Hershey Expects Price Hikes to Power Continued Growth

Sales jumped better than 10% in 2021, slowing in the second half of the year.

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HERSHEY, PA β€” On Feb. 3, The Hershey Company announced net sales and earnings for the fourth quarter and full-year ended December 31, 2021.

Fourth-Quarter 2021 Financial Results Summary

  • Consolidated net sales of $2,326.1 million, an increase of 6.4%.
  • Organic, constant currency net sales increased 4.0%.
  • The impact of acquisitions on net sales was a 2.2-point benefit while foreign currency exchange was a 0.2-point benefit.
  • Reported net income of $335.6 million, or $1.62 per share-diluted, an increase of 16.5%.
  • Adjusted earnings per share-diluted of $1.69, an increase of 13.4%.

The Hershey Company Logo2021 Full-Year Financial Results Summary

  • Consolidated net sales of $8,971.3 million, an increase of 10.1%.
  • Organic, constant currency net sales increased 8.7%.
  • The net impact of acquisitions and divestitures on net sales was a 1.0-point benefit and foreign currency exchange was a 0.4-point benefit.
  • Reported net income of $1,477.5 million, or $7.11 per share-diluted, an increase of 16.4%.
  • Adjusted earnings per share-diluted of $7.19, an increase of 14.3%.

2022 Full-Year Financial Outlook Summary

The company's 2022 outlook is provided in the context of greater than usual volatility associated with the COVID-19 pandemic and industry-wide supply chain disruption:

2022 Full-Year Outlook: Total Company

  • Net sales growth: 8% - 10%
  • Reported earnings per share growth: 7% - 10%
  • Adjusted earnings per share growth: 9% - 11%

The company expects net sales growth to be driven primarily by list price increases across all segments. Pricing is anticipated to partially offset investments in labor, along with higher logistics costs and raw material inflation. Sales growth and increased media efficiencies are expected to more than offset gross margin pressures to drive adjusted earnings per share growth.

The company also expects:

  • A reported and adjusted effective tax rate in the range of 16% to 17%;
  • Other expense of approximately $105 million to $115 million;
  • Interest expense of approximately $125 million; and
  • Capital expenditures of approximately $550 million to $600 million, driven by key strategic initiatives including expanding the agility and capacity of the company's supply chain and building digital infrastructure across the enterprise.

Fourth-Quarter 2021 Results

Consolidated net sales were $2,326.1 million in the fourth quarter of 2021 versus $2,185.2 million in the prior-year period, an increase of 6.4%. Net price realization was a 6.1-point benefit driven primarily by list price increases across all segments as well as slightly lower levels of promotional activity versus the prior year.  Volume was a 2.1-point headwind driven by price elasticity and fewer shipping days in the quarter. Sales from the acquisitions of Pretzels, Dot's and Lily's were a 2.2-point benefit and foreign exchange was a 0.2-point benefit.

Reported gross margin was 43.5% in the fourth quarter of 2021, compared to 44.0% in the fourth quarter of 2020, a decrease of 50 basis points. This decrease was driven by higher supply chain costs and lower derivative mark-to-market commodity gains. Adjusted gross margin was 43.5% in the fourth quarter of 2021 compared to 43.9% in the fourth quarter of 2020, a decrease of 40 basis points. Higher logistics, labor and packaging costs contributed to the decline as well as unfavorable mix driven by accelerated growth in the North America Salty Snacks segment. Accelerating net price realization partially offset these headwinds. 

Selling, marketing and administrative expenses increased 2.8% in the fourth quarter of 2021 versus the fourth quarter of 2020, driven by an increase in corporate expenses. Advertising and related consumer marketing expenses decreased 6.9% in the fourth quarter of 2021 versus the same period last year, driven by lower advertising in the North America Confectionery segment in response to sustained consumer demand and capacity constraints on select brands. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 8.2% versus the fourth quarter of 2020, driven by higher capability and technology investments along with costs related to the acquisitions of Dot's and Pretzels.

