The Hershey Company announced net sales and earnings for the first quarter ending April 3, 2022, and raised its full-year financial outlook.
"We delivered strong double-digit sales and earnings growth with ongoing momentum across business units," said Michele Buck, The Hershey Company president and chief executive officer. "Our fast start, sustained consumer relevancy and increased visibility into our recently acquired businesses give us the confidence to increase our full-year net sales and earnings outlook despite an increasingly challenging and inflationary environment."
- Consolidated net sales of $2,666.2 million, an increase of 16.1%.
- Organic, constant currency net sales increased 11.5%.
- The impact of acquisitions on net sales was a 4.6-point benefit.
- Reported net income of $533.5 million and $2.57 per share-diluted, an increase of 35.3%.
- Adjusted earnings per share-diluted of $2.53, an increase of 31.8%.
All comparisons for the first quarter of 2022 are with respect to the first quarter ending April 4, 2021.
2022 full-year financial outlook
The company is raising its 2022 net sales and earnings per share outlook to reflect the strength of its performance in the first quarter and expectations for the balance of the year.
The primary drivers of the increased outlook are sustained consumer demand and favorable price elasticities across all segments along with increased visibility into customer orders and programs of the recently acquired Dot's and Pretzels businesses. Elasticities were stronger than anticipated in the first quarter but are expected to moderate as consumers' buying power is further pressured by inflation and fewer government benefits as the year progresses. Incremental profit from higher sales is expected to be partially offset by supply chain inflation and higher costs to serve incremental demand, resulting in slightly higher adjusted earnings per share growth.
First-quarter 2022 results
Consolidated net sales were $2,666.2 million in the first quarter of 2022 versus $2,295.9 million in the prior-year period, an increase of 16.1%. Net price realization was a 6.9-point benefit driven primarily by list price increases across segments. Volume drove an incremental 4.6-point benefit driven by the replenishment of distributor inventory levels in the North America Confectionery segment as well as favorable price elasticities. Sales from the acquisition of Pretzels, Dot's and Lily's were a 4.6-point benefit and foreign exchange was not material in the first quarter.
Reported gross margin was 46.7% in the first quarter of 2022, compared to 45.7% in the first quarter of 2021, an increase of 100 basis points. This increase was driven by higher derivative mark-to-market gains and net price realization, partially offset by higher supply chain inflation and costs. Adjusted gross margin was 45.8% in the first quarter of 2022, in line with the prior-year period. Net price realization, a timing benefit related to the inventory valuation method and fixed cost leverage benefited adjusted gross margin in the quarter, but were offset by broad-based supply chain inflation, increased labor investments and elevated costs to service higher-than-expected demand. Unfavorable mix, driven by recent acquisitions and the accelerated growth of the North America Salty Snacks segment, also contributed to this offset.
First-quarter 2022 reported operating profit of $721.0 million increased 30.4% versus the first quarter of 2021, resulting in an operating profit margin of 27.0%, an increase of 290 basis points. Adjusted operating profit of $707.9 million increased 27.4% versus the first quarter of 2021, resulting in adjusted operating profit margin of 26.6%, an increase of 240 basis points. Price realization and volume growth across segments, combined with a timing benefit related to the inventory valuation method and fixed cost leverage, more than offset broad-based inflation; higher supply chain costs, including investments in labor; and increased amortization and costs related to recent acquisitions to drive operating margin expansion in the first quarter.
The reported effective tax rate in the first quarter of 2022 was 21.2%, a decrease of 160 basis points versus the first quarter of 2021. The adjusted effective tax rate in the first quarter of 2022 was 21.2%, a decrease of 130 basis points versus the first quarter of 2021. Both the reported and adjusted effective tax rate decreases were driven by higher renewable energy tax credits and higher benefits related to employee-shared based payments versus the prior-year period.
The company's first-quarter 2022 results, as prepared in accordance with GAAP, included items negatively impacting comparability of $13.1 million, or $0.04 per share-diluted. For the first quarter of 2021, items positively impacting comparability totaled $3.7 million, or $0.02 per share-diluted.