Insights

Hershey Earnings: Inflation Is No Match for Consumers’ Sweet (and Salty) Tooth

Shares of The Hershey Company (NYSE: HSY) popped 2.8% last Thursday after the confectionary and salty-snack maker turned in a second-quarter report that satiated investors.

Here’s an overview of Hershey’s second quarter and guidance centered around five key metrics.

Image source: Hershey.

1. Revenue jumped 19%

Hershey’s net quarterly sales grew 19% year over year to $2.37 billion, surpassing the $2.22 billion Wall Street had expected. Hershey’s results were hardly affected by changes in foreign-exchange rates; this factor only dented revenue growth by 0.1%. That’s because the bulk of the company’s sales are in North America.

Sales got a 5.3% benefit from acquisitions made within the last year, which include Pretzels Inc., Dot’s Pretzels, and Lily’s Sweets. Organic revenue growth was a robust 14.1% — 9.5% from increased prices and 4.6% from higher sales volumes.

As I wrote in my earnings preview, “Hershey’s strong pricing power isn’t too surprising because the company owns many top brands that have been consumer favorites for generations, including its namesake brand, Reese’s, Kit Kat, and Twizzlers, along with newer brands that consumers love, such as SkinnyPop Popcorn.”

High inflation is causing consumers to cut back on many non-necessities, but they’re not paring back their consumption of Hershey’s products. During tough economic times, many consumers will put off buying bigger-ticket items and then reward themselves for doing so by purchasing more inexpensive “treats,” including candy. Moreover, many consumers find chocolate to be a comfort food, which also can help sales during challenging economic periods.

Hershey’s business — and its stock — should hold up well during a recession. During the Great Recession, which technically lasted from late 2006 through mid-2008, Hershey stock’s return was in the red by only 7.2%, while the S&P 500‘s return plunged nearly 36%.

For context, in the first quarter, Hershey’s revenue rose 16% year over year to $2.67 billion, which easily topped the $2.48 billion Wall Street had expected. 

Here’s how second-quarter revenue broke down by segment:

Segment
Q2 2022 Revenue
Change (YOY)
Impact of Acquisitions (YOY)
North America confectionary
$1.91 billion
13%
0.8%
North America salty snacks
$256.3 million
100%
72%
International
$207.2 million
21%

Total
$2.37 billion
19%
5.3%

Data source: Hershey. YOY = year over year.

A few key takeaways from the quarter’s revenue results:

North America confectionary’s results benefited from consumers’ consumption of Hershey’s take-home chocolates remaining strong and above pre-pandemic levels.
North America’s confectionary results also got a nice boost from robust retail sales of Jolly Rancher Gummies and Twizzlers, which are part of what Hershey calls its “summer programming.” (Think: products that don’t melt in high temps.)
The North America salty snacks segment is ramping up quickly, thanks to acquisitions and the company’s brands (Pirate’s Booty, SkinnyPop, and Dot’s Homestyle Pretzels) benefiting from being owned by a company with Hershey’s resources.

2. Adjusted earnings per share (EPS) grew 22%

Net income according to generally accepted accounting principles (GAAP) was $315.6 million, or $1.53 per share, up 5.5% year over year. Adjusted for one-time items, net income landed at $372.4 million, or $1.80 per share, up 22%.

3. Cash from operations for the first half of 2022 rose 9.4% 

In the first half of this year, Hershey generated cash of $1.11 billion running its operations, up 9.4% from the year-ago period. It ended the period with cash and cash equivalents of $339.7 million and long-term debt of $3.34 billion.

Yes, growth in operating cash flow is somewhat light given the company’s strong revenue and earnings growth. The company has had to ramp up inventory levels for the brands that it recently acquired to meet robust demand. Also, like many companies, Hershey probably has been stocking up more than usual on inventory because of the pandemic-driven global supply chain mess.

4. Dividend increased by 15%

Hershey increased its quarterly cash dividend on its common stock by 15% to $1.036. It’s payable Sept. 15 to shareholders of record as of Aug. 19. 

The company also raised its dividend on its Class B shares by 15%. These shares are nearly entirely owned by the Hershey Trust.

5. Annual revenue and adjusted EPS guidance raised by 2%

Here’s a look at Hershey’s annual revenue and adjusted EPS guidance.

Metric 
Initial Guidance
First Update to Guidance
Current Guidance
2022 annual revenue growth
8% to 10%
10% to 12%
12% to 14%*
2022 annual GAAP EPS growth
7% to 10%
8% to 11%
9% to 12%
2022 annual adjusted EPS growth
9% to 11%
10% to 12%
12% to 14%

Data source: Hershey. *Acquisitions made within the last year are anticipated to contribute 4% to 5% to 2022 revenue growth, unchanged from the first upward revision to guidance, and up from 3% to 4% in the initial guidance.

In short, Hershey turned in a great quarter, and 2022 is shaping up to be a very good year for the company and its investors.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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