01—Abstract
Summary
Summary of the 10-Q filed August 1, 2024. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's second-quarter 2024 Form 10-Q shows a sharp earnings decline.
Net sales for the three months ended June 30, 2024 were $2,074.5 milliona versus $2,490.3 million a year earlier, with a volume decline of approximately 18% attributed in part to accelerated first-quarter shipments ahead of the ERP system implementation, which was completed at the beginning of the second quarter. Net income fell to $180.9 million from $406.9 million, and diluted EPS was $0.89 versus $1.98. Gross margin compressed to 40.2% from 45.5%, driven by higher commodity costs (primarily cocoa), unfavorable mark-to-market activity on commodity derivatives, higher business realignment costs and unfavorable mix.
Operating profit declined 48.7% to $287.9 millionb. The prior-year quarter also included $77.4 million of write-downs on tax-credit partnership investments, which made the year-over-year comparison in other expense look favorable. For the first six months, net sales were $5,327.2 million, down 2.8%, and net income was $978.3 million, down 1.6%, with diluted EPS of $4.80 versus $4.83.
Cocoa futures averaged $3.34c per pound in the first half of 2024, compared with a 2023 annual average of $1.49, and management describes the cocoa price outlook as uncertain. Operating cash flow was $894.7 million, and the company repurchased $494.2 million of shares and paid $543.9 million in dividends. Total debt was $5.4 billion, including $1,321.3 million of short-term debt and $605.2 million of current long-term debt maturing within the next year.
Management states it believes liquidity is sufficient for its short- and long-term needs. The company's Advancing Agility & Automation initiative, approved in February 2024, is estimated to cost $200 million to $250 milliond through 2026, with ongoing annual savings of approximately $300 million expected at program conclusion. Capital expenditure guidance for 2024 was narrowed to $600 million to $625 million.
02—Key points
Key Highlights
- Net sales of $2,074.5 million in Q2 2024, down 16.7% from $2,490.3 million, with volume declines of approximately 18%.
- Gross margin fell to 40.2% from 45.5%, driven by cocoa-related commodity costs, unfavorable commodity derivative mark-to-market activity and higher business realignment costs.
- Diluted EPS of $0.89 versus $1.98 in the prior-year quarter; net income of $180.9 million versus $406.9 million.
- Cocoa futures averaged $3.34 per pound in the first six months of 2024, versus a 2023 annual average of $1.49 per pound.
- Short-term debt rose to $1,321.3 million from $719.8 million at year-end 2023, largely from U.S. commercial paper of $1,145.5 million.
- Share repurchases of $494.2 million and dividends of $543.9 million in the first six months of 2024; approximately $470 million remains under the December 2023 repurchase authorization.
- 2024 capital expenditure guidance narrowed to $600 million to $625 million; the AAA initiative is expected to cost $200 million to $250 million through 2026.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Hershey kept $0.09.
- Revenue$2.07B100.0%
- Cost of revenue−$1.24B59.8%
- Gross profit$833.7M40.2%
- Operating costs−$545.9M26.3%
- Operating income$287.8M13.9%
- Interest, other & tax−$106.9M5.2%
- Net income$180.9M8.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 1, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $2.07B$2.99B | −30.6% |
| Cost of Revenue | $1.24B$1.61B | −22.7% |
| Gross Profit | $833.75M$1.38B | −39.7% |
| SG&A Expenses | $540.99M$581.59M | −7.0% |
| Operating Income | $287.82M$799.92M | −64.0% |
| Interest Expense | $50.15M$42.51M | +18.0% |
| Net Income | $180.89M$587.18M | −69.2% |
05—Questions
Frequently Asked Questions
Why did Hershey's second-quarter 2024 net sales and earnings decline so sharply?
Net sales fell 16.7% to $2,074.5 million, with a volume decline of approximately 18%. The filing attributes much of the decline to accelerated shipments in the first quarter of 2024 ahead of the ERP system implementation, along with a decrease in everyday core U.S. confection. Diluted EPS dropped to $0.89 from $1.98, reflecting lower gross profit, higher income taxes and higher business realignment costs.
What is driving the drop in gross margin?
Gross margin declined to 40.2% from 45.5%. The filing cites unfavorable mark-to-market activity on commodity derivatives, higher commodity costs (primarily cocoa), increased business realignment costs and unfavorable product mix, partially offset by lower net sales and lower supply chain costs.
How is Hershey's debt and liquidity position?
Total short- and long-term debt was $5.4 billion at June 30, 2024. Cash and cash equivalents were $467.1 million. Of the debt, $605.2 million is classified as current, including two $300 million notes due in November 2024 and June 2025. Management states it believes existing liquidity is adequate and that these obligations can be met through operating cash flow, new debt issuance and its unsecured credit facility.
What is the Advancing Agility & Automation initiative?
The Board approved this multi-year productivity program on February 2, 2024. The company estimates total pre-tax costs of $200 million to $250 million through 2026, and expects ongoing annual savings of approximately $300 million at the program's conclusion. Costs of $55.7 million had been recognized since inception through June 30, 2024.
Did the company change its capital return or spending plans?
During the first six months of 2024, Hershey repurchased $494.2 million of shares and paid $543.9 million in dividends, up from $413.5 million a year earlier. The company now expects 2024 capital expenditures of $600 million to $625 million, a slight narrowing from its prior range of $600 million to $650 million.
06—Continue