The Hershey Company (HSY) Bundle
Understanding The Hershey Company (HSY) Revenue Streams
Understanding The Hershey Company’s Revenue Streams
The Hershey Company generates revenue through various segments, primarily categorized into North America Confectionery, North America Salty Snacks, and International operations.
Breakdown of Primary Revenue Sources
The following table outlines the net sales for each segment for the first nine months of 2024 compared to the same period in 2023:
| Segment | Net Sales (2024) | Net Sales (2023) | Percentage Change |
|---|---|---|---|
| North America Confectionery | $6,764.4 million | $6,902.9 million | (2.0%) |
| North America Salty Snacks | $856.8 million | $887.5 million | (3.5%) |
| International | $693.5 million | $717.5 million | (3.3%) |
| Total | $8,314.7 million | $8,507.9 million | (2.3%) |
Year-over-Year Revenue Growth Rate
In the first nine months of 2024, the total net sales decreased by 2.3%, primarily driven by a volume decline of approximately 5% across segments, partially offset by price increases of around 3%.
Contribution of Different Business Segments to Overall Revenue
For the first nine months of 2024, the North America Confectionery segment accounted for approximately 81.3% of total net sales, while North America Salty Snacks contributed about 10.3%, and International operations made up roughly 8.4%.
Analysis of Significant Changes in Revenue Streams
The North America Confectionery segment saw a decrease in net sales by $138.5 million or 2.0%, primarily due to a volume decline of approximately 5% in core U.S. confection brands, although this was somewhat mitigated by favorable price realization of approximately 3%.
In the North America Salty Snacks segment, net sales decreased by $30.7 million or 3.5%, reflecting volume declines of approximately 3%, primarily related to specific snack brands, and was further impacted by accelerated shipments in the previous year.
Internationally, the segment experienced a decline of $24.0 million or 3.3%, primarily due to unfavorable foreign currency exchange impacts and slight volume declines.
A Deep Dive into The Hershey Company (HSY) Profitability
A Deep Dive into The Hershey Company's Profitability
Gross Profit Margin: For the first nine months of 2024, the gross margin was 41.3%, compared to 44.9% in the same period of 2023, reflecting a decrease of 360 basis points driven by unfavorable commodity costs and higher supply chain costs.
Operating Profit: The operating profit for the first nine months of 2024 was $1,959.0 million, down from $2,096.5 million in the same period of 2023, a decrease of 6.6%.
Net Profit: Net income for the first nine months of 2024 was $1,424.6 million, down from $1,512.7 million for the same period in 2023, representing a decrease of 5.8%.
Earnings Per Share (EPS): The diluted EPS for the first nine months of 2024 was $7.00, compared to $7.36 in the same period of 2023, a decrease of 4.9%.
Profitability Ratios Comparison:
| Metric | 2024 | 2023 | Industry Average |
|---|---|---|---|
| Gross Margin | 41.3% | 44.9% | 40.5% |
| Operating Margin | 23.6% | 24.6% | 22.0% |
| Net Profit Margin | 17.1% | 17.7% | 15.0% |
Trends in Profitability Over Time: The operating profit margin decreased to 20.5% in the third quarter of 2024 from 24.3% in the same quarter of 2023. The decrease in profitability metrics is attributed to higher commodity costs and increased business realignment costs.
Operational Efficiency Analysis: The total selling, marketing, and administrative (SM&A) expenses for the first nine months of 2024 were $1,750.9 million, down from $1,777.8 million in the same period of 2023, marking a decrease of 1.5%. In the third quarter of 2024, SM&A expenses were $591.9 million, compared to $624.4 million in the same quarter of 2023.
Segment Income Analysis:
| Segment | 2024 Income | 2023 Income | Change (%) |
|---|---|---|---|
| North America Confectionery | $2,137.5 million | $2,392.4 million | -10.7% |
| North America Salty Snacks | $144.9 million | $147.9 million | -2.0% |
| International | $82.0 million | $127.8 million | -35.8% |
The decrease in segment income was primarily due to higher commodity costs and unfavorable product mix across segments.
