What happened
Shares of Hershey Co. (HSY 0.30%) were down 5.2% as of 12:00 p.m. EDT Thursday after the chocolate giant announced mixed third-quarter 2018 results warned its profits will come under pressure given rising costs.
More specifically, Hershey's net sales climbed 2.3% year over year (3% at constant currencies) to $2.08 billion -- slightly below the $2.09 billion most investors were expecting -- including a 2.5-point net benefit from acquisitions and divestitures. On the bottom line, that translated to 20.2% growth in adjusted earnings per share, to $1.55, in line with Wall Street's estimates.
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So what
Still, investors are concerned that Hershey's adjusted gross margin declined 130 basis points year over year, to 44%. To be fair, that figure was in line with management's expectations, driven largely by higher freight and logistics costs.
But during the subsequent conference call, CFO Patricia Little noted that those higher costs will likely persist into next year -- a trend the company plans to offset with strategic price increases on roughly a fifth of its products. Hershey also highlighted its recent acquisition of Pirate Brands last month, which should serve to add serve to boost growth and profits with its higher-margin snacking products.
Now what
In any case, Hershey CEO Michele Buck insisted she is "pleased with the progress we are making against our key strategic focus areas," adding that the company is on track to meet its financial guidance outlined in July. As a reminder, that guidance calls for full-year revenue to increase 3.5% to 5.5%, assuming organic net sales growth toward the lower end of its "slightly up to 2%" range, with adjusted earnings per share of $5.33 to $5.43. Both ranges are roughly in line with analysts' consensus estimates.
