The Hershey Company HSY delivered third-quarter 2019 results, with the top and the bottom increasing year over year. Earnings were in line with the Zacks Consensus Estimate, while sales beat the same. The quarterly results gained from acquisitions and improved volumes. Also, management raised its sales view for 2019.
Earnings & Revenue Discussion
Adjusted earnings per share (EPS) of $1.61 were in line with the Zacks Consensus Estimate and rose 3.9% year over year. The upside can be attributed to higher sales and lower tax rate. Adjusted tax rate contracted 270 basis points (bps) to 20.1% in the quarter.
Consolidated net sales of $2,134.4 million rose 2.6% year over year and surpassed the Zacks Consensus Estimate of $2,124 million. Price realization and volumes benefited sales growth by 1.1 points and 0.5 points, respectively. Buyouts and divestitures had a net favorable impact of 1.2 points on the top line. Further, currency translations had a 0.2-point adverse impact on sales.
Hershey Company (The) Price, Consensus and EPS Surprise
Hershey Company (The) price-consensus-eps-surprise-chart | Hershey Company (The) Quote
Margins in Detail
Adjusted gross profit that amounted to $956.1 million, increased nearly 4.4% year on year. Adjusted gross margin expanded 80 bps to 44.8%, backed by favorable commodities and net price realization.
Selling, marketing and administrative costs went up 6% during the quarter. Advertising and related consumer marketing expenses rose 10.5% due to increased advertising spending in North America.
Adjusted operating profit amounted to $477 million, up 1.3% from the prior-year quarter’s figure. However, adjusted operating margin declined 30 bps to 22.3%, as gains from improved gross margin were offset by high advertising expenses in North America as well as increased incentive compensation.
North America (the United States and Canada) net sales improved 2.7% to $1,894 million. Markedly, price realization and net impact of acquisitions and divestitures boosted the unit’s sales by 1.5 points each. However, volumes and foreign currency dented the unit by nearly 0.2 point and 0.1 point, respectively. Income in the segment rose 2.6% to $570.4 million on the back of favorable gross margin.
Net sales in the International and Other segment rose 1.8% to $240.4 million. Volumes aided the unit’s sales by 5.3 points. Divestitures, net price realization and foreign currency made unfavorable impact of 0.9 point, 1.6 points and 1 point, respectively. Combined net sales for the company’s focus market that includes Mexico, Brazil, China and India increased 3.2%. Excluding currency headwinds form currency rates and divestitures, net sales from these markets were up nearly 7.4%. Segment income came in at $39.4 million in the quarter, up 26.7% year over year. This was fueled by an improved gross margin and stronger volumes.
Hershey ended the quarter with cash and cash equivalents of nearly $302.6 million, long-term debt of $2,892.2 million and total shareholders’ equity of $1,761.5 million.
In a separate press release, Hershey declared quarterly dividend payouts of 77.3 cents per share for its common stock and 70.2 cents for Class B shares. These are payable on Dec 16, 2019 to shareholders of record as on Nov 22.
Details on 2019 Guidance
Hershey raised its sales outlook for 2019. It now expects net sales to rise 2.5% compared with the prior view of a rise of 2%. Buyouts and divestitures are expected to make nearly 1-point positive impact on the top line. Currency headwinds are anticipated to be slightly negative on net sales growth.
Further, Hershey reinstated its bottom-line view. The company continues to envision adjusted EPS for 2019 in the range of $5.68–$5.74. This view indicates a rise of 6-7% from the reported figure in 2018.
Price Performance & Zacks Rank
Shares of the company have rallied 23.6% in the past six months compared with the industry’s rise of 18.4%. Currently, Hershey sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Church & Dwight CHD presently has a Zacks Rank #2 (Buy) and long-term EPS growth rate of 8%.
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McCormick & Company MKC, with long-term EPS growth rate of 8%, carries a Zacks Rank #2.
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