Q4 2024 Earnings Summary
- Hershey is confident in achieving earnings growth in 2026, even if cocoa prices remain elevated, by leveraging strategies such as pricing, productivity initiatives, and cost savings. The company aims to return to on-algorithm EPS growth by utilizing the full suite of levers to manage cocoa price impacts.
- The company's sweets portfolio is accelerating, fueled by successful innovations like Shaq-a-licious Gummies, Jolly Rancher Freeze Dried, and the acquisition of Sour Strips. With additional new products launching and increased distribution and velocity opportunities, Hershey expects strong growth in the non-chocolate segment.
- Hershey anticipates strong performance in seasonal products, particularly with an advantageous late Easter, which elongates the season. The company expects to gain share and deliver growth in upcoming seasons, leveraging the strength of its brands and prior seasonal success.
- Gross margin pressure due to elevated cocoa prices: Hershey expects significant gross margin pressure in 2025, particularly in the second half of the year, due to rising cocoa costs. CFO Steven Voskuil stated that gross margins will be down more than 500 basis points in the second half, with cocoa being the biggest component affecting margins. If cocoa prices remain high, this pressure could continue into 2026, potentially impacting earnings growth. , , , ,
- Declining volumes in the U.S. chocolate category: The U.S. chocolate category experienced a volume decline of about 5% in 2024, worse than in 2023 despite lower pricing. Factors contributing to this decline include a shift in consumer preference towards sweets (non-chocolate confectionery), pressure in primary channels like convenience stores, and an ongoing focus on health and wellness. These trends could negatively impact Hershey's core chocolate business if they persist. , , ,
- Intensifying competition in international markets: Hershey anticipates low single-digit growth in its international segment due to heightened competitive activity, particularly in Brazil and Mexico, where there is intense promotion and competition. As Hershey is not the market leader in these markets, it may face challenges in maintaining market share and passing on price increases, potentially affecting profitability in these regions. , ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9% (from $2,657.1M to $2,887.6M) | Total Revenue increased by 9% due to robust pricing strategies and improved product mix that built momentum from previous periods’ initiatives, such as effective seasonal sell-in. This rise reflects a continuation of healthy demand and strategic portfolio adjustments implemented earlier. |
Operating Income | +102% (from $464.33M to $939.15M) | Operating Income more than doubled as a result of dramatic margin expansion from enhanced gross profit, cost efficiencies, and operational improvements. Prior period actions to improve pricing realisation and control costs have now amplified operating leverage while offsetting inflationary pressures. |
Net Income | +129% (from $349.04M to $796.59M) | Net Income surged by 129% driven by the significant improvement in operating income combined with effective cost management and favorable tax dynamics. The recovery and margin enhancements seen in previous quarters carried through, leading to substantially higher profitability. |
EPS – Basic | +130% (from $1.75 to $4.03) | EPS – Basic increased by 130% reflecting the jump in net income and enhanced capital efficiency, including potential share repurchase benefits. This improvement builds on the successful operational measures and cost control initiatives implemented over prior periods. |
North America Salty Snacks seg. | +36% (from $205.1M to $278.9M) | The segment grew by approximately 36% through strong product performance and pricing initiatives that reversed earlier inventory adjustments. The performance in Q4 2024 built on prior period momentum, overcoming challenges such as planned inventory builds and execution timing issues. |
Geographic – U.S. Revenue | +9% (from $2,292.7M to $2,498.1M) | U.S. revenue increased by 9% thanks to robust seasonal sell-in and improved domestic brand performance compared to Q4 2023. These results reflect strategic marketing and sales efforts that benefited from the groundwork laid in previous quarters. |
Cost of Goods Sold (COGS) | –13% (from $1,534.0M to $1,329.2M) | COGS declined by 13% due to operational improvements such as enhanced supply chain management, a favorable shift in product mix toward higher-margin items, and successful cost-control initiatives that built on earlier period actions. These factors helped drive improved margins despite cost pressures. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross margin | Q1 2025 | no prior guidance | 41% | no prior guidance |
Shipping days | Q1 2025 | no prior guidance | 2 fewer shipping days | no prior guidance |
Gross margin | FY 2025 | no prior guidance | 35% (remainder of FY 2025) | no prior guidance |
