uploads/2016/07/Hersheys-Performance-in-Fiscal-1Q16-2016-07-21-1.jpg

What Led to Hershey’s Margin Expansion in Fiscal 1Q16?

By

Updated

Gross margin expanded

Hershey (HSY) reported its fiscal 1Q16 results on April 26, 2016. In the first quarter, gross margin expanded by 20 basis points to 46.8% compared to 46.6% in 1Q15. Higher-than-expected benefits from supply chain productivity and cost savings initiatives along with favorable commodity costs drove the margin increase. Operating margin also expanded by 120 basis points for the first quarter led by an increase in gross margin and lower selling, marketing, and administrative expenses.

Article continues below advertisement

Earnings grew and beat estimates

For the first quarter of fiscal 2016, adjusted EPS (earnings per share) came in around $1.10, a slight increase of 1% compared to 1Q15 EPS of $1.07. Earnings also beat analyst estimates by 3%. The company’s focus on cost structure and cost savings initiatives helped it exceed its first quarter earnings expectations and deliver EPS growth versus the comparable period last year.

Sales fell in 1Q16

Net sales for the first quarter fell 6% to $1.8 billion compared to $1.9 billion in 1Q15. Revenue also missed analyst estimates by 4%. The company earned a 40-basis-point benefit from net acquisitions and divestitures. Hershey operates through its two business segments: North America and International & Other. Hershey generates 80%–88% of its revenue from North America each fiscal year. North America sales fell by 4.3% in the first quarter mainly due to a shorter Easter season. International and Other segment net sales for the first quarter also dropped by 15.4%.

Peer performance

Kraft Heinz (KHC), Kellogg (K), and General Mills (GIS) reported operating margins of 23.0%, 12.9%, and 13.5% in their last reported quarter, respectively.

To gain exposure to Hershey, you can invest in the Fidelity MSCI Consumer Staples Index ETF (FSTA) and the iShares U.S. Consumer Goods ETF (IYK). They invest 0.67% and 0.68% of their respective holdings in HSY.

Advertisement

More From Market Realist