HersheyHSY

Hershey brought in about $2.79 billion in sales last quarter, beating the $2.63 billion analysts expected. Profits were also much higher than anticipated, coming in at $1.90 per share compared to the $1.43 estimate. The company raised its prices to help cover the rising cost of cocoa, and so far, customers are still buying Reese's and Dot's Pretzels at those higher price points.

Management also raised its outlook for the rest of the year, signaling that the business is recovering from a difficult period of high ingredient costs. This result is a good sign that Hershey's brands have the power to protect profits even when the price of chocolate's main ingredient spikes.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Profit recovery accelerating: Adjusted earnings per share grew 57.0% to $1.90 this quarter as the company began to recover from the extreme cocoa price spikes that hurt last year's results. This rebound is a positive sign for owners that the business can maintain its earning power even after facing its highest raw material costs in years.
• Pricing power offset volume: Hershey raised prices by 12% across the company to cover higher costs, which caused customers to buy 8% fewer items as they adjusted to the new shelf prices. While the volume dip is a headwind, the higher prices successfully pushed adjusted gross margins up by 350 basis points to 41.6%, showing the brands still have significant pull with shoppers.
• Salty snacks acquisition impact: The North America Salty Snacks division grew sales by 22.9% to $387.8 million, but almost all of that came from the acquisition of LesserEvil rather than selling more existing popcorn or pretzels. Organic growth in this segment, which ignores the new purchase, was just 0.6% as the company dealt with shipping challenges and higher marketing costs.
• International margins under pressure: The international business reported a loss of $5.1 million, a sharp drop from the $19.8 million profit it made a year ago. This loss was caused by higher manufacturing costs and increased spending on ads, resulting in a negative 2.3% margin for the division this quarter.
• Full year outlook raised: Management increased its profit guidance for the year and now expects adjusted earnings per share to grow between 32.5% and 35%, up from a previous high of 33.5%. The company also expects net sales to grow between 4.5% and 5% for the full year, signaling confidence that the strong first half of the year will continue.

Our take: A very strong quarter that shows the brand's resilience in a tough market. Massive price hikes successfully protected profits from high cocoa costs, even though some shoppers bought fewer treats. This result proves Hershey can defend its earnings power, which keeps the long-term case for the stock on solid ground.