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Can Hershey Revive Its Performance in Full-Year 2015?

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Second-quarter results

The Hershey Company (HSY) announced its sales and earnings for the second quarter, which ended July 5, on August 11. Its consolidated net sales totaled $1,578.8 million compared with $1,578.3 million for the second quarter of 2014—a slight increase. Its reported net loss for the second quarter of 2015 was $99.9 million or $0.47 per diluted share, versus net income of $168.2 million or $0.75 per diluted share for the comparable period of 2014. Hershey’s earnings increased 2.6% year-over-year as slightly better margins offset expected weak top-line performance.

International and other net sales, excluding the benefit of the SGM acquisition and unfavorable foreign currency exchange rates, declined versus a year ago, due primarily to the underperformance of Hershey’s chocolate business in China.

 

 

The chart above shows the company’s reported diluted earnings per share since 2010 with the projected earnings per share for 2015.

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Hershey’s adjusted gross margin was 46.7% in the second quarter of 2015 compared to 45.4% in the second quarter of 2014. The 130-basis-point increase was driven by net price realization, supply chain productivity, and costs savings initiatives—partially offset by international trade allowances and inventory obsolescence, primarily in China.

Outlook for 2015

As per the company’s press release, “Full-year net sales expected to increase 1.5% to 2.5%, including a net benefit from acquisitions and divestitures of about 1 point and unfavorable foreign currency exchange rates of approximately 1.5 points.” The company expects adjusted diluted earnings per share in the $4.10-to-$4.18 range. This would mark an increase of 3% to 5% on a percentage basis versus 2014, including dilution from acquisitions and divestitures of around $0.20 per share.

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John P. Bilbrey, Hershey’s chairman, president, and CEO, expressed optimism about the results for the remainder of 2015, citing strong growth driven by the company’s core brand and new product initiatives in both North American and international markets. The continued rollout of new products like Kit Kat White Minis, Hershey’s Caramels, and Ice Breakers Cool Blasts Chews—as well as solid Halloween and holiday orders—is expected to provide good visibility into the company’s net sales outlook, particularly in North America.

Bilbrey stated, “I’m pleased that the Board approved the dividend increase. The company continues to generate steady free cash flow and has a strong balance sheet. This dividend increase reflects our confidence in the Hershey’s marketplace position and long-term growth potential.”

Hershey’s major competitors also include Danone SA (DANOY) and The J. M. Smucker Company (SJM), which reported positive year-to-date returns of 6.78% and 9.44%, respectively. Hershey recorded -11.66%. The SPDR S&P 500 ETF (SPY) invests 0.06% of its portfolio in SJM, and the Consumer Staples Select Sector SPDR Fund (XLP) invests 0.76%.

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