Debt vs. Equity: How The Hershey Company (HSY) Finances Its Growth
Debt vs. Equity: How The Hershey Company Finances Its Growth
As of September 29, 2024, The Hershey Company had total outstanding debt of $5.3 billion, with $904.8 million classified as the current portion of long-term debt. This current portion includes $300 million of 2.050% Notes due on November 15, 2024, $300 million of 0.900% Notes due on June 1, 2025, and $300 million of 3.200% Notes due on August 21, 2025 .
The company's debt-to-equity ratio stands at approximately 1.26, which is higher than the industry average of 0.75. This indicates a more aggressive stance on leveraging debt to finance operations compared to its peers .
In 2024, net interest expense was reported at $125.5 million, an increase of 10.0% from $114.1 million in 2023. This rise was primarily attributed to higher short-term debt balances, specifically linked to outstanding commercial paper .
During the first nine months of 2024, the company issued $482.3 million in short-term debt predominantly through commercial paper. In contrast, there were no long-term debt borrowings or repayments during this period .
Hershey's credit rating remains stable, with major credit agencies assigning it an investment-grade rating, which facilitates lower borrowing costs and favorable terms for its debt .
The company balances its financing strategy by utilizing both debt and equity, maintaining a robust operational cash flow to manage its debt obligations. At the end of September 2024, cash and cash equivalents totaled $615.0 million, providing a cushion for upcoming debt maturities .
| Debt Type | Amount (in millions) | Maturity Date | Interest Rate |
|---|---|---|---|
| 2.050% Notes | $300 | November 15, 2024 | 2.050% |
| 0.900% Notes | $300 | June 1, 2025 | 0.900% |
| 3.200% Notes | $300 | August 21, 2025 | 3.200% |
| Total Long-term Debt | $4,395.2 | N/A | N/A |
| Total Short-term Debt | $904.8 | N/A | N/A |
In summary, The Hershey Company strategically utilizes its debt and equity structure to support its growth while maintaining a strong cash position to meet its financial obligations .
Assessing The Hershey Company (HSY) Liquidity
Assessing The Hershey Company's Liquidity
Current Ratio: As of September 29, 2024, the current ratio stands at 1.22, indicating a solid liquidity position, as current assets exceed current liabilities.
Quick Ratio: The quick ratio is reported at 0.76, reflecting the company's ability to cover its short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
As of September 29, 2024, total current assets amount to $2,577.8 million, while total current liabilities are $2,115.0 million, resulting in working capital of $462.8 million. This represents a decrease from $528.1 million in 2023, suggesting tighter liquidity.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) | Current Ratio | Quick Ratio |
|---|---|---|---|---|---|
| 2024 | $2,577.8 | $2,115.0 | $462.8 | 1.22 | 0.76 |
| 2023 | $2,636.1 | $2,108.0 | $528.1 | 1.25 | 0.80 |
Cash Flow Statements Overview
For the nine months ended September 29, 2024, cash flows from operating activities totaled $1,590.0 million, a slight increase from $1,565.6 million in the prior year. Investing activities resulted in a cash outflow of ($549.3 million), down from ($735.5 million) in the previous year. Financing activities also saw a net outflow of ($847.0 million), compared to ($784.4 million) in 2023.
| Cash Flow Activity | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $1,590.0 | $1,565.6 |
| Investing Activities | ($549.3) | ($735.5) |
| Financing Activities | ($847.0) | ($784.4) |
Potential Liquidity Concerns or Strengths
Despite a healthy current ratio, the quick ratio indicates potential liquidity concerns, as it falls below 1. Additionally, the decrease in working capital from the previous year suggests that the company may face challenges in meeting short-term obligations without selling inventory. However, the significant cash balance of $615.0 million as of September 29, 2024, supports the overall liquidity position.
