Hershey Q4 2024 Prepared Remarks Earnings Report

Hershey EPS Results

• Actual EPS: $2.69
• Consensus EPS: $2.40
• Beat/Miss: Beat by +$0.29
• One Year Ago EPS: N/A

Hershey Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $2.85 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Hershey Announcement Details

• Quarter: Q4 2024 Prepared Remarks
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 7:00AM ET

Hershey (NYSE:HSY), together with its subsidiaries, engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally. The company operates through three segments: North America Confectionery, North America Salty Snacks, and International. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products, including mints, chewing gums, and bubble gums; protein bars; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items comprising spreads, bars, snack bites, mixes, popcorn, and pretzels. The company provides its products primarily under the Hershey's, Reese's, Kisses, Jolly Rancher, Almond Joy, Brookside, barkTHINS, Cadbury, Good & Plenty, Heath, Kit Kat, Payday, Rolo, Twizzlers, Whoppers, York, Ice Breakers, Breath Savers, Bubble Yum, Lily's, SkinnyPop, Pirates Booty, Dot's Homestyle Pretzels, and ONE Bar brands, as well as under the Pelon Pelo Rico, IO-IO, and Sofit brands. It markets and sells its products to wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, and department stores. The company exports its products in approximately 80 countries worldwide. The Hershey Company was founded in 1894 and is headquartered in Hershey, Pennsylvania.

Hershey Q4 2024 Prepared Remarks Earnings Call Transcript

Key Takeaways

• 8.7% net sales growth in Q4 with core business up ~3% driven by strong U.S. Candy and Salty Snacks seasonal performance and innovations like Reese’s Lava Big Cup and Shackalicious gummies.
• North American Salty Snacks retail sales accelerated 7.1% as Skinny Pop grew 4.7% and Dots pretzels rose 20.9% to capture share gains, supported by new flavor launches, refreshed packaging and upcoming media campaigns.
• For full-year 2025, Hershey expects at least 2% net sales growth with volume slightly down, segments performing in line with long-term targets, but anticipates gross margin contraction of 650–700 bps from high cocoa, sugar and labor costs.
• The AAA transformation program delivered $143 million in net savings in 2024 and targets an additional $125 million in 2025 as part of a plan to improve cost structure by nearly $900 million by 2026 while investing in innovation and efficiency.
• Hershey bolstered its leadership team with new heads for U.S. Confectionery and Salty Snacks and announced CEO Michelle Buck’s planned retirement in 2026, underscoring a focus on innovation and long-term growth.

Presentation

[Anoori Naughton, Senior Director - Investor Relations at The Hershey Company]

Good morning, and welcome to the prerecorded discussion of The Hershey Company's Fourth Quarter twenty twenty four Earnings Results. I'm Anori Naughton, Senior Director of Investor Relations. Joining me today are Hershey's Chairman and CEO, Michelle Buck and Hershey's Senior Vice President and CFO, Steve Bostill. In addition to these remarks, we will host an analyst Q and A only session at 08:30 a. M.

[Anoori Naughton, Senior Director - Investor Relations at The Hershey Company]

Eastern on the morning of February 6. A replay of this webcast and our subsequent Q and A session will be available on the Investor Relations section of our website along with their corresponding transcript. During the course of today's discussion, management will make forward looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected.

[Anoori Naughton, Senior Director - Investor Relations at The Hershey Company]

The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that during today's discussion, we will refer to certain non GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release.

[Anoori Naughton, Senior Director - Investor Relations at The Hershey Company]

It is now my pleasure to introduce our Chairman and CEO, Michelle Buck.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Good morning, and thank you for joining us today. Before diving into our results, I want to take a moment to recognize our incredible team. Across the organization, our team has acted with speed and agility to continue delivering for our consumers and customers in a pressured operating environment. These actions ensured we delivered against our fourth quarter plans and ended 2024 with momentum across our North American confectionery and salty snacks businesses. Looking ahead, we are beginning the year with exciting new leadership appointments and a renewed focus on innovation that is resonating with our consumers.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

