Hershey’s Strong Financial Performance Amid Challenging Macroeconomic Conditions

The Hershey Company, a global leader in chocolate and snack production, has reported its financial results for the year 2024. Despite facing a dynamic macroeconomic environment, including price volatility in select commodities and shifting consumer behavior, Hershey has demonstrated resilience and delivered solid financial performance.

Overview of Financial Performance

In 2024, Hershey’s net sales reached $11,202.3 million, a 0.3% increase compared to the previous year. This growth was driven by favorable price realization, which offset a slight decline in sales volume. The company’s North America Confectionery and North America Salty Snacks segments were the primary contributors to the net sales increase.

Hershey’s gross profit in 2024 was $5,300.9 million, representing a 6.1% increase from 2023. The company’s gross margin expanded to 47.3%, up from 44.8% in the prior year. This improvement was primarily attributable to favorable mark-to-market impact from commodity derivative instruments, favorable price realization, and volume declines, partially offset by higher commodity and supply chain costs.

Operating profit in 2024 was $2,898.2 million, a 13.2% increase compared to 2023. The company’s operating profit margin expanded to 25.9%, up from 22.9% in the previous year. This increase was driven by higher gross profit and lower selling, marketing, and administrative (SM&A) expenses, partially offset by higher business realignment costs.

Net income for 2024 was $2,221.2 million, a 19.3% increase from 2023. Earnings per share (EPS) on a diluted basis was $10.92, up 20.5% from the prior year. The increase in net income and EPS was primarily due to higher gross profit, lower SM&A expenses, and lower income taxes, partially offset by higher business realignment costs and higher other income and expenses.

Trends Affecting the Business

Throughout 2024, Hershey faced a dynamic macroeconomic environment, including price volatility in select commodities, such as a 70% increase in the market price of cocoa products. This resulted in corresponding incremental costs and gross margin pressures, as well as net sales and net income declines.

The company also navigated the ongoing conflict between Russia and Ukraine and the imposition of tariffs on U.S. imports and retaliatory tariffs, which increased global economic and political uncertainty. However, these events did not have a material impact on Hershey’s commodity prices or supply availability in 2024.

Hershey continues to monitor the length and severity of the fluctuating macroeconomic environment, including the possibility of a recession, changes in consumer shopping and consumption behavior, and the evolving geopolitical landscape. The company is prepared to take necessary actions to preserve adequate liquidity and ensure its business can operate effectively during these challenging times.

Segment Performance

North America Confectionery The North America Confectionery segment, which accounted for 81.4% of Hershey’s net sales in 2024, experienced a slight decrease in net sales of 0.1% compared to 2023. This was driven by a 4% volume decline in everyday core U.S. confection brands, partially offset by a 4% favorable price realization and a minimal benefit from the acquisition of the Sour Strips brand.

Segment income for North America Confectionery was $2,945.7 million, a 5.5% decrease from the previous year. This decline was primarily due to higher commodity costs, higher supply chain costs, and unfavorable product mix, partially offset by favorable price realization, lower volume, and lower advertising and related consumer marketing costs.

North America Salty Snacks The North America Salty Snacks segment, which accounted for 10.1% of Hershey’s net sales in 2024, experienced a 3.9% increase in net sales compared to 2023. This was driven by a 5% volume increase, primarily related to the Dot’s Homestyle Pretzels brand, partially offset by a 1% unfavorable price realization.

Segment income for North America Salty Snacks was $199.4 million, a 26.0% increase from the prior year. This improvement was primarily driven by higher volume, favorable commodity costs, and lower supply chain costs, partially offset by higher advertising and related consumer marketing costs and unfavorable price realization.

International The International segment, which accounted for 8.5% of Hershey’s net sales in 2024, experienced a 0.1% decrease in net sales compared to 2023. This was due to a 1% unfavorable impact from foreign currency exchange rates and a 1% volume decrease, partially offset by a 2% favorable price realization.

Segment income for the International segment was $111.5 million, a 24.8% decrease from the previous year. This decline was primarily due to higher commodity costs and unfavorable foreign currency exchange rates, partially offset by favorable price realization and decreased supply chain costs.

Liquidity and Capital Resources

Hershey generated $2.5 billion in cash from operating activities in 2024, an increase of $208.4 million compared to 2023. This was driven by favorable changes in working capital, partially offset by lower net income adjusted for non-cash charges and higher cash outflows related to other assets and liabilities.

The company used $960.3 million in cash for investing activities in 2024, a decrease of $238.4 million compared to 2023. This was primarily due to a decrease in capital expenditures and investments in partnerships qualifying for tax credits, as well as lower acquisition activity.

Hershey used $1.3 billion in cash for financing activities in 2024, an increase of $148.2 million compared to 2023. This was mainly driven by higher share repurchases and dividend payments, partially offset by an increase in short-term borrowings.

As of December 31, 2024, Hershey had $730.7 million in cash and cash equivalents, an increase of $328.8 million compared to the end of 2023. The company believes it has sufficient liquidity to satisfy its strategic initiatives and other cash requirements in both the short and long term.

Strengths and Weaknesses

Strengths:

• Dominant market position in North America as the largest producer of quality chocolate and a leading snack maker
• Diversified portfolio of well-known and beloved brands, including Hershey’s, Reese’s, KitKat, and Sour Strips
• Successful execution of strategic initiatives to drive core confection business and expand into broader snacking categories
• Strong brand loyalty and consumer connections, particularly during seasonal and holiday periods
• Robust cash flow generation and financial flexibility to fund growth initiatives and return capital to shareholders

Weaknesses:

• Exposure to volatile commodity prices, particularly cocoa, which can impact gross margins
• Reliance on the North America market, which accounts for a significant portion of sales
• Potential challenges in navigating the dynamic macroeconomic environment, including inflation, supply chain disruptions, and changing consumer behavior
• Dependence on the performance of the core U.S. confection brands, which experienced volume declines in 2024

Outlook and Future Prospects

Despite the challenging macroeconomic conditions, Hershey remains focused on its strategic priorities to drive growth and create value for shareholders. The company is committed to deepening consumer connections, leveraging its iconic brands to deliver meaningful innovation, and expanding its presence in the broader snacking continuum through acquisitions and new product introductions.

Hershey is also dedicated to responsibly managing its operations, with a focus on sustainability, social impact, and building a diverse and inclusive workforce. The company believes these efforts will contribute to the long-term sustainability of its business and enhance its competitive advantage.

While the company faces ongoing uncertainties related to the macroeconomic environment, Hershey is well-positioned to navigate these challenges. With its strong financial position, diversified portfolio, and strategic initiatives, the company is poised to continue delivering solid financial performance and creating value for its stakeholders in the years to come.