Hershey Company (HSY) Tops Q1 Earnings, Updates 2017 View

HSY BGS MDLZ KHC

The Hershey Company’s (HSY - Free Report) earnings beat the Zacks Consensus Estimate, while sales missed the same in first-quarter 2017. The leading chocolate manufacturer also updated its expectations for 2017.

Earnings Beat

Hershey’s first-quarter adjusted earnings per share of $1.31 beat the Zacks Consensus Estimate of $1.26 by 3.9%. Earnings also increased from the year-ago profit level of $1.10 by 19.1%. Earnings benefited from higher demand in the U.S.

Revenues Miss

Net sales of $1.88 billion missed the Zacks Consensus Estimate of $1.90 billion by 1.1%. Net sales, however, improved 2.8% year over year. This marks the fourth straight rise in quarterly sales after few quarters of no growth.

Currency favorably impacted revenues by 0.1%. Acquisitions had a 0.9% positive impact.

Organically, excluding the impact of currency, sales were up 2.7% as demand strengthened in the U.S.

Volume growth of 0.7% included a contribution of 0.9% from the barkTHINS brand acquisition. Net price realization was a 2% benefit due to lower levels of trade.

Quarterly Segment Discussion

North America (U.S. and Canada) net sales rose 2.7% to $1.68 billion. Pricing benefited 1.2%, while volumes rose 0.3% driven by seasonal growth. The acquisition of the barkTHINS brand (acquired in April) resulted in a net benefit of 1%.

First-quarter net sales of Hershey’s International and Other segment declined 3.7% to $202.5 million. Currency impact hurt sales by 0.5%. Excluding currency headwinds, sales were up 4.2% due to pricing gains. While pricing rose 8.7%, volumes declined 4.5% from the year-ago level.

Constant currency sales were solid (about 15%) in Mexico, Brazil and India. China net sales increased mid-single digits on a year-over-year basis.

Margins Detail

Hershey’s adjusted gross margin expanded 70 basis points (bps) to 47.5% buoyed by favorable trade, supply chain productivity and costs savings initiatives and lower input costs, which offset other higher supply chain costs.

Excluding advertising, selling, marketing and administrative expenses (SM&A) decreased 1% as cost savings and efficiency initiatives were partially offset by investments in go-to-market capabilities and increased depreciation and amortization. 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 first-quarter 2016 level.

Operating margin expanded 170 bps to 23.2%.

The adjusted effective tax rate was 31.5%, lower than 35% in the prior-year quarter.

Hershey Company (The) Price, Consensus and EPS Surprise

2017 Guidance Updated

Net sales are expected to be at the low end of the previously stated 2–3% range (including acquisition benefit of 0.5%).

Impact of foreign currency is expected to be minimal compared to 0.25% negative impact stated earlier.

Adjusted earnings per share are now expected to be around the high end of the previously stated $4.72–$4.81 range, which is 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. (MDLZ - Free Report) is slated to report its quarterly numbers on May 2.

The Kraft Heinz Company (KHC - Free Report) is scheduled to report first-quarter 2017 results on May 3.

B&G Foods Inc. (BGS - Free Report) is expected to report its quarterly numbers on May 4.

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