Hershey Announces Q1 Results; CEO: Difficult To Predict Future With Certainty, But Resilience During COVID-19 Will Strengthen Company

HERSHEY, Pa., April 23, 2020 (GLOBE NEWSWIRE) -- The Hershey Company (NYSE: HSY) today announced net sales and earnings for the first quarter ended March 29, 2020.

“We had a solid start to the year with our business performing as expected prior to the impact of COVID-19,” said Michele Buck, The Hershey Company President and Chief Executive Officer.  “Our best wishes go out to those being affected by this pandemic, and our heartfelt thanks to those working tirelessly to help us persevere through it.  At Hershey, we have an opportunity to help ensure a steady food supply and create some economic stability for our employees and the farmers, suppliers and partners that rely on us.  We take great pride and passion in our ability to make moments of goodness during this time when physical connection is limited.  The team has demonstrated relentless energy and dedication to plan and adapt while continuing to operate safely.  The situation continues to evolve rapidly, and it is difficult to predict the future with much certainty.  But we have more than 125 years of experience managing through challenging, fast-moving and unprecedented moments in time.  We continue to focus on making the best long-term decisions for all our key stakeholders and believe this resilience will make us stronger in the days and years ahead.” 

First-Quarter 2020 Financial Results Summary¹

• Consolidated net sales of $2,037.3 million, an increase of 1.0%.
• Organic, constant currency net sales increased 0.5%.
• The net impact of acquisitions and divestitures on net sales was a 0.8 point benefit, while foreign currency exchange was a 0.3 point headwind.
• Reported net income of $271.1 million, or $1.29 per share-diluted, a decrease of 11.0%.
• Adjusted earnings per share-diluted of $1.63, an increase of 2.5%.

¹ All comparisons for the first quarter of 2020 are with respect to the first quarter ended March 31, 2019

2020 Full-Year Financial Outlook

The company's previously issued net sales and earnings guidance on January 30, 2020, did not anticipate a significant impact from COVID-19.  Overall, the company's first quarter performance was relatively in line with expectations, with a modest impact from COVID-19.  However, retail foot traffic and takeaway have been volatile and consumer shopping and consumption behaviors are evolving in light of social distancing protocols.  The length and severity of the pandemic and associated changes to consumer behaviors remain uncertain.  Due to the rapidly, evolving situation and the high degree of uncertainty, the company does not believe that it can estimate the full financial impacts with reasonable accuracy, and therefore believes it is prudent to withdraw fiscal 2020 full-year guidance at this time.  The company believes it has sufficient liquidity to satisfy its cash needs, as supported by access to bank lines of credit and an unsecured revolving credit facility.  The company reaffirms its long-term financial objectives of net sales growth in the range of 2% to 4% and an increase in earnings per share of 6% to 8%. 

First-Quarter 2020 Results

Consolidated net sales were $2,037.3 million in the first quarter of 2020 versus $2,016.5 million in the year ago period, an increase of 1.0%.  Price realization was a 2.8 point benefit and the net impact of acquisitions and divestitures was a 0.8 point benefit driven by the acquisition of ONE Brands. Volume and foreign currency exchange were a 2.3 point and a 0.3 point headwind, respectively.  These results were relatively in line with expectations, with a modest impact from COVID-19.

The company’s first-quarter 2020 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items positively impacting comparability of $86.3 million, or $0.34 per share-diluted, as outlined in the table below.  For the first quarter of 2019, items positively impacting comparability totaled $31.2 million, or $0.14 per share-diluted.

Reported gross margin was 42.5% in the first quarter of 2020, compared to 44.3% in the first quarter of 2019, a decrease of 180 basis points.  This decrease was driven by incremental derivative mark to market commodity losses.  Adjusted gross margin was 46.6% in the first quarter of 2020, compared to 45.7% in the first quarter of 2019, an increase of 90 basis points, driven by net price realization and plant efficiencies from proactively building inventory to mitigate risk related to COVID-19.    

Selling, marketing and administrative expenses increased 4.8% in the first quarter of 2020 versus the first quarter of 2019, driven by increased advertising spending and business investments.  Advertising and related consumer marketing expenses increased 4.5% in the first quarter of 2020 versus the same period last year driven by advertising increases in North America.  Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 5.0% versus the first quarter of 2019.  This increase was driven by the timing of investments in strategic growth capabilities and initiatives, including supply chain and the company's new enterprise resource planning system. 

First-quarter 2020 reported operating profit of $382.8 million decreased 12.8% versus the first quarter of 2019, resulting in an operating profit margin of 18.8%, a decrease of 300 basis points.  This decrease was driven by lower gross profit related to incremental derivative mark to market commodity losses and higher selling, marketing and administrative expenses.  Adjusted operating profit of $471.5 million increased 0.2% versus the first quarter of 2019.  This resulted in an adjusted operating profit margin of 23.1%, a decrease of 20 basis points versus the first quarter of 2019 as gross margin gains were more than offset by incremental advertising expenses and accelerated business investments.

The effective tax rate in the first quarter of 2020 was 19.8%, a decrease of 340 basis points versus the first quarter of 2019.  The adjusted tax rate in the first quarter of 2020 was 19.1%, a decrease of 290 basis points versus the first quarter of 2019.  Both the effective and adjusted tax rate decreases were driven primarily by higher investment tax credits versus the year ago period.

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