HERSHEY, Pa., April 25, 2019 (GLOBE NEWSWIRE) -- The Hershey Company (NYSE: HSY) today announced net sales and earnings for the first quarter ended March 31, 2019 and reaffirmed its 2019 net sales and earnings outlook.

“Our year has gotten off to a strong start and we are on track to deliver our financial commitments,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “We remain committed to delivering balanced growth today, while making key investments in our brands, capabilities and people to take the business to the next level in the future.”

First-Quarter 2019 Financial Results Summary ¹

• Consolidated net sales of $2,016.5 million, an increase of 2.3%.
• Constant currency net sales growth of 2.8%, with a 0.5 point headwind from foreign currency exchange.
• The net impact of acquisitions and divestitures was a 0.9 point benefit to net sales growth.
• Reported net income of $304.4 million, or $1.45 per share-diluted.
• Adjusted earnings per share-diluted of $1.59, an increase of 12.8%.

¹ All comparisons for the first quarter of 2019 are with respect to the first quarter ended April 1, 2018

2019 Full-Year Financial Outlook Summary ²

• Full-year reported net sales are expected to increase in the 1% to 3% range.
• The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit.
• The impact of foreign currency exchange is planned to be negligible based on current exchange rates.
• Full-year reported earnings per share-diluted are expected to be in the $5.50 to $5.66 range.
• Full-year adjusted earnings per share-diluted are expected to be in the $5.63 to $5.74 range, an increase of 5% to 7%.

² All comparisons for full year 2019 are with respect to the full year ended December 31, 2018

First-Quarter 2019 Results

Consolidated net sales were $2,016.5 million in the first quarter of 2019 versus $1,972.0 million in the year ago period, an increase of 2.3%. Volume was a 1.7 point benefit, the net impact of acquisitions and divestitures was a 0.9 point benefit, and net price realization was a 0.2 point benefit. Foreign currency translation was a 0.5 point headwind.

As outlined in the table below, the company’s first-quarter 2019 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items impacting comparability of $31.2 million, or $0.14 per share-diluted. For the first quarter of 2018, items impacting comparability totaled $51.9 million, or $0.24 per share-diluted.

Reported gross margin of 44.3% represented a decrease of 510 basis points versus the first quarter of 2018. Adjusted gross margin was 45.7% in the first quarter of 2019, compared to 44.9% in the first quarter of 2018, an increase of 80 basis points. This increase was driven by favorable raw material costs, volume, and insourcing of key seasonal items which was a discreet first quarter 2019 benefit of approximately 20 basis points. Additionally, we benefitted from cost savings from our complexity reduction efforts, which were slightly ahead of expectations.

In North America, media and production efficiency gains enabled by new capabilities drove double digit consumer impression growth through modest dollar spend increases. Advertising and related consumer marketing expense declined 0.8% in the first quarter of 2019 versus the same period last year driven primarily by the continued right-sizing and timing of International and Other segment investments. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing declined 1.9% versus the first quarter of 2018. This was driven by a continued reduction in general administrative costs as a result of our Margin For Growth Program initiatives, as well as slower than anticipated hiring due to a tight labor market in the United States.

First-quarter 2019 reported operating profit was $438.9 million, resulting in an operating margin of 21.8%. Adjusted operating profit of $470.5 million increased 9.9% versus the first quarter of 2018. This resulted in an adjusted operating margin of 23.3%, an increase of 160 basis points versus the first quarter of 2018 driven primarily by volume, gross margin gains and selling, marketing and administrative efficiencies.

The effective tax rate in the first quarter of 2019 was 23.2%, an increase of 130 basis points versus the first quarter of 2018 driven by the effects of U.S. tax reform and foreign rate differential related to derivative gains and losses, which were partially offset by the benefit of employee share-based payments. The adjusted tax rate in the first quarter of 2019 was 22.0%, a decline of 290 basis points versus the first quarter of 2018, driven by tax reform regulation releases, the benefit of employee share-based payments and the continued use of investment tax credits.

