Hershey Q1 2023 Prepared Remarks Earnings Report

Hershey EPS Results

• Actual EPS: $2.96
• Consensus EPS: $2.67
• Beat/Miss: Beat by +$0.29
• One Year Ago EPS: $2.53

Hershey Revenue Results

• Actual Revenue: $2.99 billion
• Expected Revenue: $2.91 billion
• Beat/Miss: Beat by +$79.97 million
• YoY Revenue Growth: +12.10%

Hershey Announcement Details

• Quarter: Q1 2023 Prepared Remarks
• Date: 4/27/2023
• Time: Before Market Opens
• Conference Call Date: Thursday, April 27, 2023
• Conference Call Time: 7:00AM ET

The Hershey (NYSE:HSY) Company is a global confectionery and snack manufacturer headquartered in Hershey, Pennsylvania. Its portfolio includes chocolate, non-chocolate confectionery, salty snacks and pantry products sold under brands such as Hershey’s, Reese’s, Kit Kat, Jolly Rancher, Twizzlers, Ice Breakers, SkinnyPop and Dot’s.

Milton S. Hershey founded the company in 1894, and its milk chocolate business helped establish Hershey, Pennsylvania, as a center of American chocolate production. The company has expanded beyond its original chocolate offerings through product development, licensing arrangements and acquisitions in the confectionery and snack categories.

Hershey serves consumers primarily in the United States and Canada and markets its products internationally through retail, e-commerce and other distribution channels. As of 2026, Kirk Tanner serves as the company’s president and chief executive officer.

Hershey Q1 2023 Prepared Remarks Earnings Call Transcript

Key Takeaways

• The company reported 12.1% net sales growth in Q1 driven by both price increases and volume gains, resulting in double-digit sales and earnings growth for the quarter.
• North America Confectionery saw high single-digit price realization and modest volume growth, with seasonal categories like Valentine’s and Easter posting double-digit and mid-single-digit gains respectively.
• Salty Snacks net sales grew over 19%, led by SkinnyPop’s 23% retail takeaway gain and Dot’s 25% growth, and Hershey announced the acquisition of two Weaver Popcorn Manufacturing plants to bolster supply chain capacity.
• Management raised its full-year outlook, expecting adjusted gross margin expansion of 70 to 80 basis points and delivered 17% adjusted EPS growth in Q1, while returning capital via a 14.3% dividend increase and $240 million share repurchase.
• Hershey launched a new income accelerator program in Côte d’Ivoire to support cocoa farmers’ incomes, advance sustainable practices, and address child labor risks as part of its ESG priorities.

Presentation

[Melissa Poole, VP of Investor Relations at The Hershey Company]

Good morning, everyone, welcome to the prerecorded discussion of The Hershey Company's 1st quarter 2023 earnings results. My name is Melissa Poole, I'm the Vice President of Investor Relations at Hershey. Joining me today are Hershey's Chairman and CEO, Michele Buck, Hershey's Senior Vice President and CFO, Steve Voskuil. In addition to these remarks, we will host an analyst Q&A only session at 8:30 A.M. Eastern on the morning of April 27th. A replay of this webcast and our subsequent Q&A session 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.

[Melissa Poole, VP of 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 in 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. It is now my pleasure to introduce our Chairman and CEO, Michele Buck.

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

Thank you, Melissa. Good morning, everyone. 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. Net sales in the 1st quarter grew 12.1%, driven by both price and volume gains across segments. Within our North America Confectionery segment, price elasticities were comparable to what we saw in the second half of 2022, and remained ahead of historical levels. This led to modest volume growth despite high single-digit price realization, resulting in double-digit net sales gains for the quarter. Seasons continued to be a growth driver, with category sales for Valentine's Day up double digits versus the prior year. Despite the shorter Easter season, category sales grew mid-single digits.

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

While consumers are shopping on tighter budgets, candy and snacks remain an affordable way to bring joy to seasonal celebrations with loved ones. We've also seen strong demand for gum and mint products as the category rebounds from subdued demand related to the Omicron surge last year. Retail sales in both categories grew 20%-25% in the 1st quarter and are now ahead of pre-pandemic levels. Hershey's growth of 30% outpaced the category, resulting in a refreshment share gain of 110 basis points in the quarter. This performance builds on previous share gains over the past several years, resulting in an overall refreshment share gain of 250 basis points versus pre-pandemic levels. As we discussed in our recent Investor Day, expanding our presence in non-chocolate candy is a strategic priority for us, given strong consumer demand, particularly in the gummy segment.

