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Hershey Posts Lower Q1 Earnings, Remains Optimistic


Apr. 23 2020, Published 11:26 a.m. ET

Hershey (NYSE:HSY) stock has fallen during today’s trading session. The company announced its first-quarter results before the opening bell. The stock fell by 2.99% in the pre-market session as of 9:15 AM ET today. The company reported lower-than-expected first-quarter results. Hershey also withdrew its financial guidance for the fiscal year. Mondelēz International (NASDAQ:MDLZ) will release its first-quarter 2020 results on April 28.

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Notably, Hershey stock rose by 1.17% and closed at $143.28 on Wednesday. At this price, the market value was $21.2 billion. The stock was trading at a discount of 11.7% from the 52-week high of $162.20 and at a premium of 30.4% from the 52-week low of $109.88. So far, the stock has declined by 2% year-to-date as of Wednesday.

Hershey’s Q1 performance

The company reported revenue of $2.04 billion in the first quarter, which missed the consensus estimate of $2.08 billion. The revenue grew around 1% YoY (year-over-year). The higher net price realization and gain from acquisitions drove the top-line growth. However, negative currency rates and lower volumes remained a drag. The coronavirus outbreak impacted international sales and first-quarter revenues. Hershey’s international sales declined 8.1% YoY in the quarter to $192.5 million. Notably, the sales in China reduced by half in the quarter amid the coronavirus pandemic. The organic sales increased by 0.5% YoY in the quarter.

Hershey’s EPS was $1.63 in the first quarter. The earnings missed analysts’ estimates by $0.08 per share. However, the bottom line grew by 2.5% YoY during the quarter. Increased organic sales, margin expansion, and a lower tax rate boosted the company’s adjusted EPS.

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Hershey’s adjusted gross margins expanded by 90 basis points. The gross margins benefited from higher pricing. The company’s margins also benefited from building inventory in advance to deal with the risks related to COVID-19. However, the operating margins fell by 20 basis points to 23.1%. The gross margin gains were offset by higher advertising expenses and business investments.

What’s ahead for the company?

Amid the uncertainty related to COVID-19, the company pulled back its fiscal guidance. Like Hershey, many consumer giants have withdrawn their guidance. Domino’s Pizza (NYSE:DPZ) and McDonald’s (NYSE:MCD) also withdrew their guidance early this month.

Hershey assured its investors during the earnings press release. The company said that “it has sufficient liquidity to satisfy its cash needs, as supported by access to bank lines of credit and an unsecured revolving credit facility.” As of March 29, the company’s cash and cash equivalents were $1.09 billion—higher than $493 million at the end of December 31, 2019.

Meanwhile, the company still expects to meet its long-term goals. Hershey expects net sales growth of 2%–4% and an increase in the EPS of 6%–8% over the long term.

Analysts recommend to ‘hold’ Hershey stock

Based on Reuters data, around 18 analysts track Hershey stock. Among the analysts, two recommend a “buy,” while 16 recommend a “hold.” None of the analysts recommend a “sell.” Analysts’ mean target price for the stock is $148.06, which implies a potential upside of 3.3% based on Wednesday’s closing price.


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