Hershey's (HSY) Beats on Q3 Earnings, Raises Full Year View
The Hershey Company HSY reported stellar third-quarter 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year over year. Solid consumer demand for brands contributed to this upbeat performance. The company witnessed growth in the North America as well as International and Other segment. Following stronger-than-anticipated results, management raised net sales and earnings view for 2021.
The company has responded promptly to changes in the marketplace and develop plans to sustain sales momentum and production. We note that shares of this Zacks Rank #3 (Hold) company have increased 10.6% in the past six months compared with the industry’s growth of 10.4%.
Q3 in Details
Hershey posted adjusted earnings of $2.10 that came ahead of the Zacks Consensus Estimate of $2.02 and increased 12.9% year over year.
Consolidated net sales of $2,359.8 million rose 6.3% from the year-ago period, and beat the Zacks Consensus Estimate of $2,336 million. Organic net sales on a constant-currency basis increased 4.4%.
Price realization and volume drove 3.1 point and 1.3-point benefit, respectively. Volume gained as at-home consumption remained robust and away-from-home consumption improved. However, capacity constraints and supply chain challenges resulted in lower retailer and distributor inventory levels, hurting net sales growth to an extent. Meanwhile, acquisition of Lily's Sweets and foreign exchange benefited net sales by 1.4 points and 0.5 points, respectively.
In spite of an increase in the top line, adjusted gross margin contracted 110 basis points to 44.3% during the quarter. Management highlighted that higher logistics, labor and packaging costs owing to supply chain bottlenecks and unfavorable mix hurt the margin. However, pricing, the timing of seasonal markdown reserves and productivity initiatives partially offset the same.
Selling, marketing and administrative expenses rose 3.7% year over year due to higher corporate expenses. Advertising and related consumer marketing expenses fell 3.6%, thanks to lower advertising in the North America segment. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, jumped 8.1%. This increase reflected higher capability and technology investments along with elevated benefit costs and inflation.
Adjusted operating profit rose 3.6% to $563 million. This year-over-year increase was driven by pricing and lower advertising levels, offset by higher costs from supply chain complexities and inflation. Adjusted operating profit margin shrunk 60 basis points to 23.9% owing to lower gross margin.
Hershey Company The Price, Consensus and EPS Surprise
Hershey Company The price-consensus-eps-surprise-chart | Hershey Company The Quote
Segment Update
North America segment (the United States and Canada) net sales increased 5.5% year over year to $2,125.6 million. Price realization contributed 2.4 points of growth. Again, continued momentum for at-home consumption along with rebound in away-from-home consumption in both confection and snacking drove volume gains of 1.3 points. Acquisition of Lily's Sweets and foreign exchange benefited net sales by 1.5 points and 0.3 points, respectively.
Net sales in the International and Other segment advanced 13.9% to $234.2 million. On a constant currency basis, net sales rose 11.4%. Volume and price realization contributed 1.9 point and 9.5-point benefit, respectively.
Financials
Hershey ended the quarter with cash and cash equivalents of $675.5 million, long-term debt of $4,095.2 million and total shareholders’ equity of $2,537.1 million. The company now projects full-year capital expenditures in the range of about $500-$525 million versus the previous estimate of $550 million, primarily due to project timing.
Upbeat Outlook
Better-than-expected consumer demand, an improved tax outlook and optimized brand investment prompted Hershey to lift 2021 net sales and earnings forecast.
Management now envisions full-year net sales growth in the band of 8-9%, versus prior projection of 6-8% growth.
Hershey guided adjusted earnings between $6.98 and $7.11 per share, which suggests an increase of 11-13% from earnings of $6.29 in 2020. The company had earlier anticipated an increase of 8-10% in earnings per share.
Stocks to Consider
Sanderson Farms SAFM, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 496.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
United Natural Foods UNFI, currently carrying a Zacks Rank #1, has a trailing four-quarter earnings surprise of 13.1%, on average.
The Kraft Heinz Company KHC, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 11.8%, on average.
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