Dive Brief:
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The Hershey Company announced its first-quarter consolidated net sales rose 4.9% to $1.97 billion, compared to $1.88 billion in the year-ago period. Net income for the quarter increased to $350.2 million versus $125 million for the first quarter of 2017. North American net sales were up 4.4% to $1.75 billion, boosted by the recent acquisition of Amplify Snack Brands.
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The Pennsylvania-based chocolate maker noted that its core chocolate brands performed well during the first quarter, and that investment in its York, Payday, Almond Joy and Mounds brands were increasing growth in the U.S. The launch of its Hershey’s Gold bar is "off to a strong start," and Hershey said it plans to debut a Reese’s Outrageous Bar in May.
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Higher costs for shipping products to stores hurt the company's profit margin, and it expects net sales for 2018 to rise by about 5% — slightly lower than previously projected — as it works to streamline its business and improve margins.
Dive Insight:
Hershey is back to positive growth after its fourth-quarter sales slip, with help from stronger core brand performance and its recent purchase of Amplify Snack Brands for $1.6 billion. The deal brought Tyrrells potato chips, Oatmega protein bars and cookies and Paqui tortilla chips into Hershey's portfolio and is projected to generate $20 million in annual synergies over the next two years.
President and CEO Michele Buck, who assumed leadership of the company in March 2017, has said her goal is to diversity the company's portfolio and make it "an innovative snacking powerhouse." So far, results are pointing in that direction with the debut of Hershey's and Reese's Popped Snack Mix and Chocolate Dipped Pretzels, along with the new Hershey's Gold bar and its popular Cookie Layer Crunch Bars. The company's "snackfection" innovations are designed to appeal to millennials and younger consumers who appreciate the mix of sweet and salty flavors in a hybrid candy and snack combination.
Hershey isn't the only big CPG maker to invest in the snacking space lately, and the company faces major competition in the popcorn and snack bars segments. Last year, ConAgra bought the wildly popular Angie's Boomchickapop popcorn brand, and Mars also took a minority stake in KIND bars.
Despite its snacking interests, Hershey still has its eye on candy acquisitions. The company wanted to buy Nestle's U.S. candy brands last year but lost out to Ferrero, which reportedly outbid the Pennsylvania company in January. For now, Hershey seems to have its hands full with the Amplify purchase and its candy and snack innovations, so it remains to be seen whether the company will reach for more M&A activity this year.
Hershey also said it plans to invest in operational improvements by increasing capital spending by $25 million from its share of the corporate tax cut passed late last year. The company said it expects to spend $355 million to $375 million on total capital additions this year, including software.
Still, analysts projections aren't too sunny. "Lowered sales and gross margin guidance for 2018 ends up justifying the recent share weakness, so we doubt [Hershey] shares will make up for lost ground, despite today’s slight 1Q beat and FY EPS guidance being left unchanged," analyst Pablo Zuanic wrote in a note Thursday.
