Hershey shares hit record high on quarterly profit beat

(Reuters) - Hershey Co’s quarterly sales and profit topped Wall Street estimates on Thursday, as higher snacking sales more than offset a drop in demand for candies in the United States, sending its share to a record high.

FILE PHOTO: Hershey's chocolates are pictured for sale on a store shelf in the Manhattan borough of New York City, New York, U.S. July 19, 2017. REUTERS/Carlo Allegri

Growing consumer preference for low sugar and less processed food has been a challenge for traditional confectioners like Hershey, forcing it to look beyond chocolate and candies.

In the last two years, it has acquired snack brands such as cheese puff maker Pirate Brands and Skinny Pop’s owner Amplify Snack Brands.

Hershey’s net sales rose 2.3 percent to $2.02 billion in the first quarter, helped by higher volume due to Easter and a 0.9 percent benefit from its acquisitions. Analysts on average had expected sales of $2 billion, according to Refinitiv data.

The company said SkinnyPop ready-to-eat popcorn saw an 11 percent sales growth year-to-date, adding more than 100 basis points to its market share.

SkinnyPop brand was the key driver in North America snacking sales, Hershey’s Chief Executive Officer Michele Buck said in an interview with Reuters. “(It) was the biggest brand by far when we bought Amplify Brands – that’s really what we bought it for.”

E-commerce was also a bright spot for Hershey, registering a marked growth of 50 percent in the quarter.

“We see consumers online being willing to purchase greater quantities,” Buck said, adding that the company expects e-commerce sales to continue to grow about the same pace for the rest of the year.

Low raw materials costs, particularly cocoa prices, also helped boost Hershey’s adjusted gross margin that rose to 45.7 percent, beating estimates of 45.2 percent.

Hershey is hitting the “sweet spot” due to a longer Easter season and given its gross margin expansion in the first quarter, said Bernstein analyst Alexia Howard in a note.

The company, which is rolling out an average 2.5 percent price hike on one-fifth of its products this year, said it anticipates the benefit from higher prices to build over the course of the year.

Net income attributable to the Pennsylvania-based company fell to $304.4 million, or $1.45 per share, in the first quarter ended March 31, from $350.2 million, or $1.65 per share, a year earlier.

Excluding items, the company earned a profit of $1.59 per share, well above the average analyst estimate of $1.47.

Hershey’s shares rose as much as 6.3 percent to $124.50 in the morning trading. The company’s shares have risen 9.2 percent this year, underperforming broader S&P Consumer Staples index’s 12 percent gain.

Reporting by Soundarya J in Bengaluru and Richa Naidu in Chicago; Editing by Shinjini Ganguli and James Emmanuel