Hershey Reports Third-Quarter 2024 Financial Results; Updates 2024 Net Sales and Earnings Outlook
HERSHEY, Pa., Nov. 7, 2024 /PRNewswire/ -- The Hershey Company (NYSE: HSY) today announced net sales and earnings for the third quarter ended September 29, 2024 and updated its 2024 net sales and earnings outlook.
"We believe in the resiliency of our snacking categories and the strength of our brands," said Michele Buck, The Hershey Company President and Chief Executive Officer. "While year-to-date results have been affected by historically high cocoa prices and a challenging consumer environment, we are laser-focused on controlling what we can and are acting with immediacy to deliver value to customers, consumers and shareholders. Our priorities are to drive top-line and market share growth by winning in-store with key customers, expanding our chocolate portfolio, accelerating sweets, and maximizing our seasonal strength."
Third-Quarter 2024 Financial Results Summary1
Consolidated net sales of $2,987.5 million, a decrease of 1.4%.
Organic, constant currency net sales decreased 1.0%.
Reported net income of $446.3 million, or $2.20 per share-diluted, a decrease of 12.7%.
Adjusted earnings per share-diluted of $2.34, a decrease of 10.0%.
1 All comparisons for the third quarter of 2024 are with respect to the third quarter ended October 1, 2023
2024 Full-Year Financial Outlook
The Company is reducing its net sales growth, reported earnings per share and adjusted earnings per share outlook for the year.
2024 Full-Year Outlook
Prior Guidance
Current Guidance
Net sales growth
~2%
Flat
Reported earnings per share growth
(3)% to (1)%
(9)% to (6)%
Adjusted earnings per share growth
Down slightly
Down mid-single-digits
The Company also expects:
An overall economic tax outlook that is relatively unchanged but reflects higher investment in tax credits and a lower tax rate versus the previous outlook:
A reported and adjusted effective tax rate of approximately 11%;
Other expense, which primarily reflects the write-down of equity investments that qualify for a tax credit, of approximately $260 million to $270 million;
Interest expense of approximately $170 million, reflecting a higher interest rate environment;
Capital expenditures of approximately $575 million to $600 million, driven by core confection capacity expansion and continued investments in a digital infrastructure; and
Advancing Agility & Automation Initiative savings of approximately $100 million.
Below is a reconciliation of current projected 2024 and full-year 2023 earnings per share-diluted calculated in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP adjusted earnings per share-diluted:
2024 (Projected)
2023
Reported EPS, Diluted
$8.27 - $8.46
$9.06
Derivative mark-to-market losses
—
0.29
Business realignment activities
0.65 - 0.69
0.01
Acquisition and integration-related activities
0.20 - 0.25
0.37
Tax effect of all adjustments reflected above
(0.21)
(0.14)
Adjusted EPS, Diluted
$9.00 - $9.10
$9.59
2024 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.
Third-Quarter 2024 Components of Net Sales Growth
A reconciliation between reported net sales growth rates and constant currency net sales growth rates, along with the contribution from net price realization and volume, is provided below:
Three Months Ended September 29, 2024
Percentage Change as Reported
Impact of Foreign Currency Exchange
Percentage Change on Constant Currency Basis
Organic Price
(Rounded)*
Organic Volume/Mix
(Rounded)*
North America Confectionery
0.8 %
(0.1) %
0.9 %
2 %
(2) %
North America Salty Snacks
(15.5) %
— %
(15.5) %
2 %
(17) %
International
(3.9) %
(4.1) %
0.2 %
1 %
(1) %
Total Company
(1.4) %
(0.4) %
(1.0) %
2 %
(3) %
*Percentage changes may not compute directly as shown due to rounding of amounts presented above.
The Company presents 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 U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
Third-Quarter 2024 Consolidated Results
Consolidated net sales decreased 1.4% to $2,987.5 million in the third quarter of 2024. Organic, constant currency net sales decreased 1.0%, as net price realization of approximately 2 points was more than offset by decreased volume across segments and the lap of planned inventory increases within the North America Salty Snacks segment ahead of the ERP system implementation in the fourth quarter of 2023.