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

Our investments in innovation and media in this space are paying dividends with Q1 retail sales growth of almost 19% for Twizzlers and over 15% for our Jolly Rancher brands. As we exit the Easter season, we expect to be in a strong position to fully support consumer demand across both our everyday and seasonal products. We expect this, combined with our increased investments in advertising, to improve our market share performance as we progress through the year. The summer season is already underway, with our retail team setting up S'mores and Twizzlers displays across the country. Just last week, we kicked off a limited edition REESE'S Creamy and Crunchy promotion, providing consumers options to enjoy extra creamy and extra crunchy versions of our number one brand.

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

Fans can visit our website to vote for their favorite and see real-time results, with the winner announced on May 18th, also known as National I Love Reese's Day. Within our North America Salty Snacks segment, high single-digit volume gains and low double-digit price realization drove overall net sales growth of over 19% in the 1st quarter. SkinnyPop retail takeaway of over 23% drove a 220 basis point share gain in the ready-to-eat popcorn category. Dot's Pretzels performance also continued to shine, with retail sales growth of over 25% in the quarter, resulting in a pretzel category share gain of 100 basis points.

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

As we discussed on our last earnings call and during Investor Day, we are excited to launch new campaigns and increase media investment on our salty snack brands this year to foster even stronger consumer engagement and drive household penetration. Dot's 1st national campaign launched several weeks ago with a focus on increasing buy rate in existing markets and helping drive household penetration in under-penetrated markets like the Northeast. Our March activation of Pirate's Booty with enhanced creative has already started to increase velocities, and we will monitor the impact to inform our second half investment model. We are continuing to invest in SkinnyPop with higher levels of advertising and optimized media creative. With this strong demand and higher level of investment, it has become even more critical to enhance our supply chain capabilities and secure capacity to sustain our growth.

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

Last week, we announced our intent to acquire two manufacturing plants from Weaver Popcorn Manufacturing, a leader in popcorn production and co-packing, and a co-manufacturer of Hershey's SkinnyPop brand. These state-of-the-art facilities will enable more flexibility, agility, and resiliency across our growing salty snacks supply chain network. In the 1st quarter, we successfully integrated Dot's Pretzels and Pretzels Inc. into our salty snacks division, bringing the full power of all of our amazing brands into one unified commercial and supply chain team. We added new capabilities and talent to support the business's current scale and robust growth, and we remain optimistic about the opportunities ahead to expand the business and improve margins. Within our international segment, we saw continued strength across markets driven by distribution expansion, innovation, and media activations. Net sales in Mexico, Brazil, and India grew a combined 25% in the 1st quarter, driven primarily by volume.

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

Our world travel retail business saw strong double-digit growth as travel rebounded off last year's Omicron-driven slowdown. Our export business also performed well with high single-digit growth in the quarter as we continue to build our brands in a disciplined way around the globe. We have strong business momentum and remain confident in our ability to deliver our financial goals for the year. We continue to advance work on key commercial, supply chain, and technology strategies to sustain this momentum into 2024 and the years to come. Within our supply chain, construction has begun on our new chocolate-making facility in Hershey, Pennsylvania, and we are on track to increase production capacity approximately 5% over the course of this year. This includes the installation and startup of 3 new REESE'S lines and a new Hershey's line.

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

As we've shared during our Investor Day, as we add capacity, we also remain focused on enhancing our network to optimize output, margin, utilization rates, and service levels, and our teams are off to a great start. The transition of our salty snacks ERP platform remains on track to execute in the fourth quarter with our U.S. transition on track to implement next spring. We also continue to invest in commercial capabilities to enhance planning and analytics across our organization and with our retail partners. These capacity, capability, and talent investments are critical for us to sustain our differentiated performance for years to come. I couldn't be prouder of the team's efforts to advance these important initiatives while continuing to deliver outstanding business results. With that, let me turn it over to Steve to provide more details on our financial results and outlook.

