10-K: Hershey's 2024 Annual Report: Navigating a Challenging Macroeconomic Landscape

Hershey's 2024 annual report reveals a mixed performance, with slight net sales growth offset by volume declines and margin pressures amid a volatile macroeconomic environment.

Summary

• The Hershey Company's 2024 net sales increased slightly by 0.3% to $11.202 billion, driven by favorable pricing, but offset by volume declines.
• The company's gross margin improved to 47.3%, up from 44.8% in 2023, due to favorable mark-to-market activity on commodity derivatives.
• Operating profit increased by 13.2% to $2.898 billion, with an operating profit margin of 25.9%.
• Net income rose by 19.3% to $2.221 billion, and diluted earnings per share increased by 20.5% to $10.92.
• The North America Confectionery segment experienced a slight sales decrease, while the North America Salty Snacks segment saw a 3.9% increase.
• The International segment's sales decreased slightly by 0.1% due to unfavorable foreign currency exchange rates and volume declines.
• The company completed the acquisition of the Sour Strips brand in November 2024.
• Hershey expects 2025 capital expenditures to be between $425 million and $450 million.
• The company's total shortand long-term debt was $5.1 billion as of December 31, 2024.
• The company's effective income tax rate was 10.2% for 2024, compared to 14.3% for 2023.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there are positive aspects like improved gross margins and increased operating profit, there are also negative aspects like declining sales volume and increased commodity costs. The overall sentiment is neutral to slightly positive.

Positives

• Gross margin improved significantly due to favorable mark-to-market activity on commodity derivatives.
• Operating profit and net income showed strong growth.
• North America Salty Snacks segment experienced sales and income growth.
• The company is actively managing its operations to ensure long-term sustainability.
• The company is committed to diversity and inclusion, with women in key leadership positions and fair pay equity achievements.

Negatives

• Net sales growth was minimal, with volume declines in North America Confectionery and International segments.
• The International segment experienced a sales decrease due to unfavorable foreign currency exchange rates and volume declines.
• The company experienced higher commodity costs, particularly for cocoa.
• The company experienced overall declines in consumer demands for its products.

Risks

• The company's reputation could be impacted by issues related to product quality, safety, human rights, and ESG matters.
• Disruptions to manufacturing operations or the supply chain could impair the ability to produce or deliver finished products.
• The company might not be able to hire and retain the talented global human capital needed to drive growth strategies.
• Climate change and other environmental impacts could negatively affect the business and operations.
• Increases in raw material and energy costs could affect future financial results.
• Market demand for new and existing products could decline.
• The company's financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures.
• International operations may not achieve projected growth objectives.
• Changes in governmental laws, regulations and policies could increase costs and liabilities or impact demand for products.
• Political, economic and/or financial market conditions, including impacts from the conflict between Russia and Ukraine, could negatively impact financial results.
• Disruptions, failures or security breaches of the company's information technology infrastructure could have a negative impact on operations.
• Complications with the design or implementation of the new enterprise resource planning system could adversely impact the business and operations.

Future Outlook

Hershey expects 2025 capital expenditures, including capitalized software, of approximately $425 million to $450 million, as capital spending as a percentage of sales is expected to return to historical levels.

Management Comments

• We are focused on ensuring that we efficiently allocate our resources to the areas with the highest potential for profitable growth.
• We are working to leverage our advanced data and analytical techniques to gain a deep understanding of our consumers, our customers, our shoppers, our end-to-end supply chain, our retail environment and key economic drivers at both a macro and precision level, including digital transformation and new media models.

Industry Context

The global confectionery and snacks packaged goods industry is intensely competitive, and consolidation continues. Hershey faces competition from large private companies, large retailers, and increased in-store activity for other snack items.

Comparison to Industry Standards

• The report mentions McLane Company, Inc. accounting for approximately 27% of consolidated net sales in 2024, indicating a significant reliance on a single distributor, which is a common practice in the consumer goods industry.
• The report mentions competition from large private companies and large retailers, which is a common challenge for major players in the confectionery and snacks industry.
• The report mentions the European Unions Deforestation Regulation (EUDR), which is a growing concern for companies in the food industry that rely on commodities such as cocoa, palm oil, and soy.

Management Changes

Legal Proceedings

• The company is subject to certain legal proceedings and claims arising out of the ordinary course of our business, which cover a wide range of matters including trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters, human and workplace rights matters and tax.

Stakeholder Impact

• The company's performance impacts shareholders through stock value and dividends.
• Employees are affected by changes in compensation, benefits, and workforce management.
• Customers are impacted by product availability, pricing, and quality.
• Suppliers are affected by changes in procurement practices and supply chain management.
• Communities are impacted by the company's sustainability and social impact initiatives.

Next Steps

• The company will continue to monitor and use its risk management strategy to hedge commodity prices.
• The company will continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that its business can operate effectively during the current economic environment.
• The company will continue to evaluate the nature and extent of potential and evolving impacts on its business, consolidated results of operations, segment results, liquidity and capital resources.
• The company expects to finalize the purchase price allocation for the Sour Strips acquisition by mid-2025.
• The company expects 2025 capital expenditures, including capitalized software, of approximately $425 million to $450 million.
• Agreements are expected to be negotiated for certain employees at seven facilities during 2025.

Key Dates

Keywords

Hershey, financial results, annual report, confectionery, salty snacks, net sales, gross margin, operating profit, net income, risk factors, acquisitions, commodity prices, ESG, supply chain, international operations