Hershey Reports Second-Quarter 2022 Financial Results; Raises 2022 Net Sales and Earnings Outlook
The Hershey Company (NYSE: HSY) reported a strong second quarter for 2022, with net sales of $2,372.6 million, reflecting a 19.3% increase. Organic sales rose 14.1%, and adjusted EPS increased by 22.4% to $1.80. The company raised its full-year outlook, anticipating net sales growth of 12-14% due to robust consumer demand and price adjustments. However, gross margins decreased to 42.1%, primarily due to rising supply chain costs. Hershey's focus on brand investment and operational efficiency aims to sustain this momentum into 2023.
- Net sales increased by 19.3% to $2,372.6 million.
- Adjusted EPS rose by 22.4% to $1.80.
- Full-year net sales growth outlook raised to 12%-14%.
- Gross margin decreased to 42.1% from 46.5% due to increased supply chain costs.
- Selling, marketing, and administrative expenses rose by 16.2%.
HERSHEY, Pa., July 28, 2022 /PRNewswire/ -- The Hershey Company (NYSE: HSY) today announced net sales and earnings for the second quarter ended July 3, 2022, and raised its full-year financial outlook.
"Our business momentum continued in the second quarter, with double-digit sales growth in each of our segments resulting in strong earnings per share performance," said Michele Buck, The Hershey Company President and Chief Executive Officer. "These results reflect the strength and resilience of our categories, consumers' love for our brands, the investments we are making in our business, and the exceptional execution of our dedicated employees. We are raising our financial expectations for the year and investing more heavily in our brands, capabilities and people in the second half to continue this momentum into 2023."
- Consolidated net sales of
$2,372.6 million , an increase of19.3% . - Organic, constant currency net sales increased
14.1% . - The impact of acquisitions on net sales was a 5.3-point benefit2 while foreign currency exchange was a 0.1-point headwind.
- Reported net income of
$315.6 million and$1.53 earnings per share-diluted, an increase of5.5% . - Adjusted earnings per share-diluted of
$1.80 , an increase of22.4% .
1 | All comparisons for the second quarter of 2022 are with respect to the second quarter ended July 4, 2021 |
2 | Reflects the impact from the 2021 acquisitions of Pretzels Inc. (Pretzels), Dot's Pretzels, LLC (Dot's) and Lily's Sweets, LLC (Lily's) |
The Hershey Company is increasing its net sales outlook to reflect continued strength in consumer demand and net price realization. Price elasticities are expected to moderate from the second quarter, but remain favorable to historical levels, as inflation and fewer government benefits are expected to weaken consumers' buying power.
Profit from increased sales growth is expected to more than offset higher supply chain costs, elevated advertising and merchandising levels and increased incentive compensation costs, to deliver higher reported and adjusted earnings per share growth.
To reflect this strength in performance and expectations for the second half of the year, the company is raising its full-year financial outlook to the following:
2022 Full-Year Outlook | Prior Guidance | Current Guidance | ||
Net sales growth3 | ||||
Reported earnings per share growth | ||||
Adjusted earnings per share growth |
3 | The impact of the Pretzels, Dot's and Lily's acquisitions is anticipated to be a 4- to 5-point benefit to net sales growth for the full-year 2022. |
Below is a reconciliation of projected 2022 and full-year 2021 earnings per share-diluted calculated in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP adjusted earnings per share-diluted:
2022 (Projected) | 2021 | ||
Reported EPS – Diluted | |||
Derivative mark-to-market gains | — | (0.12) | |
Business realignment activities | 0.02 – 0.04 | 0.09 | |
Acquisition-related activities | 0.21 – 0.25 | 0.16 | |
Noncontrolling interest share of business realignment and impairment charges | — | 0.03 | |
Other miscellaneous losses (benefits) | 0.07 | (0.07) | |
Tax effect of all adjustments reflected above | (0.09) | (0.01) | |
Adjusted EPS – Diluted |
2022 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.
