Hershey Q1 2025 Prepared Remarks Earnings Report

Hershey EPS Results

• Actual EPS: $2.09
• Consensus EPS: $1.94
• Beat/Miss: Beat by +$0.15
• One Year Ago EPS: $3.07

Hershey Revenue Results

• Actual Revenue: $2.81 billion
• Expected Revenue: $2.81 billion
• Beat/Miss: Missed by -$6.96 million
• YoY Revenue Growth: -13.80%

Hershey Announcement Details

• Quarter: Q1 2025 Prepared Remarks
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 8:00PM 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 Q1 2025 Prepared Remarks Earnings Call Transcript

Key Takeaways

• Consumption across U.S. confection and salty snacks exceeded expectations in Q1, but net sales declined 13.8% due to ERP system timing, a late Easter, and currency headwinds, with Q2 net sales expected to rise >20% and full-year guidance of +2% unchanged.
• Hershey expanded its better-for-you portfolio by acquiring Fulfill and announcing intent to acquire Lesser Evil, broadening its salty snack offerings and target consumer reach.
• The company achieved its eighth consecutive seasonal market share gains, with Valentine’s consumption up mid-single digits and anticipated Easter share gains of +120 basis points.
• Commodity inflation and cocoa cost pressures drove a 370-basis point gross margin decline in Q1, but the AAA initiative aims to deliver $125 million in savings and management plans to offset costs via pricing, sourcing, and pack architecture.
• Hershey is actively addressing tariff risks by pursuing a U.S. cocoa tariff exemption and developing mitigation plans for other raw material exposures, while maintaining its full-year outlook including estimated tariff expenses.

Presentation

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

Good morning, and welcome to the pre recorded discussion of The Hershey Company's First Quarter twenty twenty five Earnings Results. I'm Inori Naughton, Senior Director of Investor Relations. Joining me today are Hershey's Chairman and CEO, Michelle Bach, and Hershey's Senior Vice President and CFO, Steve Voskel. 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 May 1. A replay of this webcast and our subsequent Q and A sessions will be available on the Investor Relations section of our website along with their corresponding transcripts. 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]

Thank you, Inori, and good morning, everyone. Thank you for joining us today. I am pleased with the progress we are making on our key strategic initiatives for the year. Consumption across our U. S.

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

Confection and salty snacks businesses came in ahead of our expectations, driven by momentum across Seasons, Sweets, Dots, and Skinny Pop. We delivered on our first quarter expectations and remain on track to deliver on our financial expectations, excluding any assumptions related to tariff impacts in the second half of twenty twenty five, which I will touch on later. Despite heightened cost pressure, our strong balance sheet allows us flexibility to invest in the business and recent strategic acquisitions, expanding our better for you offerings and driving long term value creation. We recently announced our intent to acquire Lesser Evil, a mindful snacking brand with a differentiated ingredient and taste profile. These unique credentials, along with Lesser Evil's strong growth and margin profile, will extend our salty snacking portfolio and reach incremental consumers.

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

Additionally, we took the opportunity to acquire the Fulfill brand in North America, which we operated as a JV since 2020. Fulfill is now the largest and fastest growing brand in the protein and energy bar segment in Europe. The brand performs better than most competitors in terms of overall product liking and has tremendous upside both in The US and internationally. I'm also excited to welcome two outstanding additions to our leadership team, Stacy Taffet as chief growth officer and Tiffany Menard as chief customer officer, both of which will be instrumental in propelling our vision of becoming a leading snacking powder house. Now on to results.

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

Broader snacking came under pressure in the first quarter due to softening consumer sentiment, weaker trips across channels, and continued value seeking behaviors. However, category growth in nonseasonal candy mint and gum outpaced broader snacking trends in the first twelve weeks of the year. Moreover, everyday chocolate growth of nearly 2% remains consistent with historic levels. This reflects the continued relevance of the category in consumers' daily lives and strong response to investments in innovation, media, and merchandising. As we said earlier this year, the late Easter impacted retail trends in the quarter.

