The Hershey Company has announced profit and sales above market expectations after the US candy maker reported organic sales rose 1.9% in Q4 to top the consensus mark of +1.4%. Price realization was a 3.6 point benefit and the net impact of acquisitions and divestitures was a 2.2 point benefit driven by the acquisition of ONE Brands.
Hershey Fourth-Quarter 2019 Financial Results Summary
- Consolidated net sales of $2,068.1 million, an increase of 4.0%.
- Organic, constant currency net sales increased 1.9%.
- The net impact of acquisitions and divestitures on net sales was a 2.2 point benefit, while foreign currency exchange was a 0.1 point headwind.
- Reported net income of $207.2 million, or $0.98 per share-diluted, a decrease of 38.8%.
- Adjusted earnings per share-diluted of $1.28, an increase of 1.6%
Looking ahead, Hershey said it sees revenue growth of 2% to 4% vs. +2.8% consensus and EPS of $6.13 to $6.24 vs. $6.16 consensus.
Diversifying its portfolio
The company has been diversifying its portfolio into healthier snacking options. The Reese’s peanut butter cup maker has spent more than $2bn in acquisitions of food brands, including nutrition-bar maker ONE Brands, Skinny Pop maker Amplify Snack Brands and Smart Puffs maker Pirate Brands over the past two years.
“We had a strong year in 2019 with accelerated business performance and differentiated financial results,” said Michele Buck, Hershey Company president and chief executive officer.
"This was driven by momentum in our core US confection portfolio in both retail takeaway and margin expansion, incremental and profitable international growth, and further expansion of our snacking portfolio. We continued investing in our brands, capabilities, and people and have confidence we will deliver another year of high-quality financial results in 2020.”
The company expects full-year profit to be in the range of $6.13 per share to $6.24 per share and net sales to increase between 2% and 4%.
Reuters reported that analysts on average had expected the company to earn $6.16 per share and net sales to rise 2.90% in 2020. Net sales rose to $2.07bn from $1.99bn in the fourth quarter ended December 31, beating an average analyst estimate of $2.06bn.
Sales in North America, Hershey's biggest market, rose 3.8% to $1.81bn, as salty snacks posted a 11.3% growth.
In a call to analysts, Buck said she was pleased with the consistency of the company’s results throughout the year, and Hershey’s momentum into 2020.
“For the full-year, we delivered net sales growth of 2.5% and EPS growth of 7.8%, a testament to our strong brands, business model, and a commitment to balance top and bottom line growth. Constant currency organic sales growth of 1.8% was ahead of expectations, driven by incremental pricing and core base strengths of our US confection business. These gains drove stronger than anticipated gross margin expansion of over 100 basis points for the year, which enabled incremental investments in our brands and employees, and enhanced earnings for our shareholders’ investments,” she said.
On Sunday and for the first time in the brand's history, Reese's ran an advertisement during the 2020 Super Bowl for Take5 and Buck said the re-launch of the brand was “off to a strong start”.
Buck also told analysts that Hershey was also excited about product innovation for 2020. “In addition to our Kit Kat Duos innovation, we are excited to announce the expansion of our THiNS platform in 2020. York THiNS and Reese's white THiNS will launch in March, and will be available in both the take-home bag and peg formats. This provides York lovers a unique way to enjoy one of their favorites, and it enables us to secure strong year to merchandising for our core milk and dark Reese's items that we've launched this past year,” she said.
She also said Hershey’s international business has made significant progress over the past several years by focusing on branded high margin products, streamlining its operating model and right-sizing investments.
“Since we began this journey at the beginning of 2017, we have increased our segment income by $125m over the past three years, while continuing to grow our organic constant currency net sales. This is a significant accomplishment made possible by the hard work and dedication of many employees around the world.”
Hershey’s international business provides it with important geographic diversification and incremental growth, Buck said, “and we're excited to build on this progress with another year of profitable growth in 2020”, with plans for new business models in Mexico and increased distribution and innovation of Hershey and Pelon Pelo Rico brand.