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    HSY
    Earnings call· Dec 2024(Q4 FY24)

    HERSHEY Q4 FY24 earnings call HSY

    Feb 6, 2025 Source

    Executive summary

    Hershey Q4 FY24 — Strong Q4 Performance Amidst Cocoa Headwinds

    Hershey delivered strong Q4 FY24 results, driven by innovation and execution in North American Confectionery and Salty Snacks, and robust international growth. The company is navigating significant cocoa price volatility with efficiency programs and strategic pricing, while preparing for a leadership transition in 2026. Despite expected margin pressure from cocoa, Hershey remains focused on top-line momentum and long-term strategic investments.

    Highlights

    5

    • Net sales grew 8.7% in Q4 FY24, with core business increasing approximately 3%.

    • North American Salty Snacks retail sales accelerated to 7.1% in Q4 FY24.

    • The AAA program delivered $143 million in net savings in 2024, exceeding its $100 million plan.

    • Adjusted EPS reached $2.69 in Q4 FY24.

    • International segment organic constant currency net sales grew 15% in Q4 FY24.

    Concerns

    4

    • Cocoa prices are expected to continue putting significant pressure on earnings in 2025, leading to an adjusted gross profit margin contraction of approximately 650 to 700 basis points for the full year.

    • Q1 FY25 organic constant currency net sales are anticipated to decline by mid-teens across both North America Confectionery and International segments.

    • Full-year 2025 volume is expected to be slightly down.

    • International segment organic constant currency net sales are expected to be slightly below the long-term algorithm in FY25 due to heightened competitive activity.

    Guidance & targets

    23
    CategoryTargetConfidence
    Net sales growth
    at least 2%
    high materiality
    High
    North America Confectionery segment growth
    in line with our long-term algorithm
    medium materiality
    High
    North America Salty Snacks segment growth
    in line with our long-term algorithm
    medium materiality
    High
    International segment constant currency sales growth
    low single digits
    medium materiality
    Medium
    Media spend growth
    grow ahead of sales
    medium materiality
    High
    AAA program incremental savings
    $125 million
    high materiality
    High
    AAA program total 3-year costs
    between $200 million and $250 million
    medium materiality
    High
    Total capital investment
    between $425 million and $450 million
    medium materiality
    High
    Volume
    expected to be slightly down
    high materiality
    High
    Adjusted gross profit margin
    contract by approximately 650 to 700 basis points
    high materiality
    High
    Adjusted gross margin
    decline approximately 400 basis points
    high materiality
    High
    Advertising and related consumer spend
    increase mid-single digits
    medium materiality
    High
    Other operating expenses
    decline by low single digits
    low materiality
    High
    Corporate expenses
    increase low-double digits
    low materiality
    High
    Adjusted effective tax rate
    approximately 14% to 15%
    low materiality
    High
    Other expense
    between $170 million and $180 million
    low materiality
    High
    Interest expense
    $190 million to $195 million
    low materiality
    High
    Dividend payout ratio
    at least 50%
    medium materiality
    High
    Shares outstanding decline
    approximately 50 basis points
    low materiality
    High
    Organic constant currency net sales decline (NA Confectionery & International)
    mid-teens
    high materiality
    High
    International segment organic constant currency net sales
    slightly below algorithm
    medium materiality
    Medium
    North America Salty Snacks segment growth
    solid mid-single-digit growth
    medium materiality
    High
    US Confection business planned price realization
    3% to 4%
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    North America Confectionery
    Organic constant currency net sales growth was driven by approximately 4 points of price realization and a ~2% volume increase, benefiting from solid seasonal and value channel growth and 2 extra shipping days, partially offset by convenience channel softness and expected price elasticity declines. Q1 FY25 organic constant currency net sales are anticipated to decline mid-teens due to lapping ERP inventory build and a later Easter.
    Organic constant currency net sales growth: 5.9%Price realization: ~4 pointsVolume increase: ~2%U.S. Candy, Mint and Gum retail sales increase: 2%Halloween retail sales growth: 2.5%Holiday retail sales growth: 1.1%Seasonal share gain: ~40 bpsEveryday U.S. Candy, Mint and Gum business increase: 1.7%Everyday Sweets portfolio share gains: accelerated to 65 bpsRetail sales across club, dollar and e-commerce: 8.2% increase
    		—5.9%——
    North America Salty Snacks
    Net sales growth reflects an approximate 21-point tailwind from lapping the Q4 2023 ERP implementation inventory drawdown, order timing shifts from Q3 to Q4, and 2 extra shipping days. The base business increased high-single digits, driven by SkinnyPop consumption acceleration, a planned SkinnyPop promotion shift, and continued strength in Dot's Pretzels. Q1 FY25 net sales growth will reflect incremental retailer fees ahead of new SkinnyPop packaging launch.
    Retail sales acceleration: 7.1%Net sales increase: 35.9%SkinnyPop retail sales increase: 4.7%SkinnyPop ready-to-eat popcorn share gain: ~155 bpsDot's Pretzels increase: 20.9%Dot's Pretzel share gain: ~325 bps
    		—35.9%——
    International
    Strong quarter driven by volume, holiday programs, and innovation. Reese's grew double digits across international markets due to distribution and retail execution. Q1 FY25 organic constant currency net sales are anticipated to decline mid-teens due to lapping ERP inventory build and a later Easter. FY25 constant currency sales are expected to increase low single digits, with organic constant currency slightly below algorithm due to heightened competition.
    Organic constant currency net sales growth: 15%Mexico and EMEA constant currency organic sales growth: double-digitIndia growth: high single-digitReese's growth: double-digit
    		—15%——

