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HSY Down on Q3 Earnings Miss, View Cut Amid Weak Consumer Trends
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The Hershey Company (HSY - Free Report) reported dismal third-quarter 2024 results, with the top and bottom lines declining year over year. Quarterly earnings and net sales missed the Zacks Consensus Estimate. HSY is navigating a challenging consumer environment and high cocoa prices, which continue to affect its performance. The company has revised its outlook for the year, lowering expectations for net sales growth and adjusted earnings per share (EPS). HSY’s shares were down 3.5% in the pre-market trading session on Thursday.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Hershey posted adjusted earnings of $2.34, which declined 10% year over year and missed the Zacks Consensus Estimate of $2.50.
Consolidated net sales of $2,987.5 million fell 1.4% from the year-ago quarter’s tally, missing the Zacks Consensus Estimate of $3,073.1 million. On a constant-currency (cc) basis, organic sales inched down 1%, with a net price increase of nearly 2 points being offset by lower volume across segments. The sales decline was also influenced by the lapping of planned inventory increases in the North America Salty Snacks unit.
Hershey Company (The) Price, Consensus and EPS Surprise
Hershey’s adjusted gross margin was 40.3%, which contracted 460 basis points (bps). This decline was driven by increased commodity costs, unfavorable timing of input costs, fixed cost deleverage and a negative mix, which offset gains from price realization and productivity improvements. We had expected an adjusted gross margin contraction of 230 bps to 42.6% in the third quarter.
In the third quarter of 2024, selling, marketing and administrative (SM&A) expenses were decreased by 5.2%. This decline was caused by lower advertising and consumer marketing expenses, reduced compensation and benefit costs and fewer investments in capability and technology.
Advertising and related consumer marketing expenses decreased 0.6% year over year, with cost efficiencies in North America Confectionery partially offset by increases in North America Salty Snacks and International segments.
Excluding advertising and consumer marketing expenses, SM&A expenses dropped 7.5% due to lower compensation, benefit costs and fewer investments in capabilities and technology.
The adjusted operating profit of $654 million fell 13.2% year over year while the same contracted 300 bps to 21.9%. The downside was caused by increased commodity costs, unfavorable timing of input costs, fixed cost deleverage and negative product mix. These factors offset gains from price realization, productivity improvements, cost-saving initiatives and lower compensation and benefit expenses.
HSY Provides Q3 Insights by Segment
Hershey's North America Confectionery segment reported net sales of $2,477.3 million, marking a 0.8% increase. Organic, cc net sales grew by 0.9%, driven by nearly 2 points of price realization and around 1 point of inventory timing benefits, which offset volume declines driven by lower consumption. The increase in organic net sales outpaced retail takeaway due to the timing of seasonal shipments compared with sell-through, as well as the timing of shipments for retailer inventory replenishment.
For the 12 weeks ending Sept. 29, 2024, Hershey’s U.S. candy, mint and gum (CMG) retail takeaway in the multi-outlet plus convenience store channels fell 2.6%. The company’s CMG market share contracted by 97 bps. Hershey's North America Confectionery segment income was $724.8 million, reflecting a 14.5% decrease. As a result, the segment margin for the quarter was 29.3%, a contraction of 520 bps.
The North America Salty Snacks segment’s net sales of $291.8 million declined 15.5%. Volume decreased by nearly 17 points, with about 13 points of the decline associated with lapping planned inventory increases. In addition, execution-related shipment delays and retailer inventory reductions also contributed to the downside.
Excluding the impact of inventory and timing factors, the base business increased by low single digits, driven by nearly 2 percentage points of price realization. Hershey’s U.S. salty snack retail takeaway in the multi-outlet plus convenience store channels increased by 2.8% for the 12 weeks ending Sept. 29, 2024.
The North America Salty Snacks segment income was $54 million, reflecting a 5.9% drop. Despite the decline in income, the segment margin improved to 18.5%, an increase of 190 bps year over year.