Consolidated net sales increased
Reported gross margin was
Selling, marketing and administrative expenses increased
Second-quarter 2022 reported operating profit was
The reported effective tax rate in the second quarter of 2022 was
The company's second-quarter 2022 results, as prepared in accordance with GAAP, included items positively impacting comparability of
The following table presents a summary of items impacting comparability in each period (see Appendix I for additional information):
Pre-Tax (millions) | Earnings Per Share-Diluted | ||||||
Three Months Ended | Three Months Ended | ||||||
July 3, 2022 | July 4, 2021 | July 3, 2022 | July 4, 2021 | ||||
Derivative mark-to-market losses (gains) | $ 40.8 | $ (3.4) | $ 0.20 | $ (0.02) | |||
Business realignment activities | 0.7 | 3.5 | 0.01 | 0.03 | |||
Acquisition-related activities | 15.3 | 7.3 | 0.07 | 0.04 | |||
Other miscellaneous losses (benefits) | 13.6 | (4.6) | 0.07 | (0.02) | |||
Tax effect of all adjustments reflected above | — | — | (0.08) | (0.01) | |||
$ 70.4 | $ 2.8 | $ 0.27 | $ 0.02 | ||||
Segment performance for the second quarter of 2022 versus the prior-year period are detailed below. See the schedule of supplementary information within this press release for additional information on segment net sales and profit.
Hershey's North America Confectionery segment net sales were
Hershey's U.S. candy, mint and gum (CMG) retail takeaway for the 12-week period ended July 17, 2022 in the multi-outlet plus convenience store channels (MULO+C) increased
The North America Confectionery segment reported segment income of
Hershey's North America Salty Snacks segment net sales were
Hershey's U.S. salty snack retail takeaway, including Dot's, in MULO+C increased
North America Salty Snacks segment income increased
Second-quarter 2022 net sales for Hershey's International segment increased
The International segment reported a
Hershey's unallocated corporate expense in the second quarter of 2022 was
The Board of Directors of The Hershey Company declared a quarterly dividend of
At approximately 7 a.m. (Eastern time) today, Hershey will post a pre-recorded management discussion of its second-quarter 2022 results and business update to its website at www.thehersheycompany.com/investors. In addition, at 8:30 a.m. (Eastern time) today, the company will host a live question and answer session with investors and financial analysts. Details to access this call are available on the company's website.
Note: In this release, for the second-quarter 2022, Hershey references income measures that are not in accordance with GAAP because they exclude certain items impacting comparability, including gains and losses associated with mark-to-market commodity derivatives, business realignment activities, acquisition-related activities, and other miscellaneous losses and benefits. The company refers to these income measures as "adjusted" or "non-GAAP" financial measures throughout this release. These non-GAAP financial measures are used in evaluating results of operations for internal purposes and are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations. A reconciliation of the non-GAAP financial measures referenced in this release to their nearest comparable GAAP financial measures as presented in the Consolidated Statements of Income is provided below.
Reconciliation of Certain Non-GAAP Financial Measures | |||
Consolidated results | Three Months Ended | ||
In thousands except per share data | July 3, 2022 | July 4, 2021 | |
Reported gross profit | $ 999,999 | $ 925,445 | |
Derivative mark-to-market losses (gains) | 40,838 | (3,385) | |
Business realignment activities | (23) | 1,042 | |
Acquisition-related activities | 592 | — | |
Non-GAAP gross profit | $ 1,041,406 | $ 923,102 | |
Reported operating profit | $ 456,531 | $ 456,675 | |
Derivative mark-to-market losses (gains) | 40,838 | (3,385) | |
Business realignment activities | 699 | 3,469 | |
Acquisition-related activities | 15,270 | 7,337 | |
Other miscellaneous losses (benefits) | 13,568 | (4,585) | |
Non-GAAP operating profit | $ 526,906 | $ 459,511 | |
Reported provision for income taxes | $ 87,904 | $ 117,186 | |
Derivative mark-to-market losses (gains)* | 6,427 | (2,383) | |
Business realignment activities* | 169 | 404 | |
Acquisition-related activities* | 3,663 | 1,746 | |
Other miscellaneous losses (benefits)* | 3,256 | (1,528) | |
Non-GAAP provision for income taxes | $ 101,419 | $ 115,425 | |
Reported net income | $ 315,556 | $ 301,230 | |
Derivative mark-to-market losses (gains) | 34,411 | (1,002) | |
Business realignment activities | 530 | 3,065 | |
Acquisition-related activities | 11,607 | 5,591 | |
Other miscellaneous losses (benefits) | 10,312 | (3,057) | |
Non-GAAP net income | $ 372,416 | $ 305,827 | |
Reported EPS - Diluted | $ 1.53 | $ 1.45 | |
Derivative mark-to-market losses (gains) | 0.20 | (0.02) | |
Business realignment activities | 0.01 | 0.03 | |
Acquisition-related activities | 0.07 | 0.04 | |
Other miscellaneous losses (benefits) | 0.07 | (0.02) | |
Tax effect of all adjustments reflected above** | (0.08) | (0.01) | |
Non-GAAP EPS - Diluted | $ 1.80 | $ 1.47 | |
* | The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. |
** | Adjustments reported above are reported on a pre-tax basis before the tax effect described in the reconciliation above for Non-GAAP provision for income taxes. |
In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:
Three Months Ended | |||
July 3, 2022 | July 4, 2021 | ||
As reported gross margin | 42.1 % | 46.5 % | |
Non-GAAP gross margin (1) | 43.9 % | 46.4 % | |
