It has been about a month since the last earnings report for The Hershey Company (NYSE:HSY) . Shares have added about 4.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Third Quarter 2017 Results
Hershey’s 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 drove the outperformance.
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 improved from the year-ago 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 marked 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 (United States and Canada) net sales increased 1.6% to $1.79 billion and currency drove sales by 0.3%. Pricing made a 0.3% positive impact, while volumes contributed 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 of 1.3%. Excluding currency, sales declined 0.5% due to pricing gains. While volumes posed a 5.2% headwind, pricing benefited sales by 4.7%.
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 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’s also approved a new $100-million stock repurchase authorization.
2017 Guidance
Net sales are expected to increase around 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 at around 0.25%.
The company reaffirmed its adjusted EPS guidance at the range of $4.72-$4.81, reflecting a 7-9% increase from last year.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
VGM Scores
Currently, Hershey's stock has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
Hershey Company (The) (HSY): Free Stock Analysis Report
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