The Hershey Company (HSY) second quarter 2010 GAAP earnings slipped 34.5% to $46.7 million from $71.3 million in the year-ago period. Excluding special items, adjusted earnings per share came in at 51 cents, which topped the Zacks Consensus Estimate of 47 cents as well as the year-ago adjusted earnings of 43 cents per share.
Hershey’s net sales during the quarter increased 5.3% year-over-year to $1.2 billion, matching the Zacks Consensus Estimate. The growth was mainly driven by favorable pricing and improvement in the international business, including a 1% favorable impact from foreign currency translation.
Furthermore, management stated that ramped-up advertising spending (which was up approximately 50%) and increased in-store promotions and merchandising drove operating performance. In the channels measured by syndicated data, U.S. market share during the quarter increased 0.3 points.
Hershey’s gross margin for the quarter expanded 560 basis points (bps) to 44.3%. The increase was primarily driven by favorable pricing, Global Supply Chain Transformation (GSCT) program savings and productivity gains. The operating margin for the quarter improved by a modest 10 bps year-over-year to 10.1% as higher gross margin was partially offset by increased overheads, and charges related to the Godrej Hershey Ltd. JV in India and the GSCT program.
Hershey exited the quarter with cash and cash equivalents of $249.1 million, and long-term debt-to-capitalization of 67.2%, compared to cash balance of $28.8 million and long-term debt-to-capitalization of 76.7% in the year-ago period.
Moving forward, Hershey expects GAAP earnings for 2010 to range between $2.04 and $2.12 per share. Excluding charges related to the Project Next Century program and the JV in India, adjusted earnings are expected between $2.47 and $2.52 per share. The guidance is in line with the Zacks Consensus Estimate of $2.51 per share, which moved down a penny over the past month as 1 of 15 covering analysts raised expectations, while 1 moved in the opposite direction.
We currently have a long-term Neutral recommendation and a short-term Zacks #3 Rank (Hold) rating on Hershey’s shares.
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