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Why Is Hershey (HSY) Up 2.9% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Hershey Company (The) (HSY - Free Report) . Shares have added about 2.9% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Hershey Beats on Q4 Earnings, Issues 2017 Guidance
Earnings Beat
Hershey’s fourth-quarter adjusted earnings per share of $1.17 beat the Zacks Consensus Estimate as well as the year-ago profit level of $1.08 by 8.3%. Earnings benefited as demand strengthened in the U.S. Moreover, a lower tax rate offset the impact of relatively weaker margins.
Full-year earnings came in at $4.41 per share, up 7%.
Adjusted earnings exclude derivative mark-to-market gains, charges related to the productivity initiative, and non-service-related pension expenses. Including these, reported earnings were 55 cents, down from $1.04 earned a year ago.
Revenues Miss Estimates but Up Y/Y
Net sales of $1,970.2 million missed the Zacks Consensus Estimate of $1,994.9 million. Net sales, including the impact of currency and acquisitions, however, improved 3.2% year over year. This marks the third straight rise in quarterly sales after few quarters of no growth. Net sales were up 3.7% year over year in the quarter on a constant currency basis.
Currency hurt revenues by 0.5%. Acquisitions had a 0.9% positive impact.
Organically, excluding the impact of currency and acquisitions, sales were up 2.8% as demand strengthened in the U.S. Volume growth of 3.4% matched expectations on the back of higher shipments in North America. Net price realization adversely impacted sales by 0.6%.
Full-year net sales of $7.44 billion improved 0.7% from $7.39 billion a year ago.
Quarterly Segment Discussion
North America (U.S. and Canada) net sales rose 3.8% to $1.69 billion. While pricing deteriorated 1.3%, volumes rose 4.1%. The acquisition of the barkTHINS brand (acquired in April) resulted in a net benefit of 1%.
Volume growth was benefited by the launch of the company’s new Hershey’s Cookie Layer Crunch in the quarter. The launch contributed roughly 1.5% to sales growth in the quarter.
Hershey’s U.S. CMG market share was an industry leading 31.2%, almost flat year over year.
Hershey CMG retail takeaway for the 12 weeks and year ended Dec 31, 2016, was up 2.2% and 1%, respectively.
Segment income improved 1.8% to $521.9 million in the quarter, buoyed by higher gross profit, partly offset by increased advertising, marketing and selling expenses.
Fourth-quarter net sales of Hershey’s International and Other segment declined 0.5% to $280.1 million. Currency impact hurt sales by 3.2%. Excluding currency headwinds, sales were up 2.7% due to pricing gains. While pricing rose 2.8%, volumes remained on par with the year-ago level.
Constant currency sales were solid in Mexico, Brazil and India. However, sales remained under pressure in China. Growth in India and Mexico (up about 30% each on an underlying basis) and 6% underlying growth in Brazil offset the 12% sales decline in China. During the quarter, China chocolate category retail sales dropped 4%, same as in the second and third quarter.
Segment reported loss of $16.7 million, narrower than the year-ago loss of 18.3 million.
Margins Detail
Hershey’s adjusted gross margin contracted 50 basis points (bps) to 44.5% due to unfavorable supply chain costs, which offset gains from supply chain productivity and cost savings.
Excluding advertising, selling, marketing and administrative (SM&A) expenses increased 4.5% as higher employee-related costs as well as amortization were offset by productivity and cost savings programs. 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 higher in fourth-quarter 2016 on a year-over-year basis.
Operating margin contracted 70 bps to 19.2% due to higher advertising costs.
The adjusted effective tax rate was 28.2%, lower than 29.3% last year.
2017 Guidance
Net sales are expected to inch up 2–3% (including acquisition benefit of 0.5%).
The guidance, however, includes a negative impact of 0.25% from currency.
Adjusted earnings per share are expected to increase 7–9% to the range of $4.72–$4.81. Reported earnings will likely be in the $4.54–$4.65 per share range.
Hershey expects its productivity and cost savings initiatives to expand adjusted gross margin by about 15 to 25 bps in 2017.
The company expects its effective tax rate to be between 28.5% and 29%, which is down from the 2016 level. This is driven by favorable international taxes, investment tax credits and other incentives as well as a 75 bps benefit to the tax rate from the adoption of Accounting Standards Update 2016-09 for the accounting of employee share-based payments.
The investment tax credit expense will likely be in the $45 million to $50 million range.
CapEx is projected in the $270 million to $290 million range.
As the company enters into 2017, it expects to see improvement in the marketplace results with profitable U.S. market, driven by innovation and larger in-store merchandising and trade support. Hershey believes its candy, mint and gum (CMG) is an attractive category capable of solid growth over the long term when supported with the right mix of customer and consumer marketing. Hence, the company intends to make required investments to drive growth and market share.
The company has also launched Hershey's Cookie Layer Crunch bar that it expects to improve net sales and operating income performance in 2017. A longer Easter season and planned innovation driven by Hershey’s Cookie Layer Crunch and barkTHINS’ acceleration is expected to benefit top line growth.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
At this time, Hershey's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Why Is Hershey (HSY) Up 2.9% Since the Last Earnings Report?