This is a transformational time for Hershey. As we mentioned in our last earnings call, we expect the surge in cocoa prices to continue to put significant pressure on earnings in 2025. That said, we remain laser focused on driving top line and share momentum while executing against our transformation and efficiency programs. I look forward to leading this team as we deliver against our 2025 operating plan and position the business to deliver peer leading performance over the long term. Moving now to our Q4 results.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Net sales grew 8.7%. Excluding the benefits from extra shipping days, inventory changes and ERP related lapse, our core business increased approximately 3% driven by strong execution and consumer response to our second half plans. Our U. S. Candy, mint and gum retail sales increased 2% in the fourth quarter, demonstrating seasonal strength and the anticipated acceleration in our everyday business.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Halloween retail sales growth of 2.5% and holiday growth of 1.1% yielded a seasonal share gain of approximately 40 basis points in the quarter. Everyday U. S. Candy, mint and gum business increased 1.7 with growth across chocolate, sweets and mint driven by our robust slate of new products and media investment despite soft convenience store traffic. I'll share a few highlights from the quarter.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Reese's Caramel and Wava Big Cup contributed one point to our everyday chocolate retail sales growth. Shackalicious extra large gummies were the number two brand in sweets dollar growth in the quarter. Jolly Rancher retail sales accelerated to 7.7% in the quarter, helped by the strength of gummies and the recent addition of ropes. Our everyday sweets portfolio share gains accelerated to 65 basis points in Q4. Lastly, retail sales across the fast growing club dollar and e commerce classes of trade increased 8.2% driven by the strong performance of chocolate assortments, Reese's, Kisses and Brookside.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Net price realization of approximately 4% was slightly ahead of our expectations, driven by carryover pricing announced in 2023 on our seasonal business and as we began to see benefits from our August 2024 pricing announcement. We expect this level to continue in 2025 with planned price realization of 3% to 4% on our U. S. Confection business. As we look to 2025, we have a strong year of innovation, media and activation planned across our confection business.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

We are introducing fewer, better and bigger innovations across the core, including our biggest Reese's innovation ever, and we have healthy momentum from items launched in '24. This weekend, you will see Reese's Lava Big Cup featured in our second straight Super Bowl ad. We are also expanding Reese's reach to new audiences through a big game integration with Barstool Sports and a year long partnership with the New Heights podcast featuring the Kelsey Brothers. The early customer and consumer response to Jolly Rancher Freeze Dried has also been strong, and we will have incremental news on sweets later this year. Shifting now to North American salty snacks.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Retail sales accelerated to 7.1% in the quarter, ahead of our expectations. Skinny Pop retail sales increased 4.7% and the brand gained approximately 155 basis points of ready to eat popcorn share, driven by velocity, innovation and a shift of a large customer promotion into Q4 from Q3. Dots pretzels had another strong quarter, increasing 20.9 and gaining approximately three twenty five basis points of pretzel share, driven by household penetration gains, strong repeat rates and flavor and pack type innovation. You will soon see media featuring the popularity of Skinny Pop and an exciting new celebrity spokesperson. We will continue to focus on driving additional household penetration and velocity in ready to eat popcorn with refreshed branding, enhanced packaging and price pack architecture, which will hit shelves in early Q2.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

We also have exciting new flavors of Dots and a Reese's branded sweet and salty innovation to expand in this fast growing category. Lastly, you will see us leverage the full breadth of our portfolio with multi brand multipacks, important for fast growing customers and consumer occasions. We had a strong quarter within our International segment, driven by solid execution of holiday programs and innovation performance with double digit constant currency organic sales growth in Mexico and EMEA and high single digit growth in India. RESA's grew double digits across international markets driven by distribution and retail execution with significant expansion opportunity ahead of us across Europe, Australia and The Middle East. While there are pockets of consumer pressure and higher competition across our international markets, we expect continued expansion driven by household penetration, distribution and innovation momentum.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Turning to the outlook. For the full year, we expect net sales growth of at least 2%, which reflects core growth consistent with recent trends and the benefit from a long Easter. Our North America Confectionery and North America Salty Snacks segments are expected to grow in line with our long term algorithm, while the International segment constant currency sales are expected to increase low single digits, reflecting heightened competitive activity in key markets. We continue to prioritize brand investment in 2025 with media spend expected to grow ahead of sales. In addition, we have a new media agency effective January, which will also bring efficiencies and drive further consumer engagement, allowing us to increase our reach and deliver stronger ROIs.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Turning now to cocoa. For 2025, we have very good visibility into our cocoa costs and physical supply. As many of you know, cocoa markets remain volatile, driven by low levels of financial market liquidity. We continue to believe that current high prices are not reflective of market fundamentals. Even with a lower outlook for the twenty twenty four-twenty twenty five mid crop, consensus continues to indicate global supply and demand imbalance to a slight surplus.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

That is before consideration of any further global demand destruction resulting from persistent high market prices. We are already seeing signs of COCO end users adapting through reformulation and off exchange hedging mechanisms, which we expect will only accelerate. Moreover, funding and partnerships for longer term cocoa solutions, including cellular agriculture increased by at least $200,000,000 since 2022. We continue to advance our sourcing and hedging strategies, including origin and supply chain diversification, while investing in our cocoa science program. The strength of our R and D team gives us a greater opportunity to leverage all potential sources of cost savings without compromising on the high quality and great taste of our products that consumers love.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

