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.
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.
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.
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.
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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