HERSHEY CO

The summary that follows provides a discussion of the results of operations of our three segments: North America Confectionery, North America Salty Snacks and International. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-related costs and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are largely managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the Chief Operating Decision Maker and used for resource allocation and internal management reporting and performance evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our competitors, as they exclude the activities that are not directly attributable to our ongoing segment operations.

Our segment results, including a reconciliation to our consolidated results, were as follows:

(1)Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, (d) acquisition-related costs and (e) other gains or losses that are not integral to segment performance.

(2)Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). See Note 13 to the Consolidated Financial Statements.

North America Confectionery

The North America Confectionery segment is responsible for our chocolate and non-chocolate confectionery market position in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, gum and refreshment products, protein bars, spreads, snack bites and mixes, as well as pantry and food service lines. While a less significant component, this segment also includes our retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania; New York, New York; Las Vegas, Nevada; Niagara Falls (Ontario) and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. North America Confectionery accounted for 81.7%, 81.9% and 85.6% of our net sales in 2023, 2022 and 2021, respectively. North America Confectionery results for the years ended December 31, 2023, 2022 and 2021 were as follows:

Net sales of our North America Confectionery segment were $9,123.1 million in 2023 compared to $8,536.5 million in 2022, a increase of $586.6 million, or 6.9%. The increase reflected a favorable price realization of 9.0% due to price increases on certain products across our portfolio. The increases were partially offset by a volume decrease of 1.9% driven by a decrease in everyday core U.S. confection brands, and an unfavorable impact from foreign currency exchange rates of 0.2%.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 12.1% during 2023 compared to 2022.

Our North America Confectionery segment income was $3,117.0 million in 2023 compared to $2,811.1 million in 2022, a increase of $305.9 million, or 10.9%. The increase was primarily due to favorable price realization and supply chain productivity, partially offset by higher supply chain costs, including higher labor costs, as well as unfavorable product mix.

Net sales of our North America Confectionery segment were$8,536.5 million in 2022 compared to $7,682.4 million 2021, an increase of $854.1 million, or 11.1%. The increase reflected a favorable price realization of 8.1% due to higher prices on certain products, a volume increase of 2.8% due to an increase in everyday core U.S. confection brands, and a 0.4% benefit from the 2021 acquisition of Lily’s. These increases were partially offset by an unfavorable impact from foreign currency exchange rates of 0.2%.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 12.7% during 2022 compared to 2021.

Our North America Confectionery segment income was $2,811.1 million in 2022 compared to $2,475.9 million in 2021, an increase of $335.2 million, or 13.5%. The increase was primarily due to favorable price realization and volume increases, partially offset by higher supply chain inflation costs, including higher logistics and labor costs, as well as, unfavorable product mix.

North America Salty Snacks

The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products. North America Salty Snacks accounted for 9.8%, 9.9% and 6.2% of our net sales in 2023, 2022 and 2021, respectively. North America Salty Snacks results for the years ended December 31, 2023, 2022 and 2021 were as follows:

Net sales for our North America Salty Snacks segment were $1,092.7 million in 2023 compared to $1,029.4 million in 2022, anincrease of $63.3 million, or 6.1%. Theincrease reflected a favorable price realization of 5.4% due to price increases on products across our portfolio, primarily SkinnyPopand Dot’s Homestyle Pretzels snacks, and a volume increase of 0.7%, primarily related to Dot’s Homestyle Pretzels snacks.

Our North America Salty Snacks segment income was $158.3 million in 2023 compared to $159.9 million in 2022 a decrease of $1.6 million, or 1.0%. The decrease is primarily due to increased advertising and related consumer marketing costs and costs related to the voluntary removal of certain Paqui branded items in 2023. The decrease was partially offset by favorable price realization and favorable product mix.

Net sales for our North America Salty Snacks segment was $1,029.4 million in 2022 compared to $555.4 million in 2021, an increase of $474.0 million, or 85.3%. The increase reflected a 64.0% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 12.0% due to higher prices on certain products and a volume increase of 9.3% primarily related to SkinnyPopand Pirates Booty snacks.

Our North America Salty Snacks segment income was $159.9 million in 2022 compared to $100.7 million in 2021, an increase of $59.2 million, or 58.8%. The increase is primarily due to favorable price realization and volume increases, partially offset by higher supply chain inflation costs, including higher logistics and labor costs, as well as, unfavorable product mix.

International

The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. We currently, have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions. International results, which accounted for 8.5%, 8.2% and 8.2% of our net sales in 2023, 2022 and 2021, respectively. International results for the years ended December 31, 2023, 2022 and 2021 were as follows:

Net sales of our International segment were $949.2 million in 2023 compared to $853.4 million in 2022, anincrease of $95.8 million, or 11.2%. Theincrease reflected a favorable price realization of 4.7%, driven by price increases across the segment, a favorable impact from foreign currency exchange rates of 3.4%, primarily driven by Mexico, and a volume increase of 3.1%. The net sales increase was primarily attributable to World Travel Retail, Mexico and Brazil & Latin America, where net sales increased 15.6%, 14.3% and 13.0%, respectively.

Our International segment income was $148.3 million in 2023 compared to $107.9 million in 2022, an increase of $40.4 million, or 37.4%, primarily resulting from favorable price realization, favorable foreign currency exchange rates, and minimal volume increases, partially offset by increased supply chain costs.

Net sales of our International segment were $853.4 million in 2022 compared to $733.5 million in 2021, an increase of $119.9 million, or 16.3% reflecting a volume increase of 11.9%, a favorable price realization of 4.1%, and a favorable impact from foreign currency exchange rates of 0.3%. The volume increase was primarily attributed to solid marketplace growth in Brazil, Mexico and India, where net sales increased by 21.6%, 20.6% and 13.7%, respectively. Our International segment also includes world travel retail, where net sales increased approximately 28.6%.

Our International segment income was $107.9 million in 2022 compared to $74.2 million in 2021, an increase of $33.7 million, or 45.4%, primarily resulting from volume increases, favorable price realization, and the execution of our International Optimization Program in China, as we streamline and optimize our China operating model.

Unallocated Corporate Expense

Unallocated corporate expense includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance.

Unallocated corporate expense totaled $800.4 million in 2023 as compared to $735.5 million in 2022, an increase of $64.9 or, or 8.8%. The increase was primarily driven by incremental investments in capabilities and technology, higher compensation costs, and an increase in acquisition and integration related costs.

Unallocated corporate expense totaled $735.5 million in 2022 as compared to $614.9 million in 2021, an increase of $120.6 million, or 19.6%. The increase was primarily driven by an increase in acquisition and integration related costs, as well as higher compensation costs, investments in capabilities and technology and broad-based marketplace inflation.