Hershey (NYSE:HSY) shares beat a booming market in 2019 as investors gained confidence in the confectioner's global growth strategy. That rally sets up a potentially volatile week ahead when the company reveals its fourth-quarter operating results on Thursday, Jan. 30. Management will likely pair those results with comments on Hershey's outlook for the new fiscal year ahead.
So, let's take a look at a few trends in that report that might determine whether shareholders enjoy another sweet year in 2020.
Salty and sweet treats
Hershey last year avoided the growth struggles that struck many other producers of consumer packaged foods, and investors are looking for that positive momentum to continue. Organic sales rose nearly 2% in the third quarter, and net sales, which include the impact of recently acquired salty snack brands like Amplify and Pirate, rose 2.5%. Most investors who follow the stock are expecting reported revenue to rise by nearly 4% this quarter, up to $2.06 billion.
Looking beyond that headline figure, Hershey's sales strength will show up in two related metrics. First, there's market share, which inched higher in the U.S. and international geographies last quarter. Investors will also be watching sales volumes to confirm that the confectioner isn't relying entirely on higher prices to deliver its increased revenue.
Under the hood
Several positive trends have combined to push profit margins higher in recent months, including rising prices, the shift toward salty snacks like Skinny Pop, and cost cuts. Of the three factors, price boosts played the biggest role, which means profitability will be worth watching as Hershey potentially bumps up against pricing challenges.
Any such issues would show up in a flat or declining gross profit margin, which last quarter expanded to 44.8% of sales from 44% a year earlier. That improvement allowed Hershey to spend more cash on marketing without sacrificing bottom-line profitability, but that balance can be hard to achieve in any given quarter. Overall, though, look for operating margin to continue climbing so that adjusted earnings per share expand at a quicker rate than sales.
The 2020 outlook
Assuming Hershey meets its upgraded outlook for 2019, the consumer staples company will have achieved a 1.5% organic sales boost for the year to mark a slight slowdown when compared to 2018. Yet investors are more focused on its increased market share, higher pricing, and broader portfolio -- factors that should put it in position to quickly improve on that result if selling conditions remain strong in the industry.
With that big picture in mind, look for CEO Michele Buck to refer to the global selling environment while issuing Hershey's 2020 outlook on Thursday. That forecast is likely to predict modest revenue gains and slightly higher profitability, which should translate into adjusted earnings growth in the high-single-digit range for the year ahead.