HERSHEY, Pa., July 26, 2018 -- The Hershey Company announced sales and earnings for the second quarter ended July 1, 2018. The company updated its 2018 reported net sales and earnings outlook to reflect strategic international business divestitures and reaffirmed its organic sales and adjusted earnings outlook.
“We delivered our second quarter results and we remain on track to achieve the financial targets we shared in April,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “We continue to invest in the U.S. with our core brands and build capabilities for growth while taking measured steps to enhance long-term profitability. Amplify’s strong performance in the marketplace continues and the integration is proceeding as planned. I am very pleased with the ongoing transformation of our international business with solid organic growth, meaningful profit improvement, and the successful divestitures of Tyrrells and Golden Monkey.
“Hershey’s Board of Directors has approved a new $500 million stock repurchase authorization and a dividend increase of 10%,” Buck continued. “Hershey’s solid balance sheet and strong cash flow generation gives the company continued flexibility against its cash priorities, including returning cash to shareholders in the form of dividends and buy backs, while also being able to participate in strategic merger and acquisition activity.”
Second Quarter 2018 Financial Results Summary
- Consolidated net sales of $1,751.6 million, an increase of 5.3%.
- Acquisitions were a 5.9 point benefit to net sales growth and foreign currency exchange rates were negligible.
- Reported net income of $226.9 million, or $1.08 per share-diluted.
- Adjusted earnings per share-diluted of $1.14, an increase of 5.6%.
(All comparisons above are with respect to the second quarter ended July 2, 2017)
2018 Full Year Financial Outlook Summary
- Full-year reported net sales are expected to increase towards the low end of the updated 3.5% to 5.5% range. This includes an updated net impact from acquisitions and divestitures of approximately 3.5 points versus the previous estimate of 5.0 points, reflecting recent international business divestitures.
- The outlook for organic net sales is reaffirmed towards the low end of the slightly up to 2% range.
- The impact of foreign currency exchange rates is expected to be negligible.
- Full-year reported earnings per share-diluted are now expected to be in the $4.76 to $4.96 range.
- The outlook for adjusted earnings per share-diluted of $5.33 to $5.43, an increase of 14 to 16%, is reaffirmed.
- Quarterly dividend declared on Common Stock and increased 10%.
(All comparisons above are with respect to the fiscal year ended December 31, 2017)
Second Quarter 2018 Results
Consolidated net sales were $1,751.6 million in the second quarter of 2018 versus $1,663.0 million in the year ago period, an increase of 5.3%. Acquisitions were a 5.9 point benefit, volume was a 1.0 point benefit and net price realization was a 1.6 point headwind. Foreign currency translation impact was negligible.
As outlined in the table below, the company’s second quarter 2018 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items impacting comparability of $22.6 million, or $0.06 per share-diluted. For the second quarter of 2017, items impacting comparability totaled $24.8 million, or $0.13 per share-diluted.
Reported gross margin of 45.3% represented a decline of 80 basis points versus the second quarter of 2017. Adjusted gross margin was 44.5% in the second quarter of 2018, compared to 47.1% in the second quarter of 2017, a decline of 260 basis points. This was in line with expectations, driven by higher freight and logistics costs, incremental investments in trade and packaging, unfavorable mix and additional plant costs related to new production lines.
Advertising and related consumer marketing expense increased on core confection brands in North America but was offset by spend optimization and shifts within emerging brands and international resulting in an overall decline of 7.2% in the second quarter of 2018 versus the same period last year. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 5.6% for the second quarter of 2018. The company continued to reduce its foundational cost structure, but that benefit was more than offset by Amplify acquisition costs and investment in the multi-year implementation of its enterprise resource planning (ERP) system.
Second quarter 2018 reported operating profit was $315.7 million, resulting in an operating margin of 18.0%. Adjusted operating profit of $339.5 million declined 2.0% versus the second quarter of 2017 and resulted in an adjusted operating margin of 19.4% driven by gross margin declines.
The effective tax rate in the second quarter of 2018 was 14.1%, including the impact of the U.S. Tax and Jobs Act of 2017. As anticipated, the second-quarter 2018 adjusted tax rate of 16.0% declined versus the prior year period due to U.S. tax reform.