Shipping days | FY 2025 | no prior guidance | Net 1 fewer day → low single-digit growth in 2H | no prior guidance |
Sales outlook | FY 2025 | no prior guidance | Muted | no prior guidance |
Elasticity | FY 2025 | no prior guidance | Historic elasticity at minus one | no prior guidance |
Shipping days | Q4 2025 | no prior guidance | 1 fewer shipping day | no prior guidance |
EPS growth | FY 2026 | no prior guidance | A path to FY 2026 EPS growth exists | no prior guidance |
International growth | FY 2025 | no prior guidance | Facing tightened competitive activity | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Cost of Goods Sold (COGS) Inflation | FY 2024 | High single-digit COGS inflation | -13.3% year-over-year (from 1,533.97MIn Q4 2023 to 1,329.197MIn Q4 2024) | Missed |
Top-Line Growth | Q4 2024 | 2% to 4% top-line growth | 8.7% year-over-year (from 2,657.11MIn Q4 2023 to 2,887.54MIn Q4 2024) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Elevated cocoa and sugar costs causing margin pressure | Q1: Cocoa inflation discussed but sugar not explicitly mentioned ; gross margin down ~200 bps expected. • Q2: Historic cocoa prices, net pricing of 6–7 points, continued margin pressure. • Q3: Cocoa biggest source of 2025 inflation, sugar also a factor. | Q4: Historically high cocoa and sugar costs expected to pressure 2025 margins significantly (650–700 bps contraction). | Intensity has grown, with more severe margin contraction projected. |
Strategic pricing as a key lever to offset commodity inflation | Q1: Fundamental lever to offset inflation, CFO noted pricing model remains intact. • Q2: 6–7 points of net price realization to address cocoa costs. • Q3: Key lever for 2025, low/mid-single-digit price increases. | Q4: Net price realization ~4% in Q4, with 3–4% planned for 2025 on U.S. Confection. | Continues as a core strategy across periods. |
Shift in consumer preference from chocolate to sweets driving innovation | Q1: No direct mention. • Q2: Noted that non-chocolate confections are growing, prompting Hershey to invest more in sweets. • Q3: Sweets identified as underdeveloped but growing area, driving share gains. | Q4: No explicit mention of a shift, but Jolly Rancher sweets innovation continues (e.g., Freeze Dried). | Trend persists but less explicitly discussed. |
Seasonal product performance as a recurring growth driver | Q1: Strong Valentine’s/Easter results, share gains. • Q2: Big driver for second half, strong visibility into seasonal orders. • Q3: Continued strength noted. | Q4: Halloween up 2.5%, Holiday up 1.1%, +40 bps share gain in seasonal. | Remains a consistent driver with ongoing share gains. |
Salty Snacks emphasized in earlier periods but less mentioned in Q4 | Q1: Dot’s up ~30%, SkinnyPop improvement but weakest quarter for profitability. • Q2: Dot’s expanded distribution and new flavors; SkinnyPop revamp. • Q3: Positioned as a big growth area alongside sweets. | Q4: Retail sales up 7.1% (Dot’s +20.9%), but discussion less prominent compared to other categories. | Still growing, though overshadowed by other segments. |
Emergence of GLP-1 weight loss drugs as a consumption headwind | Q1: Not mentioned. • Q2: Not mentioned. • Q3: Mild year-on-year impact; consumers on GLP-1 drugs eat less, but broader financial pressures more significant. | Q4: No mention [none in documents]. | Acknowledged in Q3 but not reiterated. |
Intensifying international competition (especially in Brazil and Mexico) | Q1: Not mentioned. • Q2: Not mentioned. • Q3: Noted price-based competition in Brazil/Mexico, though these markets are relatively smaller. | Q4: General note of higher competition in international markets, but no specific mention of Brazil/Mexico. | Still present, but fewer specific details. |
Focus on returning to EPS growth by 2026 through productivity and cost savings | Q1: Not detailed. • Q2: Targeted ~$700M in gross savings by 2026, net ~$300M after reinvestments. • Q3: General productivity efforts for 2025 ($180M in savings) but no 2026 timeline. | Q4: Emphasis on $900M cost structure improvement (2023–2026), aiming to restore EPS growth by 2026. | More explicit 2026 target in Q4. |
Acceleration of new product innovations and acquisitions in sweets | Q1: Reese’s Caramel innovation highlighted; no acquisition mentions. • Q2: Sweets innovation (e.g., Shaq launch), potential for acquisitions but no specifics. • Q3: Accelerated innovation in sweets, no noted acquisitions. | Q4: Expanding Jolly Rancher (Freeze Dried), acquired Sour Strips for portfolio growth. | Sweets innovation momentum continues, now with acquisitions. |
Olympics references from Q1 not mentioned in subsequent periods | Q1: Planned to treat Olympics as a seasonal event, with in-store activations. • Q2: No mention. • Q3: Summer Olympics underperformed, limited update. | Q4: No mention [none in documents]. | Topic introduced in Q1, briefly updated in Q3, absent in Q4. |
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2026 Growth Outlook
Q: Can growth continue in 2026 with high cocoa prices?
