Hershey Reports First-Quarter 2022 Financial Results; Raises 2022 Net Sales and Earnings Outlook
"We delivered strong double-digit sales and earnings growth with ongoing momentum across business units," said
First-Quarter 2022 Financial Results Summary 1
- Consolidated net sales of
$2,666.2 million , an increase of 16.1%.
- Organic, constant currency net sales increased 11.5%.
- The impact of acquisitions on net sales was a 4.6-point benefit.2
- Reported net income of
$533.5 million and$2.57 per share-diluted, an increase of 35.3%.
- Adjusted earnings per share-diluted of
$2.53 , an increase of 31.8%.
|
1 |
All comparisons for the
first
quarter of 2022 are with respect to the
first
quarter ended |
|
2 |
Reflects the impact from the 2021 acquisitions of |
2022 Full-Year Financial Outlook
The company is raising its 2022 net sales and earnings per share outlook to reflect the strength of its performance in the first quarter and expectations for the balance of the year:
|
2022 Full-Year Outlook |
|
|
|
Net sales growth3 |
|
10% - 12% |
|
Reported earnings per share growth |
|
8% - 11% |
|
Adjusted earnings per share growth |
|
10% - 12% |
|
|
|
3 The impact of the Pretzels, Dot's and Lily's acquisitions is anticipated to be a 4- to 5-point benefit to net sales growth for the full-year 2022. |
The primary drivers of the increased outlook are sustained consumer demand and favorable price elasticities across all segments along with increased visibility into customer orders and programs of the recently acquired Dot's and Pretzels businesses. Elasticities were stronger than anticipated in the first quarter but are expected to moderate as consumers' buying power is further pressured by inflation and fewer government benefits as the year progresses. Incremental profit from higher sales is expected to be partially offset by supply chain inflation and higher costs to serve incremental demand, resulting in slightly higher adjusted earnings per share growth.
Below is a reconciliation of projected 2022 and full-year 2021 earnings per share-diluted calculated in accordance with
|
|
2022 (Projected) |
|
2021 |
|
Reported EPS – Diluted |
|
|
|
|
Derivative mark-to-market gains |
— |
|
(0.12) |
|
Business realignment activities |
0.02 – 0.04 |
|
0.09 |
|
Acquisition-related activities |
0.19 – 0.25 |
|
0.16 |
|
Noncontrolling interest share of business realignment and impairment charges |
— |
|
0.03 |
|
Other miscellaneous benefits |
— |
|
(0.07) |
|
Tax effect of all adjustments reflected above |
(0.07) |
|
(0.01) |
|
Adjusted EPS – Diluted |
|
|
|
2022 projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that are reflected within corporate unallocated expense in segment results until the related inventory is sold since we are not able to forecast the impact of the market changes.
First-Quarter 2022 Results
Consolidated net sales were
Reported gross margin was 46.7% in the first quarter of 2022, compared to 45.7% in the first quarter of 2021, an increase of 100 basis points. This increase was driven by higher derivative mark-to-market gains and net price realization, partially offset by higher supply chain inflation and costs. Adjusted gross margin was 45.8% in the first quarter of 2022, in line with the prior-year period. Net price realization, a timing benefit related to the inventory valuation method and fixed cost leverage benefited adjusted gross margin in the quarter, but were offset by broad-based supply chain inflation, increased labor investments and elevated costs to service higher-than-expected demand. Unfavorable mix, driven by recent acquisitions and the accelerated growth of the North America Salty Snacks segment, also contributed to this offset.
Selling, marketing and administrative expenses increased 6.0% in the first quarter of 2022 versus the first quarter of 2021 primarily driven by higher amortization and operating expenses related to recent acquisitions. Advertising and related consumer marketing expenses decreased 0.7% in the first quarter of 2022 versus the same period last year. Lower levels of advertising in response to capacity constraints on select confectionery brands and efficiencies related to new media partners were offset by higher advertising accruals related to increased sales and increased brand investment in the North America Salty Snacks segment. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 9.9% versus the first quarter of 2021. This increase was driven by higher amortization and operating expenses related to recent acquisitions and incremental capabilities and technology investments, partially offset by lower accruals for incentive compensation versus the prior-year period.
