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Hershey (HSY) Stock Down on Q2 Earnings Miss & Lowered View
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The Hershey Company (HSY - Free Report) reported dismal second-quarter 2024 results, with the top and the bottom line declining year over year. Quarterly earnings and net sales missed the Zacks Consensus Estimate. HSY is navigating a dynamic environment where consumers are reducing discretionary spending and this trend continues to affect its performance.
Management lowered its sales and earnings guidance range for 2024. HSY’s shares were down 4% in the pre-market trading session on Aug 1.
Quarter in Detail
Hershey posted adjusted earnings of $1.27, which declined 36.8% year over year and missed the Zacks Consensus Estimate of $1.44.
Consolidated net sales of $2,074.5 million fell 16.7% from the year-ago quarter’s tally, missing the Zacks Consensus Estimate of $2,297.5 million. On a constant-currency (cc) basis, organic sales declined by 16.8%, driven by reductions in retailer inventory in North America Confectionery and International markets. The downside was mainly due to the ERP system implementation in the second quarter and shifts in seasonal shipment timing.
Hershey Company (The) Price, Consensus and EPS Surprise
The adjusted gross margin was 43.2%, contracted 200 basis points (bps) year over year. The downtick was mainly due to higher commodity costs and fixed cost deleverage, which outweighed the benefits of price increases, productivity improvements and favorable input cost timing. We had expected an adjusted gross margin contraction of 310 bps to 42.1% in the second quarter.
Selling, marketing and administrative expenses fell 5.4% year over year. The downtick was mainly due to lower marketing expenses, though it was partially offset by higher business realignment costs. Advertising and related consumer marketing expenses dropped 15.4%, reflecting reduced investments in line with lower sales in North America Confectionery and International markets. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, inched down 0.8% as reductions in compensation and benefits outweighed increased spending on capabilities and technology.
The adjusted operating profit of $383.5 million fell 32.8% year over year due to lower sales. The adjusted operating profit margin contracted 440 bps to 18.5%. The downside was primarily caused by higher commodity costs and fixed cost challenges, which outweighed the benefits of price increases and productivity improvements.
Segment Details
The North America Confectionery segment’s net sales fell 20.7% year over year to $1,579.8 million. The downside can be attributed to the planned reduction of retailer inventory as well as shifts in retailer inventory and seasonal shipment timing. Excluding these factors, core business sales fell by low-single digits as lower volumes offset price increases.
The company’s U.S. candy, mint and gum (CMG) retail takeaway for the 12-week ended Jul 14, 2024, fell 2.7% (in multi-outlet plus convenience store channels or MULO+C). The company’s CMG’s share declined 123 bps year over year. The North America Confectionery segment’s income slumped 29.3% to $464.5 million.
The North America Salty Snacks segment’s net sales rose 6.4% from the year-ago quarter to $289.9 million on the back of volume growth. Price realization was unfavorable to the tune of almost 3 points due to planned increases in promotional activities and the timing of trade expenses affecting the second quarter.
Hershey's U.S. salty snack retail takeaway for the 12 weeks ended Jun 30, 2024, in MULO+C grew 8% year over year. The segment witnessed a fall in SkinnyPop ready-to-eat popcorn takeaway due to persistent category softness. The segment’s income increased 19.2% year over year to $52.2 million.
Net sales in the International segment dropped 8.9% year over year to $204.8 million. At cc, organic net sales declined 10.4%, mainly due to the planned reduction of inventory and the decline in Mexico due to the discontinuation of the dairy beverage product line in 2023. Excluding these factors, net sales grew mid-single digits, driven by almost 5 percentage points of price realization. The segment’s profit was $25 million, down by $16.1 million.
Image Source: Zacks Investment Research
Other Financials
HSY ended the quarter with cash and cash equivalents of $467.1 million, long-term debt of $3,489.4 million and a total shareholders’ equity of $4,009.9 million. Management expects capital expenditure of $600-$625 million for 2024 aimed at core confection capacity expansion and constant investments in digital infrastructure.
2024 Guidance
Management now expects year-over-year net sales growth of approximately 2% compared with the previous range of 2-3% for 2024. The company expects adjusted earnings per share (EPS) to decline slightly to a range of $9.49-$9.59 compared with the earlier forecast of no change year over year. The company reported adjusted EPS of $9.59 in 2023.
Management anticipates a reported and adjusted effective tax rate of nearly 13% and interest expenses of around $165-$175 million. Additionally, it expects other expenses of $220-$230 million.
This Zacks Rank #3 (Hold) stock has risen 0.8% in the past three months against the industry’s decline of 1.5%.
Some Better-Ranked Staple Bets
BRF (BRFS - Free Report) is engaged in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from year-ago reported figures.
Treehouse Foods (THS - Free Report) is a manufacturer of packaged foods and beverages. The company currently flaunts a Zacks Rank #1.
The Zacks Consensus Estimate for Treehouse Foods’ current financial-year sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported level. THS has a negative trailing four-quarter average earnings surprise of 4.5%.
Philip Morris (PM - Free Report) , a tobacco company, has a trailing four-quarter earnings surprise of 1.8%, on average. PM currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Philip Morris’ current financial-year sales and earnings indicates growth of 5.8% and 6.3%, respectively, from prior-year reported levels.