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

Hershey candy mint and gum retail sales decreased 4.2% versus overall category declines of 2.7% in the first twelve weeks of the quarter. This resulted in a share loss of approximately 45 basis points, which was ahead of our outlook. We expect our retail sales and share performance to improve in the second quarter as the full Easter season is reported. Our seasonal business continues to outperform behind strong execution and exciting innovation. Hershey's Valentine's consumption increased mid single digits and gained more than 60 basis points of share.

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

Preliminary results indicate a strong Easter season for both the category and Hershey. Hershey retail takeaway grew at least 16%, resulting in an anticipated seasonal share gain of over 120 basis points. Easter will mark the eighth consecutive period of seasonal market share gains for Hershey. Everyday confectionery market share trends were in line with our expectations in the quarter as strong gains in sweets and mint were offset by anticipated timing related declines in chocolate. We are planning to build momentum in our everyday business into the summer with exciting innovation and programming.

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

Reese's peanut butter and jelly will be available for a limited time in two flavors, grape and strawberry. Customer demand has been excellent for Hershey's with caramel, a concept derived from customer insights to enhance the summer's more occasion. Some of you may have seen new Kit Kat media featuring the Break Brothers who handle the chaos so you can enjoy a chocolaty pause, which we can all use. You'll also see new media content for Twizzler along with a choose your vibe summer sweets campaign encouraging consumers to choose a relaxing moment with a Twizzler, gear up for a thrill with Jolly Rancher ropes, or a mix of both. Lastly, Sour Strips and Jolly Rancher freeze dried momentum continues with both outperforming expectations year to date.

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

These new items and activations, along with incremental media and strong in store execution by our retail team, will help drive stronger velocities this summer. We are encouraged by the early consumer and customer enthusiasm, and we expect momentum through the second half with the strong lineup we have planned. Let me touch a bit on what's to come later this year. First, we are excited to announce a partnership to delight fans of Pokemon with Hershey's and Kiss's products and programming featuring their favorite characters. The property has strong retailer support given its wide demographic and generational appeal and will launch in time for back to school.

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

Second, as we mentioned at CAGNY, later this year, we will be dropping a new Shackalicious gummy shape together with a unique activation. Third, our instant consumables commercial strategy will also build incremental velocity in the second half through elevated merchandising and product placements. And fourth, and not to forget, we are launching our biggest Reese's innovation ever this fall. This robust pipeline gives us confidence in our plans for second half share improvement. Turning now to salty snacks.

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

Our salty snacks portfolio is well positioned for growth in the current environment with permissible and better for you brands continuing to resonate with consumers and driving overall category growth. Skinnypop consumption increased 5.4% in the quarter and gained over a 60 basis points of share in ready to eat popcorn. We expect the benefits from the Jennifer Aniston media campaign, new packaging, and price tag architecture to build over the coming months. DOT's strong momentum continued with 20.6% increase in retail takeaway growth and a three thirty five basis point share gain in the pretzel category, driven by robust core velocities and flavor innovation. Our salty multipack business increased 4.6% behind the transition of our packaging from bags to boxes at retail as well as distribution and innovation gains.

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

As we look ahead, we expect momentum to build on these initiatives and with exciting news coming later this year, including the inclusion of Pirate's Booty in our Pokemon partnership and flavor innovation on DOTS. Net sales trends within our international segment were in line with expectations to start the year as unfavorable currency translation offset better than expected results across most regions. Constant currency net sales increased mid teens in Brazil and mid single digits in Mexico, driven by improved category dynamics as well as solid innovation, seasons, and distribution gains. These markets were offset by planned declines across all other regions as we lapped the build of inventory ahead of our ERP cutover in April 2024. Our teams have a solid calendar planned for the rest of the year and continue to expect full year constant currency net sales growth of low single digits.

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

We remain committed to investing in our brands to drive long term growth and continue to expect full year advertising spend to increase mid single digits. The decline in media spending in Q1 was in line with our expectations, reflecting the timing of allocated expenses in the prior year period. Our advancing agility and automation initiative remains on track to deliver an incremental $125,000,000 of cost savings this year, and we have a strong pipeline of opportunities for 2026 and beyond. These savings are enabled by investments in technology platforms that drive automation and efficiencies, as well as leveraging the power of our scale across categories to drive commercial advantage. Our transformation is also enabling growth and agility investments across innovation, r and d, insight, media, and promotions that will make us even stronger in the future.

