Fourth quarter net sales in the international and

Info icon This preview shows pages 13–15. Sign up to view the full content.

View Full Document Right Arrow Icon
Fourth-quarter net sales in the International and Other segment declined 5.4% to $65.0 million, reflecting lower volume. The segment loss narrowed to $15 million from $16.7 million a year earlier. Fourth-quarter reported net income rose to $181.1 million or $0.85 per diluted share from $116.9 million or $0.55 per share a year earlier. Non-GAAP earnings came to $1.03 per share, missing our estimate by $0.06. The adjusted gross margin contracted by 180 basis points to 42.7%, as higher freight and distribution costs and an unfavorable product mix more than offset the impact of supply-chain improvements and other cost-savings initiatives. For all of 2017, adjusted net income came to $1.02 billion or $4.76 per share, up from $948.5 million or $4.41 per share in 2016. EARNINGS & GROWTH ANALYSIS Along with the 4Q results, the company issued 2018 guidance. It expects adjusted EPS to increase 12%-14% to $5.33- $5.43, including gains from the Amplify acquisition and the impact of a lower tax rate. It expects reported net sales to increase 5%-7%, and organic net sales to increase approximately 2%. It also looks for an adjusted gross margin in line with 2017, a largely neutral impact from currency translation, and an effective tax rate of 20%-22%. We are raising our 2018 EPS estimate to $5.38 from $5.29 and initiating a 2019 forecast of $5.56. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Hershey is Medium-High, the second-highest point on our five-point scale. Moody’s rates Hershey’s long-term debt as A1. Standard & Poor’s has an A rating with a negative outlook. Debt was $2.92 billion at the end of 2017, compared to $2.98 billion at the end of 2016. Cash and equivalents totaled $380 million, up from $297 million a year earlier. Hershey purchased $300.3 million of its common stock in the first nine months of 2017 but did not repurchase any shares in the fourth quarter. In October 2017, the board approved an additional $100 million buyback authorization, which will begin after the current authorization is completed.
Image of page 13

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
M ARKET D IGEST - 14 - HSY pays a dividend. In September 2017, it raised its quarterly dividend by 6% to $0.656 per share, or $2.62 annually, for a yield of about 2.5%. Our dividend estimates are $2.69 (reduced from $2.70) for 2018 and $2.82 for 2019. MANAGEMENT & RISKS Michele Buck became the company’s new CEO on March 1, 2017 following the retirement of John Bilbrey. As a snack and confectionary company, Hershey is subject to input cost inflation, which has been high in recent years. The company requires large amounts of sugar, sweetener, peanuts, cocoa, dairy products, and plastic packaging. Health concerns related to diabetes are always a concern, and producers of confectionary products have been a frequent target of critics. We note that after years of growth, the number of diabetes cases in the U.S. appears to have stabilized. Hershey is also facing additional international competition following Kraft’s acquisition of Cadbury. At the same time, the company has relatively less exposure to exchange rate movements given that most of its business is still based in the U.S.
Image of page 14
Image of page 15
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern