The Hershey Co (HSY, Financial) released its 8-K filing on August 1, 2024, reporting a challenging second quarter with significant declines in both net sales and earnings. The company, a leading confectionery manufacturer in the U.S. with a market share of around 36% in the domestic chocolate space, saw its consolidated net sales decrease by 16.7% to $2,074.5 million, missing the estimated revenue of $2,306.88 million. Reported net income also fell sharply by 55.1% to $180.9 million, or $0.89 per share-diluted, significantly below the estimated earnings per share of $1.26.
Company Overview
Hershey is a leading confectionery manufacturer in the U.S., controlling around 36% of the domestic chocolate market. The company's portfolio includes over 100 brands such as Reese's, Kit Kat, Kisses, and Ice Breakers. Hershey's products are sold in about 80 countries, although international sales account for a high-single-digit percentage of total revenue. The firm has expanded its product mix through acquisitions, including Amplify Snack Brands, Pirate Brands, and Dot's Pretzels.
Performance and Challenges
The Hershey Co (HSY, Financial) faced a challenging operating environment in Q2 2024, with consumers pulling back on discretionary spending. This led to a 16.7% decline in consolidated net sales to $2,074.5 million. Organic, constant currency net sales also decreased by 16.8%. The decline was driven by planned inventory reductions within North America Confectionery and International due to the implementation of a new enterprise resource planning (ERP) system, as well as lower levels of retailer inventory and seasonal shipment timing.
Reported net income fell by 55.1% to $180.9 million, or $0.89 per share-diluted. Adjusted earnings per share-diluted were $1.27, a decrease of 36.8%. The company cited higher commodity costs, fixed cost deleverage, and derivative mark-to-market losses as significant factors impacting profitability.
Financial Achievements
Despite the challenges, The Hershey Co (HSY, Financial) reported some positive developments. The company's North America Salty Snacks segment saw a 6.4% increase in net sales to $289.9 million, driven by volume growth. The segment's income also increased by 19.2% to $52.2 million, resulting in a segment margin of 18.0%, up 190 basis points from the prior year.
However, the North America Confectionery segment experienced a 20.7% decline in net sales to $1,579.8 million, primarily due to planned inventory reductions and seasonal shipment timing. The International segment also saw an 8.9% decline in net sales to $204.8 million.
Income Statement Highlights
| Metric | Q2 2024 | Q2 2023 |
|---|---|---|
| Net Sales | $2,074.5 million | $2,490.4 million |
| Net Income | $180.9 million | $406.9 million |
| EPS - Diluted | $0.89 | $1.98 |
| Adjusted EPS - Diluted | $1.27 | $2.01 |
Analysis and Outlook
The Hershey Co (HSY, Financial) has updated its full-year 2024 outlook, now expecting net sales growth of approximately 2%, down from the prior guidance of 2% to 3%. Reported earnings per share growth is expected to decline by 1% to 3%, and adjusted earnings per share are projected to decline slightly. The company also anticipates capital expenditures of approximately $600 million to $625 million, driven by core confection capacity expansion and continued investments in digital infrastructure.
In summary, The Hershey Co (HSY, Financial) faces significant challenges in the current operating environment, with declines in both sales and earnings. However, the company's strategic initiatives and focus on innovation in the second half of the year may help mitigate some of these challenges and drive long-term success.
Explore the complete 8-K earnings release (here) from The Hershey Co for further details.
