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The Hershey Co HSY

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Hershey's Mixed Q1 Doesn't Derail Its Long-Term Competitive Edge; We Aren't Sweet on Shares

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

The market soured on Hershey (sending shares down a mid-single-digit percent) following assorted first-quarter results--0.5% organic sales gains (as a 2.8% price benefit was offset by a 2.3% pullback in volumes), 90 basis points of adjusted gross margin improvement to 46.6% (reflecting higher prices and increased efficiency savings), and 20 basis points of contraction in adjusted operating margins to 23.1% (after ratcheting up advertising and marketing by 4.5%). Before the strains from COVID-19 were felt on a global basis, Hershey had expected first-quarter sales to be constrained by one less week in the Easter selling season. As the quarter proceeded, this was compounded by the closure of the Chinese market in response to the coronavirus pandemic during the new year holiday (which drove underlying sales in China down 45% in the quarter, contributing to a nearly 6% shortfall in international sales, which account for about 10% of its mix).

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Company Profile

Business Description

Hershey is a leading confectionery manufacturer in the U.S. (nearly a $25 billion market), controlling around 45% of the domestic chocolate space (per IRI). Beyond its namesake label, the firm's mix has expanded over the last 85 years and now consists of more than 80 brands, including Reese's, Kit Kat, Kisses, and Ice Breakers. Hershey's products are sold in about 85 countries, with just 10% of total sales coming from markets outside the U.S., including Brazil, China, India, and Mexico. The firm has sought inorganic opportunities to extend its reach beyond its core confection business, adding Amplify Snack Brands and its Skinny Pop ready-to-eat popcorn to its mix and Pirate Brands (including the Pirate’s Booty, Smart Puffs, and Original Tings brands) over the past few years.

Contact
19 East Chocolate Avenue
Hershey, PA, 17033
T +1 717 534-4200
Sector Consumer Defensive
Industry Confectioners
Most Recent Earnings Mar 31, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 16,140

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