Financial results
All eyes on Halloween as Hershey Q2 adjusted earnings beat estimates
Michele Buck, The Hershey Company president and chief executive officer, said it had “delivered profitable sales growth in North America in the second quarter despite the increased complexities presented by the COVID-19 pandemic” when the candy maker released its Second-Quarter 2020 Financial Results on Thursday 23 July.
The Hershey Company (NYSE: HSY) announced its consolidated net sales were $1,707.3m in the second quarter of 2020 versus $1,767.2m in the year ago period, a decrease of 3.4%.
Volume was a 7.0 point headwind, driven by COVID-19 pressures in the company’s International and Other segment and price elasticity in North America.
Foreign currency exchange was a 0.7 point headwind. Price realization partially offset these declines, providing 3.5 points of net benefit for the second quarter. The net impact of acquisitions and divestitures was a 0.8 point benefit driven by the acquisition of ONE Brands.
We believe our great brands, advantaged margin structure, strong supply chain, and agile investment mindset will enable us to deliver solid stockholder returns going forward -- Michele Buck, Hershey Company president and chief executive officer
Excluding items, Hershey reported adjusted earnings of $273.03m or $1.31 per share for the period.
Analysts had expected the company to earn $1.13 per share, according to figures compiled by Thomson Reuters. Analysts' estimates typically exclude special items, businessinsider.com reported.
In her statement, Buck said: “Our iconic brands and great execution enabled us to gain 225 basis points of confectionery market share. In addition, strong cost management enabled us to offset many of the COVID-19 related financial pressures and deliver adjusted earnings per share in line with last year”.
New challenges
In relation to the affect of the pandemic, Buck said the company has experienced significant change and new challenges over these past several months. “Things we never predicted are now realities that we are all adapting to. Things we thought would evolve over the course of several years have changed in weeks” she told analysts in a call.
“I could not be prouder of the Hershey organization for how they have responded. At the center of our culture is the shared belief that Hershey and its people stand for togetherness, integrity, excellence and making a difference.
“These values have shined even more brightly over the past several months. Our teams have worked together tirelessly to keep each other safe, our supply chain running, our customers’ needs met, and our consumers stocked with snacks that make their lives a little more delicious during these very difficult times.
“Our teammates have done this with a care and compassion for each other and the communities in which they live, and they are energized and inspired to leverage this moment to drive positive change for the future. I want to thank the entire organization, from retail to manufacturing and across our corporate international and regional offices, for the hard work and commitment they bring every day."
Buck said she is encouraged by the improvements in Hershey’s business performance and the momentum gained exiting the second quarter.
“We believe our great brands, advantaged margin structure, strong supply chain, and agile investment mindset will enable us to deliver solid stockholder returns going forward.”
Buck said the company will not be providing new fiscal 2020 guidance at this time as “the operating environment continues to evolve.”
She said the company’s performance improved over the course of the second quarter.
“The impact of recent spikes in coronavirus cases on consumer mobility, retail operations, government regulations, and the macroeconomic environment, however, remains unclear.”
2020 Full-Year Financial Outlook Summary
However, the company does expect accelerated sales growth in the second half of the year based on momentum exiting the second quarter, “assuming no significant disruption to current consumer trends”.
Regarding the crucial Halloween candy sales this year, retailers are placing orders, despite concerns that a resurgence in COVID-19 cases would discourage trick-or-treating.
The October holiday makes up roughly 10% of the company’s annual sales, due to popular Halloween treats such as Twizzlers, Jolly Ranchers and Reese’s Peanut Butter Cups.
But with the COVID-19 pandemic showing no signs of slowing in the United States, Reuters said analysts have cautioned that demand could suffer this year, with people being hesitant to send their children door-to-door for candy.
“Consumers will find creative and safe ways to trick-or-treat. It is an outdoor event and it’s an event where a lot of masks are already worn,” Buck said in the analysts’ call.
Hershey also expects pricing and cost management to drive margin expansion in the second half of the year.
“We remain confident that our healthy balance sheet and strong cash flow will enable us to meet current business needs, invest for the future and return cash to stockholders,” it said in its financial report.
North America
In the North America segment, the company expects stronger second half sales growth driven by continued elevated at-home consumption, price realization, the replenishment of retailer and distributor inventory levels, and recovering sales in food service and specialty retail channels.
Hershey said it does not currently expect seasonal performance to have a material effect on second half financial results, though the ramifications of a resurgence of COVID-19 cases on consumer participation in seasonal activities and the resulting retail impact remains uncertain.
International
In the International and Other segment, the company expects a slower recovery given current travel, retail, government and macroeconomic trends. Sales trends are expected to improve versus the second quarter; however, they will fall short in the second half versus the prior year by double digits.