[Steve Voskuil, SVP and CFO at The Hershey Company]

Thank you, Michele, and good morning, everyone. Our 1st quarter performance is a testament to the resilience of our categories, the strength of our brands, our ability to invest for profitable growth, and our team's agility and strong execution. As a result of our strong start and increased visibility into customer demand and supply chain costs for the remainder of the year, we are increasing our sales and earnings outlook for the year. Net price realization of 8.9% in the 1st quarter was in line with expectations. Volume contributed an additional 3.3 points of growth, which was slightly ahead of expectations due to continued strength in consumer demand and earlier shipments of summer activations originally planned for the 2nd quarter. Earlier summer shipments from Q2 contributed approximately 1.5 points of sales growth to the 1st 1st quarter.

[Steve Voskuil, SVP and CFO at The Hershey Company]

This stronger volume growth, combined with favorable packaging and logistics costs, enabled us to over-deliver our gross margin expectations for Q1. Adjusted gross margin increased 80 basis points in the 1st quarter as price realization, volume growth, improved supply chain performance, and increased productivity offset higher commodity, wage, and overhead costs. As a result of this Q1 strength, we now expect full-year adjusted gross margin to expand 70-80 basis points. Advertising and related consumer spending increased approximately 9% in the 1st quarter, in line with our expectations as we prioritized investments across segments to drive strong consumer engagement and support conversion at new retail price points.

[Steve Voskuil, SVP and CFO at The Hershey Company]

Corporate and divisional expenses increased 15.8% as planned, driven by incremental capability and technology investments, as well as compensation and benefits inflation. The adjusted tax rate for the 1st quarter was 22.7%, an increase of 150 basis points versus the prior year period. This was driven by fewer renewable energy tax credits versus the prior year period, which in turn drove a decline in other expenses of about $7 million versus the same period last year. Our full year outlook for tax rate and renewable energy credit investments remains in line with our prior guidance. This continued strength in consumer demand and improving margins led to adjusted EPS growth of 17% in the quarter, generating strong cash flow to reinvest in the business and return to shareholders.

[Steve Voskuil, SVP and CFO at The Hershey Company]

Capital additions, including software, were $176 million in Q1, supporting our previously discussed capacity expansion projects and ERP implementations. Dividends paid to shareholders totaled $207 million, an increase of 14.3% versus the prior year period. We repurchased 1 million shares at a cost of approximately $240 million. As Michele mentioned, last week we entered an agreement to acquire manufacturing capacity from Weaver Popcorn Manufacturing Inc, a current co-manufacturer of SkinnyPop. These facilities provide more flexibility, agility, and resiliency across our growing salty snacks supply chain network and enable us to continue supporting the brand's strong growth. The purchase price for these facilities is $164 million and will be financed with cash on hand and short-term borrowings. We expect the deal to close in Q2.

[Steve Voskuil, SVP and CFO at The Hershey Company]

I remain confident that our balanced and disciplined approach to investing in our brands, capacity, digital infrastructure, and our people will enable us to create value for all shareholders for many years to come. With that, I will turn it back to Michele for closing remarks.

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

Thanks, Steve. As we execute against our commercial strategies and deliver our financial goals, we remain focused on the important work of embedding our ESG priorities within our short and long-term business strategies. We continue to prioritize issues that are material to our long-term business results. A resilient cocoa supply chain has and will continue to be a top priority for Hershey's. We are excited about the upcoming launch of a new income accelerator program in Cote d'Ivoire to support increased incomes for cocoa farming households through the provision of cash transfers and investments in village savings and loan associations. This program is a great example of strong collaboration across governments and NGOs to build on best practices and develop a multifaceted approach to address poverty while supporting sustainable farming practices and mitigating the risk of child labor.

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

We look forward to sharing more about our ESG progress in our upcoming annual report. Thank you for your time this morning. I invite you to listen to our live question and answer webcast, which will begin today at 8:30 A.M. Eastern Time and will be available at thehersheycompany.com. Thank you.

Participants

Executives

• Melissa Poole, VP of Investor Relations
• Michele Buck, Chairman, President, and CEO
• Steve Voskuil, SVP and CFO