Debt obligations as of September 29, 2024, total $5.3 billion, with $904.8 million classified as current. The company believes it can meet these obligations with operational cash flow and access to capital markets.
Is The Hershey Company (HSY) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key financial ratios: price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA).
Price-to-Earnings (P/E) Ratio
The current stock price is approximately $200.00 per share. For the last twelve months (LTM), the diluted earnings per share (EPS) is $7.00. Therefore, the P/E ratio is calculated as follows:
- P/E Ratio = Stock Price / EPS = $200.00 / $7.00 = 28.57
Price-to-Book (P/B) Ratio
The book value per share is approximately $45.00. Thus, the P/B ratio is:
- P/B Ratio = Stock Price / Book Value per Share = $200.00 / $45.00 = 4.44
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated by adding market capitalization and total debt, then subtracting cash and cash equivalents. The company has:
- Market Capitalization = $33.4 billion (based on 166,939,511 shares outstanding at $200.00)
- Total Debt = $5.3 billion
- Cash and Cash Equivalents = $615 million
- EV = Market Capitalization + Total Debt - Cash = $33.4 billion + $5.3 billion - $0.615 billion = $38.1 billion
The EBITDA for the last twelve months is approximately $1.5 billion. Therefore, the EV/EBITDA ratio is:
- EV/EBITDA Ratio = Enterprise Value / EBITDA = $38.1 billion / $1.5 billion = 25.40
Stock Price Trends
Over the past twelve months, the stock price has fluctuated between $180.00 and $220.00. The current price of $200.00 indicates a slight decline from its peak.
Dividend Yield and Payout Ratios
The annual dividend paid is $4.110 per share. Therefore, the dividend yield is calculated as:
- Dividend Yield = Annual Dividend / Stock Price = $4.110 / $200.00 = 2.06%
The payout ratio can be calculated as follows:
- Payout Ratio = Annual Dividend / EPS = $4.110 / $7.00 = 58.71%
Analyst Consensus on Stock Valuation
Analysts have a consensus rating of Hold on the stock, indicating that the stock is fairly valued at its current price level.
| Metric | Value |
|---|---|
| P/E Ratio | 28.57 |
| P/B Ratio | 4.44 |
| EV/EBITDA Ratio | 25.40 |
| Stock Price (Current) | $200.00 |
| 52-Week High | $220.00 |
| 52-Week Low | $180.00 |
| Annual Dividend | $4.110 |
| Dividend Yield | 2.06% |
| Payout Ratio | 58.71% |
| Analyst Consensus | Hold |
Key Risks Facing The Hershey Company (HSY)
Key Risks Facing The Hershey Company
Understanding the risks facing a company is essential for investors. The Hershey Company is subject to various internal and external risks that can impact its financial health. Below are the key risks identified as of 2024.
Industry Competition
The confectionery industry is highly competitive, with numerous players vying for market share. In the first nine months of 2024, the company experienced a decline in market share, with a 0.9% decrease in CMG (candy, mint, gum) consumer takeaway and a 97 basis points decline in market share. The North America Confectionery segment reported net sales of $6,764.4 million, a 2.0% decrease from $6,902.9 million in the same period of 2023.
Regulatory Changes
Changes in food safety and labeling regulations can pose compliance risks. The effective income tax rate for the company was reported at 18.6% for the first nine months of 2024, compared to 18.3% in the same period of 2023. Such regulatory changes can lead to increased operational costs and compliance burdens.
Market Conditions
Market conditions, including economic downturns and changing consumer preferences, can significantly affect sales. The company reported a total net sales of $8,314.7 million in the first nine months of 2024, down $193.2 million or 2.3% from $8,507.9 million in the same period of 2023. This decline was attributed to a volume decrease of approximately 5% across reportable segments.
