Renowned chocolate maker,
The Hershey Company's
) second-quarter 2013 adjusted earnings of 72 cents per share
beat the Zacks Consensus Estimate of 71 cents by a penny.
Earnings also rose 9.1% from the prior-year quarter driven by
better-than-expected top-line growth and solid margins in the
The adjusted earnings mainly exclude acquisition/integration
costs, pension costs and expenses related to Hershey's supply
chain and cost savings program - Project Next Century.
Hershey raised its 2013 earnings guidance for the second time
this year as it expects to gain from core brand volume growth,
innovation, international expansion, lower input costs and better
fixed cost leverage. The revenue and gross margin expectations
were also upped and the company increased its dividend.
Revenues and Volume Growth
Hershey's second-quarter net sales of $1.51 billion rose 6.7%
from the prior-year quarter, higher than management's
expectations, due to sales volume gains. The company's quarterly
sales were in line with the Zacks Consensus Estimate.
Volume added 6.6 percentage points (pp)to revenue growth
(better than the 5.3 pp in the first quarter) driven by strong
volume trends and market share gains of core brands like
Hershey's, Reese's, Kit Kat and Ice Breakers. The improving
volume trends of core brands in the U.S. were driven by increased
advertising investments, consumer promotions and innovation.
New products in both U.S. and overseas markets boosted
top-line growth. Brookside brand products, launched last quarter,
added 1.0 pp to the volume growth. Hershey acquired Brookside
Foods, a Canadian confectionary company, in January last year.
Currency benefited revenues by 0.1 pp, better than a negative
impact last quarter.
Hershey's has been consistently gaining market share in all
major channels of the U.S. CMG (chocolate, mint and gum)
category. For the 24 weeks ended Jun, 2013, Hershey's market
share in these channels grew 1.4 share points year over year
driven by core brand growth. These channels include food, drug,
mass merchandisers including
Wal-Mart Stores, Inc
), and convenience stores.
Margins Go Up
Hershey's adjusted gross margin for the quarter expanded 290
basis points (bps) to 47.7%, driven by lower input costs,
productivity gains, improved efficiencies from supply chain
initiatives, favorable mix and better fixed cost leverage.
Excluding advertising, selling, marketing and administrative,
expenses (SM&A) increased 12% in the second quarter of 2013.
The SM&A increase was in line with management's expectations
of being higher than the first quarter's growth rate of 9%.
Advertising spend increased 22% over the prior-year quarter to
support core brands as well as new products in both the U.S. and
internationally. Despite higher S&M and advertising costs;
operating margin improved 80 bps in the quarter to 18.3% mainly
due to solid gross margin expansion.
The company continuously invests in advertising and marketing
capabilities to build its brands globally. The company's brand
investments give it a competitive advantage and are one of the
principal reasons behind the company witnessing better volume
elasticity versus its peers.
2013 Outlook Upped
Hershey now expects 2013 net sales to increase about 7%
(including foreign exchange impact) better than prior expectation
of it being within the long-term target range of 5% - 7%.
Hershey expects to achieve its sales targets on the back of
volume growth of core brands in the U.S. and the expansion of
five core brands in international markets driven by increased
investments in advertising and go-to-market capabilities.
Increased innovation such as Kit Kat Minis, Twizzlers Bites and
Jolly Ranchers Bites in the U.S. and Hershey's solid chocolate
products in China and the Hershey's Mais wafer product in Brazil;
and Brookside distribution gains and repeat purchases are also
expected to lend a hand.
Gross margins are expected to expand in 2013 by 220 bps to 230
bps up from prior expectations of 190 bps to 210 bps, driven by
input cost deflation and greater fixed cost leverage.
Hershey expects SM&A (excluding advertising) to increase
at a rate greater than net sales in 2013. Advertising expenses
(as a percentage of revenue) are expected to increase 20% in
The company upped its adjusted earnings guidance to a range of
$3.68 - $3.71 per share from the prior expectation of $3.61 -
$3.65 following encouraging performance in the first half of the
year. The adjusted earnings guidance represents growth of about
14% year over year, higher than the prior expectation of a 12%
Hershey's board of directors announced quarterly dividend
increases of 15.5% and 14.5% on its Common Stock and Class B
Common Stock, respectively. The new quarterly dividends of 48.5
cents and 43.5 cents will be payable in September.
Other Stocks to Consider
Hershey carries a Zacks Rank #3 (Hold).Hershey's strong brand
positioning, strategic marketing investments in core brands,
disciplined innovation and consumer capabilities make it
Other stocks in the food industry that are currently
performing well include
The J. M. Smucker Company
B&G Foods Inc.
). While BGS carries a Zacks Rank #1 (Strong Buy), SJM carries a
Zacks Rank #2 (Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis
HERSHEY CO/THE (HSY): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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