It has been about a month since the last earnings report for Hershey (
HSY Quick Quote HSY - Free Report) . Shares have added about 4.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hershey due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hershey's Q3 Earnings Surpass Estimates, Sales Up
Hershey reported robust third-quarter 2020 results, which gained from solid performance in the North America segment. Notably, the company gained confectionary market share of nearly 190 basis points (bps) in the United States. Adjusted earnings per share (EPS) of $1.86 came ahead of the Zacks Consensus Estimate of $1.71 and increased 15.5% year over year.
Consolidated net sales of $2,219.8 million increased 4% year over year and surpassed the Zacks Consensus Estimate of $2,154.9 million. Price realization and volume growth were 2.9 point and 0.9 point, respectively, thanks to strength in the North America segment. Moreover, the net impact of acquisitions and divestitures was positive to the tune of 0.8 point stemming from benefits of ONE Brands buyout. However, unfavorable foreign currency rates affected sales by 0.6 point. Further, organic sales on a constant-currency (cc) basis increased 3.8%. Margins in Detail
Adjusted gross margin expanded 60 bps to 45.4% on the back of favorable pricing, which was somewhat offset by unfavorable commodities and escalated warehouse costs.
Selling, marketing and administrative costs dropped 2.6%. Advertising and related consumer marketing expenses fell 4.6%. Selling, marketing and administrative costs excluding advertising and related consumer marketing decreased 1.5%. Pandemic-related travel and meeting cost savings and the timing of investments in key strategic initiatives were a reason. Adjusted operating profit amounted to $543.3 million, up 13.9% from the prior-year quarter’s figure. Adjusted operating profit margin expanded 220 bps to 24.5% led by solid price realization in the North America segment as well as corporate and operational cost management. Segmental Update North America (the United States and Canada) net sales increased 6.3% year over year to $2,014.2 million. Markedly, price realization and 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. However, currency translations dented the unit by 0.1 point. 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 stemming from reduced consumer travel and capacity restrictions imposed by government. Also, reduced air travel was a reason. Combined net sales in Mexico, Brazil, China and India, dropped 13.9%. Excluding currency headwinds, combined organic sales from these markets decreased 2.3% at cc. Nevertheless, favorable net price realization of 0.3 points offered some respite. Financials
Hershey ended the quarter with cash and cash equivalents of $1,205.9 million, long-term debt of $4,093.2 million and total shareholders’ equity of $2,068.8 million.
In a separate press release, the company declared a quarterly dividend of 80.4 cents per share for its common stock and 73.1 cents for Class B common stock. These are payable on Dec 15 to shareholders of record as of Nov 20. Notably, this marks the company’s 364th and 145th straight dividend payout on its common stock and Class B common stock, respectively. Outlook
Hershey expects net sales to rise nearly 1% for 2020 reflecting a 2 point pandemic-related headwind in International & Other segment. Net impact of buyouts and divestitures are expected to make 0.5 point positive impact on the top line growth. Also, unfavorable currency fluctuations are expected to have a 0.5 point negative impact on sales growth.
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. How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, Hershey has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Hershey has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.