Hershey reports fourth-quarter and full-year 2022 results; provides 2023 outlook

The Hershey Company announced net sales and earnings for the fourth quarter and full-year ending December 31, 2022.

Fourth-quarter 2022 financial results summary

• Consolidated net sales of $2,652.3 million, an increase of 14.0%.
• Organic, constant currency net sales increased 10.7%.
• The impact of acquisitions on net sales was a 3.6-point benefit while foreign currency exchange was a 0.3-point headwind.
• Reported net income of $396.3 million, or $1.92 per share-diluted, an increase of 18.5%.
• Adjusted earnings per share-diluted of $2.02, an increase of 19.5%.

2022 full-year financial results summary

• Consolidated net sales of $10,419.3 million, an increase of 16.1%.
• Organic, constant currency net sales increased 12.0%.
• The net impact of acquisitions on net sales was a 4.3-point benefit4 while foreign currency exchange was a 0.2-point headwind.
• Reported net income of $1,644.8 million, or $7.96 per share-diluted, an increase of 12.0%.
• Adjusted earnings per share-diluted of $8.52, an increase of 18.5%.

2023 full-year financial outlook summary

The company expects net sales growth of 6% to 8% driven primarily by net price realization as consumer demand remains steady behind higher advertising levels and increased capacity. Sales growth and gross margin expansion are expected to more than offset increased brand, capability and technology investments, as well as higher pension and interest expenses, to drive projected reported earnings per share growth of 11% to 15% and adjusted earnings per share growth of 9% to 11%.

Fourth-quarter 2022 results

Consolidated net sales increased 14.0% to $2,652.3 million in the fourth quarter of 2022, including a 3.6-point benefit from the acquisition of Dot's and Pretzels. Organic, constant currency net sales increased 10.7%, driven primarily by net price realization of 8.5 points.  Consumer demand continued to grow across segments driving an additional 2.2 points of volume gains.

Reported gross margin decreased 30 basis points to 43.2% in the fourth quarter of 2022. This decrease was driven by broad-based cost of goods inflation, including commodity mark-to-market losses, higher manufacturing costs and labor investments, and unfavorable portfolio mix, which was partially offset by higher organic net sales growth. Adjusted gross margin increased 20 basis points to 43.7% in the fourth quarter of 2022. Net price realization and volume gains drove gross margin expansion, which was partially offset by raw material and packaging inflation, higher labor costs, increased manufacturing costs related to higher-than-anticipated demand, and unfavorable portfolio mix.

Fourth-quarter 2022 reported operating profit of $526.6 million increased 14.7%, resulting in an operating profit margin of 19.9%, an increase of 20 basis points versus the prior-year period. Adjusted operating profit of $555.3 million increased 16.7% versus the fourth quarter of 2021, resulting in adjusted operating profit margin of 20.9%, an increase of 40 basis points. Profit increases in both reported and adjusted operating profit were driven by price realization gains, higher volume and operating cost leverage. In addition, reported operating profit was partially offset by derivative mark-to-market losses and higher integration costs related to recent acquisitions.

The company's fourth-quarter 2022 results, as prepared in accordance with GAAP, included items positively impacting comparability of $28.7 million, or $0.10 per share-diluted. For the fourth quarter of 2021, items positively impacting comparability totaled $20.8 million, or $0.07 per share-diluted.

North America confectionery 

Hershey's North America confectionery segment net sales were $2,174.8 million in the fourth quarter of 2022, an increase of 9.7% versus the same period last year. Organic, constant currency net sales increased 10.2% primarily driven by net price realization, along with modest volume gains from strong consumer demand.

Hershey's U.S. candy, mint and gum (CMG) retail takeaway for the twelve-week period ended January 1, 2023, in the multi-outlet combined plus convenience store channels (MULO+C) increased 10.7%. Unit pricing was the primary driver of retail sales growth, while consumer demand remained resilient with volumes declining modestly. Growth was strong across segments, with chocolate retail sales growth of 10.6%, sweets retail sales growth of 12.8% and refreshment retail sales growth of 10.8%. Strong consumer engagement for the Halloween and Holiday seasons also contributed to this growth. CMG share declined by 54 basis points due to category mix headwinds and capacity constraints on seasonal products. 

North America confectionery segment income was $703.5 million in the fourth quarter of 2022, reflecting an increase of 12.9% versus the prior-year period. This resulted in segment margin of 32.3%, an increase of 90 basis points. Net price realization, volume gains and media cost efficiencies more than offset broad-based inflation, increased manufacturing and labor costs, and higher levels of brand and capability investments to drive segment income and margin expansion in the fourth quarter. 

North America salty snacks

Hershey's North America Salty Snacks segment net sales were $272.0 million in the fourth quarter of 2022, an increase of 71.4% versus the same period last year. Sales from the acquisitions of Dot's and Pretzels were a 52.7-point benefit. Organic, constant currency net sales growth was 18.7% with nearly equal contribution from volume gains and net price realization.

Hershey's U.S. salty snack retail takeaway in MULO+C increased 19.2% in the 12-week period ended January 1, 2023, resulting in a salty snack share gain of 10 basis points in the period. SkinnyPop products retail sales increased 19.7%, gaining 130 basis points of ready-to-eat popcorn share in the fourth quarter. Consumer demand and unit velocities for the SkinnyPop brand grew through incremental consumer occasions, while unit pricing also contributed to retail growth. Pirate's Booty products declined 3.0% due to lower promotional levels as the company seeks to reduce supply chain complexity and improve profitability. Dot's Homestyle Pretzels brand reported strong retail sales growth of 32.3% as the brand continued to gain distribution and acquire new buyers in the fourth quarter. This growth significantly outpaced the category, driving 130 basis points of pretzel share gain.     

The North America Salty Snacks segment income was $56.7 million in the fourth quarter of 2022, reflecting an increase of 187.5% versus the prior-year period. This resulted in a segment margin of 20.8%, an increase of 840 basis points versus the prior-year period.  Profit and margin expansion were driven by volume, price realization and acquisitions, along with lower levels of advertising versus the prior-year period, which more than offset inflation, unfavorable mix and acquisition-related costs. 

International

Fourth-quarter 2022 net sales for Hershey's international segment increased 11.1% versus the same period last year to $205.6 million. Organic, constant currency net sales increased 9.3% driven by strong consumer demand across geographies, along with modest net price realization.   

The International segment reported a $0.1 million loss in the fourth quarter of 2022, reflecting a 63.2% increase versus the prior year period, resulting in segment margin of (0.1)%, an increase of 10 basis points. Volume gains and net price realization more than offset broad-based inflation and incremental capability and technology investments, to drive the profit increase and margin expansion in the fourth quarter.