We are managing this business for the long term while controlling what we can in the short term. Historically, high cocoa prices will pressure earnings this year as we previously communicated. As is always the case, we are monitoring many factors to inform the go forward strategy, pricing and investment decisions to position us for balanced top and bottom line growth in 2026 and beyond. While we continue to view today's high cocoa prices as transient, our teams are readying opportunities for quick execution and we are prepared to adjust our pricing, price pack architecture, formulations, demand shaping and investment strategies should our view on the commodity markets evolve. Meanwhile, we are delivering on our efficiency and transformation programs to position our business and cost structure for long term sustainable growth.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Our AAA program delivered $143,000,000 in net savings in 2024 above our plan and is expected to generate an incremental 125,000,000 in 2025. Between 2023 and 2026, we expect to improve our cost structure by nearly $900,000,000 while simultaneously investing in the capabilities, technology, talent and infrastructure to support differentiated performance for years to come. As I mentioned in my opening, we have welcomed Andrew Archambault and Verodica Villasenor as the new leaders of our U. S. Confectionery and Salty Snacks divisions respectively.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Andrew joins us from Keurig Doctor Pepper, where he has extensive experience in transforming complex portfolios of iconic brands. Edvero is a Hershey veteran of twenty two years with a proven track record of managing teams across global business units. The combination of fresh perspective and deep internal knowledge will be powerful in advancing our strategic ambitions and taking our business to the next level of growth. And finally, after twenty years with Hershey, I've shared my intention to retire in 2026. With solid top line momentum in the business and a strong team in place, this is the right time for me to pass the torch to the next generation of leadership.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Until that transition takes place, I am fully focused on delivering our 2025 goals and driving forward the leading snacking powerhouse vision I initiated during my tenure here at Hershey. With that, I'll turn it over to Steve.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Thank you, Michelle, and good morning, everyone. For the full year 2024, we delivered 0.3 net sales growth despite greater than expected macro pressures and ended the year with momentum behind our refreshed plans. Moreover, despite low double digit input cost inflation pressuring both margins and earnings, our strong history of productivity and cost management delivered a three year earnings per share CAGR of 9.2%, above our long term target. In the fourth quarter, we delivered reported net sales growth of 8.7%, while organic constant currency net sales grew 9%, slightly ahead of our expectations. The North America Confectionery segment performed ahead of expectations, reporting an organic constant currency net sales increase of 5.9%.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

This growth was driven by approximately four points of price realization, reflecting pricing announced in August of twenty twenty four. Volume increased approximately 2% in the quarter as solid seasonal and value channel growth and the benefit of two extra shipping days were only partially offset by convenience channel softness and expected price elasticity declines within our everyday business. As Michelle noted, we had a strong quarter in our International segment with organic constant currency net sales growth of 15%, driven by volume with strong holiday and innovation contributions. In the first quarter of twenty twenty five, our North America Confectionery And International segments will both lap the planned inventory build ahead of the ERP implementation in Q1 of twenty twenty four. Additionally, the later Easter will shift shipments into Q2.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

As such, we anticipate organic constant currency net sales to decline by mid teens across both segments in the first quarter. Net sales for our North America Salty Snacks segment increased 35.9%, reflecting an approximate 21 tailwind from lapping the planned inventory drawdown following the Q4 twenty twenty three ERP implementation as well as the expected benefits from order timing shifts from Q3 into Q4 following our route to market changes as well as two extra shipping days. The base business increase of high single digits reflects acceleration in Skinny Pop consumption, the planned shift of a Skinny Pop promotion into Q4 and continued strength in Dots pretzels. As Michelle mentioned, we have exciting plans and good visibility into increased levels of distribution, merchandising, media and innovation, and we expect solid mid single digit growth in this segment this year. First quarter net sales growth will reflect incremental retailer fees ahead of the new Skinny Pop packaging set to launch in early Q2.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Moving down the P and L, adjusted gross margin increased 60 basis points in the fourth quarter ahead of expectations, reflecting stronger than planned pricing and productivity gains and a timing benefit related to inventory valuation, which more than offset expected commodity inflation and negative sales mix. Advertising and related consumer marketing increased 2.4% in the fourth quarter, driven by investments in North America Confectionery and North America Salty Snacks. Adjusted operating expenses, excluding advertising and related consumer marketing spend, declined approximately 9% due to reduced compensation and benefits costs and decreased technology investments, as we successfully implemented our upgraded ERP system earlier in the year. As Michelle mentioned, our AAA initiative delivered $143,000,000 of savings in 2024, ahead of our $100,000,000 target, driven by incremental supply chain savings. We are increasing the expected savings target for the program to $350,000,000 of which $125,000,000 is targeted in 2025 and will build gradually over the year.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Total three year costs are projected to be between $200,000,000 and $250,000,000 consistent with our prior outlook, including approximately $25,000,000 of non cash costs. Interest expense was $40,000,000 in the fourth quarter, slightly below expectations. The adjusted tax rate for the quarter was negative 13.7, a decrease of approximately 10 points versus the year ago period, largely due to higher levels of renewable energy tax credits in the current period. The robust Q4 net sales growth, coupled with strong productivity and cost management, allowed us to deliver adjusted earnings per share of $2.69 in the quarter. Capital additions, including software, were $135,000,000 in the fourth quarter, bringing the full year investment to approximately $6.00 $5,000,000 We reached completion of several significant projects in 2024, including a new chocolate making facility in Hershey, which ensures high quality domestic capacity for our products and enhances our manufacturing flexibility.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Total capital investment this year is expected to be between $425,000,000 and $450,000,000 in line with historical levels as a percentage of sales. We remain committed to our capital allocation priorities of reinvestment for growth, including M and A, a dividend payout ratio of at least 50% and share repurchases. In the fourth quarter, dividends paid to shareholders totaled $270,000,000 an increase of 13.7% versus the prior year period. The company did not repurchase any shares in the fourth quarter against our December authorization with $470,000,000 remaining. Now let me share some additional perspective on 2025 and the cocoa market.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Regarding 2025, we anticipate top line growth of at least 2%, driven primarily by price realization with volume expected to be slightly down. Net sales related to the acquisition of Sour Strips is expected to be an approximate 30 basis point benefit. Foreign currency is expected to be unfavorable by approximately 30 basis points. As Michelle mentioned, we expect organic net sales growth within our North America Confectionery and Salty Snacks segments to be in line with our long term algorithm. International segment organic constant currency net sales are expected to be slightly below algorithm with stronger growth in the second half driven by program timing as well as higher pricing.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

