The Hershey Company (NYSE: HSY) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request identifies “2021 Q4,” this filing is an annual report; the provided text does not give a standalone fourth-quarter financial summary.
Business context and reporting period
Hershey sells confectionery and snack products under more than 100 brands in approximately 80 countries. Effective in Q4 2021, it reorganized reporting into North America Confectionery, North America Salty Snacks and International; prior periods were recast. The company’s strategy emphasizes its core confectionery business, broader snacking, profitable international growth and investment in capabilities.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $8.97 billion | $8.15 billion | +10.1% |
| Gross profit / margin | $4.05 billion / 45.1% | $3.70 billion / 45.4% | Profit +9.4%; margin down 0.3 percentage points |
| Operating profit / margin | $2.04 billion / 22.8% | $1.78 billion / 21.9% | Profit +14.6% |
| Net income attributable to Hershey | $1.48 billion | $1.28 billion | +15.5% |
| Diluted EPS | $7.11 | $6.11 | +16.4% |
| Cash from operations | $2.08 billion | $1.70 billion | +$383 million |
| Capital expenditures, including software | $496 million | $442 million | +$54 million |
Sales growth reflected volume growth of 5.6%, favorable price realization of 3.1%, a 1.0% net acquisition/divestiture contribution and favorable foreign exchange of 0.4%. Higher freight, logistics and plant costs pressured gross margin; pricing, productivity and commodity-derivative effects partly offset them. The effective tax rate rose to 17.5% from 14.7%, including tax reserves related to an adverse non-U.S. tax litigation ruling.
Segments: North America Confectionery sales were $7.68 billion (+8.4%) and segment income was $2.48 billion (+8.8%). North America Salty Snacks sales were $555 million (+26.7%) and segment income was $101 million (+32.8%), including acquisitions. International sales were $734 million (+17.1%); segment income was $74 million versus a loss of approximately $14 million in 2020.
Liquidity, debt and capital allocation
Year-end cash and cash equivalents were $329 million, down from $1.14 billion. Total short- and long-term debt was approximately $5.0 billion, compared with $4.6 billion a year earlier, primarily reflecting short-term commercial paper used for acquisitions. Hershey reported $680 million of available capacity under its $1.5 billion revolving credit facility and $164 million available under other bank lines; it was in compliance with credit covenants and stated it had sufficient liquidity for at least the next 12 months.
Investing activities used $2.22 billion, including $1.60 billion for acquisitions. Dividends paid totaled $686 million, and share repurchases used $458 million. The annual common-stock dividend was $3.410 per share, up 8.1% from 2020.
Material changes, outlook and risks
- Acquisitions: Hershey acquired Lily’s Sweets for net consideration of approximately $427 million, Dot’s Pretzels for approximately $894 million and Pretzels Inc. for approximately $304 million. Dot’s and Pretzels together were expected to generate annualized net sales above $300 million. The purchase-price allocations for Dot’s and Pretzels remained preliminary and could be materially adjusted.
- Outlook disclosed: 2022 capital expenditures, including capitalized software, were expected to be approximately $550 million to $600 million. The filing does not provide a clear 2022 revenue or EPS guidance figure in the supplied text.
- Management commentary: Strong core U.S. confectionery and salty-snack demand supported growth, while pandemic-related supply disruptions, labor shortages and inflation increased costs and pressured margins. Management said it was monitoring spending and supply-chain conditions.
- Key risks: Commodity and energy cost volatility, supply-chain and workforce disruption, inflation, COVID-19 uncertainty, climate and agricultural sourcing exposure, intense competition, dependence on major customers, international-market risks, cybersecurity and the multi-year ERP implementation.
- Customer concentration: McLane represented approximately 30% of FY2021 net sales and 27% of year-end accounts receivable.
- Contingencies and unusual items: A child-labor and human-trafficking lawsuit names Hershey among several defendants; the company said it believes the suit is without merit and is defending it. Other ordinary-course legal matters were not expected by management to have a material effect. The International Optimization Program was expected to run through early 2023, with total pre-tax costs of $50 million to $75 million; $45.9 million had been incurred through 2021.
- Controls and audit: The auditor gave unqualified opinions on the financial statements and internal control over financial reporting. Management’s controls assessment excluded the acquired businesses, which represented 17.1% of year-end assets and 0.9% of FY2021 sales.
Important facts for investors to verify
- How acquisition integration, growth and margins develop for Lily’s, Dot’s and Pretzels, and whether preliminary purchase-price allocations change.
- Whether pricing and productivity can continue to offset freight, labor, commodity and other inflationary costs without materially reducing volumes.
- Actual 2022 capital spending and any formal revenue or EPS guidance in subsequent company disclosures; this filing’s supplied text gives capex expectations but no clear full-year sales or EPS forecast.
- Debt, commercial-paper usage and liquidity after acquisition spending, dividends and repurchases.
- Developments in the tax litigation and unrecognized tax benefits, the child-labor lawsuit, and the International Optimization Program.
- Progress and control implications of the ERP rollout and integration of acquired companies.