Hershey Reports Second-Quarter 2023 Financial Results; Updates 2023 Earnings Outlook

The Hershey Company (NYSE: HSY) today announced net sales and earnings for the second quarter ended July 2, 2023, reaffirmed its 2023 net sales outlook, updated its full-year reported earnings outlook to reflect additional acquisition costs, and raised its full-year adjusted earnings outlook.

“Our categories continue to perform well as consumer demand for great tasting snacks remains resilient across the globe,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “We delivered another quarter of strong net sales growth, gross margin expansion and double-digit earnings growth, enabling us to raise our full-year adjusted earnings outlook and increase our dividend 15%. New capacity and increased brand investment should enable us to sustain this momentum in the second half as we provide consumers with even more of their favorite snacks for seasonal celebrations and expand distribution across segments and markets.”

Second-Quarter 2023 Financial Results Summary¹

• Consolidated net sales of $2,490.3 million, an increase of 5.0%.
• Organic, constant currency net sales increased 5.0%.
• Reported net income of $407.0 million, or $1.98 per share-diluted, an increase of 29.4%.
• Adjusted earnings per share-diluted of $2.01, an increase of 11.7%.

2023 Full-Year Financial Outlook

The Company is reiterating its net sales growth, reducing its reported earnings-per-share and raising its adjusted earnings-per-share outlook for the year.

The company also expects:

• A reported and adjusted effective tax rate of approximately 16%;
• Other expense, which primarily reflects the write-down of equity investments that qualify for a tax credit, of approximately $180 million to $190 million;
• Interest expense of approximately $155 million; and
• Capital expenditures of approximately $800 million to $850 million, driven by core confection capacity expansion and continued investments in a digital infrastructure including the build and upgrade of a new ERP system across the enterprise.

Below is a reconciliation of projected 2023 and full-year 2022 earnings per share-diluted calculated in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP adjusted earnings per share-diluted:

2023 projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that are reflected within corporate unallocated expense in segment results until the related inventory is sold since we are not able to forecast the impact of the market changes.

Second-Quarter 2023 Components of Net Sales Growth

A reconciliation between reported net sales growth rates and organic constant currency net sales growth rates, along with the contribution from net price realization and volume, is provided below:

The company presents certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

Second-Quarter 2023 Consolidated Results 

Consolidated net sales increased 5.0% to $2,490.3 million in the second quarter of 2023.  Organic, constant currency net sales increased 5.0%, driven primarily by list price increases. Volumes declined, as expected, due to the lapping of inventory replenishment in the prior year period and the timing of summer promotion shipments occurring more in the first quarter of 2023.

Reported gross margin was 45.5% in the second quarter of 2023, compared to 42.1% in the second quarter of 2022, an increase of 340 basis points driven by price realization and derivative mark-to-market gains. Adjusted gross margin was 45.2% in the second quarter of 2023, an increase of 130 basis points compared to the second quarter of 2022. Price realization, productivity and favorable sales mix more than offset higher raw material costs, labor inflation and volume deleverage.

Selling, marketing and administrative expenses increased 5.2% in the second quarter of 2023 versus the second quarter of 2022, driven by media increases and capability investments. Advertising and related consumer marketing expenses increased 14.9% in the second quarter of 2023 versus the same period last year, with higher investments across segments. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 1.3% versus the second quarter of 2022 driven by wage and benefits inflation, as well as capability and technology investments.

Second-quarter 2023 reported operating profit was $560.7 million, an increase of 22.8%, resulting in a reported operating profit margin of 22.5%, an increase of 330 basis points versus the prior year period. This increase was driven by price realization, productivity and derivative mark-to-market gains, which more than offset higher inflation. Adjusted operating profit of $570.9 million increased 8.3% versus the second quarter of 2022, resulting in an adjusted operating profit margin of  22.9%, an increase of 70 basis points. Price realization and productivity more than offset supply chain investments and increased brand and capability investments.

The reported effective tax rate in the second quarter of 2023 was 7.4%, a decrease of 1,440 basis points versus the second quarter of 2022. The adjusted effective tax rate was 8.3%, a decrease of 1,310 basis points versus the second quarter of 2022. Both the reported and adjusted effective tax rate declines were driven by an increase in renewable energy tax credits, which occurred earlier in the year compared to prior years.

The company’s second-quarter 2023 results, as prepared in accordance with GAAP, included items positively impacting comparability of $10.2 million, or $0.03 per share-diluted. For the second quarter of 2022, items positively impacting comparability totaled $70.4 million, or $0.27 per share-diluted.

The following table presents a summary of items impacting comparability in each period (see Appendix I for additional information):

Segment performance for the second quarter of 2023 versus the prior year period is detailed below. See the table on components of net sales growth and the schedule of supplementary information within this press release for additional information on segment net sales and profit.

North America Confectionery

Hershey’s North America Confectionery segment net sales were $1,993.1 million in the second quarter of 2023, an increase of 4.4% versus the same period last year. Organic, constant currency net sales increased 4.8% as high single digit price realization more than offset expected volume declines related to inventory timing and price elasticity.

Hershey’s U.S. candy, mint and gum (CMG) retail takeaway for the 12-week period ended July 16, 2023² in the multi-outlet plus convenience store channels (MULO+C) increased 9.6%, with growth across segments and classes of trade. Hershey’s CMG share declined approximately 80 basis points due to unfavorable category mix and increased competitive innovation.

The North America Confectionery segment reported segment income of $657.1 million in the second quarter of 2023, an increase of 6.2% versus the prior year period, resulting in a segment margin of 33.0% in the quarter, an increase of 60 basis points. Gains were driven by sales growth and gross margin expansion, which more than offset higher brand and capability investments.

North America Salty Snacks

Hershey’s North America Salty Snacks segment net sales were $272.4 million in the second quarter of 2023, an increase of 6.3% versus the same period last year driven by price realization. Volume declined 30 basis points as shipments lagged consumption due to execution driven inventory level declines and promotional shipment shifts into the third quarter.

Hershey’s U.S. salty snack retail takeaway for the 12-week period ended July 16, 2023² in MULO+C increased 9.6%.  SkinnyPop ready-to-eat popcorn takeaway increased 7.4%, resulting in a segment share gain of 40 basis points. Dot’s Homestyle Pretzels retail sales increased 23.6%, resulting in a 120 basis point pretzel category share gain.

North America Salty Snacks segment income of $43.8 million in the second quarter of 2023 represents an increase of 17.1% versus the second quarter of 2022.  Price realization and improved supply chain performance offset raw material inflation and higher brand and capability investments. This resulted in a segment margin of 16.1%, an increase of 150 basis points versus the prior year period.

International

Second-quarter 2023 net sales for Hershey’s International segment increased 8.5% versus the same period last year to $224.8 million. Organic, constant currency net sales increased 6.2% with gains balanced across price and volume.

The International segment reported a $41.1 million profit in the second quarter of 2023, reflecting an increase of $10.4 million versus the prior year period driven by sales growth and margin expansion. This resulted in a segment margin of 18.3%, an increase of 350 basis points versus the prior year period.

Unallocated Corporate Expense

Hershey’s unallocated corporate expense in the second quarter of 2023 was $171.2 million, an increase of $11.0 million, or 6.9%, versus the same period of 2022. This increase was driven by capability and technology investments, including the upgrade of the company’s ERP system and related amortization, as well as higher compensation and benefit cost.