Hershey's (HSY) Q1 Earnings Meet Estimates, Margins Down

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The Hershey Company's HSY first-quarter 2018 adjusted earnings came in line with analysts' expectation, while revenues beat the same. Growth in core chocolate brands and the acquisition of Amplify worked in favor of the company. However, cost pressures weighed on margins.

Earnings & Revenue Discussion

Adjusted earnings per share of $1.41 were in line with the Zacks Consensus Estimate. Earnings increased 8.5% from the year-ago quarter.

Net sales of $1.97 billion surpassed the Zacks Consensus Estimate of $1.94 billion. Net sales rose 4.9% year over year, courtesy of 3.4% and 0.5% benefit to net sales, from acquisitions and foreign currency translation, respectively. Organically, excluding the impact of currency, sales increased 4.4%.

Volumes were up 2.4%. Meanwhile, net price realization had an unfavorable impact of 1.4%.

Quarterly Segment Discussion

North America (the United States and Canada) net sales improved 4.4% to $1.75 billion. Currency benefited sales by 0.2%. The Amplify acquisition had a 3.8% positive impact, while volumes provided a 1.8% benefit.

First-quarter net sales in the International and Other segment grew 8.8% to $220.3 million. Currency had a positive impact on sales of 2.4% and volumes provided 8.1% benefit.

Constant-currency sales were solid (about 12%) in Mexico, Brazil and India. Net sales in China inched up 1% year over year.

Margins Detail

Adjusted gross margin declined 260 basis points (bps) to 44.9% due to unfavorable sales mix, higher freight and logistics costs as well as incremental investments in trade and packaging.

Cost of sales increased 2.8% to $997.9 million in the first quarter. Again, total advertising and related consumer marketing expenses fell 5.3% from first-quarter 2017. Adjusted operating margin contracted 150 bps to 21.7%.

Hershey Company (The) Price, Consensus and EPS Surprise

Hershey Company (The) Price, Consensus and EPS Surprise | Hershey Company (The) Quote

2018 Guidance

Net sales are now expected to move toward the lower end of the previous range of 5-7%. Adjusted gross margin is now expected to decline around 125 bps (in line with the 2017 projection).

Savings from the Margin for Growth program are estimated between $80 million and $90 million in 2018, compared with the previous range of $55-$65 million.

The company expects adjusted tax rate to be approximately 19% to 20%.

The company reaffirmed its adjusted EPS guidance at $5.33-$5.43, reflecting a 14-16% increase from 2017.

Zack Rank & Upcoming Peer Releases

Hershey carries a Zacks Rank #4 (Sell).

Kellogg Company K is slated to report first-quarter 2018 numbers on May 3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The Kraft Heinz Company KHC is set to release first-quarter 2018 results on May 2.

B&G Foods BGS is expected to report quarterly results on May 3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: HSY , BGS , K , KHC

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