Vending

Hershey Q2 earnings stay flat on COVID-19 sales hit

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July 23, 2020

The Hershey Co. remained flat during the second quarter after a dip in sales caused by COVID-19, but managed to beat consensus earnings estimates. The company is looking to the second half of the year to improve its sales based on its momentum coming out of the second quarter, although it recognizes the coronavirus will continue to pose challenges..

Adjusted earnings were $1.31 per share, matching earnngs during the year ago. Sales fell to $1.7 billion in the second quarter ended June 28 of 2020 versus $1.76 billion in the year ago period, coming in short of revenue estimates.

"We delivered profitable sales growth in North America in the second quarter despite the increased complexities presented by the COVID-19 pandemic," Michele Buck, president and CEO, told analsyts in prepared remaks during the quarterly conference call. "Our iconic brands and great execution enabled us to gain 225 basis points of confectionery market share. In addition, strong cost management enabled us to offset many of the COVID-19 related financial pressures and deliver adjusted earnings per share in line with last year."

The first half of the quarter was difficult due to government restrictions and location closures, but conditions improved later in the quarter as economies began to reopen, she said.

"Category trends in drug, convenience and club channels were more pressured, though all sequentially improved as we progressed through the quarter as consumers returned to more normal activities away from home," Buck said during the earnings call. "While COVID-19 has impacted traffic to some key channels in the short-term, we continue to believe our channel diversification is a long-term strategic advantage."

E-commerce was a strong point. "Our e-commerce sales growth remains significantly higher than our pre-COVID baseline, with year-over-year sales growth accelerating further in the second quarter to 200%," Buck said.

While the refreshments category in general has improved since April, the category continued to decline 20% to 25% in June, Buck said. "We expect category trends to remain challenged until social distancing guidelines relax," she said.

Foodservice, specialty retail and refreshment were each down approximately 40% during the second quarter, Steve Voskuil, senior vice president and chief financial officer, said during the earnings call.

"We continue to expect these businesses to be negatively impacted by COVID-19 during the balance of the year, but improve incrementally as the economy and consumer mobility continue to recover," he said.

Gross margin fell from 46.4% in the second quarter of 2020, from 49.5% in the second quarter of 2019, a decrease of 310 basis points. The decline reflects a higher derivative mark-to-market commodity gain in the prior period.

Adjusted gross margin was 46.4% in the second quarter of 2020, compared to 46.5% in the second quarter of 2019, a decrease of 10 basis points as price realization gains were more than offset by incremental COVID-19 manufacturing costs and unfavorable mix.

The company chose not to provide any full year guidance since the impact of recent spikes in coronavirus cases on consumer mobility, retail operations, government regulations, and the macroeconomic environment remains unclear.

However, the company did say it expects accelerated sales growth in the second half of the year based on momentum exiting the second quarter, assuming no "significant disruption" to current consumer trends.

For an update on how the coronavirus pandemic has affected convenience services, click here.