Hershey: Chocolate Maker Raises Guidance On Solid Q2 Earnings

The Hershey Company announced double digit sales growth in its second quarter earnings report Thursday morning, leading the confectioner to raise its guidance for earnings per share and sales for the second half of the year. A growing salty snacks business played a key role in revenue growth.

Net sales for Q2 were $2.37 billion up 19.3% and adjusted EPS growth of 22% from the same quarter last year. Net income was $315 million in Q2 compared to $301 million in Q2 2021. The Derry, Pennsylvania-based company raised expectations 2 points on the back of its Q2 numbers from 10%-12% to 12%-14% for both net sales growth and adjusted earnings per share.

“Despite persistent, broad-based supply chain disruptions, our teams were able to increase production output and inventory levels during the quarter,” chairman and CEO Michele Buck said in prepared statements. “This not only bolstered sales growth, but also drove improvements in marketplace share performance and will enable us to more fully activate our portfolio in the second half of the year.”

Hershey’s adjusted gross margin did drop to a still-robust 43.9%, down from 45.8% in Q1. Company executives blamed inflation for taking a toll on material, logistics and freight costs as well as further investments in labor. The elevated costs were offset by volume gains and a higher pricing strategy.

The chocolate maker previously announced incremental pricing actions that went into effect in the second quarter but won’t be felt until the beginning of 2023. These pricing adjustments are expected to provide a “tailwind” and help the company weather the inflationary period currently being felt.

“We recognize inflation is pressuring many Americans, and we remain committed to making sure our products remain an affordable treat,” Buck said in the pre-recorded statements. “We expect approximately 20% of our products to continue to retail at $2 or less.”

As many CPG companies have experienced over the course of the last two and a half years, supply chain obstacles are adding to production costs.

Buck pointed to a scarcity of ingredients and the need to leverage different suppliers at higher costs and price points as one of the major pain points for the business’ operations.

The company is planning to increase its advertising budget in the low-single digits to invest in the brand and build on its inventory as it moves into Halloween and the holidays.

Hershey leadership cautioned that the company is still constrained by its capacity and thus set a high-single-digit sales growth for Halloween and the holiday season and will not be able to fully meet consumer demand.

Hershey CFO and SVP Steve Voskuil assured investors that “it’s all hands on deck, make no mistake” as the business heads into these busy times of year for candy sales.

The company did report continued strength in its salty snacks business. North America Salty Snacks segment net sales were up $256.3 million in Q2, an increase of 99.9% over the same period last year. In comparison, the North America Confectionery segment only grew 12.9% in Q2.

Hershey’s December acquisition of Dot’s Homestyle Pretzels continues to be a part of that gain with retail sales growing about 45% over the past 12 weeks, Buck reported, and the company plans to continue integrating the pretzel brand from its concentration in the central-west part of the country and drive distribution further into the east.

Other snack brands SkinnyPop and Pirate’s Booty continue to net double-digit sales growth. SkinnyPop retail sales increased nearly 17% versus the Q2 2021 and Pirate’s Booty was up 32.4%.