U.S. Markets closed
  • S&P 500

    -23.89 (-0.54%)
  • Dow 30

    -149.06 (-0.42%)
  • Nasdaq

    -105.59 (-0.71%)
  • Russell 2000

    -13.78 (-0.62%)
  • Crude Oil

    +0.19 (+0.26%)
  • Gold

    -18.90 (-1.03%)
  • Silver

    -0.23 (-0.90%)

    -0.0024 (-0.2018%)
  • 10-Yr Bond

    -0.0300 (-2.36%)
  • Vix

    +0.54 (+3.05%)

    -0.0050 (-0.3547%)

    +0.1890 (+0.1727%)

    +53.01 (+0.13%)
  • CMC Crypto 200

    +5.13 (+0.54%)
  • FTSE 100

    -46.12 (-0.65%)
  • Nikkei 225

    -498.83 (-1.80%)

Hershey's (HSY) North America Unit Solid, International Weak

·5 min read

The Hershey Company HSY appears well placed on the back of its robust brand-building efforts and efficient pricing strategy. The company’s North America segment has been performing well in particular, though its International segment has been sluggish for a while now. Also, costs associated with the pandemic are a concern. Nonetheless, Hershey’s robust cost-management efforts have been aiding its margins.

Let’s delve deeper.

Solid North America Unit & View

Hershey has been benefiting from strength in the North America segment, which remained sturdy in third-quarter 2020. During the quarter, the top and bottom lines increased year over year and came ahead of the Zacks Consensus Estimate. Results benefited from solid cost management and strong performance in the North America segment, which gained from improved volumes and pricing. Also, gains from ONE Brands’ buyout drove Hershey’s top line in the quarter.

Notably, the company gained a confectionery market share of nearly 190 basis points (bps) in the United States. North America (the United States and Canada) net sales increased 6.3% year over year to $2,014.2 million. Markedly, price realization and the net impact of acquisitions and divestitures boosted the unit’s sales by 3.3 points and 0.9 points, respectively. Volumes contributed 2.2 points, driven by retailer inventory replenishment and strong consumer takeaway in everyday chocolate and baking products. Hershey expects net sales to rise nearly 1% for 2020. Further, the company envisions adjusted EPS for 2020 in the range of $6.18-$6.24. This view indicates a rise of 7-8% from the reported figure in 2019.

Key Growth Drivers

Hershey’s core brands — Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher, Brookside, Sofit and Ice Breakers — have been growing strongly on the back of advertising investments, in-store merchandising, and programming and innovation. In fact, the company regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. In this respect, its Kit Kat Duos innovation and the expansion to the THiNS platform are noteworthy. Further, the company relaunched the Take5 brand under the Reese's banner. The launch of the Kisses brand in India is also reaping benefits.

Further, the company has been undertaking buyouts to augment portfolio strength and boost revenues. Buyouts and divestitures had a net favorable impact of 0.8 point on the top line in the third quarter, thanks to the acquisition of ONE Brands (concluded in September 2019). Further, the net impact of buyouts and divestitures is expected to make a 0.5-point positive impact on the top line in 2020. Apart from this, Hershey has been undertaking strategic pricing initiatives to improve its performance. Notably, price realization benefited Hershey’s top line by 2.9 points in the last reported quarter. Improved pricing along with robust cost management helped the company counter commodity and warehouse-related cost pressures in the third quarter and boost margins.

Weak International Unit

In third-quarter 2020, net sales in the International and Other segment fell 14.4% to $205.7 million. On a cc basis, net sales declined 9.3%. Volumes hit sales by 9.6 points, mainly due to lower sales in the company's owned retail locations. Although retail locations reopened during the quarter, footfall was low due to reduced consumer travel and capacity restrictions imposed by the government. Also, reduced air travel was a reason. Combined net sales in Mexico, Brazil, China and India dropped 13.9%. We note that management’s sales guidance for 2020 includes a 2-point pandemic-related headwind in the International & Other segment. Additionally, unfavorable currency fluctuations are expected to have a 0.5-point negative impact on overall sales growth in 2020.

Nevertheless, Hershey’s robust strategic endeavors and strength in the North America segment are likely to help it counter these headwinds and aid growth. Shares of this Zacks Rank #3 (Hold) company have gained 14.9% in the past six months compared with the industry’s growth of 14.8%.

3 Top Consumer Staple Picks

Sysco Corporation SYY, which currently carries a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 20.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

B&G Foods BGS has a Zacks Rank of 2 and a trailing four-quarter earnings surprise of 9.3%, on average.

Hain Celestial HAIN has a Zacks Rank #2 and a trailing four-quarter earnings surprise of 24.6%, on average.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Hershey Company The (HSY) : Free Stock Analysis Report
The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report
Sysco Corporation (SYY) : Free Stock Analysis Report
B&G Foods, Inc. (BGS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research