HERSHEY, Pa.--(BUSINESS WIRE)-- The Hershey Company announced sales and earnings for the third quarter ended October 2, 2016. Consolidated net sales were $2,003.5 million compared with $1,960.8 million for the third quarter of 2015. Reported net income for the third quarter of 2016 was $227.4 million or $1.06 per share-diluted, compared with $154.8 million or $0.70 per share-diluted for the comparable period of 2015.
“I’m pleased with Hershey’s third-quarter operating results, which were relatively in line with our estimates across all markets,” said John P. Bilbrey, Chairman, President and Chief Executive Officer, The Hershey Company. “Our U.S. business benefited from performance within key retail channels and Halloween programming and merchandising in the marketplace. Throughout 2016, our top priority has been to restore consistency across the business. Against a backdrop of continued snacks competition, we experienced improvements in key aspects of our business. Our brands responded positively to the marketplace investments we discussed last quarter, which is why we continue to believe that candy, mint and gum (CMG) is an attractive category capable of solid growth over the long term when supported with the right mix of customer and consumer marketing. Therefore, we intend to make the necessary investments in our business to drive growth and market share over the strategic planning cycle. Initiatives such as the demand landscape work we discussed last quarter and platform innovation, similar to Hershey’s Cookie Layer Crunch bar that we announced earlier this month, should enable us to improve net sales and operating income performance in 2017. Additionally, analysis of our cost structure continues. This is a comprehensive global review across all businesses and functions with a goal of ensuring that we operate more effectively and efficiently. I continue to work closely with my management team on this important endeavor and look forward to discussing the value enhancing outcomes in the near future.”
Third-Quarter Performance
Consolidated net sales were $2,003.5 million in the third quarter of 2016, an increase of 2.2% versus the third quarter of 2015. Excluding the effect of foreign currency translation, a 0.2 point headwind, net sales increased 2.4% versus the year ago period. Volume was a 1.0 point contribution and in line with estimates. Net price realization was 0.7 points favorable as direct trade and returns, discounts and allowances in the International and Other segment were less than last year. Acquisitions were a 0.7 point benefit in the third quarter.
Adjusted gross margin was 45.6% in the third quarter of 2016, compared to 46.0% in the third quarter of 2015. The 40 basis point decline was driven by unfavorable mix and other supply chain costs, partially offset by supply chain productivity and costs savings initiatives.
As expected, total advertising and related consumer marketing expense was lower in the third quarter of 2016. For the full year, the combined investments of advertising and related consumer marketing expense, as well as direct trade in North America, are expected to increase, supporting new product launches and in-store merchandising and display activity. Selling, marketing and administrative (SM&A) expenses, excluding advertising and related consumer marketing and the barkTHINSacquisition, declined about 2% in the quarter, as higher employee-related costs were more than offset by productivity and cost savings programs. As a result, consolidated adjusted operating profit of $446.4 million in the third quarter of 2016 increased 7.6% versus the third quarter of 2015.
The third-quarter tax rate decline versus the prior year period was greater than anticipated, largely as a result of favorable tax outcomes related to R&D tax credits. For the full year, the company estimates that the tax rate will be lower than last year by about 100 basis points versus a previous estimate of a 50 basis point decline.
For the first nine months of 2016, the company repurchased $420 million of outstanding shares, resulting in diluted shares outstanding of 215.2 million at the end of the third quarter of 2016, compared to 220.1 million for the same period of 2015.
North America (U.S. and Canada)
Hershey’s North America net sales were $1,764.5 million in the third quarter of 2016, an increase of 1.8% versus the same period last year. Volume was a 1.1 point contribution to sales growth and net price realization a 0.1 point headwind. The barkTHINS acquisition was a 0.8 point benefit in the third quarter of 2016.
Total Hershey U.S. retail takeaway1 for the 12 weeks ended October 8, 2016, in the expanded all outlet combined plus convenience store channels (xAOC+C-store) increased 0.6%. For the 12 weeks ended October 8, 2016, Hershey’s U.S. CMG market share was 31.0%, the same as the year ago period.
North America segment income increased 3.3% to $563.9 million in the third quarter of 2016, compared to $546.1 million in the third quarter of 2015. The increase in segment income was driven by an increase in gross profit of about 1.0% and lower advertising and related consumer marketing expense. Full report.
