HERSHEY, Pa., July 28, 2022 /PRNewswire/ — The Hershey Company (NYSE: HSY) today announced net sales and earnings for the second quarter ended July 3, 2022, and raised its full-year financial outlook.
“Our business momentum continued in the second quarter, with double-digit sales growth in each of our segments resulting in strong earnings per share performance,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “These results reflect the strength and resilience of our categories, consumers’ love for our brands, the investments we are making in our business, and the exceptional execution of our dedicated employees. We are raising our financial expectations for the year and investing more heavily in our brands, capabilities, and people in the second half to continue this momentum into 2023.”
Second-Quarter 2022 Financial Results Summary
- Consolidated net sales of $2,372.6 million, an increase of 19.3%.
- Organic, constant currency net sales increased 14.1%.
- The impact of acquisitions on net sales was a 5.3-point benefit2 while foreign currency exchange was a 0.1-point headwind.
- Reported net income of $315.6 million and $1.53 earnings per share-diluted, an increase of 5.5%.
- Adjusted earnings per share-diluted of $1.80, an increase of 22.4%.
2022 Full-Year Financial Outlook
The Hershey Company is increasing its net sales outlook to reflect continued strength in consumer demand and net price realization. Price elasticities are expected to moderate from the second quarter, but remain favorable to historical levels, as inflation and fewer government benefits are expected to weaken consumers’ buying power.
Profit from increased sales growth is expected to more than offset higher supply chain costs, elevated advertising and merchandising levels, and increased incentive compensation costs, to deliver higher reported and adjusted earnings per share growth.
Second-Quarter 2022 Results
Consolidated net sales increased 19.3 percent to $2,372.6 million in the second quarter of 2022, including a 5.3-point benefit from the acquisitions of Pretzels, Dot’s, and Lily’s, while foreign currency exchange was a 0.1-point headwind. Organic, constant currency net sales increased 14.1 percent driven by pricing and volume gains across segments. Net price realization contributed 9.5 points to net sales growth driven by list price increases as well as moderately lower levels of promotional activity. Volume contributed to an additional 4.6-point benefit driven by the replenishment of distributor inventory levels, primarily in the North America Confectionery segment, along with favorable price elasticities in the North America Salty Snacks and International segments.
The reported gross margin was 42.1 percent in the second quarter of 2022, compared to 46.5 percent in the second quarter of 2021, a decrease of 440 basis points. This decrease was primarily driven by derivative mark-to-market losses, combined with higher supply chain costs and unfavourable mix, which was partially offset by sales growth. The adjusted gross margin was 43.9 percent in the second quarter of 2022, a decrease of 250 basis points. Higher raw material, packaging, and logistics cost inflation, as well as labor investments, contributed to this decline, in addition to unfavourable mix from recent acquisitions. These headwinds were partially offset by accelerating net price realization and volume gains.
Selling, marketing, and administrative expenses increased 16.2 percent in the second quarter of 2022 versus the second quarter of 2021, primarily driven by higher amortization, integration, and operating expenses related to recent acquisitions. Advertising and related consumer marketing expenses increased 3.2 percent in the second quarter of 2022 versus the same period last year. Moderate advertising increases across brands and segments without capacity constraints were largely offset by cost efficiencies related to new media partners, primarily benefiting the North America Confectionery segment. Selling, marketing, and administrative expenses, excluding advertising and related consumer marketing, increased 22.4 percent versus the second quarter of 2021. This increase was driven by a loss related to the sale of non-operating assets; higher acquisition-related costs; incremental capabilities and technology investments, including the upgrade of the company’s enterprise resource planning (ERP) system, as well as related amortization; and salary and benefit inflation.
Second-quarter 2022 reported operating profit was $456.5 million, in line with the prior year, resulting in an operating profit margin of 19.2 percent, a decrease of 380 basis points. Adjusted operating profit of $526.9 million increased 14.7 percent versus the second quarter of 2021, resulting in adjusted operating profit margin of 22.2 percent, a decrease of 90 basis points. Profit increases in adjusted operating profit were driven by pricing and volume gains, partially offset by broad-based inflation, acquisition-related costs, and higher advertising, capability and technology investments. Reported operating profit was similarly affected but was further offset by a loss related to the sale of non-operating assets, derivative mark-to-market losses and higher integration costs related to recent acquisitions. The aforementioned costs outpaced sales growth resulting in a degradation of reported and adjusted operating margin in the second quarter.
The reported effective tax rate in the second quarter of 2022 was 21.8 percent, a decrease of 620 basis points versus the second quarter of 2021. The adjusted effective tax rate in the second quarter of 2022 was 21.4 percent, a decrease of 600 basis points versus the second quarter of 2021. Both the reported and adjusted effective tax rate decreases were driven primarily by higher international tax reserves accrued in the prior year period, as well as the timing of renewable energy tax credits.
The company’s second-quarter 2022 results, as prepared in accordance with GAAP, including items positively impacting comparability of $70.4 million, or $0.27 per share diluted. For the second quarter of 2021, items positively impacting comparability totaled $2.8 million, or $0.02 per share-diluted.
North America Confectionery
Hershey’s North America Confectionery segment net sales were $1,909.1 million in the second quarter of 2022, an increase of 12.9 percent versus the same period last year. Excluding the 0.8-point benefit from the acquisition of Lily’s and a 0.3-point headwind from foreign currency exchange, organic, constant currency net sales increased 12.4 percent. Net price realization was a 9.8-point benefit driven by list price increases as well as a lower level of promotional activity in response to capacity constraints. Volume drove an additional 2.6-point benefit driven by the replenishment of distributor inventory levels, which contributed approximately 6.0 points to net sales growth and was partially offset by price elasticities.
