Investors have been gaining confidence in Hershey's (HSY 1.08%) rebound strategy through most of 2019. Sure, the confectioner's growth has been plodding along at just above zero. But sales and earnings trends are both improving thanks to management's portfolio reboot and a string of popular product launches.
In its recent second-quarter report, those positive trends continued, and executives raised their 2019 outlook as a result.
Let's dive right into the numbers.
|
Metric |
Q2 2019 |
Q2 2018 |
Change |
|---|---|---|---|
|
Revenue |
$1.77 billion |
$1.75 billion |
1% |
|
Net income |
$313 million |
$227 million |
37% |
|
EPS |
$1.48 |
$1.08 |
37% |
Data source: Hershey's financial filings.
What happened with Hershey this quarter?
Sales ticked higher after accounting for currency exchange swings and for the company's recent acquisitions and brand divestments. Profitability jumped thanks to several positive trends, including the shift toward higher-margin product sales.
Image source: Getty Images.
Highlights of the quarter include:
- Organic sales rose by 2%, or about even with the prior quarter's results. There were many moving pieces within the company's reported 1% revenue uptick, though. Hershey's recent purchases of the Amplify and Pirate snack brands raised sales, while its divestment of low-margin products lowered them.
- Gross profit margin leapt to 46.5% of sales from 44.5% a year ago as the company's sales mix tilted toward its newer snack acquisitions. Pricing and sales volumes were strong, and both factors contributed to the broader profitability increase.
- Cost cuts amplified Hershey's gross profitability wins, leading to a 9% increase in operating profit after adjusting for unusual items.
- Market share held steady in the U.S. geography, while its strategic growth markets of Mexico, Brazil, India, and China saw a 5% organic sales spike.
What management had to say
CEO Michele Buck said that the snack giant's recent portfolio changes, advertising increases, and cost cuts are all starting to show up in its results. "We are pleased with the momentum we are seeing behind our key initiatives for this year," Buck said in a press release. "We continue to deliver differentiated results by growing both top and bottom line while investing in our brands and capabilities," she explained.
Looking forward
Management raised both its sales and profit forecasts for the year to reflect the latest demand trends. While executives admitted the boost was "slight," it still demonstrates that Hershey is seeing better results across its geographic markets.
To that end, executives now project sales landing at 2% in 2019 rather than somewhere between 1% and 3%. That would mark a modest slowdown from last year's 3.7% increase despite major shifts in the company's snacking portfolio.
Hershey's new product lineup is better targeted toward those in-demand snacking opportunities that deliver higher profit margins. That success, plus a lower cost structure, is allowing for more robust profit growth. In fact, Hershey now sees adjusted earnings per share rising by between 6% and 7% compared to the prior range of between 5% and 6%. Reaching those goals would imply that the confectioner is in a good position to grow its top and bottom lines even faster in 2020.
