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Hershey Reports Second-Quarter 2019 Financial Results; Updates 2019 Net Sales And Earnings Outlook

The Hershey Company announced on July 25 net sales and earnings for the second quarter ended June 30, 2019.  The company updated its net sales outlook to the mid-point of the previously guided range and slightly raised its reported and adjusted earnings outlook to the top half of the previous range.

“We are pleased with our second-quarter results and the momentum we are seeing behind our key initiatives for this year,” said Michele Buck, The Hershey Company President and Chief Executive Officer.  “We continue to deliver differentiated results by growing both top and bottom line while investing in our brands and capabilities.  We are on track to deliver our financial commitments for the year driven by accelerated U.S. performance, a strengthened international business and continued operational excellence.”

Second-Quarter 2019 Financial Results Summary1

  • Consolidated net sales of $1,767.2 million, an increase of 0.9%.
  • Organic constant currency net sales increased 1.8%.
  • The net impact of acquisitions and divestitures was a 0.6 point headwind, and foreign currency exchange was a 0.3 point headwind.
  • Reported net income of $312.8 million, or $1.48 per share-diluted, an increase of 37%.
  • Adjusted earnings per share-diluted of $1.31, an increase of 14.9%.

All comparisons for the second quarter of 2019 are with respect to the second quarter ended July 1, 2018

2019 Full-Year Financial Outlook Summary2

  • Full-year reported net sales are expected to increase around 2%, the mid-point of the previous 1-3% range.

    •  The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit.

    •  The impact of foreign currency exchange is anticipated to be negligible based on current exchange rates.

  • Full-year reported earnings per share-diluted are expected to be in the $5.54 to $5.66 range, relatively flat with prior year.
  • Full-year adjusted earnings per share-diluted are expected to increase 6% to 7%, the upper half of the previous 5% to 7% range.

All comparisons for full-year 2019 are with respect to the full year ended December 31, 2018

Second-Quarter 2019 Results

Consolidated net sales were $1,767.2 million in the second quarter of 2019 versus $1,751.6 million in the year ago period, an increase of 0.9%.  Net price realization and volume were a 1.2 point and 0.6 point benefit, respectively.  The net impact of acquisitions and divestitures was a 0.6 point headwind, and foreign currency exchange was a 0.3 point headwind.

As outlined in the table below, the company’s second-quarter 2019 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items impacting comparability of $39.7 million, or $0.17 per share-diluted.  For the second quarter of 2018, items impacting comparability totaled $22.6 million, or $0.06 per share-diluted.

Reported gross margin was 49.5% in the second quarter of 2019, compared to 45.3% in the second quarter of 2018, an increase of 420 basis points.  Adjusted gross margin was 46.5% in the second quarter of 2019, compared to 44.5% in the second quarter of 2018, an increase of 200 basis points.  This increase in both reported and adjusted gross margin was driven by favorable mix and fixed cost absorption driven by increased production related to the company’s recently announced July 2019 price increase, favorable commodities, lower waste and net price realization.  The favorable impact of mix and fixed cost absorption was approximately 90 basis points in the second quarter and is expected to be offset in the second half, primarily Q3, as inventory levels normalize.

Selling, marketing and administrative expenses increased 0.9% in the second quarter of 2019 versus the second quarter of 2018 driven by advertising.  Advertising and related consumer marketing expenses increased 5.6% in the second quarter of 2019 versus the same period last year driven by advertising increases in both North America and our International markets.  Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, decreased 1.4% versus the second quarter of 2018 driven by decreased spending related to our Margin for Growth Program and lower acquisition-related costs.

Second-quarter 2019 reported operating profit of $410.1 million increased 29.9% versus the second quarter of 2018, resulting in an operating margin of 23.2%, an increase of 520 basis points driven primarily by gross margin gains.  Adjusted operating profit of $370.0 million increased 9.0% versus the second quarter of 2018.  This resulted in an adjusted operating margin of 20.9%, an increase of 150 basis points versus the second quarter of 2018 driven primarily by gross margin gains.

The effective tax rate in the second quarter of 2019 was 13.7%, a decrease of 40 basis points versus the second quarter of 2018.  The adjusted tax rate in the second quarter of 2019 was 14.8%, a decline of 120 basis points versus the second quarter of 2018.  Both the effective and adjusted tax rate favorability were driven primarily by valuation allowance releases in two international locations.

Read more about the second quarter earnings on www.thehersheycompany.com

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