Hershey’s U.S. candy, mint, and gum (CMG) retail takeaway for the 12-week period ended July 17, 2022, in the multi-outlet plus convenience store channels (MULO+C) increased 5.0 percent. Consumer demand and unit velocities remained steady with strength in take-home chocolate and sweets, while growth in unit pricing drove year-over-year gains. Hershey’s take-home chocolate increased 6.6 percent in the latest period as at-home consumption remained strong and above pre-pandemic levels. The momentum of Hershey’s sweets brands continued with a retail takeaway of 7.7 percent, driven by Jolly Rancher Gummies and Twizzlers summer programming. Hershey’s CMG share declined 54 basis points as production and on-shelf availability of certain products remained constrained and promotional levels were reduced to enable inventory replenishment. Declines were in line with expectations and an improvement from the first quarter as on-shelf availability increased. Hershey’s confectionery share remains 83 basis points higher than pre-pandemic levels.
The North America Confectionery segment reported segment income of $618.9 million in the second quarter of 2022, reflecting an increase of 11.6 percent versus the prior-year period. The increase in segment income was driven by pricing and volume gains, which were partially offset by higher supply chain costs, increased acquisition costs related to Lily’s, higher capability and technology investments, and increased trade show and travel expenses as the prior-year period was impacted by pandemic-related restrictions. The aforementioned costs outpaced sales growth in the second quarter, resulting in a segment margin of 32.4 percent, a decrease of 40 basis points.
North America Salty Snacks
Hershey’s North America Salty Snacks segment net sales were $256.3 million in the second quarter of 2022, an increase of 99.9 percent versus the same period last year. Sales from the acquisitions of Dot’s and Pretzels was a 71.6-point benefit. Net price realization was a 14.6-point benefit, while volume contributed 13.7 points driven by strong consumer demand and favorable price elasticities.
Hershey’s U.S. salty snack retail takeaway, including Dot’s, in MULO+C, increased 26.3 percent in the 12-week period ended July 17, 2022, driven by pricing and strong consumer demand across Hershey’s salty snack brands. SkinnyPop brand retail sales increased 16.9 percent versus the prior-year period and resulted in a ready-to-eat popcorn share gain of approximately 130 basis points. Pirate’s Booty brand continues to report strong takeaway with retail sales growth of 32.4 percent. Both SkinnyPop and Pirate’s Booty brands reported double-digit growth across all classes of trade and nearly all pack-types in the period with exceptional strength in multi-packs, which increased 30.4 percent. This growth is driven by consumers’ demand for convenience and on-the-go snacking along with the company’s assortment strategy. Dot’s Homestyle Pretzels brand also had tremendous retail sales growth of 45.4 percent during the period driven by continued strong distribution gains, resulting in a pretzel category share gain of approximately 340 basis points.
North America Salty Snacks segment income increased 43.7 percent to $37.4 million in the second quarter of 2022, compared to $26.0 million in the second quarter of 2021. Pricing gains and higher volumes offset unfavourable mix, acquisition-related costs, and higher supply chain costs due to inflation and higher-than-expected demand, to drive segment income growth in the second quarter. The aforementioned costs outpaced sales growth in the second quarter, resulting in segment margin of 14.6 percent, a decrease of 570 basis points.
Second-quarter 2022 net sales for Hershey’s International segment increased 21.3 percent versus the same period last year to $207.2 million. Excluding a 0.7-point benefit from foreign currency exchange rates, constant currency net sales increased 20.6 percent. Volume gains contributed 17.6 points to net sales growth, driven by the strong consumer buying power and demand across markets. Price realization was a 3.0-point benefit.
The International segment reported a $30.7 million profit in the second quarter of 2022, reflecting an increase of $3.1 million versus the prior-year period. The profit increase was driven by volume gains and net price realization, which were partially offset by higher supply chain cost inflation and logistics costs, as well as increased advertising investment, salary and benefit inflation, and increased travel expenses. The aforementioned costs outpaced sales growth in the second quarter, resulting in segment margin of 14.8 percent, a decrease of 130 basis points.
Unallocated Corporate Expense
Hershey’s unallocated corporate expense in the second quarter of 2022 was $160.1 million, an increase of $11.5 million, or 7.7 percent, versus the same period of 2021. This increase was driven by higher amortization; integration and operating expenses related to recent acquisitions; incremental capabilities and technology investments, including the upgrade of the company’s ERP system, as well as related amortization; and salary and benefit inflation.
The Board of Directors of The Hershey Company declared a quarterly dividend of $1.036 on the Common Stock and $0.942 on the Class B Common Stock, payable September 15, 2022, to shareholders of record as of August 19, 2022, representing an increase of 15 percent, or $0.135 and $0.123 per share, respectively. It is the 371st consecutive regular dividend on the Common Stock and the 152nd consecutive regular dividend on the Class B Common Stock.
At approximately 7 a.m. (Eastern time) today, Hershey will post a pre-recorded management discussion of its second-quarter 2022 results and business update to its website at www.thehersheycompany.com/investors. In addition, at 8:30 a.m. (Eastern time) today, the company will host a live question and answer session with investors and financial analysts. Details to access this call are available on the company’s website.