Financial results

Hershey withdraws its 2020 financial outlook due to coronavirus uncertainty

24-Apr-2020 - Last updated on 24-Apr-2020 at 10:45 GMT

Michele Buck, The Hershey Company president and chief executive officer. Pic: Hershey

Hershey Co has announced it has withdrawn its full year financial outlook for fiscal year 2020 and has warned of weak sales in certain categories as households worried about their financial futures cut spending on snacks and chocolates.

In a statement, the Pennsylvania kisses chocolate maker said: “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.

Summary

Hershey Co first-quarter 2020 financial results summary

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%.

“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%."

Shares of the company were down about 2% at $139.85 at the end of the earnings call Thursday (23) to announce the company’s Q1 2020 results.

Stay-home guidance

After an initial rise beginning of March when consumers started to stockpile food and other essentials ahead of stay-home guidance to limit the spread of the coronavirus pandemic, the company said sales of products, including SkinnyPop popcorn and Pirate’s Booty rice and corn puffs, had slowed in recent weeks.

Michele Buck, The Hershey Company president and chief executive officer, said: “We had a solid start to the year with our business performing as expected prior to the impact of COVID-19.

“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.”

She told analysts and media her 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 -- Michele Buck, The Hershey Company president and chief executive officer

“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.”

The company's previously issued net sales and earnings guidance on January 30, 2020, did not anticipate a significant impact from COVID-19.

Buck said: “We have closed our own retail locations, including our Chocolate World Store in Hershey, Pennsylvania; Times Square, New York; and Las Vegas from most of Q2. While sales in our retail locations are relatively small in proportion to our total business, we do expect several months of closures to have an effect.”

Expectations

Overall, the company's first quarter performance was relatively in line with expectations, with a modest impact from COVID-19.

The length and severity of the pandemic and associated changes to consumer behaviors remain uncertain, it said.

Hershey’s net sales rose 1% to $2.04 bn in the first quarter ended March 29, but fell short of the average analyst estimate of $2.08 bn.

Sales from its North American market rose 2.1%, its second-lowest sales growth in two years, while those from China fell 46.7% as the world’s second-largest economy struggled with the coronavirus outbreak. Sales in India, Mexico and Brazil, some of Hershey’s bigger markets, also fell.

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.

Buck said Hershey’s confectionery business had seen declining sales in the convenience class of trade as trips have slowed.

“This represents approximately 15% of our North American sales. While we still have an opportunity to capture impulse purchases at checkout in other classes of trade, the significant changes we've seen in overall trips and basket size, over the past several weeks has limited the amount of flow back we've seen to other classes of trade.”

In addition, she said, the government category has been significantly impacted by social distancing. “These categories are much more functional than emotional and they've experienced declines of 40 to 50% over the past several weeks.”

She said the company’s E-commerce growth has “accelerated meaningfully”, with the number of consumers purchasing groceries online increasing significantly over the past several years.