Hershey: Announces First-Quarter Results

Hershey / PA. (thc) The Hershey Company, a global leader in confection, announced sales and earnings for the first quarter ended April 2, 2017. Consolidated net sales were 1’879.7 million USD compared with 1’828.8 million USD for the first quarter of 2016. Reported net income for the first quarter of 2017 was 125.0 million USD or 0.58 USD per share-diluted, compared with 229.8 million USD or 1.06 USD per share-diluted for the comparable period of 2016.

«I’m pleased with our first-quarter results, which were driven by seasonal sales growth, the roll-out of Hershey’s Cookie Layer Crunch bars and our continued focus on cost control», said Michele Buck, President and Chief Executive Officer, The Hershey Company. «Net sales increased 2.8 percent, slightly less than our forecast and reflective of the broader soft U.S. food-industry retail trends to start the year. Gross margin expansion was solid, which contributed to strong operating profit growth. First quarter U.S. retail takeaway was primarily impacted by the timing of Easter, however, our market share gains were solid. The launch of Hershey’s Cookie Layer Crunch bars got off to a good start and we’re following that up with the roll out of Hershey’s Crunchers candy and Reese’s Crunchy Cookie Cups. Importantly, while preliminary, our Easter sell through is in line with our estimate and we anticipate Hershey U.S. candy, mint and gum (CMG) April year-to-date retail takeaway will be about 2.5 percent».

As described in the Note below, for the first-quarter of 2017, these results, prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items impacting comparability of 216.6 million USD, or 0.73 USD per share-diluted. For the first quarter of 2016, items impacting comparability totalled 27.8 million USD, or 0.04 USD per share-diluted. As described in the Note, adjusted net income, which excludes these items, was 282.1 million USD, or 1.31 USD per share-diluted, for the first quarter of 2017, compared with 238.9 million USD, or 1.10 USD per share-diluted, for the same period of 2016. Reported gross margin was 48.2 percent in the first quarter of 2017 versus 44.7 percent in the first quarter of 2016. Reported operating profit was 191.9 million USD in the first quarter of 2017, a decline of 43.5 percent versus the first quarter of 2016, resulting in operating profit margin of 10.2 percent.

In 2017, the company expects reported earnings per share-diluted of 3.31 USD to 3.55 USD, including items impacting comparability of approximately 1.26 USD to 1.41 USD per share-diluted. This projection, prepared in accordance with GAAP, assumes business realignment costs of 0.35 USD to 0.50 USD per share-diluted, including Margin for Growth Program costs of 0.25 USD to 0.40 USD per share-diluted, long-lived asset impairment charges of 0.85 USD per share-diluted relating to the Margin for Growth Program, and non-service related pension expense (NSRPE) of about 0.06 USD per share-diluted. The total per share-diluted impact relating to the Margin for Growth Program, included in the amounts above, is currently estimated to be 1.10 USD to 1.25 USD.

First-Quarter Performance

Consolidated net sales were 1’879.7 million USD in the first quarter of 2017, an increase of 2.8 percent versus the first quarter of 2016. Excluding favorable foreign currency translation, a 0.1 point benefit, net sales increased 2.7 percent versus the year ago period. Net price realization was a 2.0 point benefit due to lower levels of trade. Net volume increased 0.7 points, including a contribution from the barkTHINS brand acquisition of 0.9 points.

Adjusted gross margin was 47.5 percent in the first quarter of 2017 compared to 46.8 percent in the first quarter of 2016. The 70 basis point increase was primarily driven by favorable trade, supply chain productivity and costs savings initiatives and lower input costs, partially offset by other higher supply chain costs.

As expected, total advertising and related consumer marketing expense was about the same as the first quarter of 2016. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, declined about 1 percent in the quarter, as the cost savings and efficiency initiatives discussed last quarter were partially offset by investments in go-to-market capabilities and increased depreciation and amortization. As a result, consolidated adjusted operating profit of 435.2 million USD in the first quarter of 2017 increased 10.5 percent versus the first quarter of 2016.

Outlook

«In 2017, we remain focused on driving our North America core brands forward and achieving trial and repeat targets related to the launches of Hershey’s Cookie Layer Crunch bars, Reese’s and Hershey’s Crunchers candy and Reese’s Crunchy Cookie Cups», said Buck. «Additionally, the branded snack mix and snack bites products that launched last year continue to do well, enabling us to expand our breadth across the snack wheel and capture new usage occasions. We anticipate that our innovation, as well as our consumer marketing plans, will enable us to build on our first-quarter U.S. CMG market share gains. April year-to-date marketplace performance, driven by our seasonal business, is tracking in line with our estimates. We expect non-seasonal U.S. CMG trends to improve over the remainder of the year, although the growth rate is expected to be slightly lower than our previous forecast. Additionally, macroeconomic challenges persist in China and we expect net sales for the full year to be lower there than 2016. Therefore, we estimate that full-year 2017 net sales growth will most likely be around the low end of our 2.0 percent to 3.0 percent outlook, including a net benefit from acquisitions of about 0.5 points. We expect the impact of foreign currency exchange rates to be minimal versus our previous estimate of a 0.25 point headwind.

«The company’s multiyear Margin for Growth Program is on track and progressing. We continue to forecast strong productivity and cost savings initiatives in 2017 and don’t expect input cost inflation, which should result in adjusted gross margin expansion slightly greater than our previous estimate. Our brands typically respond positively to marketplace investments and we continue to expect that advertising and related consumer marketing expense, as well as selling, general and administrative costs, will increase for the full year 2017 versus 2016. We believe these investments in marketing, technology, IT capabilities and analytic approaches will be enablers of profitable growth. Additionally, the company anticipates its effective tax rate will be slightly lower than its original forecast. As a result, the company expects the full year increase in adjusted earnings per share-diluted to be around the high end of its outlook of 4.72 USD to 4.81 USD, a 7 percent to 9 percent increase versus last year», Buck concluded.

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