The Hershey Company (HSY) has long been a household name, renowned for its iconic chocolate brands like Hershey's, Reese's, and Kisses. But this global confectionery leader has evolved beyond its roots, transforming into a diversified snacking powerhouse with a portfolio spanning chocolate, sweets, mints, and a growing salty snacks business. As the company navigates a challenging macroeconomic environment, it remains steadfast in its strategic vision, leveraging its brand strength, innovation capabilities, and operational excellence to drive sustainable growth.
Business Overview A Legacy of Confectionery Excellence and Snacking Expansion
The Hershey Company was founded in 1894 by Milton S. Hershey in Hershey, Pennsylvania. Hershey initially focused on making caramel before expanding into chocolate production. In 1900, the company launched its first chocolate bar, and by 1905, it had opened the world's largest chocolate manufacturing facility at the time in Hershey, Pennsylvania.
Throughout its history, Hershey has introduced numerous iconic brands and products. In 1907, the company launched Hershey's Kisses, which became one of its most recognizable products. The introduction of Reese's Peanut Butter Cups in 1928 further solidified Hershey's position in the confectionery market.
Despite facing challenges during the Great Depression and World War II, Hershey maintained its position as a leading producer of affordable chocolate products. In the post-war years, the company expanded its portfolio through acquisitions, adding brands like Mounds, Almond Joy, and Heath to its lineup.
Hershey's international expansion began with the opening of manufacturing facilities in countries such as Mexico, Canada, and the United Kingdom. This global growth helped the company compete with larger multinational firms in the 1970s and 1980s.
In recent decades, Hershey has diversified beyond chocolate into other snack categories, including salty snacks and protein bars. Strategic acquisitions such as Brookside Foods and Krave Jerky have further broadened the company's portfolio, allowing it to adapt to changing consumer preferences.
In 2024, Hershey generated $11.20 billion in net sales, with its North America Confectionery segment accounting for 81.4% of total revenue. The company's North America Salty Snacks business, which includes brands like SkinnyPop and Dots Homestyle Pretzels, contributed 10.1% of sales. The International segment, which encompasses Hershey's operations outside of North America, generated the remaining 8.5% of net sales.
Financials
Hershey's financial profile has been strong, with a healthy balance sheet and consistent cash flow generation. In 2024, the company reported net income of $2.22 billion and generated $2.53 billion in operating cash flow, with free cash flow of $1.93 billion.
For the most recent quarter (Q4 2024), Hershey reported revenue of $2.89 billion and net income of $796.59 million. Year-over-year growth showed revenue up 0.30% and net income up 19.30%. The revenue increase was driven by favorable price realization of approximately 3%, partially offset by a volume decrease of 2%. The net income increase was primarily due to higher gross profit and lower SMA expenses, partially offset by higher business realignment costs.
Liquidity
The company's liquidity position remains robust, with $730.75 million in cash and cash equivalents as of the end of 2024. Hershey maintains a debt-to-equity ratio of 1.16, a current ratio of 0.96, and a quick ratio of 0.64. The company also has access to a $1.35 billion unsecured revolving credit facility, with an option to increase by $500 million.
Navigating Headwinds Tackling Commodity Costs and Evolving Consumer Trends
The Hershey Company has faced several challenges in recent years, including historically high cocoa prices and shifting consumer preferences. The company has responded proactively, implementing various strategies to mitigate the impact of these headwinds.
Cocoa prices, a key input for Hershey's products, have reached elevated levels, putting pressure on the company's gross margins. To combat this, Hershey has leveraged its sophisticated commodity risk management program, which includes forward contracts, futures, and options, to hedge its exposure. The company has also explored alternative sourcing strategies, diversifying its supply chain to reduce reliance on any single origin.
In addition, Hershey has had to navigate evolving consumer trends, such as the growing demand for healthier and more premium snacking options. The company has responded by strategically expanding its portfolio, introducing new products like Jolly Rancher Freeze Dried and Shaq-a-licious Gummies, which cater to these shifting preferences. Hershey has also focused on enhancing its direct-to-consumer capabilities and expanding its presence in the e-commerce channel to better reach and engage with its consumers.
