It has been about a month since the last earnings report for Hershey (HSY). Shares have lost about 9% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Hershey due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hershey’s Q4 Earnings Beat Estimates, Sales Up Y/Y
The Hershey Company delivered fourth-quarter 2019 results, with the top and the bottom increasing year over year. Moreover, earnings beat the Zacks Consensus Estimate. The quarterly results gained from acquisitions and improved price realization.
Earnings & Revenue Discussion
Adjusted earnings per share (EPS) of $1.28 surpassed the Zacks Consensus Estimate of $1.24 and rose 1.6% year over year. The upside can be attributed to higher sales.
Consolidated net sales of $2,068.1 million rose 4% year over year. The Zacks Consensus Estimate was $2,067 million. Price realization drove sales growth by 3.6 point. Buyouts and divestitures had a net favorable impact of 2.2 point on the top line. However, currency translations and volumes had a negative impact on sales by 0.1 and 1.7 points, respectively.
Margins in Detail
Adjusted gross profit that amounted to $898 million,rose nearly 6.4% year on year. Adjusted gross margin expanded 90 bps to 43.4%, backed by favorable commodities and net price realization.
Selling, marketing and administrative costs increased 6.4% during the quarter. Advertising and related consumer marketing expenses rose 2.1% due to increased advertising spending in North America.
Adjusted operating profit amounted to $370.5 million, up 0.4% from the prior-year quarter’s figure. However, adjusted operating margin declined 70 basis points to 17.9% as gains from improved gross margin were offset by increased incentive compensation.
Segmental Update
North America (the United States and Canada) net sales improved 3.8% year over year to $1,812.7 million. Markedly, price realization and net impact of acquisitions as well as divestitures boosted the unit’s sales by 4.0 and 2.5 point, respectively. However, volumes dented the unit by 2.7 point. Income in the segment rose 7% to $519.8 million on the back of favorable gross margin.
Net sales in the International and Other segment rose 5.8% to $255.4 million. Volumes and net price realization drove the unit’s sales by 5.7 and 0.6 point, respectively. Foreign currency made unfavorable impact of 0.5 point. Combined net sales in the company’s focus market that includes Mexico, Brazil, China and India increased nearly 5.3%. Excluding currency headwinds form currency rates and divestitures, net sales from these markets increased nearly 6%. Segment income came in at $14.1 million in the quarter, up 67.9% year over year. The upside can be attributed to improved gross margin and stronger volumes along with efficient marketing strategies.
Financials
Hershey ended the quarter with cash and cash equivalents of nearly $493.3 million, long-term debt of $3,530.8 million and total shareholders’ equity of $1,745 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 Mar 16, 2020 to shareholders of record as on Feb 21.
Details on 2020 Guidance
Hershey expects net sales to rise in the range of 2-4% for 2020. Buyouts and divestitures are expected to make nearly 1.0 point positive impact on the top line. Also, unfavorable currency fluctuations are expected to have a negative impact on sales growth.
Further, the company envisions adjusted EPS for 2020 in the range of $6.13–$6.24. This view indicates a rise of 6-8% from the reported figure in 2019.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months.
VGM Scores
At this time, Hershey has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.