Fourth-quarter 2021 reported operating profit of $459.2 million increased 13.3% versus the fourth quarter of 2020, resulting in an operating profit margin of 19.7%, an increase of 120 basis points. Adjusted operating profit of $475.7 million increased 10.8% versus the fourth quarter of 2020, resulting in adjusted operating profit margin of 20.5%, an increase of 90 basis points. Profit increases in both reported and adjusted operating profit were driven by price realization gains and reduced levels of advertising, partially offset by the previously mentioned gross margin declines. In addition, reported operating profit was higher due to prior-year period business realignment costs related to the operating model optimization in China.

North America Confectionery 

Hershey's North America Confectionery segment net sales were $1,982.4 million in the fourth quarter of 2021, an increase of 4.9% versus the same period last year.  Price realization was a 4.3-point benefit driven by list price increases and slight reductions in promotional activity in response to ongoing industry-wide supply chain disruptions and capacity constraints. Volume was a 1.1-point headwind resulting from price elasticity and fewer shipping days. As expected, this growth lagged consumer demand due to strong seasonal and everyday sell-through, the continued contraction of retailer and distributor inventory levels and fewer shipping days in the quarter.  The net impact from the acquisition of Lily's was a 1.5-point benefit, while foreign currency exchange was a 0.2-point benefit.  

Hershey's U.S. candy, mint and gum (CMG) retail takeaway for the twelve-week period ended January 2, 2022 in the expanded multi-outlet combined plus convenience store channels (MULO+C) increased 12.0%. Strong consumer engagement during the Halloween and Holiday seasons led to increased sales of Hershey's confectionery products.  Combined seasonal and everyday take-home products reported retail sales growth of 13.2% during this time period. Hershey's CMG share declined 50 basis points, in line with expectations, due to significant growth in the prior-year period, but remains up by approximately 110 basis points versus pre-pandemic levels.

North America Confectionery segment income increased 6.3% to $623.2 million in the fourth quarter of 2021, compared to $586.2 million in the fourth quarter of 2020. This increase was driven by pricing gains and reductions in advertising on select brands in response to sustained consumer demand and capacity constraints, which was partially offset by gross margin declines driven by logistics, labor and packaging inflation.

North America Salty Snacks

Hershey's North America Salty Snacks segment net sales were $158.7 million in the fourth quarter of 2021, an increase of 38.9% versus the same period last year.  Price realization contributed 15.9 points of growth driven by list price increases. Volume drove an incremental 3.9-point benefit as consumer demand remained robust.  Sales from the acquisitions of Dot's and Pretzels were a 19.1-point benefit.

Hershey's U.S. salty snack retail takeaway, excluding Dot's, in MULO+C increased 25.3% in the 12-week period ended January 2, 2022, driven by strong consumer demand for SkinnyPop and Pirate's Booty products. The dual strength of at-home and away-from-home consumption continues to drive retail takeaway across Hershey's salty snack portfolio, benefiting both take-home and multi-pack products. SkinnyPop brand's retail sales increased 25.3% during this period. SkinnyPop's ready-to-eat popcorn share gained 290 basis points in the 12-week period and is up 370 basis points versus pre-pandemic levels. Pirate's Booty products also had exceptionally strong sell-through with retail sales growth of 63.0% for the 12-week period.

The North America Salty Snacks segment income increased 20.2% to $19.7 million in the fourth quarter of 2021, compared to $16.4 million in the fourth quarter of 2020. The profit increase was driven by net price realization and volume gains, partially offset by higher supply chain costs and increases in advertising spend.

International

Fourth-quarter 2021 net sales for Hershey's International segment increased 1.7% versus the same period last year to $185.0 million. Excluding a 0.3-point headwind from foreign currency exchange rates, constant currency net sales increased 2.0%. Price realization was a 19.7-point benefit driven by list price increases across international markets and decreased levels of returns and trade promotions related to last year's operating model change in China. Volume was a 17.7-point headwind, driven by lower retailer and distributor inventory levels versus the prior-year period and price elasticity.

The International segment reported a $0.4 million loss in the fourth quarter of 2021, reflecting a 97.6% increase versus the prior year period loss of $14.9 million.  The profit increase was driven by net price realization, partially offset by higher supply chain costs and reinvestment in advertising to pre-pandemic levels. 

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