Reported gross margin was 41.3% in the third quarter of 2024, compared to 44.9% in the third quarter of 2023, a decrease of 360 basis points driven by higher commodity costs, unfavorable input cost timing, fixed cost deleverage, and unfavorable mix that more than offset net price realization, productivity gains, and derivative mark-to-market gains. Adjusted gross margin was 40.3% in the third quarter of 2024, a decrease of 460 basis points compared to the third quarter of 2023, as higher commodity costs, unfavorable input cost timing, fixed cost deleverage, and unfavorable mix more than offset price realization and productivity gains.
Selling, marketing and administrative expenses decreased 5.2% in the third quarter of 2024 versus the third quarter of 2023, driven by reduced advertising and related consumer marketing expenses, lower compensation and benefit costs and fewer capability and technology investments versus the prior year. Advertising and related consumer marketing expenses decreased 0.6% in the third quarter of 2024 versus the same period last year, as efficiencies in consumer marketing related expenses in North America Confectionery were partially offset by increases in North America Salty Snacks and International. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, decreased 7.5% versus the third quarter of 2023 driven by reduced compensation and benefit costs and fewer capability and technology investments versus the prior year.
Third quarter 2024 reported operating profit was $613.2 million, a decrease of 16.7% versus the third quarter of 2023, resulting in a reported operating profit margin of 20.5%, a decrease of 380 basis points versus the prior year period. Adjusted operating profit of $654.0 million decreased 13.2% versus the third quarter of 2023. This resulted in an adjusted operating profit margin of 21.9%, a decline of 300 basis points versus the third quarter of 2023. Decreases in both reported and adjusted operating profit and profit margin were driven by higher commodity costs, unfavorable input cost timing, fixed cost deleverage, and unfavorable mix that more than offset price realization, productivity gains, cost saving initiatives, and reduced compensation and benefit costs.
The reported effective tax rate in the third quarter of 2024 was 14.0%, a decrease of 660 basis points versus the third quarter of 2023. The adjusted effective tax rate was 15.2%, a decrease of 520 basis points versus the third quarter of 2023. Both the reported and adjusted effective tax rate decreases were driven by an increase in renewable energy tax credits versus the year-ago period.
The Company's third-quarter 2024 results, as prepared in accordance with GAAP, included items positively impacting comparability of $40.8 million, or $0.14 per share-diluted. For the third quarter of 2023, items positively impacting comparability totaled $17.5 million, or $0.08 per share-diluted.
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
September 29, 2024
October 1, 2023
September 29, 2024
October 1,2023
Derivative mark-to-market (gains) losses
$ (31.1)
$ 1.8
$ (0.15)
$ 0.01
Business realignment activities
49.1
(0.4)
0.24
—
Acquisition and integration-related activities
22.8
16.1
0.11
0.08
Tax effect of all adjustments reflected above
—
—
(0.06)
(0.01)
$ 40.8
$ 17.5
$ 0.14
$ 0.08
Segment performance for the third quarter of 2024 versus the prior year period is detailed below. See the table on components of net sales growth and the schedule of supplementary information within this press release for additional information on segment net sales and profit.
North America ConfectioneryHershey's North America Confectionery segment net sales were $2,477.3 million in the third quarter of 2024, an increase of 0.8% versus the same period last year. Organic, constant currency net sales increased 0.9% as approximately 2 points of price realization and approximately 1 point of inventory timing benefit more than offset consumption driven volume declines.
Hershey's U.S. candy, mint and gum (CMG) retail takeaway in the multi-outlet plus convenience store channels (MULO+ w/ Convenience2) decreased 2.6% for the 12-week period ended September 29, 2024. Hershey's CMG share declined 97 basis points compared to the prior year. Organic net sales outpaced retail takeaway due to the timing of seasonal shipments versus sell-through, as well as the timing of shipments related to retailer inventory replenishment.