Driving Sustainable Growth Leveraging Iconic Brands and Innovation
Despite the challenges, Hershey remains committed to driving sustainable growth and strengthening its position as a leading snacking powerhouse. The company's strategy is centered around four key pillars:
1. Driving Core Confection Business and Broadening Participation in Snacking: Hershey continues to focus on its core confection brands, such as Hershey's and Reese's, while also expanding its presence in the broader snacking category through strategic acquisitions and product innovation.
2. Delivering Profitable International Growth: Hershey is selectively investing in its international markets, tailoring its approach to the unique dynamics of each region to drive profitable expansion.
3. Expanding Competitive Advantage through Differentiated Capabilities: The company is investing in advanced data analytics, digital transformation, and supply chain optimization to enhance its operational efficiency and commercial effectiveness.
4. Responsibly Managing Operations to Ensure Long-Term Sustainability: Hershey is committed to environmental, social, and governance (ESG) initiatives, focused on sustainable sourcing, reducing its environmental impact, and fostering a diverse and inclusive workforce.
These strategic priorities are underpinned by Hershey's strong brand portfolio, a culture of innovation, and a disciplined approach to capital allocation. The company's recent acquisitions, such as the purchase of the Sour Strips brand in 2024, further bolster its position in the rapidly growing sour candy segment.
Looking Ahead Positioning for Balanced Growth and Shareholder Value Creation
As Hershey navigates the current macroeconomic landscape, the company remains focused on positioning itself for balanced top-line and bottom-line growth in the years ahead. For 2025, Hershey is guiding for net sales growth of around 2%, assuming a -1 elasticity impact from pricing. The company expects gross margin pressure to be less in the first half of 2025 compared to the second half, as Hershey's cocoa hedges become more expensive.
Hershey plans to continue taking pricing actions in 2025 to offset elevated commodity costs but will monitor the consumer response closely. The company expects low single-digit growth in its international segment in 2025, citing increased competitive activity in Brazil and Mexico.
Looking further ahead to 2026, Hershey is targeting "balanced top-and-bottom-line growth," with the goal of getting earnings per share (EPS) growth back on algorithm. This will depend on factors like cocoa prices normalizing and Hershey's ability to manage costs through pricing, productivity, and efficiency initiatives.
Hershey's long-term growth aspirations are anchored in its ability to leverage its iconic brands, drive innovation, and expand its presence in attractive snacking categories. The company is also committed to enhancing its operational efficiency and unlocking cost savings through initiatives like the Advancing Agility Automation program, which aims to improve supply chain and manufacturing productivity, optimize selling, general, and administrative expenses, and leverage new technologies.
Despite the near-term headwinds, Hershey's diversified business model, strong brand portfolio, and strategic vision position the company for long-term success. The company operates through three main segments: North America Confectionery, North America Salty Snacks, and International. In 2024, the North America Confectionery segment accounted for 81.4% of Hershey's net sales, generating $9.12 billion in revenue, flat compared to the prior year. The North America Salty Snacks segment reported net sales of $1.14 billion, a 3.9% increase year-over-year, while the International segment had net sales of $948 million, a 0.1% decrease compared to 2023.
Hershey's total segment income, which excludes certain corporate expenses and other adjustments, was $3.26 billion in 2024. The North America Confectionery segment had segment income of $2.95 billion, a 5.5% decrease from 2023. The North America Salty Snacks segment reported segment income of $199.4 million, a 26.0% increase year-over-year. The International segment had segment income of $111.5 million, a 24.8% decrease compared to the prior year.
As the company continues to navigate the evolving market landscape, investors can take comfort in Hershey's track record of delivering consistent financial performance and shareholder value creation. With over 90 brands worldwide and a strong presence in the global confectionery market, which is expected to grow at a CAGR of around 4% from 2024 to 2030, Hershey is well-positioned to capitalize on increasing consumer demand for premium, innovative, and health-focused confectionery products.