Hershey’s profit sweetened by snack sales

27 Oct 2017 --- The Hershey Company has reported its sales and earnings for the third quarter which beat analysts expectations as the chocolate giant benefited from reduced cocoa prices and cost savings initiatives. 

Hershey’s had consolidated net sales of US$2,033.1 million compared with $2,003.5 million for the third quarter of 2016, while net income for the third quarter of 2017 was US$273.3 million or US$1.28 per share-diluted, compared with US$227.4 million or $1.06 per share-diluted for the comparable period of 2016.

Sales in North America account for the majority of its revenue and increased 1.6 percent to US$1.79 billion in the quarter ended Oct 1, 2017. Hershey's net income went up 20 percent to US$273.3 million or US$1.28 per share in the quarter.

Other factors include cost-cutting exercises such as staff layoffs, while cocoa prices have fallen by around 30 percent since last summer and are expected to continue declining. 

“Snacking continues to outpace the market in a rapidly changing environment,” said Michele Buck, President and Chief Executive Officer, The Hershey Company. “We're executing against the right strategies and investing in the brands and channels that will continue to drive our business forward.”

“Hershey's solid third-quarter results were in-line with our expectations and we are on track to deliver on the goals we established earlier this year, including, core brand growth, the launch of successful innovation and progress against our multi-year productivity and cost savings initiatives.”

Buck adds how Hershey’s investments in its “power chocolate brands” is paying off as popular Reese's, Hershey's, Kit Kat and Kisses are all resonating with customers as well as the successful launch of Hershey's and Reese's Popped Snack Mix and Chocolate Dipped Pretzels.

“While early, our new warehouse-based snacks initiative is off to a good start with Hershey's and Reese's Popped Snack Mix and Chocolate Dipped Pretzels progressing as planned. Halloween seasonal sales are tracking as expected with solid programming, merchandising and promotions being executed in the marketplace.”

The Hershey Company's board of directors approved a new US$100 million stock repurchase authorization. Hershey's solid balance sheet and strong cash flow generation give the company continued flexibility against its cash priorities, including, returning cash to shareholders in the form of buybacks and dividends while also being able to participate in opportunistic merger and acquisition activity.

In 2017, the company expects reported earnings per share-diluted of US$3.54 to US$3.68, including items impacting the comparability of approximately US$1.13 to US$1.18 per share-diluted. 

This projection, prepared in accordance with GAAP, assumes business realignment costs of US$0.16 to US$0.21 per share-diluted, including Margin for Growth Program costs of US$0.11 to US$0.16 per share-diluted, long-lived asset impairment charges of US$0.87 per share-diluted relating to the Margin for Growth Program, and non-service related pension expense (NSRPE) of about US$0.10 per share-diluted. 

The total per share-diluted impact relating to the Margin for Growth Program is currently estimated to be US$0.98 to US$1.03.

Outlook
The company says it continues to execute the priorities outlined earlier in the year and its seasonal business and programs are on track, while it is also planning the fourth quarter launch of Hershey's Gold, a caramelized crème with peanuts and pretzels.

The company reaffirms its full-year constant currency net sales growth of around 1.25 percent and expects foreign currency exchange rates to be about neutral, versus a prior estimate of 0.25 points unfavorable.

“For the full year, we expect adjusted gross margin to increase about 25 basis points versus our previous outlook of about a 50 basis point increase. Productivity and cost savings initiatives, as well as lower input costs, are expected to be partially offset by the aforementioned higher freight, new packaging and customer service costs,” says the company. 

“Our brands typically respond positively to marketplace investments and there is no change to our full-year North America advertising and related consumer marketing outlook. International and Other segment advertising and related consumer marketing expense is estimated to be lower in 2017 versus 2016, resulting in total company spend that should be about the same as last year.”

“In 2017, the company continues to anticipate its effective tax rate to be in the 26.5 percent to 27.0 percent range. As discussed earlier this year, the reduction in the 2017 tax rate versus 2016 is primarily driven by favorable foreign rate differential and investment tax credits, as well as the adoption of Accounting Standards update 2016-09 for the accounting of employee share-based payments. As a result, the company continues to expect the full year increase in adjusted earnings per share-diluted to be around the high end of its outlook of US$4.72 to US$4.81, or a 7 percent to 9 percent increase versus last year.”