Subject: Re: OT: Hershey
ISI THIS AM:

FOOD PRODUCERS (PALMER) - DEEP DIVE – REVENUE SETUP for Q1
High Level:
Volume declines set to ease but likely not end – Our base case is that average center store food company US retail volume declines will moderate from -MSD Y/Y in 1Q to down LSD over the next few quarters.
Action needed to avoid missing consensus 2Q and 3Q organic sales for some – We see downside to consensus (domestic) organic sales trends for K, BGS, HAIN and MDLZ. We believe stepped-up product innovation, and more effective promotions will be needed to improve sales trends for these companies in particular.
Value investing may start to be possible for some names – We see roughly in-line with consensus (domestic) organic sales trends for GIS, CPB, KLG, and POST – with potentially in line to slight downside for KHC and CAG. The average EV/EBITDA and P/E ratio for these names are 10x and 13x, respectively. Among these, we rate POST and KHC Outperform.
We will be watching for promotion spending with limited ROI – While we do assume some moderation in multi-year pricing, the risk is greater promotions will be needed to deliver volume stability (e.g. Conagra pricing in Frozen entrees has been negative Y/Y).
Stock specific into Q1 results:
POST, KLG, BRBR – we see upside to consensus (and domestic) organic sales trends.
KHC, HSY – expect roughly in-line.
K, BGS, MDLZ – we see downside to consensus (and domestic) organic sales trends.