Hershey Q2 earnings sweetened by acquisitions and divestments
- Hershey's adjusted earnings exceeded analyst expectations, with sales jumping 5.3% year-over-year to $1.75 billion, according to its most recent earnings report. This reflects the company’s decision to sell part of its international business and a 5.9-point benefit from recent acquisitions of Amplify Brands.
- Sales increased in most markets, with the large North American segment posting 5.6% growth. The largest jump was in India sales, which were up 23.1%, and sales in Brazil, which showed a net increase of 22.2% when currency changes were factored in. Sales in Canada were down 2.4%.
- The Pennsylvania-based company’s Board of Directors approved a repurchase of $500 million worth of shares and a dividend increase of 10%, Michele Buck, Hershey’s president and CEO said in the report. The company has returned cash to shareholders in the form of dividends, which giving it the flexibility to continue its merger and acquisition goals throughout the year.
Hershey’s sales continue in an upward trend from its first quarter, success that the company credits to selling off its Chinese candy brand, Shanghai Golden Monkey Food to streamline operations and focus on its core portfolio. Sales also increased due to its $1.6 billion acquisition of SkinnyPop popcorn maker Amplify, but the company’s profitability was hurt due to higher costs.
When Buck took the helm of the company in 2017, one of her goals was to make Hershey an "innovative snackfection powerhouse." One of the ways to get there increasing the number of merger and acquisitions in its portfolio. As one of the largest chocolate makers in the country, Hershey is hoping to venture out to salty snacks. The company is currently the second largest snack maker in the country behind PepsiCo.
The company’s gross margin of 45.3% declined 80 basis points year-over-year and adjusted gross margin of 44.5% declined 260 basis points from 47.1% Q2 2017. This drop was expected by analysts due to higher transportation and logistic costs, investments in trade and packaging, and additional costs associated with new production lines.
In April, the company said it would attempt to simplify its supply chain and foundational cost structure to save money. This includes scaling down its product size variety and seasonal product assortments. Hershey is not alone in feeling the pain of increased transportation costs. Many companies are exploring options to reduce the cost, since all U.S. trucking and rail freight spending spiked 17% this May compared to a year ago.
For the rest of fiscal 2018, the company is expecting its Reeses Outrageaous! Bar, Halloween, holiday sales and new Reese’s and Hershey’s brand campaigns to drive growth.
But the confectioner also realizes the power of its existing brands. Earlier this year, the candy maker debuted a redesign of center aisles at 20 locations of three retailers, which responded to consumer complaints. The redesign boosted aisle visits and reduced product search time by 50%. Hershey has also worked to streamline its e-commerce options as well. In a study on how shoppers and search drive sales, the company found consumers are likely to spend six times as much if there is a seamless transition between all of its platforms.
- The Hershey Company Hershey Q2 2018 Financial Results
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