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Hershey (HSY) Q4 Earnings Top Estimates, Pricing a Key Driver

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The Hershey Company (HSY - Free Report) reported robust fourth-quarter 2022 results as the top and bottom lines exceeded the Zacks Consensus Estimate and improved year over year. Results gained from improved net price realization and higher consumer demand. The company delivered strong results even amid elevated inflation, continued supply-chain hurdles and macroeconomic volatility.

Management remains optimistic about delivering earnings and sales growth in 2023. It remains committed to investing in its brand portfolio and capacity expansion. 

Quarter in Detail

Hershey posted adjusted earnings of $2.02. The metric surpassed the Zacks Consensus Estimate of $1.78 and increased 19.5% year over year.

Hershey Company (The) Price, Consensus and EPS Surprise

Hershey Company (The) Price, Consensus and EPS Surprise

Hershey Company (The) price-consensus-eps-surprise-chart | Hershey Company (The) Quote

Consolidated net sales of $2,652.3 million rose 14% from the year-ago quarter’s level and beat the Zacks Consensus Estimate of $2,580 million. Net sales included a 3.6-point benefit from the Pretzels and Dot's buyouts while including a 0.3-headwind from currency movements.

Organic sales on a constant-currency (cc) basis increased 10.7%. The upside can be attributed to an 8.5% rise in net price realization. Apart from this, improved consumer demand across segments drove volumes.

The adjusted gross margin came in at 43.7%, up 20 basis points (bps). The upside was fueled by net price realization and volume gains. However, these were partly negated by inflation in raw materials and packaging, elevated labor costs, an adverse mix and increased manufacturing costs to cater to greater-than-expected demand.

Selling, marketing and administrative expenses rose 11.5% year over year, mainly due to increased corporate expenses. Advertising and related consumer marketing expenses increased 3.3%. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, rose 15.4%.

The adjusted operating profit came in at $555.3 million, up 16.7%. The upside can be attributed to pricing, volume and operating cost leverage. The adjusted operating profit margin rose 40 bps to 20.9%.

Segment Details

The North America Confectionery segment’s net sales increased 9.7% year over year to $2,174.8 million. Organic net sales at cc rose 10.2% due to net price realization and volume gains (stemming from consumer demand).

The company’s U.S. candy, mint and gum retail takeaway for the 12-week period ended Jan 1, 2023, jumped 10.7% (in the multi-outlet combined plus convenience store channels or MULO+C). The segment’s operating income advanced 12.9% to $703.5 million.

The North America Salty Snacks segment’s net sales surged 71.4% from the year-ago quarter’s level to $272 million. The acquisitions of Dot's and Pretzels contributed 52.7 points to sales. Organic net sales at cc grew 18.7% due to volume gains from solid consumer demand and net price realization.

The company’s U.S. salty snack retail takeaway in MULO+C grew 19.2% during the 12-week period ended Jan 1, 2023. The segment’s operating income jumped a whopping 187.5% to $56.7 million.

Net sales in the International segment grew 11.1% to $205.6 million. On a cc basis, organic net sales rose 9.3%, fueled by increased volumes from solid consumer demand and net price realization. The segment witnessed an operating loss of $0.1 million.

Other Financials & Guidance

HSY ended the quarter with cash and cash equivalents of $463.9 million, long-term debt of about $3,344 million and total shareholders’ equity of $3,299.5 million. Management expects capital expenditures to the tune of $800-$900 million in 2023, aimed at core confection capacity expansion, as well as constant investments in digital infrastructure.

Management envisions net sales growth in the band of 6-8% for 2023. This is likely to be mainly fueled by net price realization, with consumer demand staying steady. Management expects sales and gross margin growth to outpace higher brand, capability and technology investments, along with escalated pension and interest costs.

Consequently, Hershey envisions a reported earnings per share (EPS) increase of 11-15% and adjusted EPS growth of 9-11%. This Zacks Rank #2 (Buy) stock has risen 11% in the past year, almost in line with the industry’s growth.

Other Solid Picks

Some other top-ranked consumer staple stocks are Conagra Brands (CAG - Free Report) , Lamb Weston (LW - Free Report) and Post Holdings (POST - Free Report) .

Conagra, a consumer-packaged goods food company, currently sports a Zacks Rank #1 (Strong Buy). CAG has a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Conagra’s current fiscal-year sales and earnings suggests growth of 6.8% and 11.9%, respectively, from the corresponding year-ago reported figures.

Lamb Weston, which is a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 52.6%, on average.

The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and EPS suggests an increase of 19.5% and 89.9%, respectively, from the year-ago reported number.

Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 9.6%, on average.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 70.8% from the year-ago reported number.

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