The Hershey Company: strong cost management compensates incremental Covid-19 costs

According to the company, volume was a 7.0 point headwind, driven by Covid-19 pressures in the company’s International and Other segment and price elasticity in North America. Foreign currency exchange was a 0.7 point headwind. Price realization partially offset these declines, providing 3.5 points of net benefit for the second quarter. The net impact of acquisitions and divestitures was a 0.8 point benefit driven by the acquisition of ONE Brands.

Reported gross margin was 46.4% in the second quarter of 2020, compared to 49.5% in the second quarter of 2019, a decrease of 310 basis points. The decline reflects a higher derivative mark-to-market commodity gain in the prior period. Adjusted gross margin was 46.4% in the second quarter of 2020, compared to 46.5% in the second quarter of 2019, a decrease of 10 basis points as price realization gains were more than offset by incremental Covid-19 manufacturing costs and unfavourable mix.

Second-quarter 2020 reported operating profit of USD 383.4 m decreased 6.5% versus the second quarter of 2019, resulting in an operating profit margin of 22.5%, a decrease of 70 basis points. Adjusted operating profit of USD 386.1 m increased 4.4% versus the second quarter of 2019. This resulted in an adjusted operating profit margin of 22.6%, an increase of 170 basis points versus the second quarter of 2019 as strong corporate and operational cost management more than offset incremental Covid-19 costs.