01—Abstract
Summary
Summary of the 10-K filed February 17, 2021. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2020 Form 10-K reports net sales of $8.15 billiona in 2020, up from $7.99 billion in 2019, with net sales increasing 2.0% driven by price realization of 2.3% and a 0.5% benefit from net acquisitions and divestitures, partially offset by an unfavorable 0.5% foreign currency impact and a 0.3% volume decrease.
Operating profit rose 11.7% to $1.78 billionb, and operating profit margin improved to 21.9% from 20.0%, while net income attributable to The Hershey Company was $1.28 billion, or $6.11 diluted EPS, compared with $5.46 in 2019. North America, the company's only reportable segment, generated approximately 91% of consolidated revenue and segment income of $2.32 billion, while International and Other net sales declined 19.0% to $733.0 million, with China and Mexico sales hit by COVID-19 quarantine protocols. The company's balance sheet strengthened over the year: cash and cash equivalents rose to $1.14 billion from $493.3 million, supported by a $1 billion notes issuance in May 2020, while total debt increased to $4.6 billion.
Operating cash flow was $1.70 billionc, capital additions were $441.6 million, and the company expects 2021 capital expenditures to approximate $550 million. Management described COVID-19 impacts as primarily limited to the International and Other segment and considered them temporary, while noting the ERP implementation is expected to be delayed by approximately one year.
Shareholder returns included $640.7 milliond in dividends paid in 2020 and a quarterly dividend of $0.804 per Common Stock share declared February 2, 2021, the company's 365th consecutive quarterly dividend. Investors should note the significant concentration of sales with McLane Company, Inc., which accounted for approximately 31% of 2020 net sales, and the Hershey Trust Company's controlling voting interest.
02—Key points
Key Highlights
- Net sales rose 2.0% to $8.15 billion in 2020, driven by a 2.3% favorable price realization and a 0.5% benefit from net acquisitions and divestitures.
- Operating profit increased 11.7% to $1.78 billion, with operating profit margin expanding to 21.9% from 20.0%.
- Diluted EPS was $6.11 in 2020, up from $5.46 in 2019; net income attributable to The Hershey Company was $1.28 billion.
- North America generated approximately 91% of consolidated revenue, with segment net sales of $7.42 billion and segment income of $2.32 billion; North America segment margin was 31.3%.
- International and Other net sales fell 19.0% to $733.0 million, reflecting COVID-19 quarantine impacts in Mexico and China and the decline in owned retail and travel retail.
- Cash and cash equivalents increased to $1.14 billion at year-end 2020, following a $1 billion notes issuance in May 2020; total debt was $4.6 billion.
- Dividends paid totaled $640.7 million in 2020, and the Board declared a $0.804 quarterly dividend per Common Stock share on February 2, 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Hershey kept $0.16.
- Revenue$8.15B100.0%
- Cost of revenue−$4.45B54.6%
- Gross profit$3.70B45.4%
- Operating costs−$1.92B23.5%
- Operating income$1.78B21.9%
- Interest, other & tax−$504.0M6.2%
- Net income$1.28B15.7%
Where FY2020 revenue went
$8.15B- Cost of revenue: $4.45B, 55% of revenue
- SG&A: $1.89B, 23% of revenue
- Net income: $1.28B, 16% of revenue
- R&D: $37.6M, 0.5% of revenue
- Interest, other & tax: $504.0M, 6.2% of revenue
Kept 16% as net incomeR&D $37.6M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 17, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $8.15B$7.99B | +2.0% |
| Cost of Revenue | $4.45B$4.36B | +1.9% |
| Gross Profit | $3.70B$3.62B | +2.2% |
| R&D Expenses | $37.58M$37.15M | +1.2% |
| SG&A Expenses | $1.89B$1.91B | −0.8% |
| Operating Income | $1.78B$1.60B | +11.7% |
| Interest Expense | $160.20M$157.71M | +1.6% |
| Net Income | $1.28B$1.15B | +11.2% |
05—Questions
Frequently Asked Questions
How concentrated is Hershey's customer base?
The filing states that approximately 31% of 2020 consolidated net sales were made to McLane Company, Inc., one of the largest wholesale distributors in the United States and the primary distributor of the company's products to Wal-Mart Stores, Inc. McLane also accounted for approximately 24% of year-end 2020 trade accounts receivable.
What drove the decline in International and Other segment results?
International and Other net sales decreased $171.5 million, or 19.0%, in 2020, reflecting a 13.7% volume decrease, a 4.1% unfavorable currency impact and a 1.2% unfavorable price realization. Net sales declined 24.6% in Mexico and 46.0% in China due to COVID-19 quarantine protocols, and segment income fell to $28.6 million from $95.7 million.
How is the company managing its debt and liquidity?
In May 2020 the company issued $1 billion of notes with rates from 0.900% to 2.650% and maturities from 2025 to 2050, and repaid $350 million of 2.900% Notes and $350 million of 4.125% Notes at maturity. The company also maintains a $1.5 billion unsecured revolving credit facility with $1.5 billion of available capacity at December 31, 2020, and states it was in compliance with all covenants.
What is the status of the ERP system implementation and related risks?
The company is in a multi-year implementation of a new global enterprise resource planning system. It selectively paused certain aspects of the implementation due to resource constraints and design-phase challenges, and expects this to delay the overall implementation by approximately one year. The filing notes that failures or delays could adversely affect financial positions, results of operations, cash flows and internal control over financial reporting.
Who controls Hershey and what does that mean for shareholders?
Hershey Trust Company, as trustee for the trust whose sole beneficiary is Milton Hershey School, maintains voting control over the company and holds approximately 80% of votes on matters requiring a vote of both classes of common stock. Pennsylvania law requires advance notice to the Attorney General of any transaction that would end the trust's voting control, which the filing states makes it more difficult for a third party to acquire a majority of voting stock.
06—Continue