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HERSHEY CO (HSY)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net sales rose 8.7% to $2.887B; adjusted EPS was $2.69 (+33.2% YoY). Reported EPS of $3.92 was elevated by derivative mark-to-market gains; adjusted gross margin was 44.8% (+60 bps YoY) while reported gross margin reached 54.0% (+1,170 bps YoY) .
  • Segment performance was broad-based: North America Confectionery +6.0% sales with 34.3% margin (+170 bps), Salty Snacks +35.9% aided by inventory timing and promotions, International +9.8% with strong Mexico and EMEA volume .
  • 2025 outlook: net sales growth “at least 2%,” reported EPS down high-40% and adjusted EPS down mid-30%; tax rate ~14–15%, other expense $170–$180M, interest $190–$195M, capex $425–$450M, AAA savings ~$125M. Cocoa inflation and incentive comp/tax normalization drive earnings pressure despite pricing, productivity and CI savings .
  • Near-term catalysts: strategic pricing with elasticities trending on plan or slightly better, Sweets innovation (Sour Strips acquisition; JR freeze-dried), and margin phasing (less pressure 1H, greater in 2H as hedges roll higher). Watch everyday chocolate share (-18 bps) and C-store softness as potential stock reaction drivers .

What Went Well and What Went Wrong

What Went Well

  • Adjusted operating profit grew 28% with adjusted operating margin +360 bps to 24.1%, driven by net price realization, higher volume, transformation savings and productivity; consolidated sales +8.7% to $2.887B .
  • Salty Snacks momentum: Q4 sales +35.9%, margin 19.5% (+1,440 bps), SkinnyPop retail sales +4.7% with +156 bps share gain; Dot’s +20.9% and +325 bps share gain .
  • Elasticities tracking “on par or slightly better” than expectations; management confident in selective pricing and portfolio actions. CFO reiterated nearly complete cocoa coverage for 2025 and less margin pressure in 1H, more in 2H .

What Went Wrong

  • Everyday chocolate share declined 18 bps in the 12-week period ending Dec 29; C-store channel remains pressured and is expected to soften until lapped mid-year 2025 .
  • International faces heightened competitive activity, notably Brazil and Mexico; 2025 outlook assumes low single-digit growth and more competition .
  • Q4 benefited from ~$40M timing from inventory valuation under new ERP; management expects more quarter-to-quarter variability, but not material—investors should adjust for non-recurring timing .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Net Sales ($USD Billions)$2.074 $2.987 $2.888
Reported EPS - Diluted ($)$0.89 $2.20 $3.92
Adjusted EPS - Diluted ($)$1.27 $2.34 $2.69
Reported Gross Margin (%)40.2% 41.3% 54.0%
Adjusted Gross Margin (%)43.2% 40.3% 44.8%
Reported Operating Margin (%)13.9% 20.5% 32.5%
Adjusted Operating Margin (%)18.5% 21.9% 24.1%
Net Margin (%)8.7% 14.9% 27.6%

Segment breakdown:

SegmentQ3 2024 Net Sales ($MM)Q3 2024 Segment Income ($MM)Q3 Margin (%)Q4 2024 Net Sales ($MM)Q4 2024 Segment Income ($MM)Q4 Margin (%)
North America Confectionery$2,477.3 $724.8 29.3% $2,354.2 $808.2 34.3%
North America Salty Snacks$291.8 $54.0 18.5% $278.9 $54.5 19.5%
International$218.4 $14.2 6.5% $254.5 $29.6 11.6%

KPIs (Q4 2024):

KPIValue
U.S. CMG retail takeaway (12 weeks to Dec 29)+2.2% YoY; Hershey CMG share -18 bps
SkinnyPop ready-to-eat retail sales+4.7% YoY; share +156 bps
Dot’s Homestyle Pretzels retail sales+20.9% YoY; share +325 bps
Organic price contribution (Total Company)~3 points; volume/mix ~6 points (Q4)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales GrowthFY 2025NA (no prior formal 2025 guidance)At least 2% (Sour Strips +30 bps; FX -30 bps) New
Reported EPS GrowthFY 2025NADown high-40% range New
Adjusted EPS GrowthFY 2025NADown mid-30% range New
Effective Tax Rate (reported & adjusted)FY 2025NA~14–15% New
Other ExpenseFY 2025NA~$170–$180M New
Interest ExpenseFY 2025NA~$190–$195M New
Capital ExpendituresFY 2025NA~$425–$450M New
AAA (Agility & Automation) SavingsFY 2025~$100M (FY 2024 ref) ~$125M Raised vs FY 2024 baseline

