In the second quarter of the fiscal year, Hershey's ($HSY) reported results that fell significantly below Wall Street's expectations, reflecting a notable pullback in consumer discretionary spending. This trend has compelled the iconic confectionery company to revise its full-year forecast downward.
Adjusted earnings for the June quarter recorded at $1.27 per share, which represents a decline from the previous year's earnings of $2.01. This result also missed the consensus estimate from Capital IQ, which projected adjusted earnings at $1.45 per share. Additionally, sales experienced a sharp decline of 17% year over year, totaling $2.07 billion, again falling short of analysts' expectations, which had set sales figures around $2.32 billion.
The company reported an 18% drop in organic volume and mix, while pricing strategies yielded a modest gain of 1%. In response to these challenges, Chief Executive Michele Buck commented on the dynamic operating environment, stating, "Today's operating environment remains dynamic with consumers pulling back on discretionary spending.
Our business has been impacted by these trends, but we are pleased to see continued growth in the confection category and momentum building in our salty snacks portfolio." Hershey's North America confectionery sales saw a staggering slide of 21% year over year, achieving $1.58 billion. This decline was partly attributed to the planned reduction of retailer inventory that had built up in the first quarter, prior to the implementation of an enterprise resource planning system.
On a brighter note, North America's salty snacks revenue surged by 6.4%, reaching $289.9 million, driven by growth in sales volume. Conversely, international sales reported an 8.9% dip from last year, totaling $204.8 million. The gross margin also saw a contraction of 530 basis points, settling at 40.2%, influenced by derivative mark-to-market losses alongside increased commodity costs.
Selling, marketing, and administrative expenses were reduced to nearly $541 million, down from $571.8 million the previous year. Looking ahead, Hershey's has adjusted its earnings per share (EPS) forecast for 2024 to reflect a slight decline, now expecting EPS in the range of $9.49 to $9.59. This outlook deviates from the initial forecast which anticipated flat earnings compared to last year’s EPS of $9.59.
Additionally, sales growth is projected at about 2% year over year, whereas prior estimates had indicated growth between 2% and 3%. Current consensus estimates on Capital IQ anticipate a normalized EPS of $9.57 alongside a revenue mark of $11.43 billion. Buck confidently stated, "Our second-half innovation is expected to bring energy to our categories, and we are confident our evolving strategies will meet consumers' changing needs and drive long-term success." As of the recent fiscal report, Hershey's shares are priced at $189.50, reflecting a change of -$7.98, which denotes a percent change of -4.04..