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

Before I turn it over to Steve, let me touch on cocoa and tariffs and the next steps we are taking to address these factors in both the short and long term. While cocoa prices have retreated over the past few months, cocoa financial markets continue to be disconnected from fundamentals due to a lack of market liquidity, market speculation, and government policy changes. As we said last quarter, we have full visibility into our COCO costs in 2025. Our full year COCO cost outlook is unchanged, though our flexible hedging strategies would allow us to participate if cocoa markets retreat materially. We are encouraged by the recovery in the twenty twenty four, twenty five cocoa crop.

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

The top three global cocoa markets are tracking to a 20% increase in supply this season. High cocoa market prices are incentivizing investment in origins around the world. Farmer prices have also increased in the Ivory Coast, which should enable more investment in fertilizer, pesticides, and other techniques to improve yields. There are reasons to believe that this year's crop marks the beginning of a multiyear growth cycle in cocoa supply. In the meantime, global end users are now responding to persistently high prices in earnest, having waited and watched for some time.

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

The global cocoa grind, a measure of demand, declined 3.4% in Q1. This marks the eighth straight quarter of declines. Based on what we know today, we continue to anticipate inflation next year, and robust planning is underway to address persistently high cocoa prices. We are readying options to execute, including pricing, price pack architecture, demand shaping, and sourcing strategies to mitigate inflation and protect our margins over the long term. We expect to share more information on these plans over the summer.

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

Turning to tariffs. As a largely domestic food producer, we are relatively less exposed to tariffs than other industries. That said, The current US levy on cocoa is an exposure that we must manage on top of the cocoa market's unprecedented recent price swings. Cocoa cannot be grown in The United States, and thus we are engaging with the US government to seek an exemption. Our legacy is one of American industrialism and ingenuity, and we continually invest in domestic manufacturing.

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

Just last month, we cut the ribbon on a state of the art chocolate processing facility in Hershey, PA, strengthening our supply chain and creating local jobs. We are developing robust mitigation plans for other raw material and finished goods exposures with several no regrets actions already underway. Given the fluidity of the rates and negotiations, we are providing our annual guidance with tariff expenses we can reasonably estimate and expect to incur. As I said, we remain committed to our financial outlook provided at the beginning of the year, absent assumptions about future incremental tariffs. With that said, let me turn it over to Steve for some additional perspective on our financial results and outlook.

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

Thank you, Michelle, and good morning, everyone. First quarter net sales results were in line with our expectations, as better than planned organic sales in North America salty snacks and international segments were offset by currency headwinds. Reported net sales declined 13.8% versus the same period last year, including a 90 basis point headwind from foreign currency translation, partially offset by a 30 basis point benefit from the Sour Strips acquisition. Net price realization was an approximate two point benefit. Volume declined about 15 points, reflecting the lap of planned inventory increases ahead of our ERP system implementation in the prior year period, a later Easter season in 2025 and two fewer shipping days.

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

As mentioned last quarter, the Easter and ERP lapse will reverse, and we therefore expect total company net sales to increase more than 20% in Q2. There is no change to our full year net sales outlook of at least 2% growth. Our North America Confectionery and International segment net sales were both significantly impacted by the aforementioned lap of inventory increases ahead of our ERP system implementation, the North America Confectionery segment net sales decline of 15% was in line with expectations. The Sour Strips acquisition was a 40 basis point benefit and foreign currency exchange was a 20 basis point headwind. Volumes declined nearly 18%, partially offset by net price realization of around 3%.

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

International segment organic constant currency net sales declined 7.9% in the first quarter. Performance was ahead of our expectations in all key markets. Volume declined approximately 8%, partially offset by net price realization of around 1%. Foreign currency translation was an approximate eight point headwind. Net sales for our North America salty snacks segment increased 1%.

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

The volume growth of nearly 4% reflects growth across Dots, Skinny Pop, Pirate's Booty and incrementality from multi branded multipacks. This growth more than offset a five to six point volume headwind from fewer shipping days and a planned reduction in private label production. Net price realization declined nearly 3%, in line with our expectations, reflecting retailer fees ahead of the new Skinny Pop packaging launch in early Q2. Moving down the P and L, adjusted gross margin decreased three seventy basis points in the first quarter. As expected, commodity inflation and negative sales mix were only partially offset by productivity and pricing.