Dividend context (Q4 period): Quarterly cash dividends declared on Nov 7, 2024 of $1.370 (Common) and $1.245 (Class B) payable Dec 16, 2024 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Pricing & ElasticityPlan pricing selective; expect historic elasticity ~1; mid-single-digit 2025 price realization; focus on value mix Elasticities “on par or slightly better”; guidance bakes in -1 elasticity; category rational, private label also pricing Maintained conservative elasticity; execution improving
Cocoa hedging & supplyWell-hedged 2024; monitoring 2025 coverage; significant cocoa inflation expected; productivity to offset Nearly fully covered 2025; less gross margin pressure 1H (<500 bps), more in 2H; exploring off-exchange/origin opportunities More margin impact in 2H; diversified sourcing
Channels: Convenience vs Mass/ClubConsumer trade-down impacting C-store; expect stabilization as laps occur C-store remains soft; lapping pressures mid-year; “gold standard” planogram rollout 2x impact where tested Soft near term; improving with resets
International competitionIncreased competition (pricing) in Brazil/Mexico; small segment but pressured Strong Q4 on laps and events; outlook low single-digit growth with higher competition in Brazil/Mexico Elevated competitive intensity
GLP-1 impactMild impact; more driven by consumer financial pressure No material impact; multiple studies validate view; portfolio evolves with health trends Stable; monitoring
Sweets & InnovationShaq-a-licious gummies, KIT KAT innovation planned; salty reacceleration expected Sour Strips acquired (Q4); JR Freeze-Dried launched; biggest Reese’s innovation coming; strong carryover into 2025 Accelerating innovation pipeline
ERP & Inventory timingQ2/Q3: shipment timing and ERP-related inventory de-stocking/delays ~$40M ERP-driven inventory valuation timing benefit in Q4; expect more variability, not material Timing benefits recede; more variability

Management Commentary

  • “Pleased to see the consumer response to our agile innovation, marketing and in-store execution as we end the year with momentum across our segments” — Michele Buck (CEO) .
  • “We expect to use the full suite of levers to manage cocoa price… pricing, productivity and CI savings, SG&A efficiency, and getting more return on marketing spend” — Steven Voskuil (CFO) .
  • “We baked into our guidance historic elasticities at that minus one level… we think that is the prudent approach” — Michele Buck (CEO) .
  • “For the full year, we’re nearly completely covered on cocoa… less gross margin pressure in the first half (<500 bps), more impact in the back half” — Steven Voskuil (CFO) .
  • “Category is very rational; most major players and private label have taken pricing” — Michele Buck (CEO) .

Q&A Highlights

  • Elasticity and pricing strategy: Company assumes -1 elasticity; early read “on par or slightly better,” with selective pricing by channel/pack; majority of confection portfolio < $4 price points .
  • Cocoa sourcing/hedging: Nearly full coverage in 2025; origin and off-exchange opportunities pursued amidst market dislocation; more 2H gross margin pressure as hedges roll .
  • International dynamics: Strong Q4 aided by laps and Black Friday; 2025 outlook reflects high competitive activity in Brazil/Mexico .
  • Inventory valuation timing: ~$40M Q4 benefit from new ERP precision; expect some ongoing variability without material impact .
  • C-store recovery and merchandising: Gold-standard planogram delivering ~2x impact in tests; more improvements expected mid-year as resets occur .

Estimates Context

  • Wall Street consensus (S&P Global) estimates were unavailable due to data access limits at the time of this analysis; therefore, explicit Q4 vs. consensus comparisons are omitted. Values retrieved from S&P Global were unavailable.
  • Given derivative mark-to-market gains and ERP timing benefits in Q4, investors should focus on adjusted EPS ($2.69) and adjusted gross/operating margins to gauge underlying performance. Management’s FY2025 guidance implies significant consensus EPS downgrades vs. 2024 as cocoa costs, incentive comp reset, and tax normalization outweigh pricing and savings .

Key Takeaways for Investors

  • Underlying momentum improved: Adjusted margins expanded (gross +60 bps; operating +360 bps) and adjusted EPS rose 33% YoY, supported by pricing, productivity and transformation savings .
  • Expect margin phasing in 2025: Less pressure 1H (<500 bps) and more in 2H as hedge positions roll; near-term gross margin is likely to compress from Q4’s unusual reported level (54.0%) .
  • Portfolio actions are working: Salty Snacks margins and share are expanding; Sweets innovation and Sour Strips acquisition should provide carryover growth into 2025 .
  • Watch everyday chocolate and C-store: Share declined 18 bps; C-store remains soft until mid-year lapping. Execution (planograms, variety packs) is a key lever for recovery .
  • 2025 reset: Net sales growth “at least 2%” but EPS down sharply (reported high-40%, adjusted mid-30%); transformation savings (~$125M) and CI will partially offset cocoa inflation and normalization in taxes/incentive comp .
  • International competition elevated: Expect tighter pricing and promotions in Brazil/Mexico; management is planning for low single-digit growth with competitive pressure .
  • Leadership and supply chain initiatives: Interim leadership changes in U.S. Confection and long-term cocoa agreements in Côte d'Ivoire support commercial execution and supply resilience .

Additional Q4 2024 Press Releases Relevant to the Quarter

  • Acquisition: Hershey acquired Sour Strips to expand Sweets portfolio .
  • Innovation: KIT KAT® debuts first-ever seasonal shape (“KIT KAT® Santas”) .
  • Leadership change: Michele Buck assumed interim leadership of U.S. Confection after Michael Del Pozzo’s departure .
  • Cocoa supply: Five-year agreement with Côte d'Ivoire cooperatives to improve farmer income and resilience .