Hershey's International segment posted net sales of $218.4 million, a 3.9% decline. Organic, cc net sales increased by 0.2%, on the back of nearly 1 point of price realization. However, volume declined by approximately 1%, due to higher competitive pressures in Brazil and ongoing market challenges in Mexico. This was partially offset by growth in Europe and Latin America.
The International segment reported a profit of $14.2 million, a decrease of $17.5 million. This decline was driven by lower sales, higher commodity costs and an unfavorable product mix. As a result, the segment's profit margin decreased to 6.5%, down 740 bps.
Image Source: Zacks Investment Research
HSY’s Financial Health Snapshot
HSY ended the quarter with cash and cash equivalents of almost $615 million, long-term debt of $3,189.1 million and a total shareholders’ equity of $4,205 million. Management expects capital expenditure of $575-$600 million for 2024 aimed at core confection capacity expansion and constant investments in digital infrastructure.
What to Expect From HSY in 2024?
Management now expects net sales to be flat year over year compared with the previous range of approximately 2% growth.
The company expects adjusted EPS to decline mid-single digits to a range of $9.00-$9.10 compared with the earlier forecast of a slight decline. The company reported adjusted EPS of $9.59 in 2023.
Management anticipates a reported and adjusted effective tax rate of nearly 11% and interest expenses of around $170 million. Additionally, it expects other expenses of $260-$270 million.
This Zacks Rank #3 (Hold) stock has dropped 11.5% in the past three months compared with the industry’s decline of 7.9%.
Top-Ranked Stocks
We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Freshpet (FRPT - Free Report) , Vital Farms (VITL - Free Report) and McCormick & Company, Incorporated (MKC - Free Report) .
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.1% and 217.1%, respectively, from the year-ago period’s reported figure.
Vital Farms, which offers a range of ethically produced food, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 82.5%, on average.
The Zacks Consensus Estimate for Vital Farms’ current fiscal year’s sales and earnings suggests growth of 27% and 88.1%, respectively, from the year-ago reported numbers.
McCormick manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry, currently carrying a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the year-ago reported numbers.
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HSY Down on Q3 Earnings Miss, View Cut Amid Weak Consumer Trends
The Hershey Company (HSY - Free Report) reported dismal third-quarter 2024 results, with the top and bottom lines declining year over year. Quarterly earnings and net sales missed the Zacks Consensus Estimate. HSY is navigating a challenging consumer environment and high cocoa prices, which continue to affect its performance. The company has revised its outlook for the year, lowering expectations for net sales growth and adjusted earnings per share (EPS). HSY’s shares were down 3.5% in the pre-market trading session on Thursday.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Hershey posted adjusted earnings of $2.34, which declined 10% year over year and missed the Zacks Consensus Estimate of $2.50.
Consolidated net sales of $2,987.5 million fell 1.4% from the year-ago quarter’s tally, missing the Zacks Consensus Estimate of $3,073.1 million. On a constant-currency (cc) basis, organic sales inched down 1%, with a net price increase of nearly 2 points being offset by lower volume across segments. The sales decline was also influenced by the lapping of planned inventory increases in the North America Salty Snacks unit.
Hershey Company (The) Price, Consensus and EPS Surprise
Hershey Company (The) price-consensus-eps-surprise-chart | Hershey Company (The) Quote
A Closer Look at HSY’s Q3 Results
Hershey’s adjusted gross margin was 40.3%, which contracted 460 basis points (bps). This decline was driven by increased commodity costs, unfavorable timing of input costs, fixed cost deleverage and a negative mix, which offset gains from price realization and productivity improvements. We had expected an adjusted gross margin contraction of 230 bps to 42.6% in the third quarter.
In the third quarter of 2024, selling, marketing and administrative (SM&A) expenses were decreased by 5.2%. This decline was caused by lower advertising and consumer marketing expenses, reduced compensation and benefit costs and fewer investments in capability and technology.
Advertising and related consumer marketing expenses decreased 0.6% year over year, with cost efficiencies in North America Confectionery partially offset by increases in North America Salty Snacks and International segments.
Excluding advertising and consumer marketing expenses, SM&A expenses dropped 7.5% due to lower compensation, benefit costs and fewer investments in capabilities and technology.