A: Management believes they can achieve balanced top and bottom line growth in 2026, even if cocoa prices remain elevated. They plan to use a full suite of levers—including pricing, productivity savings, and efficiency improvements—to manage cocoa costs and get EPS back on algorithm. -
Elasticity and Pricing
Q: How are current elasticities impacting pricing?
A: Elasticities are coming in on par or slightly better than expectations. Management feels confident in their ability to price strategically and is carefully monitoring consumer response to recent price increases. -
Gross Margin Phasing
Q: How will gross margins progress through 2025?
A: Gross margin pressure will be less in the first half, with cocoa impacts under 500 basis points, and more significant in the back half as higher-priced hedges flow through. -
Cocoa Hedging Strategy
Q: Will you adjust hedging given cocoa price outlook?
A: Management is actively exploring opportunities due to market dislocations, including alternative procurement approaches to take advantage of lower prices in origin versus the exchange. -
GLP-1s Impact on Demand
Q: Are GLP-1 drugs affecting consumption?
A: Management sees no material impact from GLP-1s on consumption. Studies validate that users of these drugs do not disproportionately consume less in their categories. They continue to evolve their portfolio to meet broader consumer shifts toward healthier items. -
Market Share and Competition
Q: How are you addressing market share declines?
A: Everyday chocolate share is getting better, with significant improvements in Sweets and take-home segments. Innovation is key, including the biggest ever upcoming innovation on Reese's, and efforts to improve trends in the instant consumable business. -
International Growth Challenges
Q: What is impacting international segment growth?
A: Increased competitive activity, particularly in Brazil and Mexico, is leading to a forecast of low single-digit growth in 2025. Despite strong Q4 performance, tightened competition pressures are expected. -
Pricing Adjustments
Q: Will you adjust pricing if commodity views change?
A: Management is prepared to adjust pricing, pack architecture, and formulations based on both market fundamentals and exchange prices. They monitor production increases and diversification in cocoa supply and balance pricing decisions accordingly. -
CEO Succession
Q: Any details on CEO succession planning?
A: Michele Buck confirmed the search process is actively underway, led by the board's search committee. They aim to find a successor with the right skills to navigate the evolving industry, ensuring a seamless transition. -
Seasonal Sales Expectations
Q: What are the expectations for seasonal sales?
A: Management expects strong performance in seasons, citing a late Easter that elongates the season and strong consumer traditions. They anticipate share gains and continued strength across seasonal periods. -
Sweets Innovation
Q: How is sweets innovation driving growth?
A: The company is capitalizing on new sweets products like Shaq-a-licious Gummies and Jolly Rancher innovations. They see significant opportunities for incremental growth and distribution, including recent acquisitions like Sour Strips. -
Convenience Channel
Q: How is the convenience channel performing?
A: The convenience channel remains pressured due to macro factors and consumer pressures. Management is implementing new planograms and expects improvements to materialize mid-year into the second half. -
Chocolate Volume Drivers
Q: What factors are affecting chocolate volumes?
A: Chocolate volumes are impacted by growth in Sweets, channel shifts, and ongoing consumer focus on health and wellness. The company is responding by investing in zero sugar and protein product lines to meet evolving consumer preferences.