Hershey Stock Hits All-Time High on Sweet Earnings Beat and Guidance Raise

On Thursday, shares of The Hershey Company (NYSE: HSY) gained 4.4% and hit an all-time high, following the confectionary and snack food giant's release of a strong first-quarter 2023 report.

The company behind such popular brands as its namesake brand, Reese's, Kit Kat, Twizzlers, and SkinnyPop Popcorn exceeded Wall Street's revenue and earnings expectations, with the profit beat a sizable one. Moreover, management raised its full-year 2023 guidance for both the top and bottom lines.

Shares slipped a tad -- about 0.1% -- on Friday, so they're still hovering around their all-time high. In 2023, they're outperforming the market by a factor of two. Dividend-paying Hershey stock has returned 18.4% this year through Friday, while the S&P 500 index has returned 9.2%.

Here's an overview of Hershey's first quarter and updated annual guidance centered around five key metrics.

1. Revenue jumped 12%

Hershey's net quarterly sales grew 12% year over year to $2.99 billion, surpassing the $2.91 billion Wall Street had expected.

"Core revenue" growth (which is organic growth in constant currency) was also 12%. Reported revenue and core revenue growth were nearly identical (they were 12.1% and 12.2%, respectively, to be exact) because the company did not make any acquisitions within the last year and the foreign exchange currency headwind dented reported revenue growth by just 0.1%.

Core growth came from 8.9% higher product prices and 3.3% higher volume/product mix.

Segment Q1 2023 Revenue Change (YOY)
North America confectionary $2.45 billion 11%
North America salty snacks $270 million 19%
International $266 million 19%
Total $2.99 billion 12%

Data source: Hershey. YOY = year over year.

2. Adjusted operating income increased 17%

Operating profit according to generally accepted accounting principles (GAAP) was $799.9 million, up 11% year over year. Adjusted operating profit landed at $830.6 million, up 17%.

The increase in adjusted operating income was driven by product price increases and volume gains, partially offset by inflation-driven higher raw material, packaging, and logistics costs, along with increased brand investments.

Segment Q1 2023 Operating Income Change (YOY) Operating Margin*
North America confectionary $887.8 million 14% 36.2%
North America salty snacks $46.8 million 120% 17.3%
International $55.0 million 31% 20.7%
Total segment operating income $989.6 million 17% 33.1%

Data source: Hershey. YOY = year over year. *Segment operating margin = segment operating income divided by revenue.

  • North America confectionary has historically been considerably more profitable than the company's international business, and nothing has changed on this front.
  • Hershey is doing a good job in quickly increasing the profitability of its salty snack food business, whose size it increased considerably in 2021 via acquisitions. This segment's operating margin was just 9.4% in the year-ago period.

3. Adjusted earnings per share (EPS) surged 17%

GAAP net income was $587.2 million, or $2.85 per share, up 11% year over year. Adjusted for one-time items, net income landed at $609.5 million, or $2.96 per share, up 17%. This result easily surpassed the adjusted EPS of $2.66 Wall Street had expected.

Adjusted EPS growth was driven by the factors mentioned in the operating income section.

4. Cash from operations rose 15%

In Q1, Hershey generated cash of $755.4 million running its operations, up 15% from the year-ago period. It ended the quarter with cash and cash equivalents of $460.3 million and long-term debt of $3.34 billion.

5. Annual sales and adjusted EPS guidance (at midpoint of range) raised by 1 percentage point

Hershey raised its revenue, EPS, and adjusted EPS outlooks for 2023 to the high end of its previous ranges.

Metric Initial Guidance Current Guidance
2023 revenue growth 6% to 8% 8%
2023 GAAP EPS growth 11% to 15% 15%
2023 adjusted EPS growth 9% to 11% 11%

Data source: Hershey.

Capable of solid growth in both good and tough economic climates

Hershey's Q1 report was a continuance of the company's robust sales and earnings growth in recent years.

Not even a recession should derail the Hershey growth train. Companies that make what consumers consider affordable "treats" often perform better than one might expect during tough economic times. That's because many consumers cut back on or delay purchasing bigger ticket items and then "reward" themselves by buying smaller, affordable luxuries, such as chocolate.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.