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

Based on our commodity hedges for the balance of the year, cost pressure from cocoa will build each quarter. We expect second quarter gross margin compression to be greater than in Q1. There is no change to our underlying full year gross margin outlook of down six fifty to 700 basis points, including the impacts of incremental tariffs in Q2. Advertising and related consumer marketing decreased 14.2% in the first quarter, driven by the timing of expenses in the North America Confectionery and International segments in the prior year period, partially offset by increased investment in North America salty snacks. Adjusted operating expenses, excluding advertising and related consumer marketing spend, declined 5.5% due to lower compensation and benefits costs and reduced technology investments related to the ERP system upgrade.

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

As Michelle mentioned, we remain on track to deliver an incremental $125,000,000 in savings this year as part of our AAA initiative to be realized across cost of goods sold, advertising and related consumer marketing spend, as well as division and corporate expenses. As we shared previously, we expect these benefits to build gradually over the year. The adjusted tax rate for the quarter was 24.4%, an increase of four percentage points versus the year ago period, driven by lower levels of renewable tax credits than in the prior year. We expect other expense of approximately $170,000,000 to $180,000,000 and a full year tax rate of approximately 16%. The increase in economic and effective tax rates reflect challenges in fully executing our tax strategies in an evolving global business landscape.

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

Interest expense was $45,000,000 in the first quarter. In the first quarter, we successfully executed a $2,000,000,000 bond issuance, the proceeds of which are for near term debt refinancing, commercial paper repayment and general corporate purposes. This transaction reduced our full year outlook for interest expense, which is now in the range of $185,000,000 to $190,000,000 Adjusted earnings per share declined 32% in the quarter. We expect second quarter adjusted earnings per share to decline by less as the Easter season and ERP related inventory impacts reverse, partially mitigating the impact from incremental commodity cost and tariff pressure. There is no change to our full year adjusted EPS outlook of down mid-thirty percent before the impact of incremental tariffs in the second half of the year.

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

In the first quarter, capital expenditures, including software, were $146,000,000 60 8 million dollars lower than the prior year period as several capacity and technology projects have concluded. We continue to expect full year capital investments of $425,000,000 to $450,000,000 Dividends paid to shareholders in Q1 totaled $272,000,000 as our strong balance sheet and confidence in future business performance allow us to maintain our dividend payment in 2025. As Michelle noted, in April, we acquired Fulfill North America and announced our intent to acquire Lesser Evil, subject to regulatory approval. The impact to our full year outlook from Fulfill is immaterial. Lesser Evil is expected to close later this year and is not included in our guidance.

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

The company did not repurchase any shares in the first quarter against our December authorization, which has $470,000,000 remaining. We are prioritizing capital for the announced acquisitions and therefore do not expect to repurchase shares this year. Let me take a moment to discuss tariffs. The global business environment remains dynamic as negotiations continue. We are hopeful that our largest exposures, cocoa imports and Canadian retaliatory tariffs will be ameliorated.

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

At the same time, we have robust planning underway to mitigate raw material and finished goods exposures if they endure. As Michelle mentioned, we are pursuing an exemption request for cocoa, which cannot be mitigated through sourcing strategies. For now, we plan to continue providing our full year outlook, including tariffs that we can reasonably estimate and expect to incur. In the second quarter, we expect incremental tariff expenses of approximately 15,000,000 to $20,000,000 based on what we know today. Absent tariff relief, this expense is expected to increase in the third quarter as we work through inventory on hand.

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

With that, I will turn it back to Michele for closing remarks.

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

Thanks, Steve. Eight years ago, when I started my tenure as CEO, I saw the potential for Hershey to become a leading snacking powerhouse. While today's business environment remains volatile, we continue to take action to advance that ambition with strategies that will solidify our leadership position and enhance shareholder returns. I want to thank everyone again for joining us this morning and encourage you to listen to our live question and answer webcast, which will begin at 08:30 a. M.

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

Eastern Time today and will be available at the HersheyCompany.com. Thank you for your continued support and interest in Hershey.

Participants

Executives

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