The Hershey Company is a global leader in the confectionery industry, renowned for its production of chocolate, sweets, mints, and other snacks. The company operates through three main segments: North America Confectionery, North America Salty Snacks, and International, with its products marketed under more than 90 brand names in approximately 80 countries worldwide . Hershey is the largest producer of quality chocolate in North America and has expanded its portfolio through strategic acquisitions to enhance its product offerings .
- North America Confectionery - Dominates the company's portfolio with iconic brands like Hershey's, Reese's, and Kisses, and includes non-chocolate confectionery brands such as Jolly Rancher and Twizzlers, as well as pantry items like baking ingredients and toppings .
- North America Salty Snacks - Features products like SkinnyPop popcorn and Dot's Homestyle Pretzels, contributing significantly to the company's growth .
- International - Encompasses operations outside North America with products tailored to regional markets, including Pelon Pelo Rico in Mexico and Sofit in India .
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What went well
- Hershey is enhancing execution by implementing the "gold standard shelf" for instant consumables, anticipated to lead to stellar results.
- The company is focusing on growth opportunities in underdeveloped areas like sweets, with strong innovation and distribution expansion, expecting these areas to drive significant growth in 2025 and beyond.
- Hershey is seeing positive market share trends due to successful innovations and strong performances in key categories like sweets and SkinnyPop, expecting gradual improvement and share gains.
What went wrong
- Increased competition from private label and smaller manufacturers is impacting Hershey's market share in the confectionery segment, particularly in take-home products. Michele Buck acknowledged that "there are some smaller players who came in and have competitive velocities, and we need to switch out some of the items we have for even stronger items."
- Hershey's gross margin for the quarter was below expectations due to sales flow-through issues, negative mix, and volume deleverage. Steven Voskuil stated that "it was below what we were expecting... The biggest piece was the sales flow through and... the mix of sales... there was some negative mix inside the sales delivery that had an impact on gross margin... we also had some volume deleverage..."
- The impact of GLP-1 weight loss drugs is leading to a decline in consumption in their categories, with consumers on these drugs eating disproportionately less of confectionery products. Michele Buck noted that "we're seeing a mild year-on-year impact... we've continued to see multiple sources of data validating that the consumers on those drugs are eating disproportionately less of our categories."
Q&A Summary
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Cocoa Cost Impact
Q: How will cocoa inflation affect 2025 earnings?
A: Cocoa prices are significantly increasing for next year, leading to a substantial inflationary headwind in 2025. This year's cocoa costs were hedged and set earlier, but next year's prices reflect current higher market rates. The impact will be significant, but exact figures aren't provided yet. -
2025 Earnings Outlook
Q: Are you expecting a double-digit earnings decrease in 2025?
A: While acknowledging significant pressures from cocoa inflation, tax normalization, and incentive compensation adjustments, management cannot provide precise guidance yet due to evolving cocoa prices. -
Pricing Strategy
Q: Will pricing increase more in 2025 compared to 2024?
A: Pricing next year is expected to be similar to this year, as price increases will flow through. They've taken pricing on about half of their chocolate volume, netting to a low to mid-single-digit pricing increase overall. -
Market Share Trends
Q: When will chocolate market share stabilize?
A: Expecting gradual improvement, with momentum building through the end of this year and into next. Most of the portfolio should recover, but instant consumables may remain under pressure until mid-2025 due to convenience store channel pressures. -
GLP-1 Drug Impact
Q: Are GLP-1 drugs affecting chocolate sales?
A: Experiencing a mild year-on-year impact, as consumers on these drugs consume less from their categories. The effect is gradual and in line with expectations. The company is monitoring behavior and evolving the portfolio to meet consumer needs. -
Gross Margin Performance
Q: What caused the gross margin shortfall?
A: Gross margins were below expectations due to lower sales, negative mix—particularly in convenience stores—and volume deleverage. These factors collectively drove the disappointing margin performance. -
Increased Competition
Q: What's causing increased competition internationally?
A: Facing intensified pricing competition in international markets, especially in Mexico and Brazil, where competitors are deeply discounting. These are smaller markets where Hershey is a smaller player, but competition has been intense. -
Marketing Spending
Q: Will marketing spend decrease due to cost pressures?
A: No, Hershey believes in investing in their brands and plans to maintain or increase marketing spend, focusing on high ROI and efficiency. They are strategically investing to bolster the instant consumable business and leveraging media to drive top-line growth. -
Inventory Impacts
Q: How are inventory moves affecting guidance?
A: Inventory movements are causing about a 0.5-point drag on full-year guidance. Expecting mid-single-digit shipping timing impacts in Q4. These inventory effects will be less significant in 2025. -
Leadership Changes
Q: What will the new head of North America Confectionery bring?
A: Mike, coming from PepsiCo, brings external perspective and strong customer and retail experience. He will enhance customer focus to unlock growth and evolve the portfolio to meet shifting consumer channels. -
Future Growth Drivers
Q: Which areas will drive growth in 2025 and beyond?
