HERSHEY, PA. — Hershey Co. overcame persistent supply chain disruptions to achieve double-digit sales growth in each of its business segments last quarter. Management raised its full-year forecast to reflect continued strong demand and increased pricing across its portfolio, which is expected to more than offset higher costs and increased levels of advertising and merchandising in the coming months.
Net income for the second quarter ended July 3 was $315.6 million, or $1.53 per share, compared with $301.2 million, or $1.45 per share, in the year-ago period. Excluding unusual items, including losses on derivative market prices, business restructuring activities, acquisition activities and other miscellaneous losses, adjusted net income was $372.4 million, compared to adjusted net income of $305.8 million in the quarter last year.
Net sales were $2.4 billion, up 19% from $2 billion in the prior year. Stripping out the benefit of last year’s acquisitions of Dot’s, Pretzels and Lily, as well as the impact of currency, Hershey’s organic net sales rose 14%, led by price and volume gains.
“Growth in the second quarter was broad-based, with each segment delivering double-digit sales growth, leading to strong earnings per share,” Michele G. Buck, president and CEO, said in pre-recorded comments before a July 28 earnings call. “Organic net sales growth of 14% was driven by both price and volume gains, while acquisitions contributed another 5 points to growth. Despite persistent, widespread supply chain disruptions, our teams were able to increase production and inventory levels during the quarter. This has not only boosted sales growth, but also led to improvements in market share performance and will allow us to more fully activate our portfolio in the second half of the year.”
Although inflation is putting pressure on many Americans, consumers are still buying brand-name snacks and candy rather than lower-priced private label products in those categories, Ms. Buck said.
“I think among snacks, what we tend to see is that consumers really like their brands,” Ms. Buck said. “So if you look at whole food, as budgets have been tighter, certainly private labels have grown relative to all snacks, private labels haven’t, and consumers tend to like their brands.”
In the second quarter, North America confectionery segment revenue increased 12% to $618.9 million behind price and volume gains, which were partially offset by higher supply chain costs, acquisition costs and increased trade shows and travel costs compared to the previous year. The segment’s net sales increased 13% to $1.9 billion compared to the same period last year. Sales of candy, mints and gum in the United States increased 5%, led by robust consumer demand and price increases.
“Looking to the second half, we expect our higher inventory levels and increased advertising and merchandising to drive strong daily sales and share performance,” Ms Buck said. “Media spend on chocolate is forecast to grow by double digits in the second half, and quality merchandising is also expected to increase.”
“Seasonal consumer engagement is expected to remain high, and we expect high single-digit sales growth for both Halloween and the holiday season.” Despite this strong growth, we will not be able to fully meet consumer demand due to capacity constraints.
“Given that many of our daily and seasonal products are produced on the same line, we have had to balance production over the past few months to improve daily shelf availability and build seasonal inventory at the same time. While this is likely to put seasonal pressure on stocks in the second half, we expect our daily stock trends to remain strong on the back of higher inventory levels and more advertising and merchandising.”
North America Savory Snacks segment revenue jumped 44% to $37.4 million as price gains and higher volumes offset unfavorable mix, acquisition-related costs and higher supply chain costs. Segment net sales jumped 100% to $256.3 million, largely driven by the acquisitions of Dot’s and Pretzels, and to a lesser extent by net price realization.
“Our savory snacks brands continue to deliver tremendous growth and share gains,” Ms Buck said. “In the last 12 weeks, SkinnyPop retail sales grew 17% and the share of the ready-to-eat popcorn segment increased 130 basis points to 24%.” Growth was driven by higher household penetration and stable purchase levels as new pack sizes allowed us to capture increasing cases.
“Pirate’s Booty also continues to gain households through distribution gains, while speeds remain strong, leading to a 32% rise in retail sales over the last 12-week period.” And Dot’s Pretzels growth continues to significantly outpace the pretzel category, with 45% retail sales growth and 340 basis points of earnings per share over the past three months.
“To support this sustained, increased growth, we continue to advance our strategic planning to optimize our salty snacks supply chain for additional capacity and margin efficiencies.”
Hershey’s international segment profit was $30.7 million, an increase of $3.1 million from the prior period, reflecting gains in volume and net price realization, partially offset by higher supply chain and logistics costs. advertising investment, wage and income inflation and increased travel costs. International segment net sales increased 21% to $207.2 million from the year-ago quarter.
“Consumer demand remains strong in all markets, with distribution and innovation driving double-digit growth in every market in the quarter,” Ms Buck said, highlighting Hershey’s Kisses in India and better-for-you innovation in Mexico as top performers results.
For the full year, executives now expect net sales growth of 12% to 14% for the year, up from previous guidance of 10% to 12%. Reported EPS growth is expected to be in the range of 9% to 12%, compared to previous guidance of 8% to 11%.
Shares of Hershey Co., which trade on the New York Stock Exchange, rose to $224.27 on July 28, up 2.8 percent from the previous close of $218.23.