First-quarter 2022 reported operating profit of
The reported effective tax rate in the first quarter of 2022 was 21.2%, a decrease of 160 basis points versus the first quarter of 2021. The adjusted effective tax rate in the first quarter of 2022 was 21.2%, a decrease of 130 basis points versus the first quarter of 2021. Both the reported and adjusted effective tax rate decreases were driven by higher renewable energy tax credits and higher benefits related to employee-shared based payments versus the prior-year period.
The company's first-quarter 2022 results, as prepared in accordance with GAAP, included items negatively impacting comparability of
The following table presents a summary of items impacting comparability in each period (see Appendix I for additional information):
|
|
Pre-Tax (millions) |
|
Earnings Per Share-Diluted |
||||
|
|
Three Months Ended |
|
Three Months Ended |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative mark-to-market gains |
$ (27.4) |
|
$ (2.3) |
|
$ (0.13) |
|
$ (0.01) |
|
Business realignment activities |
1.3 |
|
6.9 |
|
— |
|
0.04 |
|
Acquisition-related activities |
13.0 |
|
0.2 |
|
0.07 |
|
— |
|
Noncontrolling interest share of business |
— |
|
1.1 |
|
— |
|
0.01 |
|
Other miscellaneous benefits |
— |
|
(2.2) |
|
— |
|
(0.01) |
|
Tax effect of all adjustments reflected above |
— |
|
— |
|
0.02 |
|
(0.01) |
|
|
$ (13.1) |
|
$ 3.7 |
|
$ (0.04) |
|
$ 0.02 |
Segment performance for the first quarter of 2022 versus the prior-year period are detailed below. See the schedule of supplementary information within this press release for additional information on segment net sales and profit.
North America Confectionery
|
4 |
Includes candy, mint, gum, confectionery salty snacks and grocery items |
The North America Confectionery segment reported segment income of
North America Salty Snacks
North America Salty Snacks segment income decreased 16.1% to
International
First-quarter 2022 net sales for
The International segment reported a
Unallocated Corporate Expense
Live Webcast
At approximately
Note: In this release, for the first-quarter 2022,
|
Reconciliation of Certain Non-GAAP Financial Measures |
|||
|
Consolidated results |
Three Months Ended |
||
|
In thousands except per share data |
|
|
|
|
Reported gross profit |
$ 1,245,480 |
|
$ 1,048,951 |
|
Derivative mark-to-market gains |
(27,379) |
|
(2,284) |
|
Business realignment activities |
27 |
|
3,995 |
|
Acquisition-related activities |
3,384 |
|
— |
|
Non-GAAP gross profit |
$ 1,221,512 |
|
$ 1,050,662 |
|
|
|
|
|
|
Reported operating profit |
$ 720,990 |
|
$ 553,044 |
|
Derivative mark-to-market gains |
(27,379) |
|
(2,284) |
|
Business realignment activities |
1,281 |
|
6,927 |
|
Acquisition-related activities |
12,996 |
|
171 |
|
Other miscellaneous benefits |
— |
|
(2,155) |
|
Non-GAAP operating profit |
$ 707,888 |
|
$ 555,703 |
|
|
|
|
|
|
Reported provision for income taxes |
$ 143,926 |
|
$ 117,323 |
|
Derivative mark-to-market gains* |
(6,485) |
|
(2,319) |
|
Business realignment activities* |
303 |
|
1,194 |
|
Acquisition-related activities* |
3,088 |
|
41 |
|
Other miscellaneous benefits* |
— |
|
54 |
|
Non-GAAP provision for income taxes |
$ 140,832 |
|
$ 116,293 |
|
|
|
|
|
|
Reported net income |
$ 533,478 |
|
$ 395,799 |
|
Derivative mark-to-market (gains) losses |
(20,894) |
|
35 |
|
Business realignment activities |
978 |
|
5,733 |
|
Acquisition-related activities |
9,908 |
|
130 |
|
Noncontrolling interest share of business realignment and impairment charges |
— |
|
1,078 |
|
Other miscellaneous benefits |
— |
|
(2,209) |
|
Non-GAAP net income |
$ 523,470 |
|
$ 400,566 |
|
|
|
|
|
|
Reported EPS - Diluted |