It has been about a month since the last earnings report for Hershey Company (The) (HSY - Free Report) . Shares have added about 2.9% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Hershey Beats on Q4 Earnings, Issues 2017 Guidance
Earnings Beat
Hershey’s fourth-quarter adjusted earnings per share of $1.17 beat the Zacks Consensus Estimate as well as the year-ago profit level of $1.08 by 8.3%. Earnings benefited as demand strengthened in the U.S. Moreover, a lower tax rate offset the impact of relatively weaker margins.
Full-year earnings came in at $4.41 per share, up 7%.
Adjusted earnings exclude derivative mark-to-market gains, charges related to the productivity initiative, and non-service-related pension expenses. Including these, reported earnings were 55 cents, down from $1.04 earned a year ago.
Revenues Miss Estimates but Up Y/Y
Net sales of $1,970.2 million missed the Zacks Consensus Estimate of $1,994.9 million. Net sales, including the impact of currency and acquisitions, however, improved 3.2% year over year. This marks the third straight rise in quarterly sales after few quarters of no growth. Net sales were up 3.7% year over year in the quarter on a constant currency basis.
Currency hurt revenues by 0.5%. Acquisitions had a 0.9% positive impact.
Organically, excluding the impact of currency and acquisitions, sales were up 2.8% as demand strengthened in the U.S. Volume growth of 3.4% matched expectations on the back of higher shipments in North America. Net price realization adversely impacted sales by 0.6%.
Full-year net sales of $7.44 billion improved 0.7% from $7.39 billion a year ago.
Quarterly Segment Discussion
North America (U.S. and Canada) net sales rose 3.8% to $1.69 billion. While pricing deteriorated 1.3%, volumes rose 4.1%. The acquisition of the barkTHINS brand (acquired in April) resulted in a net benefit of 1%.
Volume growth was benefited by the launch of the company’s new Hershey’s Cookie Layer Crunch in the quarter. The launch contributed roughly 1.5% to sales growth in the quarter.
Hershey’s U.S. CMG market share was an industry leading 31.2%, almost flat year over year.
Hershey CMG retail takeaway for the 12 weeks and year ended Dec 31, 2016, was up 2.2% and 1%, respectively.
Segment income improved 1.8% to $521.9 million in the quarter, buoyed by higher gross profit, partly offset by increased advertising, marketing and selling expenses.
Fourth-quarter net sales of Hershey’s International and Other segment declined 0.5% to $280.1 million. Currency impact hurt sales by 3.2%. Excluding currency headwinds, sales were up 2.7% due to pricing gains. While pricing rose 2.8%, volumes remained on par with the year-ago level.
Constant currency sales were solid in Mexico, Brazil and India. However, sales remained under pressure in China. Growth in India and Mexico (up about 30% each on an underlying basis) and 6% underlying growth in Brazil offset the 12% sales decline in China. During the quarter, China chocolate category retail sales dropped 4%, same as in the second and third quarter.
Segment reported loss of $16.7 million, narrower than the year-ago loss of 18.3 million.
Margins Detail
Hershey’s adjusted gross margin contracted 50 basis points (bps) to 44.5% due to unfavorable supply chain costs, which offset gains from supply chain productivity and cost savings.
Excluding advertising, selling, marketing and administrative (SM&A) expenses increased 4.5% as higher employee-related costs as well as amortization were offset by productivity and cost savings programs. 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 higher in fourth-quarter 2016 on a year-over-year basis.
Operating margin contracted 70 bps to 19.2% due to higher advertising costs.
The adjusted effective tax rate was 28.2%, lower than 29.3% last year.
2017 Guidance
Net sales are expected to inch up 2–3% (including acquisition benefit of 0.5%).
The guidance, however, includes a negative impact of 0.25% from currency.
Adjusted earnings per share are expected to increase 7–9% to the range of $4.72–$4.81. Reported earnings will likely be in the $4.54–$4.65 per share range.
Hershey expects its productivity and cost savings initiatives to expand adjusted gross margin by about 15 to 25 bps in 2017.
The company expects its effective tax rate to be between 28.5% and 29%, which is down from the 2016 level. This is driven by favorable international taxes, investment tax credits and other incentives as well as a 75 bps benefit to the tax rate from the adoption of Accounting Standards Update 2016-09 for the accounting of employee share-based payments.
The investment tax credit expense will likely be in the $45 million to $50 million range.
CapEx is projected in the $270 million to $290 million range.
As the company enters into 2017, it expects to see improvement in the marketplace results with profitable U.S. market, driven by innovation and larger in-store merchandising and trade support. Hershey believes its candy, mint and gum (CMG) is an attractive category capable of solid growth over the long term when supported with the right mix of customer and consumer marketing. Hence, the company intends to make required investments to drive growth and market share.
The company has also launched Hershey's Cookie Layer Crunch bar that it expects to improve net sales and operating income performance in 2017. A longer Easter season and planned innovation driven by Hershey’s Cookie Layer Crunch and barkTHINS’ acceleration is expected to benefit top line growth.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
Hershey Company (The) Price and Consensus
Hershey Company (The) Price and Consensus | Hershey Company (The) Quote
VGM Scores
At this time, Hershey's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.