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Hershey (HSY) Q3 Earnings Miss by a Penny, Buyouts Aid Sales
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The Hershey Company (HSY - Free Report) released third-quarter 2018 results, wherein both top and bottom lines increased year over year. Results gained from acquisitions and improved volumes. However, earnings fell short of estimates and cost pressures continued to weigh on gross margin.
This could be the reason behind a 4.7% drop in the company’s shares, during the pre-market trading session. Nevertheless, solid growth efforts have helped this Zacks Rank #3 (Hold) stock rally 17.3% in the past six months, outpacing the industry’s growth of 13.8%.
Earnings & Revenues Discussion
Adjusted earnings per share of $1.55 came a penny below the Zacks Consensus Estimate. Nonetheless, the bottom line surged 20.2% from the year-ago quarter. This can be attributed to higher sales and lower tax rate. Effective tax rate (on an adjusted basis) declined 22.8% in the quarter, thanks to U.S. tax reforms.
Hershey Company (The) Price, Consensus and EPS Surprise
Consolidated net sales of $2,079.6 million rose 2.3% year over year. The top line also came ahead of the Zacks Consensus Estimate of $2,075 million. Net impact from buyouts and divestitures, and volumes benefited sales growth by 2.5 points and 1.7 points, respectively. On the other hand, net price realization and currency translations had 1.2 points and 0.7 point adverse impacts on sales growth.
Margins Detail
Adjusted gross margin declined 130 basis points (bps) to 44%, due to escalated freight and logistics expenses, and greater trade and packaging investments.
Total advertising and related consumer marketing expenses fell 16.5%. Excluding this, selling, marketing and administrative costs rose 1.5% in the quarter. Decline in general administrative expenses was countered by additional selling, marketing and administrative costs of Amplify and investment in the enterprise resource planning (ERP) system. Adjusted operating margin expanded 60 bps to 22.6%.
Segment Discussion
North America (the United States and Canada) net sales rose 2.9% to $1,843.5 million, driven by volume gains and acquisitions. However, net price realization and currency movements played spoilsports. Hershey is committed toward investing in key brands along with enhancing capacities in the dynamic landscape. The company is also making efforts to keep pace with the evolving consumer trends. Management stated that third-quarter performance improved from the same in the first half of the year. Further, Hershey expects constant innovations and solid holiday opportunities to be significant contributors to its fourth-quarter show.
Net sales in the International and Other segment dipped 1.9% to $236.1 million, owing to divestitures and currency headwinds. This was somewhat compensated by improved net price realization and volumes. On a currency-neutral basis, net sales grew 10% from Mexico, Brazil and India, on a combined basis. Also, the company is moving ahead of schedule with its business transformation in China.
Financials
Hershey ended the quarter with cash and cash equivalents of $823.8 million, long-term debt of $3,253.9 million and total shareholders’ equity of $1,249.3 million.
In a separate press release, Hershey declared quarterly dividends of 72.2 cents per share for Class A shares and 65.6 cents per share for Class B shares. This is payable on Dec 14, 2018 to shareholders of record as on Nov 21.
2018 Guidance
Management is encouraged about the sequential improvements in its U.S. core confection retail takeaway and share trends, courtesy of solid Halloween performance and higher distributions of core products. Also, the company acquired Pirate Brands, which represents its second high-growth and high-margin buyout that is aimed at augmenting snacking business. Hershey’s International business is also delivering profits, thanks to enhanced volumes and lower costs stemming from Margin for Growth initiatives.
Well, Hershey is on track with its strategic priorities and confident about achieving its financial goals for 2018. All said, Hershey still expects net sales to rise toward the low end of the 3.5-5.5% band. Net impact from buyouts and divestitures is expected to be 3.5%.
Organic sales are now anticipated to grow slightly year over year. Currency is likely to have a negligible impact on the company, though it is expected to remain a headwind in the fourth quarter.
Finally, Hershey reaffirmed its adjusted EPS guidance for 2018 at $5.33-$5.43, reflecting a 14-16% increase from 2017. The Zacks Consensus Estimate is pegged at $5.36.
McCormick & Company, Incorporated (MKC - Free Report) , has long-term earnings per share growth rate of 9% and a Zacks Rank #2 (Buy).
Sysco Corporation (SYY - Free Report) , with a Zacks Rank #2, has long-term earnings per share growth rate of 10.6%.
