Hershey : HSY Q4 2022 Earnings Press Release

FINANCIAL CONTACT:	MEDIA CONTACT:
Melissa Poole	Allison Kleinfelter
[e-mail]	[e-mail]

Hershey Reports Fourth-Quarter and Full-Year 2022 Financial Results;

Provides 2023 Outlook

HERSHEY, Pa., February 2, 2023 - The Hershey Company (NYSE: HSY) today announced net sales and earnings for the fourth quarter and full-year ended December 31, 2022.

"In 2022, the Hershey Company delivered one of its strongest years in history despite record inflation, continued supply chain disruptions and macroeconomic uncertainty for many consumers," said Michele Buck, The Hershey Company Chairman and Chief Executive Officer. "It took tremendous hard work, perseverance, and agility from every one of our employees and partners, and I couldn't be prouder of what we have accomplished or more excited for what lies ahead. We expect to deliver another year of strong sales and earnings growth in 2023 as we invest in our amazing portfolio of brands, additional capacity and capabilities."

Fourth-Quarter 2022 Financial Results Summary1

• 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 benefit2 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%.

1. All comparisons for the fourth quarter of 2022 are with respect to the fourth quarter ended December 31, 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 Results Summary3

• 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%.

1. All comparisons for full-year 2022 are with respect to the full-year ended December 31, 2021.
2. Reflects the impact from the 2021 acquisitions of Pretzels, Dot's and Lily's Sweets, LLC (Lily's).

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%.

2023 Full-Year Outlook		Total Company
Net sales growth	6%	- 8%
Reported earnings per share growth	11%	- 15%
Adjusted earnings per share growth	9% - 11%

The company also expects:

• A reported and adjusted effective tax rate in the range of 15% to 16%;
• Other expense, which primarily reflects the write-down of equity investments that qualify for a tax credit, of approximately $190 million to $210 million;
• Interest expense of approximately $145 million to $155 million, reflecting a higher interest rate environment; and
• Capital expenditures of approximately $800 million to $900 million, driven by core confection capacity expansion and continued investments in a digital infrastructure including the build and upgrade of a new ERP system across the enterprise.

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Below is a reconciliation of projected 2023 and full-year 2022 and 2021 earnings per share-diluted calculated in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP adjusted earnings per share- diluted:

	2023 (Projected)		2022		2021
Reported EPS - Diluted	$8.87	- $9.12	$7.96	$7.11
Derivative Mark-to-Market Losses (Gains)		-	0.38	(0.12)
Business Realignment Activities	0.01	0.02	0.09
Acquisition and Integration-Related Activities	0.45	- 0.53	0.24	0.16
Noncontrolling Interest Share of Business Realignment		-		-	0.03
Charges
Other Miscellaneous Losses (Benefits)		-	0.07	(0.07)
Tax Effect of All Adjustments Reflected Above	(0.12)		(0.15)		(0.01)
Adjusted EPS - Diluted	$9.29	- $9.46	$8.52	$7.19

2023 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.

Fourth 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 December 31, 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	9.7 %	(0.5)%	10.2 %			- %	10.2 %	9.1 %	1.1 %
Confectionery
North America	71.4 %			- %	71.4 %	52.7 %	18.7 %	9.7 %	9.0 %
Salty Snacks
International	11.1 %	1.8 %	9.3 %			- %	9.3 %	0.4 %	8.9 %
Total Company	14.0 %	(0.3)%	14.3 %	3.6 %	10.7 %	8.5 %	2.2 %

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							Twelve Months Ended December 31, 2022
							Percentage					Percentage
											Change on
					Impact of		Change on			Impact of		Organic
		Percentage			Foreign		Constant			Acquisitions		Constant
		Change as			Currency		Currency			and		Currency			Organic		Organic
		Reported			Exchange		Basis			Divestitures		Basis			Price		Volume/Mix
North America	11.1 %	(0.2)%	11.3 %	0.4 %	10.9 %	8.1 %	2.8 %
Confectionery
North America	85.3 %			- %	85.3 %	64.0 %	21.3 %	12.0 %	9.3 %
Salty Snacks
International	16.3 %	0.3 %	16.0 %			- %	16.0 %	4.1 %	11.9 %
Total Company	16.1 %	(0.2)%	16.3 %	4.3 %	12.0 %	8.0 %	4.0 %

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.

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,

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higher labor costs, increased manufacturing costs related to higher-than-anticipated demand, and unfavorable portfolio mix.

Selling, marketing and administrative expenses increased 11.5% in the fourth quarter of 2022 versus the prior-year period, primarily driven by higher corporate expenses. Advertising and related consumer marketing expenses increased by 3.3% in the fourth quarter of 2022 versus the same period last year. Higher levels of advertising were driven by Reese's and Jolly Rancher brands in response to incremental capacity, which was partially offset by cost efficiencies related to new media partners. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 15.4% versus the fourth quarter of 2021. This increase was driven by incremental capability and technology investments, increased non-income tax reserves, and favorable benefit accrual in the prior-year period.

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 reported effective tax rate in the fourth quarter of 2022 was (9.1)% compared to 0.9% in the fourth quarter of 2021, a decrease of 1,000 basis points. The adjusted effective tax rate in the fourth quarter of 2022 was (6.5)% compared to 2.2% in the fourth quarter of 2021, a decrease of 870 basis points. Both the reported and adjusted effective tax rate decreases were driven by higher renewable energy tax credits versus the prior-year period.

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.

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