North America (U.S. and Canada)

Hershey’s North America net sales were $1,807.0 million in the first quarter of 2019, an increase of 3.2% versus the same period last year. The net impact of acquisitions and divestitures was a 1.6 point benefit. Volume was a 1.4 point benefit, net price realization was a 0.4 point benefit, and foreign currency exchange rates were a 0.2 point headwind.

Total Hershey U.S. retail takeaway³ for the year to date period ended April 14, 2019, in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores) decreased 5.2% versus the prior-year period. Hershey’s U.S. candy, mint and gum retail takeaway decreased 6.0%, resulting in a market share loss of approximately 20 basis points versus the prior-year period. These results were driven by a late Easter season and were in-line with expectations.

North America advertising and related consumer marketing increased 1.1% in the first quarter of 2019 versus the same period last year. Media and production efficiency gains enabled by new capabilities drove double digit consumer impression growth through modest dollar spend increases. Favorable sales, adjusted gross margin and marketing and administrative costs resulted in a segment income increase of 5.7% to $564.8 million in the first quarter of 2019, compared to $534.4 million in the first quarter of 2018.

³Includes candy, mint, gum, salty snacks, snack bars, meat snacks and grocery items.

International and Other

First-quarter 2019 net sales for Hershey’s International and Other segment decreased 4.9% to $209.5 million. Divestitures and foreign currency exchange rates were a 4.6 point and 3.5 point headwind, respectively. Volume was a 4.0 point benefit and net price realization was a 0.8 point headwind. Combined organic constant currency net sales growth in Mexico, Brazil, India and China was approximately 3%.

International and Other segment income increased 14.5% to $20.2 million in the first quarter of 2019 driven by gains from volume growth, gross margin expansion, and selling, marketing and administrative expense reductions as the company continues to execute against its Margin for Growth Program initiatives.

Unallocated Corporate Expense

Hershey's unallocated corporate expense in the first quarter of 2019 was $114.5 million, a decrease of $9.5 million versus the same period of 2018. The decline was driven primarily by Margin for Growth Program initiatives to reduce general administrative costs.

2019 Full-Year Financial Outlook

Full-year reported net sales are expected to increase in the 1% to 3% range. The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit and the foreign currency exchange rate impact is expected to be minimal based on current exchange rates.

Full-year reported earnings per share-diluted are expected to be in the $5.50 to $5.66 range and adjusted earnings per share-diluted in the $5.63 to $5.74 range, an increase of 5% to 7% versus 2018.

Appendix I

Details of the charges included in GAAP results, as summarized in the press release (above), are as follows:

Mark-to-Market Losses (Gains) on Commodity Derivatives: The mark-to-market losses (gains) on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding losses (gains) are reclassified from unallocated to segment income. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period.

Business Realignment Activities: We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. During the first quarter of 2017, we commenced the Margin for Growth Program to drive continued net sales, operating income and earnings per share-diluted growth over the next several years. This program is focused on improving global efficiency and effectiveness, optimizing the company’s supply chain, streamlining the company’s operating model and reducing administrative expenses to generate long-term savings. During the first quarter of 2019, business realignment charges related primarily to third-party costs related to this program. During the first quarter of 2018, business realignment charges related primarily to severance expenses and other third-party costs related to this program.

Acquisition-Related Costs: Costs incurred during the first quarter of 2019 related to the integration of the 2018 acquisitions of Amplify and Pirate Brands. Costs incurred during the first quarter of 2018 included legal and consultant fees incurred to affect the Amplify acquisition, as well as other costs relating to the integration of the business.

Noncontrolling Interest Share of Business Realignment and Impairment Charges: Certain of the business realignment and impairment charges recorded in connection with the Margin for Growth Program related to a joint venture in which we own a 50% controlling interest. Therefore, we have also adjusted for the portion of these charges included within the income (loss) attributed to the noncontrolling interest.