    Operational metrics

    16
    Adjusted gross margin
    increased 60 bps
    Q4 FY24

    Ahead of expectations.

    Advertising and related consumer marketing
    increased 2.4%
    Q4 FY24

    Driven by investments in North America Confectionery and North America Salty Snacks.

    Adjusted operating expenses (excluding A&M)
    declined approximately 9%
    Q4 FY24

    Due to successful ERP system implementation.

    Adjusted tax rate
    negative 13.7%decrease of approximately 10 points YoY
    Q4 FY24

    Versus the year ago period.

    Capital additions (including software)
    $135 million
    Q4 FY24

    Bringing full year investment to approximately $605 million.

    Dividends paid
    $270 millionincrease of 13.7% versus prior year
    Q4 FY24

    Paid to shareholders.

    Share repurchase authorization remaining
    $470 million
    Q4 FY24

    No shares repurchased in Q4 FY24 against the December 2023 authorization.

    Interest expense
    $40 million
    Q4 FY24

    Slightly below expectations.

    Net sales growth
    0.3%
    FY24

    Despite greater-than-expected macro pressures.

    Earnings per share CAGR
    9.2%above long-term target
    3-year (FY22-FY24)

    Despite low double-digit input cost inflation.

    Organic constant currency net sales growth
    9%
    Q4 FY24

    Slightly ahead of expectations.

    Sour Strips acquisition benefit to net sales
    approximately 30 basis point
    FY25

    Expected benefit.

    Foreign currency impact on net sales
    approximately 30 basis points unfavorable
    FY25

    Expected impact.

    AAA program savings
    $143 millionabove $100 million target
    FY24

    Net savings delivered.

    Cocoa arrivals in Ivory Coast and Ghana ports
    up approximately 30%compared to this time last year
    Current (YoY)

    Signs of fundamentals improving.

    Rest of world cocoa production growth
    10%versus prior year
    Current (YoY)

    Pacing at 10% growth, representing nearly half of global supply.

    Industry KPIs

    7
    MetricValueDetails
    Gross marginIncreased 60 bpsbps
    Brand platform growthReese's Caramel and Lava Big Cup: 1 point; Shaq-a-licious Gummies: #2; Jolly Rancher: 7.7%; SkinnyPop: 4.7%; Dot's Pretzels: 20.9%; Reese's International: double-digits%
    Organic net revenue growth9%%
    Adjusted EPS operating income$2.69USD
    Volume mix vs pricing decompositionPrice: 4 points; Volume: 2%%
    Elasticity consumer response commentaryDeclines
    Category growth benchmark channel shift dataSeasonal share gain: 40 bps; Everyday Sweets share gain: 65 bps; SkinnyPop share gain: 155 bps; Dot's Pretzel share gain: 325 bpsbps

    Product announcements

    6
    ProductTypeDetails
    Reese's Lava Big Cupexpansion
    Jolly Rancher Freeze Driedlaunch
    SkinnyPop refreshed branding and packagingupdate
    Dot's new flavorsexpansion
    Reese's branded sweet and salty innovationlaunch
    Multi-brand multipacksexpansion

    Deals & partnerships

    1
    Sour Stripsaddition of attractive accretive brands

    The acquisition of Sour Strips is expected to contribute approximately 30 basis points to net sales in FY25.

    Capital programs

    2
    New chocolate-making facilitycompleted

    Benefit: ensures high-quality domestic capacity for our products and enhances our manufacturing flexibility

    We reached completion of several significant projects in 2024, including a new chocolate-making facility in Hershey, which ensures high-quality domestic capacity for our products and enhances our manufacturing flexibility.

    AAA program (Accelerate, Advance, Achieve)underwaynearly $900 million
    Period spend: $143 million
    Spent to date: $143 million
    Start: 2023

    Benefit: improve our cost structure by nearly $900 million

    Our AAA program delivered $143 million in net savings in 2024, above our plan and is expected to generate an incremental $125 million in 2025. Between 2023 and 2026, we expect to improve our cost structure by nearly $900 million, while simultaneously investing in the capabilities, technology, talent and infrastructure to support differentiated performance for years to come. Total 3-year costs are projected to be between $200 million and $250 million.