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Hershey (HSY) Stock Down on Q2 Earnings Miss & Lowered View
The Hershey Company (HSY - Free Report) reported dismal second-quarter 2024 results, with the top and the bottom line declining year over year. Quarterly earnings and net sales missed the Zacks Consensus Estimate. HSY is navigating a dynamic environment where consumers are reducing discretionary spending and this trend continues to affect its performance.
Management lowered its sales and earnings guidance range for 2024. HSY’s shares were down 4% in the pre-market trading session on Aug 1.
Quarter in Detail
Hershey posted adjusted earnings of $1.27, which declined 36.8% year over year and missed the Zacks Consensus Estimate of $1.44.
Consolidated net sales of $2,074.5 million fell 16.7% from the year-ago quarter’s tally, missing the Zacks Consensus Estimate of $2,297.5 million. On a constant-currency (cc) basis, organic sales declined by 16.8%, driven by reductions in retailer inventory in North America Confectionery and International markets. The downside was mainly due to the ERP system implementation in the second quarter and shifts in seasonal shipment timing.
Hershey Company (The) Price, Consensus and EPS Surprise
Hershey Company (The) price-consensus-eps-surprise-chart | Hershey Company (The) Quote
The adjusted gross margin was 43.2%, contracted 200 basis points (bps) year over year. The downtick was mainly due to higher commodity costs and fixed cost deleverage, which outweighed the benefits of price increases, productivity improvements and favorable input cost timing. We had expected an adjusted gross margin contraction of 310 bps to 42.1% in the second quarter.
Selling, marketing and administrative expenses fell 5.4% year over year. The downtick was mainly due to lower marketing expenses, though it was partially offset by higher business realignment costs. Advertising and related consumer marketing expenses dropped 15.4%, reflecting reduced investments in line with lower sales in North America Confectionery and International markets. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, inched down 0.8% as reductions in compensation and benefits outweighed increased spending on capabilities and technology.
The adjusted operating profit of $383.5 million fell 32.8% year over year due to lower sales. The adjusted operating profit margin contracted 440 bps to 18.5%. The downside was primarily caused by higher commodity costs and fixed cost challenges, which outweighed the benefits of price increases and productivity improvements.
Segment Details
The North America Confectionery segment’s net sales fell 20.7% year over year to $1,579.8 million. The downside can be attributed to the planned reduction of retailer inventory as well as shifts in retailer inventory and seasonal shipment timing. Excluding these factors, core business sales fell by low-single digits as lower volumes offset price increases.
The company’s U.S. candy, mint and gum (CMG) retail takeaway for the 12-week ended Jul 14, 2024, fell 2.7% (in multi-outlet plus convenience store channels or MULO+C). The company’s CMG’s share declined 123 bps year over year. The North America Confectionery segment’s income slumped 29.3% to $464.5 million.
The North America Salty Snacks segment’s net sales rose 6.4% from the year-ago quarter to $289.9 million on the back of volume growth. Price realization was unfavorable to the tune of almost 3 points due to planned increases in promotional activities and the timing of trade expenses affecting the second quarter.
Hershey's U.S. salty snack retail takeaway for the 12 weeks ended Jun 30, 2024, in MULO+C grew 8% year over year. The segment witnessed a fall in SkinnyPop ready-to-eat popcorn takeaway due to persistent category softness. The segment’s income increased 19.2% year over year to $52.2 million.
Net sales in the International segment dropped 8.9% year over year to $204.8 million. At cc, organic net sales declined 10.4%, mainly due to the planned reduction of inventory and the decline in Mexico due to the discontinuation of the dairy beverage product line in 2023. Excluding these factors, net sales grew mid-single digits, driven by almost 5 percentage points of price realization. The segment’s profit was $25 million, down by $16.1 million.
Image Source: Zacks Investment Research
Other Financials
HSY ended the quarter with cash and cash equivalents of $467.1 million, long-term debt of $3,489.4 million and a total shareholders’ equity of $4,009.9 million. Management expects capital expenditure of $600-$625 million for 2024 aimed at core confection capacity expansion and constant investments in digital infrastructure.
2024 Guidance
Management now expects year-over-year net sales growth of approximately 2% compared with the previous range of 2-3% for 2024. The company expects adjusted earnings per share (EPS) to decline slightly to a range of $9.49-$9.59 compared with the earlier forecast of no change year over year. The company reported adjusted EPS of $9.59 in 2023.
Management anticipates a reported and adjusted effective tax rate of nearly 13% and interest expenses of around $165-$175 million. Additionally, it expects other expenses of $220-$230 million.
This Zacks Rank #3 (Hold) stock has risen 0.8% in the past three months against the industry’s decline of 1.5%.
Some Better-Ranked Staple Bets
BRF (BRFS - Free Report) is engaged in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from year-ago reported figures.
Treehouse Foods (THS - Free Report) is a manufacturer of packaged foods and beverages. The company currently flaunts a Zacks Rank #1.
The Zacks Consensus Estimate for Treehouse Foods’ current financial-year sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported level. THS has a negative trailing four-quarter average earnings surprise of 4.5%.
Philip Morris (PM - Free Report) , a tobacco company, has a trailing four-quarter earnings surprise of 1.8%, on average. PM currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Philip Morris’ current financial-year sales and earnings indicates growth of 5.8% and 6.3%, respectively, from prior-year reported levels.