Hershey : HSY Q3 2022 Earnings Press Release

FINANCIAL CONTACT:	MEDIA CONTACT:
Melissa Poole	Allison Kleinfelter
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Hershey Reports Third-Quarter 2022 Financial Results;

Raises 2022 Net Sales and Earnings Outlook

HERSHEY, Pa., November 4, 2022 - The Hershey Company (NYSE: HSY) today announced net sales and earnings for the third quarter ended October 2, 2022, and raised its full-year financial outlook.

"Third quarter results came in ahead of our expectations, as our increased brand investments and improved supply chain helped support resilient consumer demand and drove category growth across all business segments," said Michele Buck, The Hershey Company President and Chief Executive Officer. "Marketplace share and gross margin trends improved versus the second quarter, and we have strong momentum exiting the year. Given our performance to date and visibility into the fourth quarter, we are raising our net sales and earnings outlook for the year."

Third-Quarter 2022 Financial Results Summary1

• Consolidated net sales of $2,728.2 million, an increase of 15.6%.
• Organic, constant currency net sales increased 11.8%.
• The impact of acquisitions on net sales was a 4.1-point benefit2 while foreign currency exchange was a 0.3- point headwind.
• Reported net income of $399.5 million and $1.94 earnings per share-diluted, a decrease of 9.3%.
• Adjusted earnings per share-diluted of $2.17, an increase of 3.3%.

1. All comparisons for the third quarter of 2022 are with respect to the third quarter ended October 3, 2021
2. Reflects the impact from the 2021 acquisitions of Pretzels Inc. (Pretzels) and Dot's Pretzels, LLC (Dot's)

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2022 Full-Year Financial Outlook

The Hershey Company is increasing its net sales growth and earnings-per-share outlook to reflect higher than

anticipated consumer demand and favorable price elasticities across segments.

2022 Full-Year Outlook		Prior Guidance		Current Guidance
Net sales growth3	12% - 14%	14% - 15%
Reported earnings per share growth	9% - 12%	11% - 13%
Adjusted earnings per share growth	12% - 14%	14% - 15%

3 The impact of the Pretzels, Dot's and Lily's Sweets, LLC (Lily's) acquisitions is anticipated to be a 4- to 5-point benefit to net sales growth for the full-year 2022.

The company is also updating guidance on the following:

• A reported and adjusted effective tax rate of approximately 14% to 15%, a slight reduction versus the prior outlook, driven by timing and value of renewable energy tax credits;
• Other expense, which primarily reflects the write-down of equity investments that qualify for tax credits, of approximately $205 million, higher than the previous outlook to reflect an increased amount of renewable energy tax credits;
• Interest expense of approximately $135 million to $140 million, reflecting higher interest rates on commercial paper; and
• Capital expenditures of approximately $600 million.

Below is a reconciliation of projected 2022 and full-year 2021 earnings per share-diluted calculated in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP adjusted earnings per share-diluted:

	2022 (Projected)		2021
Reported EPS - Diluted	$7.93	- $8.06	$7.11
Derivative mark-to-market gains		-	(0.12)
Business realignment activities	0.02	- 0.04	0.09
Acquisition-related activities	0.21	- 0.25	0.16
Noncontrolling interest share of business realignment and impairment charges		-	0.03
Other miscellaneous losses (benefits)	0.07	(0.07)
Tax effect of all adjustments reflected above	(0.09)		(0.01)
Adjusted EPS - Diluted	$8.20 - $8.27	$7.19

2022 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.

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Third Quarter 2022 Components of Net Sales Growth

A reconciliation between reported net sales growth rates and organic constant currency net sales growth rates, along with the contribution from net price realization and volume, is provided below:

							Three Months Ended October 2, 2022
							Percentage					Percentage
											Change on
					Impact of		Change on					Organic
		Percentage			Foreign		Constant					Constant
		Change as			Currency		Currency			Impact of		Currency			Organic		Organic
		Reported			Exchange		Basis			Acquisitions		Basis			Price		Volume/Mix
North America
Confectionery	10.4 %	(0.3)%	10.7 %			- %	10.7 %	7.7 %	3.0 %
North America
Salty Snacks	86.9 %			- %	86.9 %	65.5 %	21.4 %	12.5 %	9.0 %
International	15.4 %	(1.2)%	16.6 %			- %	16.6 %	4.4 %	12.2 %
Total Company	15.6 %	(0.3)%	15.9 %	4.1 %	11.8 %	7.7 %	4.1 %

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 2022 Consolidated Results

Consolidated net sales increased 15.6% to $2,728.2 million in the third quarter of 2022, including a 4.1-point benefit from the acquisitions of Pretzels and Dot's. Organic, constant currency sales increased 11.8%. List price increases along with strong consumer demand and favorable price elasticities drove balanced growth across segments.