The North America Confectionery segment reported segment income of $724.8 million in the third quarter of 2024, a decrease of 14.5% versus the prior year period, resulting in a segment margin of 29.3% in the quarter, a decrease of 520 basis points. Segment income declines were driven by higher commodity costs, unfavorable input cost timing, fixed cost deleverage, and unfavorable mix, which more than offset price realization, productivity initiative savings and efficiencies in non-media marketing investment.
North America Salty SnacksHershey's North America Salty Snacks segment net sales were $291.8 million in the third quarter of 2024, a decrease of 15.5% versus the same period last year. Volume declined approximately 17 points, of which approximately 13 points related to lapping planned inventory increases ahead of the ERP system implementation in the fourth quarter of 2023. Execution-driven shipment delays into the fourth quarter and retailer inventory reductions amounted to an incremental mid-single-digit headwind. Excluding these inventory and timing impacts, the base business grew low-single-digits, driven by approximately 2 points of price realization.
Hershey's U.S. salty snack retail takeaway for the 12-week period ended September 29, 2024 in MULO+ w/ Convenience2 increased 2.8% versus the prior year period. SkinnyPop ready-to-eat popcorn takeaway declined 5.5%, reflecting continued category softness and the planned movement of a large promotional program into the fourth quarter. SkinnyPop ready-to-eat share declined 62 basis points in the quarter. Dot's Homestyle Pretzels retail sales increased 31.1% in the quarter, resulting in a 443-basis point pretzel category share gain.
2 MULO+ w/Convenience expanded in the second quarter of 2024 to include club, drug, and e-commerce customers previously classified as unmeasured
North America Salty Snacks segment income was $54.0 million in the third quarter of 2024, a decrease of 5.9% versus the third quarter of 2023, resulting in a segment margin of 18.5%, an increase of 190 basis points versus the prior year period. Segment income declines were driven by lower sales, while margin expansion was driven by productivity initiatives and the lapping of product removal costs in the prior year period, which more than offset higher brand investment.
InternationalThird quarter 2024 net sales for Hershey's International segment decreased 3.9% versus the same period last year to $218.4 million. Organic, constant currency net sales increased 0.2% driven by price realization of approximately 1 point. Volume declined approximately 1% reflecting higher competitive activity in Brazil and ongoing market softness in Mexico, in part offset by growth in Europe and Latin America.
The International segment reported a $14.2 million profit in the third quarter of 2024, reflecting a decrease of $17.5 million versus the prior year period driven by reduced sales, higher commodity costs and unfavorable mix. This resulted in a segment margin of 6.5%, a decrease of 740 basis points versus the prior year period.
Unallocated Corporate ExpenseHershey's unallocated corporate expense in the third quarter of 2024 was $139.0 million, a decrease of $44.2 million, or 24.1%, versus the same period of 2023. This decrease was driven by lower compensation and benefit costs and reduced capability and technology investments related to the upgrade of the Company's ERP system.
Live WebcastAt approximately 7 a.m. (Eastern time) today, Hershey will post a pre-recorded management discussion of its third-quarter 2024 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.
Note: In this release, for the third quarter of 2024, Hershey references income measures that are not in accordance with GAAP because they exclude certain items impacting comparability, including gains and losses associated with mark-to-market commodity derivatives, business realignment activities and acquisition and integration-related activities. The Company refers to these income measures as "adjusted" or "non-GAAP" financial measures throughout this release. These non-GAAP financial measures are used in evaluating results of operations for internal purposes and are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations. A reconciliation of the non-GAAP financial measures referenced in this release to their nearest comparable GAAP financial measures as presented in the Consolidated Statements of Income is provided below.
Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results
Three Months Ended
In thousands except per share data
September 29, 2024
October 1, 2023
Reported gross ...