A: Growth will come from salty snacks (SALT), sweets, and seasonal products, where there's strong category growth and household penetration opportunity. Channel opportunities, especially in chocolate, will also contribute, but the biggest inflection point may come from other areas.
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Given the significant increase in pricing competition in international markets such as Mexico and Brazil, where you've seen higher levels of competition and are a smaller player, how do you plan to protect or grow your market share in these regions while maintaining profitability?
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With increased competition domestically from private labels and smaller players impacting your take-home segment, especially as barriers to entry have lowered due to digital media, what specific strategies are you implementing to strengthen your position and revitalize your offerings in this segment?
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Your gross margins in the recent quarter came in below expectations, partly due to negative sales mix and volume deleverage; how do you plan to address these issues and improve gross margin performance moving forward?
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With the expected significant step-up in cocoa and sugar costs next year, leading to higher inflation rates than this year, how do you plan to manage these headwinds? Will you consider further pricing actions, and how might this impact volume and elasticity?
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You mentioned seeing only a mild impact from GLP-1 drugs on your categories, but given that multiple data sources indicate consumers on these medications are consuming disproportionately less of your products, how are you proactively adjusting your product portfolio and marketing strategies to mitigate potential long-term risks?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024 and FY 2025
- Guidance:
- Inflation and Costs: Significant step-up in cocoa prices expected for 2025. Cost savings of $180 million from productivity programs.
- Pricing and Revenue: Pricing for 2025 expected to be similar to 2024. Long-term top-line growth algorithm is 2% to 4%.
- Earnings and Financial Impact: Potential double-digit earnings decrease due to cocoa cost inflation.
- Market Share and Competition: Improvement in market share, especially in chocolate.
- Headwinds and Tailwinds: Fewer headwinds in 2025 compared to 2024.
- Productivity and Incentive Compensation: Reset of incentive compensation to target levels in 2025.
- Cocoa Inflation Timing: Significant cocoa inflation expected throughout 2025 .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Net Sales Growth: Approximately 2%.
- Adjusted EPS: Expected to be down slightly.
- Adjusted Gross Margin: Decline of approximately 200 basis points.
- Adjusted Tax Rate: Approximately 13%.
- Interest Expense: Between $165 million to $175 million.
- Capital Investments: Between $600 million to $625 million.
- North America Salty Snacks Segment Sales Growth: Mid-single digits.
- North American Confectionery Sales Growth: Low single-digit growth.
- Savings from AAA Initiative: Incremental $100 million.
- Second Half Net Sales Growth: Approximately 4 points related to shipment timing and extra shipping days .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Net Sales Growth: 2% to 3%.
- Gross Margin: Decline of approximately 200 basis points.
- Tax Rate: Approximately 13%.
- Interest Expense: Between $165 million and $175 million.
- EPS: Expected to be in line with the prior year.
- Capital Investments: Between $600 million and $650 million.
- Cost Savings: Incremental $100 million.
- Advertising and Marketing: Increased by 12% in Q1.
- Second Quarter Expectations: High single-digit sales declines expected .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Net Sales Growth: 2% to 3%.
- Adjusted Effective Tax Rate: Approximately 13%.
- Interest Expense: Between $165 million and $175 million.
- Capital Investment: Between $600 million and $650 million.
- Dividend Increase: 15%.
- Share Buybacks: Shares outstanding projected to be approximately 1% lower.
- Gross Profit and Margin: Gross profit dollars expected to decline low-single-digits; gross margin contraction of approximately 200 basis points.
- Cost Savings: Targeting $100 million.
- Adjusted EPS: Expected to be flat for the year.
- Elasticities: Similar to historic levels.
- Seasonal Growth: More muted in the second half.
- ERP Implementation: 3 to 4 point benefit to net sales growth in Q1 .
Recent developments and announcements about HSY.
Corporate Leadership
CEO Change
Michele G. Buck, the CEO of The Hershey Company, has announced her intention to retire effective June 30, 2026. She will remain in her current roles until a successor is appointed, after which she will transition to a senior advisor role until her retirement date. The company has initiated a search for her successor, considering both internal and external candidates.
Leadership Change
Michele G. Buck is leaving her roles as Chairman, President, and CEO of The Hershey Company, with her retirement planned for June 30, 2026. She will transition to a senior advisor role until her retirement. The company has initiated a search for her successor, considering both internal and external candidates.
Financial Reporting
Auditor Changes
HSY Changes Auditor
On June 15, 2016, the Audit Committee of The Hershey Company appointed Ernst & Young LLP (EY) as the company's new independent registered public accounting firm for the fiscal year ending December 31, 2017. This change follows the dismissal of KPMG LLP, which will remain in its role until the completion of the audits for the fiscal year ending December 31, 2016 .