The Hershey Company (NYSE: HSY) has announced net sales and earnings for the third quarter ended September 27, 2020.
Third-Quarter 2020 Financial Results Summary
- Consolidated net sales of $2,219.8 million, an increase of 4.0%.
- Organic, constant currency net sales increased 3.8%.
- The net impact of acquisitions and divestitures on net sales was a 0.8 point benefit, while foreign currency exchange was a 0.6 point headwind.
- Reported net income of $447.3 million, or $2.14 per share-diluted, an increase of 39.0%.
- Adjusted earnings per share-diluted of $1.86, an increase of 15.5%.
“We had a strong third quarter, with accelerated reported net sales growth of 4%, adjusted diluted EPS growth of more than 15% and confectionery share gains across markets, including an almost 190 basis point gain in the U.S. Our core U.S. business remains healthy as consumers reach for small treats during the pandemic, and our decision to lean into Halloween ahead of the season supported consumers’ desire to find new and creative ways to celebrate safely. We also saw sequential improvement in the areas of our business hit hardest by COVID-19, including our international markets, owned retail locations and food service business,” said Michele Buck, The Hershey Company President and Chief Executive Officer.
“We are continuing to focus on executing with excellence, investing in the business, and advancing our strategic priorities to deliver a strong fourth quarter and position us well for 2021.”
Third-Quarter 2020 Results
Consolidated net sales were $2,219.8 million in the third quarter of 2020 versus $2,134.4 million in the year ago period, an increase of 4.0%. Price realisation was a 2.9 point benefit and volume growth was a 0.9 point benefit, both driven by strength in the North America segment. The net impact of acquisitions and divestitures was a 0.8 point benefit driven by the acquisition of ONE Brands. Foreign currency exchange was a 0.6 point headwind.
Reported gross margin was 48.7% in the third quarter of 2020, compared to 44.2% in the third quarter of 2019, an increase of 450 basis points. The increase reflects a higher derivative mark-to-market commodity gain in the current period, along with net price realization. Adjusted gross margin was 45.4% in the third quarter of 2020, compared to 44.8% in the third quarter of 2019, an increase of 60 basis points driven by pricing gains which were partially offset by unfavorable commodities and increased warehouse costs related to elevated demand in North America.
Selling, marketing and administrative expenses decreased 2.6% in the third quarter of 2020 versus the third quarter of 2019. Advertising and related consumer marketing expenses decreased 4.6% in the third quarter of 2020 versus the same period last year driven by media cost efficiencies and optimized brand investment. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, decreased 1.5% versus the third quarter of 2019. This decrease was driven by COVID-19 related travel and meeting expense savings and the timing of investments in key strategic initiatives compared to the prior year.
Third-quarter 2020 reported operating profit of $611.4 million increased 32.7% versus the third quarter of 2019 for Hershey, resulting in an operating profit margin of 27.5%, an increase of 590 basis points. This increase was driven by higher gross profit due to the previously mentioned higher derivative mark-to-market commodity gain in the current period. Adjusted operating profit of $543.3 million increased 13.9% versus the third quarter of 2019. This resulted in an adjusted operating profit margin of 24.5%, an increase of 220 basis points versus the third quarter of 2019 driven by strong price realization in the North America segment and corporate and operational cost management.
The effective tax rate in the third quarter of 2020 was 20.5%, an increase of 30 basis points versus the third quarter of 2019. The adjusted tax rate in the third quarter of 2020 was 21.5%, an increase of 140 basis points versus the third quarter of 2019. Both the effective and adjusted tax rate increases were primarily driven by lower excess tax benefits from stock-based compensation.
The Hershey third-quarter 2020 results, as prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), included items positively impacting comparability of $68.1 million, or $0.28 per share-diluted, as outlined in the table below. For the third quarter of 2019, items negatively impacting comparability totaled $18.4 million, or $0.07 per share-diluted.