$ 2.57 |
|
$ 1.90 |
|
Derivative mark-to-market gains |
(0.13) |
|
(0.01) |
|
Business realignment activities |
— |
|
0.04 |
|
Acquisition-related activities |
0.07 |
|
— |
|
Noncontrolling interest share of business realignment and impairment charges |
— |
|
0.01 |
|
Other miscellaneous benefits |
— |
|
(0.01) |
|
Tax effect of all adjustments reflected above** |
0.02 |
|
(0.01) |
|
Non-GAAP EPS - Diluted |
$ 2.53 |
|
$ 1.92 |
|
|
|
|
* |
The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. |
|
** |
Adjustments reported above are reported on a pre-tax basis before the tax effect described in the reconciliation above for Non-GAAP provision for income taxes. |
In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:
|
|
Three Months Ended |
||
|
|
|
|
|
|
As reported gross margin |
46.7% |
|
45.7% |
|
Non-GAAP gross margin (1) |
45.8% |
|
45.8% |
|
|
|
|
|
|
As reported operating profit margin |
27.0% |
|
24.1% |
|
Non-GAAP operating profit margin (2) |
26.6% |
|
24.2% |
|
|
|
|
|
|
As reported effective tax rate |
21.2% |
|
22.8% |
|
Non-GAAP effective tax rate (3) |
21.2% |
|
22.5% |
|
|
|
|
(1) |
Calculated as non-GAAP gross profit as a percentage of net sales for each period presented. |
|
(2) |
Calculated as non-GAAP operating profit as a percentage of net sales for each period presented. |
|
(3) |
Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net). |
We present certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange. To present this information for historical periods, current period net sales for entities reporting in currencies other than the
A reconciliation between reported net sales growth rates and (i) constant currency net sales growth rates and (ii) organic constant currency net sales growth rates is provided below:
|
|
Three Months Ended |
||||||||
|
|
Percentage |
|
Impact of |
|
Percentage |
|
Impact of |
|
Percentage |
|
North America Confectionery |
11.7% |
|
—% |
|
11.7% |
|
1.1% |
|
10.6% |
|
|
|
|
|
|
|
|
|
|
|
|
North America Salty Snacks |
86.2% |
|
—% |
|
86.2% |
|
69.0% |
|
17.2% |
|
|
|
|
|
|
|
|
|
|
|
|
International |
17.9% |
|
0.2% |
|
17.7% |
|
—% |
|
17.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1% |
|
—% |
|
16.1% |
|
4.6% |
|
11.5% |
Appendix I
Details of the charges included in GAAP results, as summarized in the press release (above), are as follows:
Derivative mark-to-market (gains) losses: The mark-to-market (gains) losses on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding (gains) losses are reclassified from unallocated to segment income. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period.
Business realignment activities: We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. During the fourth quarter of 2020, we commenced the International Optimization Program to streamline resources and investments in select international markets, including the optimization of our
Acquisition-related activities: During the first quarter of 2022, we incurred costs related to the integration of the 2021 acquisitions of Lily's, Dot's and Pretzels. During the first quarter of 2021, we incurred costs related to the integration of the 2019 acquisition of
Noncontrolling interest share of business realignment and impairment charges: Certain of the business realignment and impairment charges recorded related to the divestiture of
Other miscellaneous benefits: In 2021, we recorded a gain on the divestiture of LSFC.
Tax effect of all adjustments: This line item reflects the aggregate tax effect of all pre-tax adjustments reflected in the preceding line items of the applicable table. The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.
