It has been about a month since the last earnings report for The Hershey Company (HSY - Free Report) . Shares have lost about 1.7% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is HSY due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First-Quarter 2018 Results
Hershey’s first-quarter 2018 adjusted earnings came in line with analysts’ expectation, while revenues beat the same. Growth in core chocolate brands and the acquisition of Amplify worked in favor of the company. However, cost pressures weighed on margins.
Earnings & Revenue Discussion
Adjusted earnings per share of $1.41 were in line with the Zacks Consensus Estimate. Earnings increased 8.5% from the year-ago quarter.
Net sales of $1.97 billion surpassed the Zacks Consensus Estimate of $1.94 billion. Net sales rose 4.9% year over year, courtesy of 3.4% and 0.5% benefit to net sales from acquisitions and foreign currency translation, respectively. Organically, excluding the impact of currency, sales increased 4.4%.
Volumes were up 2.4%. Meanwhile, net price realization had an unfavorable impact of 1.4%.
Quarterly Segment Discussion
North America (the United States and Canada) net sales improved 4.4% to $1.75 billion. Currency benefited sales by 0.2%. The Amplify acquisition had a 3.8% positive impact, while volumes provided a 1.8% benefit.
First-quarter net sales in the International and Other segment grew 8.8% to $220.3 million. Currency had a positive impact on sales of 2.4% and volumes provided 8.1% benefit.
Constant-currency sales were solid (about 12%) in Mexico, Brazil and India. Net sales in China inched up 1% year over year.
Adjusted gross margin declined 260 bps to 44.9% due to unfavorable sales mix, higher freight and logistics costs as well as incremental investments in trade and packaging.
Cost of sales increased 2.8% to $997.9 million in the first quarter. Again, total advertising and related consumer marketing expenses fell 5.3% from first-quarter 2017. Adjusted operating margin contracted 150 bps to 21.7%.
Net sales are now expected to move toward the lower end of the previous range of 5-7%. Adjusted gross margin is now expected to decline around 125 bps (in line with the 2017 projection).
Savings from the Margin for Growth program are estimated between $80 million and $90 million in 2018, compared with the previous range of $55-$65 million.
The company expects adjusted tax rate to be approximately 19% to 20%.
The company reaffirmed its adjusted EPS guidance at $5.33-$5.43, reflecting a 14-16% increase from 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to four lower.
At this time, HSY has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, HSY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.