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Hershey's (HSY) Q2 Earnings Surpass Estimates, Sales Up Y/Y

The Hershey Company HSY reported robust second-quarter 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year over year. Results gained from solid performance in the North America as well as International and Other segment. Results continue to benefit from impressive recovery in away-from-home consumption and international markets. Sustained elevated at-home consumption is also contributing to the upside. Management raised net sales view for 2021.

Hershey Company The Price, Consensus and EPS Surprise

Hershey Company The Price, Consensus and EPS Surprise
Hershey Company The Price, Consensus and EPS Surprise

Hershey Company The price-consensus-eps-surprise-chart | Hershey Company The Quote

Q2 in Details

Adjusted earnings per share (EPS) of $1.47 came ahead of the Zacks Consensus Estimate of $1.42 and increased 12.2% year over year.

Consolidated net sales of $1,989.4 million increased 16.5% year over year and surpassed the Zacks Consensus Estimate of $1,848.1 million. Net price realization and volume growth were 1.0 point and 14.5 point, respectively. Volumes benefited from impressive rebound in away-from-home consumption as well as international markets. Strong take-home consumption also contributed to the upside. Favorable foreign currency rates benefited net sales by 1.0 point. Further, organic net sales on a constant-currency (cc) basis increased 15.5%.

Adjusted gross margin was flat year-over-year at 46.4%. Growth in volume, reduced pandemic-induced costs and productivity initiatives were countered by higher supply chain costs, increased labor expenses as well as packaging inflation.

Selling, marketing and administrative expenses increased 14.3% year over year mainly due to higher corporate expenses. Advertising and related consumer marketing expenses increased 9.9% thanks to reactivation of important sponsorships in the North America segment. Also, higher investment in core brands in the International & Other unit caused the downside. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, rose 16.6% due to increased incentive compensation accruals, higher capability investments and medical claims.

Adjusted operating profit came in at $459.5 million, up 19% on the back of solid volumes. Adjusted operating profit margin expanded 50 basis points (bps) to 24.2%.

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Zacks Investment Research


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Segmental Update

North America (the United States and Canada) net sales increased 12.3% year over year to $1,779.2 million. Volume contributed 11.8 points to net sales growth on the back of continued momentum for at-home consumption along with solid rebound in away-from-home consumption. Favorable currency boosted sales in the unit by 0.7 point. However, impact of divestiture and net price realization dented the unit by 0.1 point each.

Net sales in the International and Other segment rallied 70.2% to $210.2 million. At cc, net sales surged 64.5%. Volume and price realization contributed 49.5 point and 15 point benefit, respectively.

Financials

Hershey ended the quarter with cash and cash equivalents of $426.2 million, long-term debt of $4,095.2 million and total shareholders’ equity of $2,273.9 million.

In a separate press release, the company declared a quarterly dividend of 90.1 cents per share for its common stock and 81.9 cents for Class B common stock. These are payable on Sep 15, 2021 to shareholders of record as of Aug 20. Notably, this marks the company’s 367th and 148th straight dividend payout on its common stock and Class B common stock, respectively.

2021 Outlook

Owing to solid second-quarter performance and the Lily's Sweets, LLC (Lily's) buyout, the company is updating its 2021 net sales outlook upward. Hershey now expects its 2021 net sales to increase 6-8%. Earlier, management had guided for net sales growth of 4-6%. The increased outlook takes into account better-than-anticipated recovery in the away-from-home business as well as international markets. The projection also reflects the benefits from acquisition of Lily's. The net impact of acquisitions and divestitures is expected to favorably impact the metric by 0.7 point.

The company reiterated its adjusted EPS outlook, which is expected in the range of $6.79-$6.92, suggesting growth of 8-10% year over year. The metric came in at $6.29 in 2020. Management highlighted that gains from higher sales is likely to be countered by incremental tax reserves and greater supply chain costs.

The company expects to incur capital expenditures of nearly $550 million in 2021, on key initiatives like the ongoing ERP transformation and supply chain initiatives.

Shares of this Zacks Rank #3 (Hold) company have increased 21.7% in the past six months compared with the industry’s growth of 20.8%.

Some Solid Food Bets

Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 29.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tyson Foods, Inc. TSN, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 39.1%, on average.

Medifast, Inc. MED, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 12.7%, on average.


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