Safe Harbor Statement
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements can be identified by the use of words such as "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would," among others. These statements are made based upon current expectations that are subject to risk and uncertainty. Because actual results may differ materially from those contained in the forward-looking statements, you should not place undue reliance on the forward-looking statements when deciding whether to buy, sell or hold the company's securities. Factors that could cause results to differ materially include, but are not limited to: risks related to the impact of the COVID-19 global pandemic on our business, suppliers, distributors, consumers, customers, and employees; the scope and duration of the pandemic; government actions and restrictive measures implemented in response to the pandemic, including the distribution of vaccinations and continuation of social distancing guidelines and stay at home orders; disruptions or inefficiencies in our supply chain due to the loss or disruption of essential manufacturing or supply elements or other factors; issues or concerns related to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters; changes in raw material and other costs, along with the availability of adequate supplies of raw materials; the company's ability to successfully execute business continuity plans to address the COVID-19 pandemic and resulting changes in consumer preferences and the broader economic and operating environment; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; failure to successfully execute and integrate acquisitions, divestitures and joint ventures; changes in governmental laws and regulations, including taxes; political, economic, and/or financial market conditions, including impacts on the business arising from the conflict between
|
|
|||||||
|
Consolidated Statements of Income |
|||||||
|
for the periods ended |
|||||||
|
(unaudited) (in thousands except percentages and per share amounts) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
$ 2,666,221 |
|
$ 2,295,948 |
|
|
Cost of sales |
|
|
1,420,741 |
|
1,246,997 |
||
|
Gross profit |
|
|
|
1,245,480 |
|
1,048,951 |
|
|
|
|
|
|
|
|||
|
Selling, marketing and administrative expense |
|
524,216 |
|
494,665 |
|||
|
Business realignment costs |
|
274 |
|
1,242 |
|||
|
|
|
|
|
|
|
||
|
Operating profit |
|
720,990 |
|
553,044 |
|||
|
Interest expense, net |
|
|
33,179 |
|
36,436 |
||
|
Other (income) expense, net |
|
|
10,407 |
|
2,414 |
||
|
|
|
|
|
|
|
||
|
Income before income taxes |
|
|
677,404 |
|
514,194 |
||
|
Provision for income taxes |
|
|
143,926 |
|
117,323 |
||
|
|
|
|
|
|
|
|
|
|
Net income including noncontrolling interest |
|
533,478 |
|
396,871 |
|||
|
|
|
|
|
|
|
|
|
|
Less: Net gain attributable to noncontrolling interest |
|
— |
|
1,072 |
|||
|
Net income attributable to |
|
$ 533,478 |
|
$ 395,799 |
|||
|
|
|
|
|
|
|
|
|
|
Net income per share |
- Basic |
- Common |
|
$ 2.66 |
|
$ 1.96 |
|
|
|
- Diluted |
- Common |
|
$ 2.57 |
|
$ 1.90 |
|
|
|
- Basic |
- Class B |
|
$ 2.42 |
|
$ 1.78 |
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding |
- Basic |
- Common |
|
146,464 |
|
146,972 |
|
|
|
- Diluted |
- Common |
|
207,270 |
|
208,563 |
|
|
|
- Basic |
- Class B |
|
59,614 |
|
60,614 |
|
|
|
|
|
|
|
|
|
|
|
Key margins: |
|
|
|
|
|
|
|
|
Gross margin |
|
|
46.7% |
|
45.7% |
||
