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Hershey (HSY) Beats on Q4 Earnings, Issues 2017 Guidance

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The Hershey Company (HSY - Free Report) beat the Zacks Consensus Estimate for earnings, while sales missed the same in fourth-quarter 2016. Earnings benefited from higher sales in North America.

The leading chocolate manufacturer also provided its expectations for 2017.
 

Earnings Beat

Hershey’s fourth-quarter adjusted earnings per share of $1.17 beat the Zacks Consensus Estimate as well as the year-ago profit level of $1.08 by 8.3%. Earnings benefited as demand strengthened in the U.S. Moreover, a lower tax rate offset the impact of relatively weaker margins.

Full-year earnings came in at $4.41 per share, up 7%.

Adjusted earnings exclude derivative mark-to-market gains, charges related to the productivity initiative, and non-service-related pension expense. Including these, reported earnings were 55 cents, down from $1.04 earned a year ago.

Revenues Miss Estimates but Up Y/Y

Net sales of $1,970.2 million missed the Zacks Consensus Estimate of $1,994.9 million. Net sales, including the impact of currency and acquisitions, however, improved 3.2% year over year. This marks the third straight rise in quarterly sales after few quarters of no growth.

Currency hurt revenues by 0.5%. Acquisitions had a 0.9% positive impact.

Organically, excluding the impact of currency and acquisitions, sales were up 3.7% as demand strengthened in the U.S.

Volume growth of 3.4% matched expectations on the back of higher shipments in North America. Net price realization adversely impacted sales by 0.6%.

Full-year net sales of $7.44 billion improved 0.7% from $7.39 billion a year ago.

Quarterly Segment Discussion

North America (U.S. and Canada) net sales rose 3.8% to $1.69 billion. While pricing deteriorated 1.3%, volumes rose 4.1%. The acquisition of the barkTHINS brand (acquired in April) resulted in a net benefit of 1%.

Fourth-quarter net sales of Hershey’s International and Other segment declined 0.5% to $280.1 million. Currency impact hurt sales by 3.2%. Excluding currency headwinds, sales were up 2.7% due to pricing gains. While pricing rose 2.8%, volumes remained on par with the year-ago level.

Constant currency sales were solid in Mexico, Brazil and India. However, sales remained under pressure in China.

Margins Detail

Hershey’s adjusted gross margin contracted 50 basis points (bps) to 44.5% due to unfavorable supply chain costs, which offset gains from supply chain productivity and cost savings.

Excluding advertising, selling, marketing and administrative expenses (SM&A) increased 4.5% as higher employee-related costs as well as higher amortization were offset by productivity and cost savings programs. SM&A includes 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 expense was higher in fourth-quarter 2016 on a year over year basis.

Operating margin contracted 70 bps to 19.2% due to higher advertising costs.

The adjusted effective tax rate was 28.2%, lower than 29.3% last year.

2017 Guidance

Net sales are expected to inch up 2–3% (including acquisition benefit of 0.5%).

The guidance, however, includes a negative impact of 0.25% from currency.

Adjusted earnings per share are expected to increase 7–9% to the range of $4.72–$4.81. Reported earnings will likely be in the $4.54–$4.65 per share range.

Hershey currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hershey Company (The) Price, Consensus and EPS Surprise

 

Hershey Company (The) Price, Consensus and EPS Surprise | Hershey Company (The) Quote

Upcoming Peer Releases

The Kraft Heinz Company KHC is scheduled to report fourth-quarter 2016 results on Feb 15.

Mondelez International, Inc. (MDLZ - Free Report) is slated to report its quarterly numbers on Feb 7.

Pinnacle Foods, Inc. (PF - Free Report) is scheduled to report its quarterly numbers on Feb 23.

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