01—Abstract
Summary
Summary of the 10-K filed February 18, 2022. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2021 Form 10-K reports net sales of $8.97 billiona, up 10.1% from $8.15 billion in 2020, with net income attributable to The Hershey Company of $1.48 billion (up 15.5%) and diluted EPS of $7.11 (up 16.4%).
The increase was driven by a volume increase of 5.6%b from everyday core U.S. confection and salty snack brands, price realization of 3.1%, and a 1.0% benefit from net acquisitions. Gross margin declined to 45.1% from 45.4% due to higher freight, logistics and plant costs, while operating profit margin rose to 22.8% from 21.9%, helped by lower business realignment and impairment charges. Management reorganized reporting into three segments (North America Confectionery, North America Salty Snacks and International), with North America Confectionery accounting for 85.6% of net sales.
During 2021 the company spent about $1.6 billionc to acquire Lily's Sweets, Dot's Pretzels and Pretzels Inc., with Dot's and Pretzels expected to generate aggregate annualized net sales over $300 million. Operating cash flow rose to $2.08 billion from $1.70 billion, while capital expenditures were $495.9 million and total debt increased to $5.0 billion from $4.6 billion, largely from commercial paper used to fund the acquisitions. Cash and cash equivalents fell to $329.3 million.
The filing states the company expects 2022 capital expenditures of approximately $550 million to $600 milliond and maintains a $1.5 billion revolving credit facility, with $680 million available at year end. The filing also notes that Hershey Trust Company, as trustee for the Milton Hershey School Trust, holds voting control of the company, with about 81% of the votes entitled to be cast on matters requiring the vote of both classes of common stock. Key risks cited include commodity and cocoa cost volatility, supply chain disruptions, COVID-19, reliance on McLane Company as roughly 30% of net sales, and a multi-year ERP system implementation.
02—Key points
Key Highlights
- Net sales rose 10.1% to $8.97 billion in 2021, with volume up 5.6% and price realization up 3.1%.
- Net income attributable to The Hershey Company increased 15.5% to $1.48 billion, and diluted EPS rose 16.4% to $7.11.
- Gross margin declined to 45.1% from 45.4%, reflecting higher freight, logistics and plant costs, while operating profit margin improved to 22.8% from 21.9%.
- Acquisitions of Lily's Sweets, Dot's Pretzels and Pretzels Inc. required about $1.6 billion of cash in 2021, expanding the salty snacks portfolio.
- Operating cash flow increased to $2.08 billion, while total debt rose to $5.0 billion, mainly from commercial paper used for acquisitions.
- Hershey Trust Company, as trustee for the Milton Hershey School Trust, holds voting control of the company with about 81% of votes on matters requiring both classes of stock.
- Management expects 2022 capital expenditures of approximately $550 million to $600 million and plans to repurchase shares in line with its traditional buyback strategy.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Hershey kept $0.16.
- Revenue$8.97B100.0%
- Cost of revenue−$4.92B54.9%
- Gross profit$4.05B45.1%
- Operating costs−$2.00B22.3%
- Operating income$2.04B22.8%
- Interest, other & tax−$566.2M6.3%
- Net income$1.48B16.5%
Where FY2021 revenue went
$8.97B- Cost of revenue: $4.92B, 55% of revenue
- SG&A: $2.00B, 22% of revenue
- Net income: $1.48B, 16% of revenue
- R&D: $40.1M, 0.4% of revenue
- Interest, other & tax: $566.2M, 6.3% of revenue
Kept 16% as net incomeR&D $40.1M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 18, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $8.97B$8.15B | +10.1% |
| Cost of Revenue | $4.92B$4.45B | +10.7% |
| Gross Profit | $4.05B$3.70B | +9.4% |
| R&D Expenses | $40.11M$37.58M | +6.7% |
| SG&A Expenses | $2.00B$1.89B | +5.8% |
| Operating Income | $2.04B$1.78B | +14.6% |
| Interest Expense | $139.16M$160.20M | −13.1% |
| Net Income | $1.48B$1.28B | +15.5% |
05—Questions
Frequently Asked Questions
What drove the increase in net sales and profitability in 2021?
Net sales rose 10.1%, driven mainly by a 5.6% volume increase in everyday core U.S. confection and salty snack brands and a 3.1% favorable price realization. Operating profit rose 14.6%, due primarily to higher gross profit, lower business realignment costs and lower impairment charges, partially offset by higher selling, marketing and administrative expenses.
How did the company's margins change?
Gross margin decreased to 45.1% from 45.4% because of higher freight and logistics costs and additional plant costs. Operating profit margin increased to 22.8% from 21.9%, reflecting higher gross profit and lower realignment and impairment charges.
How is the company funding its acquisitions and debt?
The company spent about $1.6 billion on the Lily's, Dot's and Pretzels acquisitions in 2021. Short-term debt, mainly U.S. commercial paper of $820.4 million, increased total debt to $5.0 billion from $4.6 billion. The company also maintains a $1.5 billion unsecured revolving credit facility, with $680 million of available capacity at year end.
Who controls the company's voting power?
Hershey Trust Company, as trustee for the Milton Hershey School Trust, maintains voting control over the company. It held 60,612,012 Class B shares and was entitled to cast approximately 81% of votes on matters requiring both classes to vote together. Pennsylvania law requires advance notice to the Attorney General of any transaction that would end this voting control.
What are the main risks to the business identified in the filing?
Key risks include volatility in commodity costs, particularly cocoa, sugar and dairy; pricing elasticity that could reduce volumes; supply chain and manufacturing disruptions; COVID-19 effects; dependence on McLane Company, which accounted for about 30% of 2021 net sales; the integration of recent acquisitions; and the multi-year ERP system implementation.
06—Continue