Reported gross margin was 40.6% in the third quarter of 2022, compared to 45.0% in the third quarter of 2021, a decrease of 440 basis points. Adjusted gross margin was 42.5% in the third quarter of 2022, a decrease of 180 basis points compared to the third quarter of 2021. Raw material, packaging and logistics inflation, labor

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investments, and higher supply chain costs from sustained consumer demand contributed to these declines, as well as an unfavorable mix from recent acquisitions. These headwinds were partially offset by net price realization and volume gains. Derivative mark-to-market losses further contributed to the decline in reported gross margin.

Selling, marketing and administrative expenses increased 13.5% in the third quarter of 2022 versus the third quarter of 2021, primarily driven by higher corporate expenses and acquisition-related costs. Higher corporate expenses were driven by incremental capability and technology investments, higher incentive compensation and broad-based marketplace inflation. Advertising and related consumer marketing expenses increased 5.4% in the third quarter of 2022 versus the same period last year. Higher levels of advertising in response to improved supportability of confectionery brands and increased investment in salty snacks brands were partially offset by cost efficiencies related to new media partners. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 17.8% versus the third quarter of 2021. This increase was driven by acquisition- related costs, including amortization, integration and operating expenses, as well as people, capability and technology investments.

Third-quarter 2022 reported operating profit was $556.6 million, a decrease of 3.2%, resulting in an operating profit margin of 20.4%, a decrease of 400 basis points. These declines were driven by the previously mentioned gross margin declines, including derivative mark-to-market losses, and higher corporate and operating expenses, including acquisition-related integration costs. Adjusted operating profit of $615.3 million increased 9.3% versus the third quarter of 2021 as pricing, volume and cost leverage more than offset inflation, elevated supply chain costs, acquisition-related costs and brand, capabilities, and people investments. Despite higher adjusted operating profit, adjusted operating profit margin decreased by 130 basis points to 22.6%, as inflation and investment outpaced sales growth.

The reported effective tax rate in the third quarter of 2022 was 15.6%, an increase of 90 basis points versus the third quarter of 2021. The adjusted effective tax rate was 15.9%, an increase of 120 basis points versus the third quarter of 2021. Both the reported and adjusted effective tax rate increase were driven by higher utilization of capital losses in the prior-year period, as well as the timing of renewable energy tax credits.

The company's third-quarter 2022 results, as prepared in accordance with GAAP, included items positively impacting comparability of $58.7 million, or $0.23 per share-diluted. For the third quarter of 2021, items negatively impacting comparability totaled $11.9 million, or $0.04 per share-diluted.

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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
		October 2,			October 3,			October 2,			October 3,
		2022			2021			2022			2021
Derivative mark-to-market losses (gains)	$	50.1	$	(18.5)	$	0.24	$	(0.09)
Business realignment activities		0.4			3.4			-			0.02
Acquisition-related activities		8.2			3.2			0.04			0.02
Tax effect of all adjustments reflected above		-			-			(0.05)			0.01
	$	58.7	$	(11.9)	$	0.23	$	(0.04)

Segment performance for the third quarter of 2022 versus the prior-year period are detailed below. See the schedule 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 Confectionery

Hershey's North America Confectionery segment net sales were $2,235.6 million in the third quarter of 2022, an increase of 10.4% versus the same period last year. Organic, constant currency net sales increased 10.7%. Net price realization was driven by mid to high single digit list price increases across the confectionery portfolio. Earlier seasonal shipments versus the prior-year period and continued replenishment of distributor inventory levels offset modest declines in consumer demand to drive volume growth in the third quarter.

Hershey's U.S. candy, mint and gum (CMG) retail takeaway for the 12-week period ended October 2, 2022 in the multi-outlet plus convenience store channels (MULO+C) increased 12.2%, resulting in category market share gain of 23 basis points in the period. Consumer demand for Hershey's products remained strong aided by improved supportability and higher levels of advertising in the 12-week period. Retail sales of Hershey's chocolate products increased 12.6%, driving chocolate share gains of over 100 basis points. This strength was driven by sustained on- the-go and at-home usage occasions, instant consumables' retail sales growth of 11.2% and take-home retail sales growth of 13.6%. Within refreshment, Hershey's gum products increased 14.8%, driven by less mask-wearing, while retail trends for Icebreaker's mints continued to improve from supply chain challenges earlier this year. Hershey's share of CMG remains up 111 basis points versus pre-pandemic levels.

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