    Risks & headwinds

    5
    Cocoa price volatility and pressure on earningsFY25

    significant pressure on earnings in 2025; adjusted gross profit margin to contract by approximately 650 to 700 basis points for FY25; Q1 FY25 adjusted gross margin to decline approximately 400 basis points

    Mitigation: Advancing sourcing and hedging strategies, including origin and supply chain diversification; investing in cocoa science program; R&D team leveraging cost savings without compromising quality; prepared to adjust pricing, price pack architecture, formulations, demand shaping, and investment strategies.

    Q1 FY25 organic constant currency net sales declineQ1 FY25

    decline by mid-teens

    Mitigation: This dynamic is expected to reverse in Q2, as it is primarily due to lapping the planned inventory build ahead of the ERP implementation in Q1 2024 and a later Easter shifting shipments into Q2.

    Heightened competitive activity in International marketsFY25

    International segment organic constant currency net sales expected to be slightly below algorithm

    Mitigation: Expected stronger growth in the second half driven by program timing and higher pricing.

    Volume declineFY25

    volume expected to be slightly down

    Mitigation: Top line growth is expected to be driven primarily by price realization, with continued focus on driving top line and share momentum.

    Negative product mixFY25

    contributing to 650 to 700 basis points gross margin contraction

    Mitigation: Offset by net price realization, supply chain productivity, and incremental savings from transformation program.

    What to watch in Q1 FY25

    5

    Q1 FY25 Organic Constant Currency Net Sales (NA Confectionery & International)

    Q1 FY25
    TargetDecline by mid-teens

    Why it matters

    This decline is attributed to lapping ERP inventory build and a later Easter, with an expected reversal in Q2. Verification will confirm if the Q1 decline was within expectations and if the Q2 reversal begins as planned.

    In the first quarter of 2025, our North America Confectionery and International segments will both lap the planned inventory build ahead of the ERP implementation in Q1 of 2024. Additionally, the later Easter will shift shipments into Q2. As such, we anticipate organic constant currency net sales to decline by mid-teens across both segments in the first quarter.

    2 min read6 chapters

    Detailed Narrative

    01

    Q4 Performance Highlights

    Hershey delivered strong Q4 FY24 net sales growth of 8.7%, with the core business increasing approximately 3% excluding extra shipping days, inventory changes, and ERP-related laps. U.S. Candy, Mint and Gum retail sales rose 2%, driven by seasonal strength and new product launches. The Salty Snacks segment saw retail sales accelerate to 7.1%, with SkinnyPop gaining 155 basis points of share and Dot's Pretzels growing 20.9%. The International segment achieved 15% organic constant currency net sales growth, including double-digit growth in Mexico and EMEA, and high single-digit growth in India.

    02

    Cocoa Market Dynamics and Mitigation

    Management views the current historically high cocoa prices as transient📎, attributing them to financial market illiquidity rather than fundamental supply/demand imbalances, noting signs of end-users adapting through reformulation and off-exchange hedging. Hershey has secured its butter, liquor, and powder needs for 2025 but anticipates significant margin pressure. The company is advancing sourcing and hedging strategies, including origin diversification and investing in cocoa science, while preparing to adjust pricing and formulations if market views evolve.

    03

    Efficiency and Transformation Programs

    The Accelerate, Advance, Achieve (AAA) program exceeded its 2024 target, delivering $143 million in net savings, and is projected to generate an incremental $125 million in 2025. This program aims to improve the cost structure by nearly $900 million between 2023 and 2026, while simultaneously investing in capabilities, technology, talent, and infrastructure to support long-term differentiated performance.

    04

    Innovation and Brand Investment Strategy

    For 2025, Hershey plans a robust year of innovation, media, and activation across its Confection business, including a major Reese's innovation and expansion of brands like Jolly Rancher. Media spend is expected to grow ahead of sales, supported by a new media agency aimed at increasing reach and improving ROI. The Salty Snacks segment will also see refreshed branding, enhanced packaging, and new flavors to drive household penetration and velocity.

    05

    Leadership Changes and Succession

    The company announced new leadership appointments for its U.S. Confectionery and Salty Snacks divisions, bringing a combination of fresh perspective and deep internal knowledge. CEO Michele Buck also shared her intention to retire in 2026, stating her full focus remains on delivering 2025 goals and advancing the 'Leading Snacking Powerhouse' vision until her transition.

    06

    Capital Allocation Priorities

    Hershey maintains its capital allocation priorities, focusing on reinvestment for growth, including M&A (such as the recent Sour Strips acquisition), a dividend payout ratio of at least 50%, and share repurchases. While no shares were repurchased in Q4 FY24, the company projects shares outstanding to decline by approximately 50 basis points in FY25.

    AI-generated summary of the company’s earnings call. Not investment advice.