8-K: Hershey Reports Strong Q4 2024 Results but Forecasts Earnings Decline in 2025 Due to Cocoa Prices

Hershey's Q4 2024 results showed strong growth, but the company anticipates a significant earnings decline in 2025 due to rising cocoa prices.

Summary

• The Hershey Company reported an 8.7% increase in consolidated net sales for Q4 2024, reaching $2,887.5 million.
• Organic, constant currency net sales increased by 9.0% in Q4 2024.
• Reported net income for Q4 2024 was $796.6 million, or $3.92 per share-diluted, a 130.6% increase.
• Adjusted earnings per share-diluted for Q4 2024 increased by 33.2% to $2.69.
• For the full year 2024, consolidated net sales increased by 0.3% to $11,202.3 million.
• Full-year 2024 reported net income increased by 20.5% to $2,221.2 million, or $10.92 per share-diluted.
• Adjusted earnings per share-diluted for the full year 2024 decreased by 2.3% to $9.37.
• Hershey expects net sales growth of at least 2% in 2025, primarily driven by net price realization.
• Reported earnings per share are expected to decline in the high-40% range in 2025.
• Adjusted earnings per share are projected to decrease in the mid-30% range in 2025, excluding one-time costs.
• The company anticipates a 30 basis point benefit to net sales growth from the Sour Strips acquisition in 2025.
• Foreign currency exchange rates are expected to be an approximate 30 basis point headwind to net sales growth for the full-year 2025.
• Hershey expects a reported and adjusted effective tax rate in the range of approximately 14% to 15% in 2025.
• Other expense, primarily reflecting the write-down of equity investments, is projected to be approximately $170 million to $180 million in 2025.
• Interest expense is estimated at approximately $190 million to $195 million in 2025.
• Capital expenditures are projected to be approximately $425 million to $450 million in 2025.
• Advancing Agility & Automation Initiative savings are expected to be approximately $125 million in 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While Q4 2024 results were strong, the outlook for 2025 is concerning due to projected earnings decline. The company is taking steps to mitigate the impact of rising costs, but the overall outlook is less positive than the current results.

Positives

• Strong Q4 2024 performance with significant increases in net sales and net income.
• Organic, constant currency net sales showed healthy growth in Q4 2024.
• North America Salty Snacks segment experienced substantial growth in Q4 2024, with net sales increasing by 35.9%.
• International segment also performed well, with a 9.8% increase in net sales in Q4 2024.
• The Advancing Agility & Automation Initiative is expected to generate significant cost savings in 2025.
• Gross margin increased 1170 basis points to 54.0% in the fourth quarter of 2024.
• North America Confectionery segment income was $808.2 million in the fourth quarter of 2024, reflecting an increase of 11.5% versus the prior year period.

Negatives

• Projected earnings decline in 2025 due to higher commodity costs, rebased incentive compensation, and a higher economic tax rate.
• Adjusted earnings per share-diluted for the full year 2024 decreased by 2.3% to $9.37.
• Foreign currency exchange rates are expected to be an approximate 30 basis point headwind to net sales growth for the full-year 2025.

Risks

• The surge in cocoa prices is expected to put significant pressure on 2025 earnings.
• The company's ability to successfully execute its transformation and productivity programs is crucial for mitigating the impact of rising costs.
• The company's 2025 outlook is subject to various risks and uncertainties, including changes in raw material costs, market demand, and economic conditions.
• Potential disruptions or inefficiencies in the supply chain could negatively impact results.
• Failure to successfully execute and integrate acquisitions, divestitures and joint ventures could negatively impact results.
• Complications with the design, implementation or usage of our new enterprise resource planning system could negatively impact results.

Future Outlook

Hershey expects net sales growth of at least 2% in 2025, driven primarily by net price realization. However, reported earnings per share are expected to be down in the high-40% range, and adjusted earnings per share are projected to be down in the mid-30% range due to higher commodity costs.

Management Comments

• Michele Buck, The Hershey Company President and Chief Executive Officer, stated that she is pleased with the consumer response to the company's innovation, marketing, and in-store execution.
• Michele Buck noted that the company expects significant pressure on 2025 earnings due to the surge in cocoa prices.
• Michele Buck emphasized the company's focus on driving top-line and share momentum, executing transformation and productivity programs, and positioning for long-term peer-leading performance.

Industry Context

Hershey's results reflect the ongoing challenges and opportunities in the consumer packaged goods industry, including managing commodity cost inflation, adapting to changing consumer preferences, and driving growth through innovation and acquisitions. The company's focus on productivity and cost savings initiatives aligns with industry trends aimed at improving profitability in a challenging environment.

Comparison to Industry Standards

• Hershey's faces similar challenges to other major food companies like Nestle, Mondelez, and Mars, particularly regarding rising commodity costs and supply chain disruptions.
• The projected earnings decline due to cocoa prices is a common concern across the chocolate industry, impacting companies like Barry Callebaut and Lindt & Sprungli.
• Hershey's focus on cost savings and productivity initiatives mirrors strategies employed by competitors to mitigate inflationary pressures.
• The company's acquisition of Sour Strips is in line with the industry trend of acquiring smaller, innovative brands to drive growth and expand product portfolios.
• Hershey's retail takeaway growth of 2.2% in the U.S. candy, mint, and gum category is a key metric to compare against competitors' performance in the same category.

Stakeholder Impact

• Shareholders may be concerned about the projected earnings decline in 2025.
• Employees may be affected by the Advancing Agility & Automation Initiative and other cost-saving measures.
• Customers may experience price increases as the company seeks to offset higher commodity costs.
• Suppliers may be impacted by changes in the company's supply chain and sourcing strategies.

Next Steps

• The company will continue to focus on driving top-line and share momentum.
• Hershey will execute its transformation and productivity programs.
• The company will position itself to deliver peer-leading performance over the long-term.
• Management will host a live question and answer session with investors and financial analysts.

Key Dates

Keywords

Hershey, Financial Results, Earnings, Net Sales, Cocoa Prices, Outlook, Confectionery, Salty Snacks, Acquisition, Commodity Costs