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

The Hershey Company’s (NYSE: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

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. (NASDAQ:MDLZ) is slated to report second quarter numbers on Aug 2.

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

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