Operational Risks
Operational risks include disruptions in supply chains and production. Cost of sales increased to $4,572.2 million in the first nine months of 2024 compared to $4,633.2 million in the same period of 2023, driven by higher commodity costs. Disruptions or failures in information technology systems could also adversely affect operations.
Financial Risks
Financial risks include interest rate fluctuations and currency exchange rates. The net interest expense rose to $125.5 million in the first nine months of 2024, compared to $114.1 million in the same period of 2023. A hypothetical 100 basis point increase in interest rates would have increased interest expense by approximately $5.5 million for the first nine months of 2024.
Mitigation Strategies
The company undertakes various strategies to mitigate these risks, including investments in technology to streamline operations and improve supply chain efficiencies. In the first nine months of 2024, capital expenditures amounted to $471.4 million, with expectations for total capital expenditures to range between $575 million and $600 million.
| Risk Category | Details | Financial Impact |
|---|---|---|
| Industry Competition | Market share decline of 0.9% | Net sales: $6,764.4 million (down 2.0%) |
| Regulatory Changes | Effective tax rate at 18.6% | Increased compliance costs |
| Market Conditions | Total net sales: $8,314.7 million (down 2.3%) | Volume decrease of approximately 5% |
| Operational Risks | Cost of sales: $4,572.2 million | Higher commodity costs |
| Financial Risks | Net interest expense: $125.5 million | Potential increase of $5.5 million with 100bps rise in rates |
| Mitigation Strategies | Capital expenditures: $471.4 million | Projected range for 2024: $575-$600 million |
Future Growth Prospects for The Hershey Company (HSY)
Future Growth Prospects for The Hershey Company
Key Growth Drivers
Product innovations and market expansions are critical growth drivers for the company. In 2024, the company focuses on expanding its product lines to include more health-conscious snacks, leveraging trends in consumer preferences towards healthier options.
Future Revenue Growth Projections
For the first nine months of 2024, net sales were $8,314.7 million, a decrease of 2.3% from $8,507.9 million in the same period of 2023. The decrease was primarily attributed to a 5% volume decline across reportable segments, partially offset by a 3% favorable price realization.
Strategic Initiatives
The company has initiated several strategic partnerships aimed at enhancing its market reach. Notably, investments in partnerships qualifying for tax credits amounted to approximately $78.2 million in the first nine months of 2024.
Competitive Advantages
The company benefits from a strong brand portfolio, which includes iconic products that maintain customer loyalty. The North America Confectionery segment accounted for 82.9% of net sales in the three months ended September 29, 2024.
| Segment | Net Sales (in millions) | Segment Income (in millions) | Segment Margin (%) |
|---|---|---|---|
| North America Confectionery | $6,764.4 | $2,137.5 | 31.6% |
| North America Salty Snacks | $856.8 | $144.9 | 16.9% |
| International | $693.5 | $82.0 | 11.8% |
Market Expansion Plans
The company is actively pursuing market expansion initiatives, particularly in international markets. The International segment net sales decreased by 3.3% in the first nine months of 2024 compared to the same period of 2023.
Product Innovations
In 2024, the company aims to launch new products that cater to changing consumer preferences, focusing on healthier snack options. This initiative is expected to drive future revenue growth as consumer demand shifts towards better-for-you products.
Financial Health and Projections
The company's net income was reported at $1,424.6 million for the first nine months of 2024, a decrease of 5.8% compared to $1,512.7 million in the same period of 2023. Earnings per share (EPS) diluted was $7.00, down from $7.36 in the previous year.
Conclusion
The company’s strategic initiatives, product innovations, and market expansions position it well for future growth, despite current challenges in net sales and income. Continued focus on consumer trends and operational efficiencies will be crucial for maintaining its competitive edge in the industry.
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Updated on 16 Nov 2024
Resources:
- The Hershey Company (HSY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of The Hershey Company (HSY)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View The Hershey Company (HSY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.