Hershey is the IBD Stock Of The Day for Thursday. The chocolate giant reported sweet quarterly results this morning that beat Wall Street expectations. Hershey stock closed higher after the report.
Hershey announced another round of accelerating earnings and revenue growth for the second quarter. Earnings jumped 22% to $1.80 per share, from $1.47 in Q2 2021. And revenue spiked to $2.37 billion, up 19.3% from $1.99 billion last year. For the quarter, Wall Street anticipated EPS of $1.69 on revenue of $2.24 billion.
"Our business momentum continued in the second quarter, with double-digit sales growth in each of our segments resulting in strong earnings-per-share performance," said President and CEO Michele Buck. She said the company was "raising our financial expectations for the year and investing more heavily in our brands, capabilities and people in the second half to continue this momentum into 2023."
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Net Salty Snack sales in North America rose 99.9% to $256.3 million for Q2 thanks to the acquisitions of Dot's and Pretzels, which added a 71.6-point benefit.
But Hershey's adjusted gross margin fell 250 basis points to 43.9%. Derivative market-to-market losses and higher supply-chain costs fueled the drop, which was partially offset by the company's sales growth. Raw material, packaging, logistics and acquisition costs and labor investments also contributed to the decline.
Hershey Outlook
"We're now starting to see bigger concerns relative to scarcity of ingredients and needing to leverage different suppliers at higher costs and price points in order to secure production," Buck said in the earnings call.
She says the geopolitical environment puts a strain on business and that the Ukraine-Russia conflict has created some ingredient scarcity. The EU's natural gas restrictions on Russia will affect Germany, where Hershey and its suppliers source much of their equipment. That's started to influence Hershey's packaging and logistics costs as it's relied more heavily on third-party packers and manufacturers.
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Hershey also warned that there could be a candy shortage this Halloween season. The company is facing capacity constraints and said there may be issues meeting demand.
The company prioritized everyday on-shelf availability and wasn't able to deliver more for the holiday when it began producing sweets in the spring. Hershey projects high-single-digit sales growth for Halloween this year.
Hershey stock raised its quarterly dividend 15% to $1.036 per share. And Hershey upgraded its full-year adjusted EPS range to $8.05-$8.20, from a previous forecast of $7.91-$8.05. Year-end revenue is expected to grow 12%-14%, vs. initial estimates of 10%-12%.
Hershey Stock Analysis
Hershey stock closed 2.8% higher Thursday, at 224.27. Hershey leads the Food-Confectionery Group and has a solid Composite Rating of 95. The Composite Rating combines a number of key technical indicators into an easy-to-use score that tops at 99. HSY stock's Relative Strength Rating of 92 indicates strong performance against its peers in the S&P 500 over the past year. Hershey is on an earnings growth streak and has an EPS Rating of 90.
MarketSmith indicates a 231.69 buy point within a flat base for Hershey. But the stock cleared short-term resistance on Thursday, giving aggressive investors an early entry point just above 222. The stock aced its sixth straight advance Thursday, continuing a rebound off support at its 50-day moving average.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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