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Hershey reports 1% Q1 net sales gain, withdraws 2020 guidance

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April 23, 2020

The Hershey Company reported consolidated net sales of $2,037.3 million, an increase of 1.0% for the first quarter ended March 29, 2020, the company announced in a net sales and earnings report. The company also withdrew its 2020 guidance due to the impact of the coronavirus pandemic.

In addition:

• 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.
• Net income was $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%.

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.

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 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%. 

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.    

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.