Hershey Reports First-Quarter 2023 Financial Results

The Hershey Company (NYSE: HSY) today announced net sales and earnings for the first quarter ended April 2, 2023, and raised its full-year financial outlook.

“We had a great start to the year as our increased investments in the business and strong execution delivered resilient consumer demand and drove double digit sales and earnings growth in the quarter,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “As we look to the balance of the year, we remain confident in our ability to deliver our financial goals and continue executing against our key commercial, supply chain and operational strategies to sustain our momentum into 2024 and beyond.”

First-Quarter 2023 Financial Results Summary¹

• Consolidated net sales of $2,987.6 million, an increase of 12.1%.
• Organic, constant currency net sales increased 12.2%.
• Foreign currency exchange was a 0.1-point headwind.
• Reported net income of $587.2 million, or $2.85 per share-diluted, an increase of 10.9%.
• Adjusted earnings per share-diluted of $2.96, an increase of 17.0%.

2023 Full-Year Financial Outlook

The Company is raising its net sales growth and earnings-per-share outlook for the year to the high end of its previous range.

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 $185 million to $195 million;
• Interest expense of approximately $145 million to $155 million; and
• Capital expenditures of approximately $800 million to $900 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.

First 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.

First-Quarter 2023 Consolidated Results 

Consolidated net sales increased 12.1% to $2,987.6 million in the first quarter of 2023. Organic, constant currency net sales increased 12.2%. List price increases and strong consumer demand drove balanced growth across segments.

Reported gross margin was 46.3% in the first quarter of 2023, compared to 46.7% in the first quarter of 2022, a decrease of 40 basis points as derivative mark-to-market losses more than offset gains from price realization and sales growth. Adjusted gross margin was 46.6% in the first quarter of 2023, an increase of 80 basis points compared to the first quarter of 2022. Price realization, sales growth and improved supply chain efficiencies more than offset higher raw material, packaging and logistics inflation.

Selling, marketing and administrative expenses increased 10.9% in the first quarter of 2023 versus the first quarter of 2022, driven by higher levels of media and capability investments. Advertising and related consumer marketing expenses increased 8.8% in the first quarter of 2023 versus the same period last year, with increased investments across segments. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 12.1% versus the first quarter of 2022 driven by higher people, capability and technology investments.

First-quarter 2023 reported operating profit was $799.9 million, an increase of 10.9%, resulting in an operating profit margin of 26.8%, a decrease of 20 basis points versus the prior year period. This decline was driven by derivative mark-to-market losses, which more than offset gains from price realization and sales growth. Adjusted operating profit of $830.6 million increased 17.3% versus the first quarter of 2022, resulting in an adjusted operating profit margin of  27.8%, an increase of 120 basis points. Price realization, volume gains and gross margin expansion more than offset higher raw material, packaging and logistics inflation and increased brand and capability investments.

The reported effective tax rate in the first quarter of 2023 was 22.7%, an increase of 150 basis points versus the first quarter of 2022. The adjusted effective tax rate was 22.8%, an increase of 160 basis points versus the first quarter of 2022. Both the reported and adjusted effective tax rate increases were driven by the timing of renewable energy tax credits.

The company’s first-quarter 2023 results, as prepared in accordance with GAAP, included items positively impacting comparability of $30.7 million, or $0.11 per share-diluted. For the first quarter of 2022, items negatively impacting comparability totaled $13.1 million, or $0.04 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 first 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 $2,452.2 million in the first quarter of 2023, an increase of 10.6% versus the same period last year. Organic, constant currency net sales increased 10.9% as net price realization drove high single digit growth and consumer demand remained strong.

Hershey’s U.S. candy, mint and gum (CMG) retail takeaway for the 12-week period ended April 2, 2023 in the multi-outlet plus convenience store channels (MULO+C) increased 12.3% as consumer demand sustained despite higher marketplace prices. Hershey’s CMG share declined approximately 70 basis points, as expected, due to seasonal capacity constraints and unfavorable category mix.

The North America Confectionery segment reported segment income of $887.8 million in the first quarter of 2023, an increase of 13.5% versus the prior-year period, resulting in segment margin of 36.2% in the quarter, an increase of 90 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 $270.0 million in the first quarter of 2023, an increase of 19.4% versus the same period last year driven by both price realization and volume gains.

Hershey’s U.S. salty snack retail takeaway for the 12-week period ended April 2, 2023 in MULO+C increased 18.4% behind distribution and velocity gains. Growth outpaced overall category growth resulting in 10 basis points of share gains during the period, led by SkinnyPop ready-to-eat popcorn share gains of 220 basis points and Dot’s Homestyle Pretzels pretzel category share gains of 100 basis points.

North America Salty Snacks segment income increased to $46.8 million in the first quarter of 2023, an increase of 119.7% versus the first quarter of 2022. These gains were driven by continued sales growth along with gross margin expansion as price realization offset inflation and supply chain performance improved. This resulted in a segment margin of 17.3%, an increase of 790 basis points versus the prior year period.

International

First-quarter 2023 net sales for Hershey’s International segment increased 19.0% versus the same period last year to $265.5 million. Organic, constant currency net sales increased 17.5% driven by volume growth across markets.

The International segment reported a $55.0 million profit in the first quarter of 2023, reflecting an increase of $13.0 million versus the prior-year period driven by sales growth and margin expansion. This resulted in a segment margin of 20.7%, an increase of 190 basis points versus the prior-year period.

Unallocated Corporate Expense

Hershey’s unallocated corporate expense in the first quarter of 2023 was $159.0 million, an increase of $21.7 million, or 15.8%, versus the same period of 2022. This increase was driven by capabilities and technology investments, including the upgrade of the company’s ERP system and related amortization, as well as higher compensation and benefit cost.