As reported operating profit margin | 19.2 % | 23.0 % | |
Non-GAAP operating profit margin (2) | 22.2 % | 23.1 % | |
As reported effective tax rate | 21.8 % | 28.0 % | |
Non-GAAP effective tax rate (3) | 21.4 % | 27.4 % | |
(1) | Calculated as non-GAAP gross profit as a percentage of net sales for each period presented. |
(2) | Calculated as non-GAAP operating profit as a percentage of net sales for each period presented. |
(3) | Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net). |
We present 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.
A reconciliation between reported net sales growth rates and (i) constant currency net sales growth rates and (ii) organic constant currency net sales growth rates is provided below:
Three Months Ended July 3, 2022 | |||||||||
Percentage | Impact of | Percentage | Impact | Percentage | |||||
North America Confectionery | 12.9 % | (0.3) % | 13.2 % | 0.8 % | 12.4 % | ||||
North America Salty Snacks | 99.9 % | — % | 99.9 % | 71.6 % | 28.3 % | ||||
International | 21.3 % | 0.7 % | 20.6 % | — % | 20.6 % | ||||
Total Company | 19.3 % | (0.1) % | 19.4 % | 5.3 % | 14.1 % | ||||
Details of the charges included in GAAP results, as summarized in the press release (above), are as follows:
Derivative mark-to-market losses (gains): The mark-to-market losses (gains) on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding losses (gains) are reclassified from unallocated to segment income. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period.
Business realignment activities: We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. During the fourth quarter of 2020, we commenced the International Optimization Program to streamline resources and investments in select international markets, including the optimization of our China operating model to improve efficiencies and provide a more sustainable and simplified base going forward. During the second quarter of 2022 and 2021, business realignment charges related primarily to other third-party costs related to this program, as well as severance and employee benefit costs.
Acquisition-related activities: During the second quarter of 2022, we incurred costs related to the integration of the 2021 acquisitions of Lily's, Dot's and Pretzels. During the second quarter of 2021, we incurred costs to effectuate the Lily's acquisition.
Noncontrolling interest share of business realignment and impairment charges: Certain of the business realignment and impairment charges recorded related to the divestiture of Lotte Shanghai Foods Co., Ltd., a joint venture in which we previously owned a
Other miscellaneous losses (benefits): During the second quarter of 2022, we recorded a loss on the sale of non-operating assets located in Pennsylvania. During the second quarter of 2021, we recorded a gain on a receivable previously deemed uncollectible.
Tax effect of all adjustments: This line item reflects the aggregate tax effect of all pre-tax adjustments reflected in the preceding line items of the applicable table. The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements can be identified by the use of words such as "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would," among others. These statements are made based upon current expectations that are subject to risk and uncertainty. Because actual results may differ materially from those contained in the forward-looking statements, you should not place undue reliance on the forward-looking statements when deciding whether to buy, sell or hold the company's securities. Factors that could cause results to differ materially include, but are not limited to: risks related to the impact of the COVID-19 global pandemic on our business, suppliers, distributors, consumers, customers, and employees; the scope and duration of the pandemic; government actions and restrictive measures implemented in response to the pandemic, including the distribution of vaccinations and continuation of social distancing guidelines and stay at home orders; disruptions or inefficiencies in our supply chain due to the loss or disruption of essential manufacturing or supply elements or other factors; issues or concerns related to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters; changes in raw material and other costs, along with the availability of adequate supplies of raw materials; the company's ability to successfully execute business continuity plans to address the COVID-19 pandemic and resulting changes in consumer preferences and the broader economic and operating environment; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; failure to successfully execute and integrate acquisitions, divestitures and joint ventures; changes in governmental laws and regulations, including taxes; political, economic, and/or financial market conditions, including impacts on the business arising from the conflict between Russia and Ukraine; risks and uncertainties related to our international operations; disruptions, failures or security breaches of our information technology infrastructure; our ability to hire, engage and retain a talented global workforce, our ability to realize expected cost savings and operating efficiencies associated with strategic initiatives or restructuring programs; complications with the design or implementation of our new enterprise resource planning system; and such other matters as discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 and from time to time our other filings with the U.S. Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances.
