Why Hershey Co. Stock Slumped Today

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What happened

Shares of Hershey Co. (NYSE: HSY) slipped today after the company posted disappointing results in its fourth-quarter earnings report. Like its peers, the candy maker is struggling with a consumer shift away from sugary foods and drinks to healthier products. The stock was down 5.7% as of 11:19 a.m. EST.

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So what

Hershey said net sales declined 1.7% in the period to $1.94 billion as sales volume was off 2.3%. That was slightly below analyst estimates of $1.96 billion, though the company blamed the tumble in part on the timing of shipments in the quarter and the successful launch of Hershey's Cookie Layer Crunch Bar in the period the year before.

Adjusted gross margin fell 180 basis points to 42.7%, and as a result, adjusted earnings per share dropped from $1.17 a year ago to $1.03, missing expectations of $1.07.

CEO Michele Buck sounded an optimistic note, however, saying, "In 2017, we continued to strengthen our core chocolate brands, positioned our snacks business for on-going success and increased adjusted operating profit margin. We continue to drive strong growth in our core chocolate brands as Reese's, Hershey's, Kit Kat and Kisses' combined retail takeaway was solid."

Now what

Hershey just closed on its acquisition of Amplify Snack Brands, the latest move in its strategy to pivot away from sweets and toward salty or protein-based snacks. Buck touted the deal, saying the parent of Skinnypop popcorn, Tyrells chips, and other snack brands will give it access to the "fast-growing warehouse salty snack aisle." That deal follows its 2015 acquisition of Krave, a maker of beef jerky.

In its outlook for 2018, the company projected sales growth of 5%-7% and organic sales growth (which excludes acquisitions) of 2%, with the Amplify acquisition adding an estimated 5 percentage points. On the bottom line, it saw an increase of 12%-14% in earnings per share, to $5.33-$5.43, with the help of the Amplify acquisition and tax reform. Both forecasts were ahead of the analyst consensus of 1.8% revenue growth and $5.25 in EPS.

While today's report was disappointing, Hershey seems to be making the right moves to position itself for future growth. Despite the headwinds, the rest of the year should be more promising.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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