First quarter total company net sales are expected to decline mid teens as we lap inventory build ahead of our April 2024 ERP implementation and an early Easter in the prior year period. This dynamic will reverse in Q2. As Michelle mentioned, we have very good visibility into our cost basket, including cocoa, albeit at significantly higher pricing levels than prior year. Our coverage caps our risk, while allowing us to participate if the cocoa market falls. We have no concerns about the global physical supply of cocoa.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Fundamentals continue to improve with cocoa arrivals in Ivory Coast and Ghana ports up approximately 30% compared to this time last year. Rest of world production, which is nearly half of the global supply, is pacing at 10% growth versus prior year. We have largely secured our butter, liquor and powder needs for the year. For the full year, we expect adjusted gross profit margin to contract by approximately six fifty to 700 basis points. Historically high cocoa prices, sugar and other raw material inflation along with incremental labor inflation, new tariffs and negative product mix are expected to more than offset net price realization, supply chain productivity and incremental savings from our transformation program.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Adjusted gross margin is expected to be higher in the first half than in the second half as cocoa costs increase over the course of the year, while our pricing and cost savings remain relatively constant. Keep in mind that our International segment is largely a chocolate business and therefore is expected to see relatively more margin compression in 2025. For the first quarter, we expect total company adjusted gross margin to decline approximately 400 basis points. Brand reinvestment is a critical growth lever in 2025 and advertising and related consumer spend is expected to increase mid single digits versus prior year, as we support momentum across all three segments. Total advertising and related consumer spend as a percentage of sales is expected to remain below historical levels, driven by reductions in non working investments and automation and AI driven productivity gains.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

Other operating expenses are expected to decline by low single digits, driven by incremental productivity and transformation program savings. Corporate expenses are projected to increase low double digits, reflecting the expected reset in incentive compensation versus prior year and incremental capability and technology investments. We expect our full year 2025 adjusted effective tax rate to be approximately 14% to 15%. Other expense, which includes the write down of renewable energy investments, is expected to be between 170,000,000 and $180,000,000 Interest expense is expected to be $190,000,000 to $195,000,000 reflecting a higher interest rate environment. Our capital allocation priorities remain consistent.

[Steve Voskuil, Senior Vice President & Chief Financial Officer at The Hershey Company]

We continue to reinvest in our business, including the addition of attractive accretive brands like Sour Strips. Given our strong balance sheet and our confidence in future business performance, we are maintaining our dividend. Moreover, we continue to elevate share buybacks as a priority and we currently project shares outstanding to decline approximately 50 basis points for the year. With that, I will turn it back to Michele for closing remarks.

[Michele Buck, Chairman, President & CEO at The Hershey Company]

Thanks, Steve. The growth we've had over the last quarter across multiple categories is a testament to our strategy in action. We have the right team in place to drive long term growth while finding innovative ways to navigate short term market challenges. We will continue to invest in key capabilities, technology and talent, and we remain focused on executing against our strategy to deliver the next stage of growth and profitability for Hershey.

Participants

Executives

• Anoori Naughton, Senior Director - Investor Relations
• Michele Buck, Chairman, President & CEO
• Steve Voskuil, Senior Vice President & Chief Financial Officer