For 11 consecutive quarters now, Hershey (NYSE:HSY) has kept its sweet analyst-beating earnings streak alive. Tomorrow, we learn whether the company can claim three straight years of confounding the experts, as Hershey reports on its Q4 and FY 2005 earnings.

Wall Street Wisdom:

  • General consensus. With a streak like that one, you might think Hershey would have more fans. But of the 19 analysts who follow the company, only seven rate it a "buy." Nearly twice as many label Hershey a "hold" or "sell."
  • Revenues. Analysts expect to see Hershey report 9% sales growth tomorrow, for a total of $1.38 billion.
  • Earnings. Those same analysts predict slight better earnings growth: 12%, for a total $0.76 per share.

Valuation metrics:
Most consumers will happily fork over four bits for a piece of milk chocolate bliss. The real question is how long investors will willingly pay 48 times free cash flow to own a piece of Hershey. On a P/E basis, the stock already looks pretty rich at 26 times earnings. But just wait until people realize there's no creamy cash flow filling to this morsel.

Margin watch:
Margin pressure remains a concern at Hershey, with CEO Richard Lenny recently blaming "broadly higher input costs" for putting the squeeze on gross margins (as shown below). Cost-cutting efforts have done a good job of offsetting these pressures, but for how long?

Marg.

7/04

10/04

12/04

4/05

7/05

10/05

Gross

39.5%

39.6%

39.5%

39.5%

39.4%

39.2%

Op.

19.8%

20.1%

20.4%

20.4%

20.4%

20.6%

Net

12.7%

13%

13.3%

13.3%

11.9%

10.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Three months ago, Hershey predicted "a solid fourth quarter." Addressing margin concerns, the CEO promised to "maintain effective cost controls across the business system, thereby yielding a gain in operating margins." Focus on the margins in tomorrow's numbers -- there you'll find the proof of how well Hershey is managing to offset its raw materials costs.

Competitors:
Public companies competing with Hershey include Cadbury Schweppes (NYSE:CSG), Nestle, and Tootsie Roll (NYSE:TR).

Fool contributor Rich Smith does not own shares of any company named above.