The Hershey Company | ||||||||||
Consolidated Statements of Income | ||||||||||
for the periods ended July 3, 2022 and July 4, 2021 | ||||||||||
(unaudited) (in thousands except percentages and per share amounts) | ||||||||||
Three Months Ended | Six Months Ended | |||||||||
July 3, 2022 | July 4, 2021 | July 3, 2022 | July 4, 2021 | |||||||
Net sales | $ 2,372,582 | $ 1,989,422 | $ 5,038,803 | $ 4,285,370 | ||||||
Cost of sales | 1,372,583 | 1,063,977 | 2,793,324 | 2,310,974 | ||||||
Gross profit | 999,999 | 925,445 | 2,245,479 | 1,974,396 | ||||||
Selling, marketing and administrative expense | 543,468 | 467,629 | 1,067,684 | 962,294 | ||||||
Business realignment costs | — | 1,141 | 274 | 2,383 | ||||||
Operating profit | 456,531 | 456,675 | 1,177,521 | 1,009,719 | ||||||
Interest expense, net | 33,413 | 31,065 | 66,592 | 67,501 | ||||||
Other (income) expense, net | 19,658 | 7,194 | 30,065 | 9,608 | ||||||
Income before income taxes | 403,460 | 418,416 | 1,080,864 | 932,610 | ||||||
Provision for income taxes | 87,904 | 117,186 | 231,830 | 234,509 | ||||||
Net income including noncontrolling interest | 315,556 | 301,230 | 849,034 | 698,101 | ||||||
Less: Net gain attributable to noncontrolling interest | — | — | — | 1,072 | ||||||
Net income attributable to The Hershey Company | $ 315,556 | $ 301,230 | $ 849,034 | $ 697,029 | ||||||
Net income per share | - Basic | - Common | $ 1.57 | $ 1.50 | $ 4.24 | $ 3.46 | ||||
- Diluted | - Common | $ 1.53 | $ 1.45 | $ 4.10 | $ 3.35 | |||||
- Basic | - Class B | $ 1.44 | $ 1.36 | $ 3.85 | $ 3.14 | |||||
Shares outstanding | - Basic | - Common | 146,362 | 146,111 | 146,248 | 146,550 | ||||
- Diluted | - Common | 206,449 | 207,671 | 206,861 | 208,126 | |||||
- Basic | - Class B | 59,114 | 60,614 | 59,530 | 60,614 | |||||
Key margins: | ||||||||||
Gross margin | 42.1 % | 46.5 % | 44.6 % | 46.1 % | ||||||
Operating profit margin | 19.2 % | 23.0 % | 23.4 % | 23.6 % | ||||||
Net margin | 13.3 % | 15.1 % | 16.8 % | 16.3 % | ||||||
The Hershey Company | |||||||||||||
Supplementary Information – Segment Results | |||||||||||||
for the periods ended July 3, 2022 and July 4, 2021 | |||||||||||||
(unaudited) (in thousands except percentages) | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
July 3, 2022 | July 4, 2021 | % Change | July 3, 2022 | July 4, 2021 | % Change | ||||||||
Net sales: | |||||||||||||
North America Confectionery | $ 1,909,101 | $ 1,690,372 | 12.9 % | $ 4,126,145 | $ 3,675,788 | 12.3 % | |||||||
North America Salty Snacks | 256,297 | 128,203 | 99.9 % | 482,419 | 249,621 | 93.3 % | |||||||
International | 207,184 | 170,847 | 21.3 % | 430,239 | 359,961 | 19.5 % | |||||||
Total | $ 2,372,582 | $ 1,989,422 | 19.3 % | $ 5,038,803 | $ 4,285,370 | 17.6 % | |||||||
Segment income: | |||||||||||||
North America Confectionery | $ 618,864 | $ 554,488 | 11.6 % | $ 1,400,749 | $ 1,197,093 | 17.0 % | |||||||
North America Salty Snacks | 37,433 | 26,041 | 43.7 % | 58,734 | 51,419 | 14.2 % | |||||||
International | 30,700 | 27,559 | 11.4 % | 72,679 | 54,976 | 32.2 % | |||||||
