01—Abstract
Summary
Summary of the 10-K filed February 17, 2023. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company reported net sales of $10.42 billiona in 2022, up 16.1% from $8.97 billion in 2021, driven by favorable price realization of 8.0%, a 4.3% benefit from net acquisitions and divestitures (the 2021 acquisitions of Lily's, Dot's and Pretzels), and volume growth of 4.0%.
Net income attributable to The Hershey Company rose 11.3% to $1.64 billionb, and diluted EPS increased 12.0% to $7.96. Gross margin declined 200 basis points to 43.2%, reflecting higher supply chain inflation, unfavorable commodity derivative mark-to-market impact and unfavorable product mix. Operating profit rose 10.6% to $2.26 billion, with operating margin falling to 21.7% from 22.8%.
Operating cash flow was $2.33 billionc in 2022, compared with $2.08 billion in 2021, while capital additions were $519.5 million. Cash dividends paid totaled $775.0 million, and the Company repurchased $389.0 million of shares, including a 1,000,000-share purchase from the Milton Hershey School Trust at $203.35 per share in February 2022. Total short- and long-term debt was $4.8 billion at December 31, 2022, down from $5.0 billion, and the Company expects 2023 capital expenditures of $800 million to $900 million and long-term debt repayments of approximately $750 million.
Management highlighted a CMG market share decline of approximately 54 basis points despite strong consumer takeaway growth, and the filing notes that Hershey Trust Company, as trustee for the Milton Hershey School Trust, maintains voting control over the Company. The filing also flags ongoing risks from supply chain disruptions, inflation, the Russia-Ukraine conflict, cocoa price and supply volatility, customer concentration (McLane Company accounted for approximately 28%d of 2022 net sales), and the multi-year ERP system implementation. The auditor, Ernst & Young LLP, issued an unqualified opinion on both the financial statements and internal control over financial reporting, and no material weakness is reported.
02—Key points
Key Highlights
- Net sales rose 16.1% to $10.42 billion in 2022, driven by 8.0% price realization, a 4.3% benefit from acquisitions and 4.0% volume growth.
- Gross margin fell 200 basis points to 43.2%, with higher supply chain inflation, unfavorable commodity derivative mark-to-market impact and product mix pressure.
- Net income attributable to The Hershey Company increased 11.3% to $1.64 billion, and diluted EPS rose 12.0% to $7.96.
- Operating cash flow reached $2.33 billion, up from $2.08 billion in 2021, while capital additions were $519.5 million.
- Shareholder returns totaled $775.0 million in dividends and $389.0 million in share repurchases; the 2022 annual Common Stock dividend rate was $3.874 per share.
- Total debt declined to $4.8 billion from $5.0 billion, and the Company expects 2023 capital expenditures of $800 million to $900 million.
- Customer concentration remains significant, with McLane Company accounting for approximately 28% of 2022 net sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Hershey kept $0.16.
- Revenue$10.42B100.0%
- Cost of revenue−$5.92B56.8%
- Gross profit$4.50B43.2%
- Operating costs−$2.24B21.5%
- Operating income$2.26B21.7%
- Interest, other & tax−$616.0M5.9%
- Net income$1.64B15.8%
Where FY2022 revenue went
$10.42B- Cost of revenue: $5.92B, 57% of revenue
- SG&A: $2.24B, 21% of revenue
- Net income: $1.64B, 16% of revenue
- R&D: $46.9M, 0.5% of revenue
- Interest, other & tax: $616.0M, 5.9% of revenue
Kept 16% as net incomeR&D $46.9M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 17, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $10.42B$8.97B | +16.1% |
| Cost of Revenue | $5.92B$4.92B | +20.3% |
| Gross Profit | $4.50B$4.05B | +11.1% |
| R&D Expenses | $46.94M$40.11M | +17.0% |
| SG&A Expenses | $2.24B$2.00B | +11.7% |
| Operating Income | $2.26B$2.04B | +10.6% |
| Interest Expense | $148.23M$139.16M | +6.5% |
| Net Income | $1.64B$1.48B | +11.3% |
05—Questions
Frequently Asked Questions
How did Hershey's profitability change in 2022?
Operating profit increased 10.6% to $2.26 billion, but operating margin declined to 21.7% from 22.8%, as higher supply chain inflation, unfavorable commodity derivative mark-to-market impact and product mix offset favorable price realization. Net income attributable to the Company rose 11.3% to $1.64 billion.
What drove the growth in net sales?
Net sales increased 16.1%, reflecting favorable price realization of 8.0%, a 4.3% benefit from the 2021 acquisitions of Lily's, Dot's and Pretzels, and volume growth of 4.0% driven by everyday core U.S. confection and salty snack brands.
How much cash did Hershey return to shareholders and how much debt does it carry?
Hershey paid $775.0 million in cash dividends and repurchased $389.0 million of shares in 2022. Total short- and long-term debt was $4.8 billion at December 31, 2022, down from $5.0 billion, mainly from repaying commercial paper used to fund the Dot's and Pretzels acquisitions.
What are the main risks flagged in the filing?
Key risks include supply chain disruptions, input cost inflation (especially cocoa, sugar, corn, dairy, wheat and peanuts), pricing elasticity, competitive pressure, customer concentration with McLane Company, international operations, cybersecurity, the Russia-Ukraine conflict, and the multi-year ERP system implementation.
Who controls Hershey and does that affect shareholders?
Hershey Trust Company, as trustee for the Milton Hershey School Trust, maintains voting control of the Company through its Class B Common Stock, which carries 10 votes per share. Pennsylvania law requires advance notice to the Attorney General of any transaction that would end this voting control, which makes a third-party acquisition more difficult.
06—Continue