Why Is Hershey (HSY) Up 2.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Hershey (HSY). Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hershey due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Hershey's Q4 Earnings Surpass Estimates, Sales Up
Hershey reported robust fourth-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales and earnings increased year over year. Results gained from solid performance in the North America segment.
Q4 in Details
Adjusted EPS of $1.49 came ahead of the Zacks Consensus Estimate of $1.43 and increased 16.4% year over year.
Consolidated net sales of $2,185.2 million increased 5.7% year over year and surpassed the Zacks Consensus Estimate of $2,120.1 million. Price realization and volume growth were 0.6 point and 5.7 point, respectively. However, the impact of divestitures was negative to the tune of 0.2 point due to divestitures of Krave and the Scharffen Berger and Dagoba brands. Also, unfavorable foreign currency rates affected sales by 0.4 point. Further, organic sales on a constant-currency (cc) basis increased 6.3%.
Adjusted gross margin expanded 50 basis points (bps) to 43.9% on the back of favorable pricing and volume. Selling, marketing and administrative costs increased 4% due to increased advertising in the North America segment. Advertising and related consumer marketing expenses increased 4.9%. Selling, marketing and administrative costs excluding advertising and related consumer marketing increased 3.5%. Charges in relation to its International Optimization Program were a reason.
Adjusted operating profit amounted to $429.3 million, up 15.9% from the prior-year quarter’s figure. Adjusted operating profit margin expanded 170 bps to 19.6% led by solid volume gains in the North America segment.
Segmental Update
North America (the United States and Canada) net sales increased 8.9% year over year to $1,973.9 million. Markedly, price realization contributed 1.1 point benefit, while volumes contributed 7.9 points driven by solid seasonal performance. Moreover, favorable currency boosted sales in the unit by 0.1 point. However, impact of divestiture dented the unit by 0.2 point.
Net sales in the International and Other segment fell 17.3% to $211.3 million. On a cc basis, net sales declined 13.1%. Volumes hit sales by 10.1 points, mainly due to lower sales in the company's owned retail locations. Although retail locations reopened during the third quarter of 2020, footfall was low stemming from reduced consumer travel and capacity restrictions imposed by government. Combined net sales in Mexico, Brazil, China and India, dropped 28.7%. Excluding currency headwinds, combined organic sales from these markets decreased nearly 19.8% at cc. Also, unfavorable net price realization of 3.0 points was a drag.
Financials
Hershey ended the quarter with cash and cash equivalents of $1,144 million, long-term debt of $4,089.8 million and total shareholders’ equity of $2,237.9 million.
In a separate press release, the company declared a quarterly dividend of 80.4 cents per share for its common stock and 73.1 cents for Class B common stock. These are payable on Mar 15, 2021 to shareholders of record as of Feb 19. Notably, this marks the company’s 365th and 146th straight dividend payout on its common stock and Class B common stock, respectively.
2021 Outlook
Hershey expects its 2021 performance to be in line with its long-term growth algorithm. For 2021, it expects net sales to rise 2-4% and projects EPS growth of 6-8%.
In the North America segment, the company anticipates the recent momentum to continue into the first quarter of 2021 on the back of increased sales of take home and seasonal chocolate along with added marketplace share gains. However, management expects the second-quarter and second-half performances to be moderate owing to strong 2020 performance. In the International & Other segment, Hershey anticipates a stable sales trend in majority of its markets. That said the speed and magnitude of recovery remains uncertain for the segment. Also, the company expects capital expenditure of nearly $550 million owing to key initiatives like the ongoing ERP transformation and supply chain initiatives.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Hershey has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Hershey has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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