Hershey Beats 1Q18 Earnings Estimates, Costs Remain a Drag

In 1Q18, Hershey (HSY) reported EPS (earnings per share) of $1.41, beating analysts’ estimate of $1.40 and marking an 8.5% rise YoY (year-over-year). Improved sales and lower tax drove the company’s 1Q18 earnings higher, offset by increased costs.

As discussed above, Hershey’s 1Q18 EPS benefited from improved volumes. Incremental sales from Amplify Snack Brands and a significant adjusted effective tax rate reduction (-660 basis points) further supported its earnings, while higher-than-expected freight and logistics costs and trade and packaging investments to drive sales dragged them down.

Peers Kellogg (K), Mondelēz (MDLZ), Conagra Brands (CAG), and J.M. Smucker (SJM) are expected to report EPS improvement YoY. However, costs and increased trade spending are also expected to hurt their margins and EPS growth. Analysts expect Kraft Heinz’s (KHC) 1Q18 earnings to fall YoY, reflecting lower volumes and higher costs.

Hershey has raised its 2018 EPS guidance to 14%–16% growth YoY to $5.33–$5.43. Lower tax and accretion from its Amplify acquisition are expected to drive earnings higher. Its Amplify acquisition is projected to contribute $0.08–$0.12 to the company’s fiscal 2018 EPS, offset by increased costs and trade spending.