The Hershey Company’s (NYSE:HSY) earnings and revenues beat the Zacks Consensus Estimate in third-quarter 2017. Growth in its core brands, successful innovation and progress in multi-year productivity, and cost-saving initiatives helped the company post better numbers.
Earnings & Revenue Discussion
Hershey’s third-quarter adjusted earnings per share of $1.33 beat the Zacks Consensus Estimate of $1.28 by 3.9%. Earnings also increased from the year-ago profit level of $1.29 by 3.1%.
Net sales of $2.03 billion surpassed the Zacks Consensus Estimate of $2 billion. Net sales also improved 1.5% year over year owing to strong demand for Kisses, Kit Kat and Chocolate Dipped Pretzels. This marks the sixth straight quarter of sales rise after a few quarters of no growth.
Organically, excluding the impact of currency, sales increased 1.1% as demand strengthened in the United States.
Volume grew 0.7% while net price realization had a 0.4% benefit. Currency favorably impacted revenues by 0.4%.
Quarterly Segment Discussion
North America (U.S. and Canada) net sales increased 1.6% to $1.79 billion and currency benefited sales by 0.3%. Pricing benefited 0.3%, while volumes increased 1.6%.
Third-quarter net sales at the International and Other segment grew 0.8% to $240.7 million. Currency had a positive impact on sales by 1.3%. Excluding currency, sales declined 0.5% due to pricing gains. While volumes posed a 5.2% headwind, pricing benefited 4.7% to sales.
Constant currency sales were solid (about 8%) in Mexico, Brazil and India. Net sales in China remained on par with the year-ago level.
Margins Detail
Hershey’s adjusted gross margin declined 30 basis points (bps) to 45.3% due to higher freight rates as well as manufacturing and distribution costs. Again, unfavorable sales mix also had a negative impact on gross margins.
Cost of sales dropped 5.2% to $1.1 billion in the third quarter. Again, total advertising and related consumer marketing expenses increased 3.7% from the third-quarter 2016 level.
Adjusted operating margin contracted 30 bps to 22%.
The adjusted effective tax rate was 30.4%, lower than 30.7% in the prior-year quarter.
Hershey also approved a new $100 million stock repurchase authorization.
2017 Guidance
Net sales are expected to be about 1.25%. Adjusted gross margin will likely increase about 25 bps compared with the prior expectation of about 50 bps.
The company now expects foreign currency to have a neutral effect on sales. Previously, it was expected to be around 0.25%.
The company reaffirmed its adjusted EPS guidance range of $4.72-$4.81, reflecting a 7-9% increase from last year.
Zack Rank & Upcoming Peer Releases
Hershey currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Mondelez International, Inc. (NASDAQ:MDLZ) is slated to report third-quarter numbers on Oct 30.
B&G Foods Inc. (NYSE:BGS) is scheduled to report quarterly results on Oct 31.
The Kraft Heinz Company (NASDAQ:KHC) is set to report third-quarter results on Nov 1.
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Hershey Company (The) (HSY): Free Stock Analysis Report
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The Kraft Heinz Company (KHC): Free Stock Analysis Report
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