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Hershey's (HSY) Q4 Earnings Beat Estimates, Sales Increase Y/Y

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The Hershey Company (HSY - Free Report) reported stellar fourth-quarter 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year over year.

Higher prices and contributions from the buyouts drove the quarterly performance. HSY witnessed growth across all its segments. Hershey exited 2021 on a solid note and the momentum continued into 2022.

Shares of this currently Zacks Rank #3 (Hold) player have increased 5.6% in the past three months compared with the industry’s growth of 7.9%.

Q4 in Detail

Hershey posted adjusted earnings of $2.10 that came ahead of the Zacks Consensus Estimate of $1.69 and increased 13.4% year over year.

Consolidated net sales of $2,326.1 million rose 6.4% from the year-ago period’s level and beat the Zacks Consensus Estimate of $2,265 million. Organic net sales on constant-currency basis increased 4%.

Net price realization drove the 6.1 point benefit on higher list prices at all segments and slightly lower levels of promotional activity in comparison to the prior year. The buyouts of Pretzels, Dot's and Lily's, of Lily's and foreign exchange benefited net sales by 2.2 points and 0.2 points, respectively. However, volume was a 2.1-point headwind due to price elasticity and lower shipping days during the quarter under review.  

Despite of an increase in the top line, adjusted gross margin contracted 40 basis points to 43.5% during the quarter. Management highlighted that increased logistics, labor and packaging costs and an unfavorable mix hurt the margin. However, net price realization partly offset such hurdles.

Selling, marketing and administrative expenses rose 2.8% year over year due to higher corporate expenses. Advertising and related consumer marketing expenses fell 6.9%, thanks to lower advertising in the North America Confectionery unit. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, jumped 8.2%. This increase reflected increased capability and technology investments as well as costs with respect to the Dot's and Pretzels buyouts.

Adjusted operating profit rose 10.8% to $475.7 million with adjusted operating profit margin expanding 90 basis points to 20.5%. This year-over-year increase was driven by pricing and lower advertising levels, offset by a lower gross margin.

Segment Details

Since Dec 31, 2014, Hershey reported its operations through two segments, namely, North America, and International and Other. Following the completion of the Dot's and Pretzels buyouts last December, management plans to begin reporting the operations in three reportable segments. Hence, HSY realigned its former two segments into three reportable segments during the reported quarter. These segments are North America Confectionery, North America Salty Snacks and International.

North America Confectionery segment net sales jumped 4.9% year over year to $1,982.4 million. Price realization contributed to 4.3 points of growth. Volume was a 1.1-point headwind due to price elasticity and reduced shipping days. Acquisition of Lily's and foreign exchange benefited net sales by 1.5 points and 0.2 points, respectively.

The North America Salty Snacks segment’s net sales surged 38.9% from the year-ago period’s level to $158.7 million. Price realization contributed 15.9 points to the upside, while volume added a 3.9-point benefit on sturdy consumer demand. The acquisitions of Dot's and Pretzels contributed 19.1 points to sales.

Net sales in the International segment inched up 1.7% to $185 million. On constant currency basis, net sales rose 2%. Price realization contributed 19.7 points to sales while volume was a 17.7-point headwind.

Financials

Hershey ended the quarter with cash and cash equivalents of $329.3 million, a long-term debt of $4,086.6 million and total shareholders’ equity of $2,757.2 million.

HSY projects capital expenditures in the range of about $550-$600 million for 2022.

Outlook

Management envisions net sales growth in the band of 8-10% for 2022. The metric is likely to be backed by higher list prices across all the segments. However, investments in labor as well as increased logistics costs and raw material inflation will offset pricing. Higher sales and media efficiencies are anticipated to more than offset gross margin pressures to boost adjusted earnings per share growth.

Hershey expected adjusted earnings per share to increase 9-11% for the aforesaid period, while reported earnings per share growth are likely to be in the 7-10% band. For 2022, adjusted earnings per share are forecast in the range of $7.84-$7.98, higher than $7.19 and $6.29 earned in 2021 and 2020, respectively.

Stocks to Consider

Some better-ranked stocks in the Consumer Staples sector are United Natural Foods (UNFI - Free Report) , Medifast (MED - Free Report) and Coca-Cola FEMSA (KOF - Free Report) .

United Natural Foods distributes natural, organic, specialty, produce, and conventional grocery and non-food products. UNFI currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for UNFI’s current financial-year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago period’s corresponding reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 35.4%, on average.

Medifast, one of the leading health and wellness companies, currently has a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 17.3%, on average.

The Zacks Consensus Estimate for MED’s current financial-year sales and earnings suggests growth of 63% and 49.3%, respectively, from the year-ago period’s corresponding reported figures.

Coca-Cola presently carries a Zacks Rank of 2. KOF has a trailing four-quarter earnings surprise of 9.7%, on average.

The Zacks Consensus Estimate for Coca-Cola’s sales and earnings per share for the current financial year suggests growth of 8.5% and 41.3%, respectively, from the year-ago period’s corresponding reported numbers. KOF has an expected long-term earnings growth rate of 14.1%.