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Hershey (HSY) Q3 Earnings Miss by a Penny, Buyouts Aid Sales
The Hershey Company (HSY - Free Report) released third-quarter 2018 results, wherein both top and bottom lines increased year over year. Results gained from acquisitions and improved volumes. However, earnings fell short of estimates and cost pressures continued to weigh on gross margin.
This could be the reason behind a 4.7% drop in the company’s shares, during the pre-market trading session. Nevertheless, solid growth efforts have helped this Zacks Rank #3 (Hold) stock rally 17.3% in the past six months, outpacing the industry’s growth of 13.8%.
Earnings & Revenues Discussion
Adjusted earnings per share of $1.55 came a penny below the Zacks Consensus Estimate. Nonetheless, the bottom line surged 20.2% from the year-ago quarter. This can be attributed to higher sales and lower tax rate. Effective tax rate (on an adjusted basis) declined 22.8% in the quarter, thanks to U.S. tax reforms.
Hershey Company (The) Price, Consensus and EPS Surprise
Hershey Company (The) Price, Consensus and EPS Surprise | Hershey Company (The) Quote
Consolidated net sales of $2,079.6 million rose 2.3% year over year. The top line also came ahead of the Zacks Consensus Estimate of $2,075 million. Net impact from buyouts and divestitures, and volumes benefited sales growth by 2.5 points and 1.7 points, respectively. On the other hand, net price realization and currency translations had 1.2 points and 0.7 point adverse impacts on sales growth.
Margins Detail
Adjusted gross margin declined 130 basis points (bps) to 44%, due to escalated freight and logistics expenses, and greater trade and packaging investments.
Total advertising and related consumer marketing expenses fell 16.5%. Excluding this, selling, marketing and administrative costs rose 1.5% in the quarter. Decline in general administrative expenses was countered by additional selling, marketing and administrative costs of Amplify and investment in the enterprise resource planning (ERP) system. Adjusted operating margin expanded 60 bps to 22.6%.
Segment Discussion
North America (the United States and Canada) net sales rose 2.9% to $1,843.5 million, driven by volume gains and acquisitions. However, net price realization and currency movements played spoilsports. Hershey is committed toward investing in key brands along with enhancing capacities in the dynamic landscape. The company is also making efforts to keep pace with the evolving consumer trends. Management stated that third-quarter performance improved from the same in the first half of the year. Further, Hershey expects constant innovations and solid holiday opportunities to be significant contributors to its fourth-quarter show.
Net sales in the International and Other segment dipped 1.9% to $236.1 million, owing to divestitures and currency headwinds. This was somewhat compensated by improved net price realization and volumes. On a currency-neutral basis, net sales grew 10% from Mexico, Brazil and India, on a combined basis. Also, the company is moving ahead of schedule with its business transformation in China.
Financials
Hershey ended the quarter with cash and cash equivalents of $823.8 million, long-term debt of $3,253.9 million and total shareholders’ equity of $1,249.3 million.
In a separate press release, Hershey declared quarterly dividends of 72.2 cents per share for Class A shares and 65.6 cents per share for Class B shares. This is payable on Dec 14, 2018 to shareholders of record as on Nov 21.
2018 Guidance
Management is encouraged about the sequential improvements in its U.S. core confection retail takeaway and share trends, courtesy of solid Halloween performance and higher distributions of core products. Also, the company acquired Pirate Brands, which represents its second high-growth and high-margin buyout that is aimed at augmenting snacking business. Hershey’s International business is also delivering profits, thanks to enhanced volumes and lower costs stemming from Margin for Growth initiatives.
Well, Hershey is on track with its strategic priorities and confident about achieving its financial goals for 2018. All said, Hershey still expects net sales to rise toward the low end of the 3.5-5.5% band. Net impact from buyouts and divestitures is expected to be 3.5%.
Organic sales are now anticipated to grow slightly year over year. Currency is likely to have a negligible impact on the company, though it is expected to remain a headwind in the fourth quarter.
Finally, Hershey reaffirmed its adjusted EPS guidance for 2018 at $5.33-$5.43, reflecting a 14-16% increase from 2017. The Zacks Consensus Estimate is pegged at $5.36.
Check Out These Solid Food Stocks
Chefs’ Warehouse (CHEF - Free Report) , with long-term earnings per share growth rate of 19%, carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
McCormick & Company, Incorporated (MKC - Free Report) , has long-term earnings per share growth rate of 9% and a Zacks Rank #2 (Buy).
Sysco Corporation (SYY - Free Report) , with a Zacks Rank #2, has long-term earnings per share growth rate of 10.6%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>