Hershey sales up double digits in second quarter
HERSHEY, PA. — A robust recovery in away-from-home consumption and international markets, plus sustained elevated at-home consumption translated to double-digit net sales and adjusted earnings-per-share growth for The Hershey Co. in the second quarter. Heading into the remainder of the year, however, executives expect sales growth to moderate, said Michele G. Buck, president and chief executive officer.
“We will be closely monitoring consumer behavior to evaluate the sustainability of recent gains and implications to our performance in 2022 and beyond,” Ms. Buck said in pre-recorded remarks shared with the investment community on July 29.
Net income attributable to The Hershey Co. in the quarter ended July 4 was $301.2 million, equal to $1.50 per share on the common stock, up 12% from $268.9 million, or $1.33 per share, in the prior-year period. The results reflected volume growth, lower COVID-19 related costs and productivity initiatives offset by increased supply chain costs and higher selling, marketing and administrative expenses.
Net sales for the quarter increased 17% to $1.99 billion from $1.71 billion the year before. Stripping the benefit of foreign exchange, organic, constant-currency net sales increased 16%.
North America segment net sales grew 12% to $1.78 billion in the quarter, driven by volume gains.
“Our market share remains well above pre-COVID-19 levels, with our confectionery share 135 basis points higher, and our snacking share 200 basis points higher than the same period in 2019,” Ms. Buck said. “We also added another fast-growing, on-trend brand to the portfolio with the acquisition of Lily’s. These great tasting, low-sugar and premium-priced products allow us to capture incremental consumers and occasions.”
During the quarter, Hershey recorded healthy one-year and two-year trends in its confection brands, primarily driven by increased chocolate consumption, Ms. Buck said. The Reese’s brand’s retail sales grew over 10% in the latest 12-week period, building on growth of 16% in the prior-year period.
“Over the past three years our Reese’s brand solidified its leadership position in confection, becoming a $2.5 billion brand, growing at a CAGR of over 8%, and gaining 150 basis points of marketplace share,” she said. “We have added three new manufacturing lines over the past four years and are adding another next year to further expand capacity and better service this strong growth. We expect continued strength in this franchise in the second half and beyond.”
The Twizzlers brand drove a 2% increase in retail sales during the quarter, on top of 6% growth in the year-ago period. Ms. Buck said consumers purchased more Twizzlers products for road trips and watching television during the pandemic. A limited-edition mystery flavor contributed to the growth.
Within Hershey’s snack portfolio, the SkinnyPop brand achieved growth of over 25% during the quarter, gaining 275 basis points of share within the ready-to-eat popcorn category and adding to growth of 5% in the prior-year quarter. The Pirate’s Booty and One nutrition bar brands, negatively impacted by pandemic-driven changes in consumer behavior, are beginning to rebound, up 25% and 18%, respectively, over the comparable quarter, when both businesses experienced declines.
Net sales in Hershey’s foodservice and specialty retail channels grew 40%, recovering most of the loses from the year before. Increased trips to convenience stores boosted sales of chocolate for immediate consumption.
“We also saw improvements within our refreshment business, with growth of over 25% in the last 12 weeks,” Ms. Buck said, referring to gum and mints. “While we are encouraged by the improvement in category sales, and our strong share gains of over 200 basis points in this period, the category remains below pre-COVID-19 levels as some consumers continue to work from home, wear masks and practice social distancing. We expect trends to improve as we progress through the year but remain below pre-COVID-19 levels.”
Hershey’s International and Other segment delivered reported net sales growth of 70% in the quarter, which, when accounting for steep declines in the year-ago period, amounted to two-year growth of approximately 6%, Ms. Buck said.
“This sales growth, along with the changes we’ve made to our operating model in China, drove strong increases in segment profitability,” she said. “While the teams have focused on managing COVID-19 volatility, they have also continued to drive progress against our strategies to increase brand awareness and distribution.”
Several areas of the business eased from prior-year levels but remain elevated from the pre-pandemic period, Ms. Buck noted. Consumers aren’t making as many s’mores as they were last summer, possibly due to increased consumer mobility and high temperatures this season, Ms. Buck said.
Additionally, sales of Hershey’s baking products decreased 18% in the latest quarter, lapping 30% growth in the year-ago period.
“While we have seen some declines in at-home baking as consumer mobility has increased, sales for this part of our portfolio remain well-ahead of pre-COVID-19 levels,” Ms. Buck said. “Sales for our cocoa, chip and syrup products in the second quarter were approximately 10% higher than the same period in 2019.”
The company’s e-commerce business is another area where quarterly sales slumped from the prior year as shoppers returned to grocery stores. Ms. Buck said online sales declined 30% from 2020 but were up over 100% compared to the same period in 2019.
“Our year-to-date growth in the channel is over 7%, and we continue to believe e-commerce will remain an important channel for consumers and retailers in the future,” she said.
Looking ahead to the second half of the year, management expects net sales growth to moderate, and while pricing actions will take effect, the company anticipates increased packaging and freight costs and elevated labor costs to add pressure, said Steven E. Voskuil, senior vice president and chief financial officer.
Management updated its full-year net sales and earnings outlook based on the company’s strong performance in the second quarter and the acquisition of Lily’s Sweets, LLC. Full-year net sales growth now is expected to be in the range of 6% to 8%, up from the previous target of 4% to 6%.
Reported earnings per share for the year are expected to be in the range of $6.59 to $6.85, up 8% to 12% from $6.11 in fiscal 2020. The target represents a slight decrease from the previous range of 9% to 12% due to the incremental costs associated with acquiring and integrating the Lily’s business.
On an adjusted basis, full-year earnings per share are still expected to be in the $6.79-to-$6.92 range, unchanged from the earlier estimated 8%-to-10% increase over adjusted earnings per share of $6.29 in fiscal 2020. The guidance accounts for increased profit from higher sales that is offset by incremental tax reserves incurred in the second quarter in connection with an adverse ruling in a non-US tax litigation matter, as well as higher supply chain costs associated with meeting stronger demand.
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