Hershey Company (HSY) Tops Q2 Earnings, Updates 2017 View

The Hershey Company’s HSY earnings and revenues beat the Zacks Consensus Estimate in second-quarter 2017. The leading chocolate manufacturer also updated its guidance for 2017.

Earnings & Revenue Discussion

Hershey’s second-quarter adjusted earnings per share of $1.09 beat the Zacks Consensus Estimate of 91 cents by 19.8%. Earnings also increased from the year-ago profit level of 85 cents by 28.2%.

Net sales of $1,663 million surpassed the Zacks Consensus Estimate of $1,652 million by 0.7%. Net sales also improved 1.5% year over year owing to strong performance by the North America segment and the acquisition of barkTHINS brand. This marks the fifth straight quarter of sales rise after a few quarters of no growth.

Organically, excluding the impact of currency, sales were up 1.8% as demand strengthened in the U.S.

Volume grew 1.2% while net price realization had a 0.1% benefit. Currency unfavorably impacted revenues by 0.3%. Acquisitions had a 0.5% positive impact.

Quarterly Segment Discussion

North America (U.S. and Canada) net sales rose 2.2% to $1,477 million. Pricing benefited 0.2%, while volumes rose 1.7% on earlier-than-anticipated shipments. Acquisition of the barkTHINS brand resulted in a net benefit of 0.6%.

Second-quarter net sales at the International and Other segment declined 3.6% to $186 million. Currency hurt sales by 0.1%. Excluding currency, sales were down 3.5% due to pricing gains. While pricing posed a 8.7% headwind, volumes declined 2.1% from the year-ago level.

Constant currency sales were solid (about 10%) in Mexico, Brazil and India. Net sales in China declined on a year-over-year basis due to persistent softness in the chocolate category.

Hershey Company (The) Price, Consensus and EPS Surprise

Hershey Company (The) Price, Consensus and EPS Surprise | Hershey Company (The) Quote

Margins Detail

Hershey’s adjusted gross margin expanded 160 basis points (bps) to 47.1% buoyed by supply chain productivity and cost-saving initiatives and lower input costs.

Excluding advertising, selling, marketing and administrative expenses (SM&A) contracted 3.7% as cost savings and efficiency initiatives more than offset investments in go-to-market capabilities. SM&A expenses include investments in non-advertising brand-building and go-to-market capabilities in both the U.S. and international markets.

Again, total advertising and related consumer marketing expenses were on par with the second-quarter 2016 level.

Operating margin expanded 270 bps to 20.8%.

The adjusted effective tax rate was 25%, lower than 31.4% in the prior-year quarter.

2017 Guidance Updated

Net sales are expected to be about 1%. Earlier, sales were expected at the low end of the 2–3% range.

Impact of foreign currency is expected at around 0.25%.

Adjusted earnings per share are now expected at the high end of the previously stated $4.72–$4.81 range, highlighting a 7–9% increase from last year.

Zack Rank & Upcoming Peer Releases

Hershey currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mondelez International, Inc. MDLZ is slated to report second quarter numbers on Aug 2.

The Kraft Heinz Company KHC and B&G Foods Inc. BGS are scheduled to report second quarter results on Aug 3.

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