the fourth quarter declined 0.4 points while up 0.1 points for the full year.
During the fourth quarter, Hershey’s completed its Global Supply Chain Transformation initiative. The company recognized total business costs of $629.1 million. Total savings from the program were $160 million. Total ongoing annual savings from the program of approximately $175 million to $185 million are expected to be achieved by the end of fiscal 2010. Management intends to deploy these savings for brand-building purposes.
Gross margin for the quarter expanded 442 basis points (bps) to 40.5% versus 36.1% in the prior-year quarter. The increase was primarily driven by favorable pricing, Global Supply Chain Transformation program savings and productivity gains, which more than offset the impact of higher input costs. The operating margin for the quarter also expanded 395 bps to 15.1% from 11.1% in the comparable prior-year quarter.
UPS Beats, Outlook Positive
United Parcel Services Inc.’s (UPS) fourth quarter operating earnings per share of 75 cents came in ahead of the Zacks Consensus Estimate of 73 cents and management’s earlier guidance of 58-65 cents. However, this was lower compared to 83 cents recorded in the prior-year quarter.
Results reflected strong performance in the international segment and decreased operating expenses, which was offset by a decline in the revenues and operating margins of the U.S. domestic package and supply, chain and freight segments.
Total revenue decreased 2.5% year-over-year to $12.4 billion. Total operating expenses decreased 6.5% year-over-year to $11.1 billion. Total operating profit increased 56.8% year-over-year to $1.3 billion. Total operating net income decreased 9.1% year-over-year to $757 million.
Domestically, air volume increased with Next Day Air up 2.8% and deferred up 4.3%. However, ground volume per day was down 2.9%. Total US average daily volume decreased 1.9%. Operating margin improved sequentially to 10.1%, the highest in 2009. The 5.2% decline in revenue per piece was driven primarily by lower fuel surcharges and weight declines.
Internationally, average daily volume growth of 11.8% was driven by increases of 3.1% in export and 17.8% in domestic. These gains and strong cost management contributed to an operating margin of 16.7%, the highest since the fourth quarter of 2007.
Gas Supplies Fall at Slower Rate
Months of mild weather further weakened demand for the fuel to heat homes and businesses. As a result, natural gas prices (referring to Henry Hub spot prices) trended down to a 7-year-low level of sub-$2 per million Btu (MMBtu) in Sept. 2009.
However, on the back of sustained inventory drawdown, the commodity has staged a phenomenal recovery since then, currently hovering around the $5.50 per MMBtu level. Things appear to be getting better for the natural gas players with the belief that storage levels are likely to exit the current heating season at lower levels than expected.
Nevertheless, we are not fully convinced about the sustainability of natural gas’ recent gains, as the specter of a continued glut in domestic gas supplies (storage levels remain 3.6% above their five-year average) is still expected to weigh on results and the inventories remain higher compared to averages for this time of year. This translates into limited upside for natural gas-weighted companies and related support plays.
Given the depressed state of the commodity, the lower-than-expected drop in reserves (which was also significantly below the 5-year-average drawdown of 179 Bcf and last year’s withdrawal of 184 Bcf) pulled down natural gas futures prices on the New York Mercantile Exchange (NYMEX).
We are also concerned about expectations of warmer spells of weather this winter. The demand for natural gas for heating is likely to remain subdued during this period.
Therefore, we maintain our cautious stance on natural gas-focused E&P players such as Chesapeake Energy (CHK), Anadarko Petroleum Corp. (APC) and Devon Energy Corp. (DVN).
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