Hershey: Reports Q2-2019 Financial Results

Hershey / PA. (thc) The Hershey Company announced net sales and earnings for the second quarter ended June 30, 2019. The company updated its net sales outlook to the mid-point of the previously guided range, and slightly raised its reported and adjusted earnings outlook to the top half of the previous range. «We are pleased with our second quarter results and the momentum we are seeing behind our key initiatives for this year,» said Michele Buck, The Hershey Company President and Chief Executive Officer. «We continue to deliver differentiated results by growing both top and bottom line while investing in our brands and capabilities. We are on track to deliver our financial commitments for the year driven by accelerated U.S. performance, a strengthened international business and continued operational excellence.»

Second-Quarter 2019 Financial Results Summary

  • Consolidated net sales of USD 1,767.2 million, an increase of 0.9 percent.
  • Organic constant currency net sales increased 1.8 percent.
  • The net impact of acquisitions and divestitures was a 0.6 point headwind, and foreign currency exchange was a 0.3 point headwind.
  • Reported net income of USD 312.8 million, or USD 1.48 per share-diluted, an increase of 37 percent.
  • Adjusted earnings per share-diluted of USD 1.31, an increase of 14.9 percent.

2019 Full-Year Financial Outlook Summary

  • Full-year reported net sales are expected to increase around 2 percent, the mid-point of the previous 1-3 percent range.• The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit.
    • The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit.
    • The impact of foreign currency exchange is anticipated to be negligible based on current exchange rates.
  • Full-year reported earnings per share-diluted are expected to be in the USD 5.54 to USD 5.66 range, relatively flat with prior year.
  • Full-year adjusted earnings per share-diluted are expected to increase 6 percent to 7 percent, the upper half of the previous 5 percent to 7 percent range.

Second-Quarter 2019 Results

Consolidated net sales were USD 1,767.2 million in the second quarter of 2019 versus USD 1,751.6 million in the year ago period, an increase of 0.9 percent. Net price realization and volume were a 1.2 point and 0.6 point benefit, respectively. The net impact of acquisitions and divestitures was a 0.6 point headwind, and foreign currency exchange was a 0.3 point headwind.

As outlined in the table below, the company’s second-quarter 2019 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items impacting comparability of USD 39.7 million, or USD 0.17 per share-diluted. For the second quarter of 2018, items impacting comparability totaled USD 22.6 million, or USD 0.06 per share-diluted.

Reported gross margin was 49.5 percent in the second quarter of 2019, compared to 45.3 percent in the second quarter of 2018, an increase of 420 basis points. Adjusted gross margin was 46.5 percent in the second quarter of 2019, compared to 44.5 percent in the second quarter of 2018, an increase of 200 basis points. This increase in both reported and adjusted gross margin was driven by favorable mix and fixed cost absorption driven by increased production related to the company’s recently announced July 2019 price increase, favorable commodities, lower waste and net price realization. The favorable impact of mix and fixed cost absorption was approximately 90 basis points in the second quarter and is expected to be offset in the second half, primarily Q3, as inventory levels normalize.

Selling, marketing and administrative expenses increased 0.9 percent in the second quarter of 2019 versus the second quarter of 2018 driven by advertising. Advertising and related consumer marketing expenses increased 5.6 percent in the second quarter of 2019 versus the same period last year driven by advertising increases in both North America and our International markets. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, decreased 1.4 percent versus the second quarter of 2018 driven by decreased spending related to our Margin for Growth Program and lower acquisition-related costs.

Second-quarter 2019 reported operating profit of USD 410.1 million increased 29.9 percent versus the second quarter of 2018, resulting in an operating margin of 23.2 percent, an increase of 520 basis points driven primarily by gross margin gains. Adjusted operating profit of USD 370.0 million increased 9.0 percent versus the second quarter of 2018. This resulted in an adjusted operating margin of 20.9 percent, an increase of 150 basis points versus the second quarter of 2018 driven primarily by gross margin gains.

The effective tax rate in the second quarter of 2019 was 13.7 percent, a decrease of 40 basis points versus the second quarter of 2018. The adjusted tax rate in the second quarter of 2019 was 14.8 percent, a decline of 120 basis points versus the second quarter of 2018. Both the effective and adjusted tax rate favorability were driven primarily by valuation allowance releases in two international locations.

The following table presents a summary of items impacting comparability in each period:

Pre-Tax (millions) Earnings Per Share-Diluted
Three Months Ended Three Months Ended
2019-06-30 2018-07-01 2019-06-30 2018-07-01
Derivative Mark-to-Market Gains USD (53.5 ) USD (20.8 ) USD (0.25 ) USD (0.10 )
Business Realignment Activities 6.4 15.3 0.03 0.07
Acquisition-Related Costs 2.3 4.8 0.01 0.02
Long-Lived Asset Impairment Charges 4.7 27.2 0.02 0.13
Noncontrolling Interest Share of Business Realignment and Impairment Charges 0.4 (1.2 ) (0.01 )
Gain on Sale of Licensing Rights (2.7 ) (0.01 )
Tax effect of all adjustments reflected above 0.02 (0.04 )
Total USD (39.7 ) USD 22.6 USD (0.17 ) USD 0.06

.

2019 Full-Year Financial Outlook

Full-year reported net sales are expected to increase around 2 percent. The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit and the foreign currency exchange rate impact is expected to be minimal based on current exchange rates.

Full-year reported earnings per share-diluted are expected to be roughly in-line with 2018 reported earnings per share-diluted, while adjusted earnings per share-diluted are expected to increase 6 percent to 7 percent versus 2018.

Below is a reconciliation of projected 2019 and full-year 2018 earnings per share-diluted calculated in accordance with GAAP to non-GAAP adjusted earnings per share-diluted:

2019 (Projected) 2018
Reported EPS – Diluted USD 5.54 – $5.66 USD 5.58
Derivative mark-to-market gains (0.80)
Business realignment activities 0.01 – 0.03 0.25
Acquisition-related costs 0.04 – 0.06 0.21
Gain on sale of licensing rights (0.01)
Pension settlement charges relating to company-directed initiatives 0.03 – 0.05 0.03
Long-lived and intangible asset impairment charges 0.27
Noncontrolling interest share of business realignment and impairment charges (0.03)
Tax effect of all adjustments reflected above (0.14)
Adjusted EPS – Diluted USD 5.68 – $5.74 USD 5.36

2019 projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that will be reflected within corporate unallocated expense in segment results until the related inventory is sold, since we are not able to forecast the impact of the market changes.

bakenet:eu