|
Operating profit margin |
|
|
27.0% |
|
24.1% |
||
|
Net margin |
|
|
20.0% |
|
17.2% |
||
|
|
|||||||
|
Supplementary Information – Segment Results |
|||||||
|
for the periods ended |
|||||||
|
(unaudited) (in thousands except percentages) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
||||
|
|
|
|
|
|
|
|
% Change |
|
Net sales: |
|
|
|
|
|
|
|
|
North America Confectionery |
|
$ 2,217,044 |
|
$ 1,985,416 |
|
11.7% |
|
|
North America Salty Snacks |
|
226,122 |
|
121,418 |
|
86.2% |
|
|
International |
|
223,055 |
|
189,114 |
|
17.9% |
|
|
Total |
|
$ 2,666,221 |
|
$ 2,295,948 |
|
16.1% |
|
|
|
|
|
|
|
|
|
|
|
Segment income: |
|
|
|
|
|
|
|
|
North America Confectionery |
|
$ 781,885 |
|
$ 642,605 |
|
21.7% |
|
|
North America Salty Snacks |
|
21,301 |
|
25,378 |
|
(16.1)% |
|
|
International |
|
41,979 |
|
27,417 |
|
53.1% |
|
|
Total segment income |
|
845,165 |
|
695,400 |
|
21.5% |
|
|
Unallocated corporate expense (1) |
|
137,277 |
|
139,697 |
|
(1.7)% |
|
|
Unallocated mark-to-market gains on commodity derivatives (2) |
|
(27,379) |
|
(2,284) |
|
NM |
|
|
Costs associated with business realignment initiatives |
|
1,281 |
|
6,927 |
|
(81.5)% |
|
|
Acquisition-related activities |
|
12,996 |
|
171 |
|
NM |
|
|
Other miscellaneous benefits |
|
— |
|
(2,155) |
|
NM |
|
|
Operating profit |
|
720,990 |
|
553,044 |
|
30.4% |
|
|
Interest expense, net |
|
33,179 |
|
36,436 |
|
(8.9)% |
|
|
Other (income) expense, net |
|
10,407 |
|
2,414 |
|
331.1% |
|
|
Income before income taxes |
|
$ 677,404 |
|
$ 514,194 |
|
31.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance. |
|
(2) |
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). |
|
NM - not meaningful |
|
|
|
|
|
Three Months Ended |
||
|
|
|
|
|
|
|
|
Segment income as a percent of net sales: |
|
|
|
|
|
|
North America Confectionery |
|
35.3% |
|
32.4% |
|
|
North America Salty Snacks |
|
9.4% |
|
20.9% |
|
|
International |
|
18.8% |
|
14.5% |
|
|
|
|||
|
Consolidated Balance Sheets |
|||
|
as of |
|||
|
(in thousands of dollars) |
|||
|
|
|
|
|
|
Assets |
|
|
|
|
|
(unaudited) |
|
|
|
Cash and cash equivalents |
$ 338,055 |
|
$ 329,266 |
|
Accounts receivable - trade, net |
868,426 |
|
671,464 |
|
Inventories |
1,031,503 |
|
988,511 |
|
Prepaid expenses and other |
219,454 |
|
256,965 |
|
|
|
|
|
|
Total current assets |
2,457,438 |
|
2,246,206 |
|
|
|
|
|
|
Property, plant and equipment, net |
2,592,628 |
|
2,586,187 |
|
|
2,620,594 |
|
2,633,174 |
|
Other intangibles |
2,029,220 |
|
2,037,588 |
|
Other non-current assets |
902,347 |
|
868,203 |
|
Deferred income taxes |
42,817 |
|
40,873 |
|
|
|
|
|
|
Total assets |
$ 10,645,044 |
|
$ 10,412,231 |
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
Accounts payable |
$ 825,231 |
|
$ 692,338 |
|
Accrued liabilities |
784,660 |
|
855,638 |
|
Accrued income taxes |
79,635 |
|
3,070 |
|
Short-term debt |
873,783 |
|
939,423 |
|
Current portion of long-term debt |
2,328 |
|
2,844 |
|
|
|
|
|
|
Total current liabilities |
2,565,637 |
|
2,493,313 |
|
|
|
|
|
|
Long-term debt |
4,088,437 |
|
4,086,627 |
|
Other long-term liabilities |
781,048 |
|
787,058 |
|
Deferred income taxes |
294,373 |
|
288,004 |
|
|
|
|
|
|
Total liabilities |
7,729,495 |
|
7,655,002 |
|
|
|
|
|
|
Total stockholders' equity |
2,915,549 |
|
2,757,229 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
$ 10,645,044 |
|
$ 10,412,231 |
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