The adjusted operating profit of $654 million fell 13.2% year over year while the same contracted 300 bps to 21.9%. The downside was caused by increased commodity costs, unfavorable timing of input costs, fixed cost deleverage and negative product mix. These factors offset gains from price realization, productivity improvements, cost-saving initiatives and lower compensation and benefit expenses.
HSY Provides Q3 Insights by Segment
Hershey's North America Confectionery segment reported net sales of $2,477.3 million, marking a 0.8% increase. Organic, cc net sales grew by 0.9%, driven by nearly 2 points of price realization and around 1 point of inventory timing benefits, which offset volume declines driven by lower consumption. The increase in organic net sales outpaced retail takeaway due to the timing of seasonal shipments compared with sell-through, as well as the timing of shipments for retailer inventory replenishment.
For the 12 weeks ending Sept. 29, 2024, Hershey’s U.S. candy, mint and gum (CMG) retail takeaway in the multi-outlet plus convenience store channels fell 2.6%. The company’s CMG market share contracted by 97 bps. Hershey's North America Confectionery segment income was $724.8 million, reflecting a 14.5% decrease. As a result, the segment margin for the quarter was 29.3%, a contraction of 520 bps.
The North America Salty Snacks segment’s net sales of $291.8 million declined 15.5%. Volume decreased by nearly 17 points, with about 13 points of the decline associated with lapping planned inventory increases. In addition, execution-related shipment delays and retailer inventory reductions also contributed to the downside.
Excluding the impact of inventory and timing factors, the base business increased by low single digits, driven by nearly 2 percentage points of price realization. Hershey’s U.S. salty snack retail takeaway in the multi-outlet plus convenience store channels increased by 2.8% for the 12 weeks ending Sept. 29, 2024.
The North America Salty Snacks segment income was $54 million, reflecting a 5.9% drop. Despite the decline in income, the segment margin improved to 18.5%, an increase of 190 bps year over year.
Hershey's International segment posted net sales of $218.4 million, a 3.9% decline. Organic, cc net sales increased by 0.2%, on the back of nearly 1 point of price realization. However, volume declined by approximately 1%, due to higher competitive pressures in Brazil and ongoing market challenges in Mexico. This was partially offset by growth in Europe and Latin America.
The International segment reported a profit of $14.2 million, a decrease of $17.5 million. This decline was driven by lower sales, higher commodity costs and an unfavorable product mix. As a result, the segment's profit margin decreased to 6.5%, down 740 bps.
Image Source: Zacks Investment Research
HSY’s Financial Health Snapshot
HSY ended the quarter with cash and cash equivalents of almost $615 million, long-term debt of $3,189.1 million and a total shareholders’ equity of $4,205 million. Management expects capital expenditure of $575-$600 million for 2024 aimed at core confection capacity expansion and constant investments in digital infrastructure.
What to Expect From HSY in 2024?
Management now expects net sales to be flat year over year compared with the previous range of approximately 2% growth.
The company expects adjusted EPS to decline mid-single digits to a range of $9.00-$9.10 compared with the earlier forecast of a slight decline. The company reported adjusted EPS of $9.59 in 2023.
Management anticipates a reported and adjusted effective tax rate of nearly 11% and interest expenses of around $170 million. Additionally, it expects other expenses of $260-$270 million.
This Zacks Rank #3 (Hold) stock has dropped 11.5% in the past three months compared with the industry’s decline of 7.9%.
Top-Ranked Stocks
We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Freshpet (FRPT - Free Report) , Vital Farms (VITL - Free Report) and McCormick & Company, Incorporated (MKC - Free Report) .
Freshpet, a pet food company, presently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.1% and 217.1%, respectively, from the year-ago period’s reported figure.
Vital Farms, which offers a range of ethically produced food, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 82.5%, on average.
The Zacks Consensus Estimate for Vital Farms’ current fiscal year’s sales and earnings suggests growth of 27% and 88.1%, respectively, from the year-ago reported numbers.
McCormick manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry, currently carrying a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the year-ago reported numbers.