Total segment income | 686,997 | 608,088 | 13.0 % | 1,532,162 | 1,303,488 | 17.5 % | |||||||
Unallocated corporate expense (1) | 160,091 | 148,577 | 7.7 % | 297,368 | 288,274 | 3.2 % | |||||||
Unallocated mark-to-market losses (gains) on commodity derivatives (2) | 40,838 | (3,385) | NM | 13,459 | (5,669) | NM | |||||||
Costs associated with business realignment initiatives | 699 | 3,469 | (79.9) % | 1,980 | 10,396 | (81.0) % | |||||||
Acquisition-related activities | 15,270 | 7,337 | 108.1 % | 28,266 | 7,508 | 276.5 % | |||||||
Other miscellaneous losses (benefits) | 13,568 | (4,585) | NM | 13,568 | (6,740) | NM | |||||||
Operating profit | 456,531 | 456,675 | NM | 1,177,521 | 1,009,719 | 16.6 % | |||||||
Interest expense, net | 33,413 | 31,065 | 7.6 % | 66,592 | 67,501 | (1.3) % | |||||||
Other (income) expense, net | 19,658 | 7,194 | 173.3 % | 30,065 | 9,608 | 212.9 % | |||||||
Income before income taxes | $ 403,460 | $ 418,416 | (3.6) % | $ 1,080,864 | $ 932,610 | 15.9 % | |||||||
(1) | Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance. |
(2) | Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). |
NM | - not meaningful |
Three Months Ended | Six Months Ended | ||||||||
July 3, 2022 | July 4, 2021 | July 3, 2022 | July 4, 2021 | ||||||
Segment income as a percent of net sales: | |||||||||
North America Confectionery | 32.4 % | 32.8 % | 33.9 % | 32.6 % | |||||
North America Salty Snacks | 14.6 % | 20.3 % | 12.2 % | 20.6 % | |||||
International | 14.8 % | 16.1 % | 16.9 % | 15.3 % | |||||
The Hershey Company | |||
Consolidated Balance Sheets | |||
as of July 3, 2022 and December 31, 2021 | |||
(in thousands of dollars) | |||
Assets | July 3, 2022 | December 31, 2021 | |
(unaudited) | |||
Cash and cash equivalents | $ 339,722 | $ 329,266 | |
Accounts receivable - trade, net | 654,399 | 671,464 | |
Inventories | 1,208,239 | 988,511 | |
Prepaid expenses and other | 226,105 | 256,965 | |
Total current assets | 2,428,465 | 2,246,206 | |
Property, plant and equipment, net | 2,590,826 | 2,586,187 | |
Goodwill | 2,616,497 | 2,633,174 | |
Other intangibles | 2,007,748 | 2,037,588 | |
Other non-current assets | 904,822 | 868,203 | |
Deferred income taxes | 40,516 | 40,873 | |
Total assets | $ 10,588,874 | $ 10,412,231 | |
Liabilities and Stockholders' Equity | |||
Accounts payable | $ 876,193 | $ 692,338 | |
Accrued liabilities | 736,685 | 855,638 | |
Accrued income taxes | 20,543 | 3,070 | |
Short-term debt | 914,916 | 939,423 | |
Current portion of long-term debt | 752,573 | 2,844 | |
Total current liabilities | 3,300,910 | 2,493,313 | |
Long-term debt | 3,340,472 | 4,086,627 | |
Other long-term liabilities | 764,041 | 787,058 | |
Deferred income taxes | 291,711 | 288,004 | |
Total liabilities | 7,697,134 | 7,655,002 | |
Total stockholders' equity | 2,891,740 | 2,757,229 | |
Total liabilities and stockholders' equity | $ 10,588,874 | $ 10,412,231 | |
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SOURCE The Hershey Company
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