Easter is often a good time for confectioners like Hershey (HSY 0.57%), as consumers boost their candy purchases well above average. That seasonal strength supported a strong start to the company's fiscal 2019, with healthy sales growth powering a double-digit earnings spike.
Still, CEO Michele Buck and her team told investors this outperformance wasn't enough to convince them to boost their full-year outlook because a few operating challenges remain over the next several quarters. Hershey is still expecting to grow sales and profitability in 2019, though, as executives explained in a conference call with Wall Street analysts. Below are a few highlights from that presentation.
Image source: Getty Images.
Getting to double-digit earnings growth
Adjusted earnings per share were $1.59, an increase of 12.8% versus the same period last year. This was driven by volume growth, gross margin expansion, as well as marketing and administrative expense efficiencies and [product] shift.
-- CFO Patricia Little
Hershey's 2.8% organic sales increase was near the high end of management's full-year guidance but landed exactly where they had predicted for the quarter, given the seasonal lift from the Easter holiday. Prices inched up, which allowed gross profit margin to expand. Yet the bigger contributor was higher sales volumes that bode well for market share in future quarters.
Executives highlighted a few standout performers in the period like new introductions in the Reese's franchise. Combined with Cadbury, these two brands dominate the Easter season with market share of about 25%. Hershey gained share in e-commerce, too, with sales up 50% in the period.
Odds and ends
We have good momentum across all of our key strategies with strong financial results in the first quarter. We remain committed to delivering balanced growth today, while making key investments in our brands and capabilities to take the business to the next level.
-- Buck
Hershey's portfolio remains in a state of transition, with management cutting underperforming brands while integrating newly acquired salty snacks from Pirate Brands and Amplify. At the same time, Hershey is attempting to boost efficiency by cutting costs while also raising prices by an average of 2.5% across the portfolio.
Overall, execution on all these initiatives is going according to plan, management said. Hershey is even outperforming on its cost cuts, and that success helped produce the market-thumping profit gain investors saw during the quarter.
Confirming a conservative outlook
To summarize for the full year, there is no change to our full-year reported net sales outlook.
-- Buck
Hershey declined to boost its 2019 sales or profit outlook despite the strong start to the year. That conservative approach was informed by a few important trends, including the expected candy-consumption lull that tends to occur after a strong Easter season. Most of its big price increases aren't scheduled to take effect until the second half of the year, too, and so it's prudent to take a cautious approach to how consumers might respond to those changes. Thus, Hershey still sees sales gains slowing to about a 2% pace in 2019 compared to 3.7% last year.
It's possible the company could modestly outperform that target, but investors likely won't have good clarity about market share trends until the fiscal third quarter. Hershey's profit performance looks more predictable, as earnings appear on track to rise by between 5% and 7%. Gains could speed up from there if the price increases come off without a hitch and if Hershey's newly acquired salty-snack brands perform as well as management is hoping they will.
