HERSHEY CO

Net Sales

Net sales were $11,202.3 million in 2024 compared to $11,165.0 million in 2023, an increase of $37.3 million, or 0.3%. The net sales increase reflects a favorable price realization of approximately 3% primarily due to higher list prices in the North America Confectionery and International segments, partially offset by declines in North America Salty Snacks. The increase was partially offset by a volume decrease of approximately 2% due to declines in the North America Confectionery and International segments, partially offset by an increase in North America Salty Snacks. The increase was further offset by a minimal unfavorable impact from foreign currency exchange rates.

Net sales were $11,165.0 million in 2023 compared to $10,419.3 million in 2022, an increase of $745.7 million, or 7.2%. The net sales increase reflects a favorable price realization of 8.3% due to higher list prices across all segments and by a favorable impact from foreign currency exchange rates of 0.2%. The increase was slightly offset by a volume decrease of 1.3% due to a decrease in consumer demand primarily in everyday core U.S. confection brands.

Key U.S. Marketplace Metrics

For the full year 2024, our total U.S. retail takeaway increased 0.8% in the expanded multi-outlet combined plus convenience store channels (MULO+ w/ Convenience), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway increased 0.1% and experienced a CMG market share decline of 59 basis points. Our Salty consumer takeaway increased 4.2% and experienced a Salty market share increase of 11 basis points.

The CMG consumer takeaway and market share information reflect measured channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels. These metrics are based on measured market scanned purchases as reported by Circana, the Company’s market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.

Cost of Sales and Gross Margin

Cost of sales were $5,901.4 million in 2024 compared to $6,167.2 million in 2023, a decrease of $265.8 million, or 4.3%. The decrease included $637.9 million of favorable costs, driven by an incremental $563.0 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases (See Item 7A - Quantitative and Qualitative Disclosures About Market Risk for more information) and lower costs, primarily related to lower sales volume, in line with the declines in net sales noted above. The decrease was partially offset by $372.1 million of higher costs, primarily driven by higher commodity costs from cocoa, higher supply chain costs, unfavorable mix and incremental business realignment costs.

Gross margin was 47.3% in 2024 compared with 44.8% in 2023, an increase of 250 basis points. The increase was driven by favorable year-over-year mark-to-market impact from commodity derivative instruments, favorable price realization and volume declines. The increase was partially offset by higher commodity costs, unfavorable product mix and increased business realignment costs.

Cost of sales were $6,167.2 million in 2023 compared with $5,920.5 million in 2022, an increase of $246.7 million, or 4.2%. The increase included $356.2 million of unfavorable costs driven by higher supply chain costs, including higher labor costs partially offset by lower logistics costs, and unfavorable mix. The increase was further driven by an incremental $97.7 million of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases. These increases were partially offset by $207.2 million of favorable supply chain productivity and price realization.

Gross margin was 44.8% in 2023 compared with 43.2% in 2022, an increase of 160 basis points. The increase was driven by favorable price realization and increased supply chain productivity. The increase was partially offset by unfavorable activity on our mark-to-market impact from commodity derivative instruments, higher supply chain costs, including higher labor costs and increased waste. The increase was further driven by unfavorable mix and foreign exchange rates.

Selling, Marketing and Administrative

Selling, marketing and administrative (“SM&A”) expenses were $2,373.6 million in 2024 compared to $2,436.5 million in 2023, a decrease of $62.9 million, or 2.6%. The decrease was driven by lower corporate expenses. Total advertising and related consumer marketing expenses declined 0.1%% driven by North America Confectionery, significantly offset by increased spending in North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, decreased approximately 3.8% in 2024 driven by lower compensation and benefit costs across segments.

SM&A expenses were $2,436.5 million in 2023 compared to $2,236.0 million in 2022, an increase of $200.5 million, or 9.0%. The increase was driven by increased corporate expenses. Total advertising and related consumer marketing expenses increased 12.2% driven by North America Confectionery and North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, increased approximately 7.5% in 2023 driven by higher compensation costs and investments in capabilities and technology across segments.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. In 2024, 2023 and 2022, we recorded business realignment costs of $29.1 million, $0.4 million and $2.0 million, respectively. The 2024 costs related primarily to the Advancing Agility &

Automation Initiative that the Board of Directors approved in February 2024. The Advancing Agility & Automation Initiative, which is a multi-year productivity program to improve supply chain and manufacturing-related spend, optimize selling, general and administrative expenses, leverage new technology and business models to further simplify and automate processes, and generate long-term savings. The 2023 and 2022 costs related primarily to the International Optimization Program, a program focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit was $2,898.2 million in 2024 compared to $2,560.9 million in 2023, an increase of $337.3 million, or 13.2%. The increase was predominantly due to higher gross profit and lower SM&A expenses partially offset by higher business realignment costs, as noted above. Operating profit margin increased to 25.9% in 2024 from 22.9% in 2023 by the same factors noted above in gross margin.

Operating profit was $2,560.9 million in 2023 compared to $2,260.8 million in 2022, an increase of $300.1 million, or 13.3%. The increase was predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above. Operating profit margin decreased to 22.9% in 2023 from 21.7% in 2022 by the same factors noted above in gross margin.

Interest Expense, Net

Net interest expense was $165.7 million in 2024 compared to $151.8 million in 2023, an increase of $13.9 million, or 9.1%. The increase was primarily due to higher short-term debt balances in 2024 compared to 2023, specifically related to outstanding commercial paper. The increase in the expense was partially offset by a decrease in short-term foreign bank borrowings and an increase in interest income

Net interest expense was $151.8 million in 2023 compared to $137.6 million in 2022, an increase of $14.2 million, or 10.3%. The increase was primarily due to higher rates on short-term debt balances in 2023 versus 2022, specifically related to outstanding commercial paper borrowings, and higher rates on long-term debt balances, specifically related to the $350 million 4.25% Notes due in May 2028 and $400 million 4.50% Notes due in May 2033, each of which were issued in May 2023. The increase in the expense was partially offset by an increase in interest income.

Other (Income) Expense, Net

Other (income) expense, net totaled an expense of $258.6 million in 2024 versus an expense of $237.2 million in 2023, an increase of $21.4 million, or 9.0%. The increase in the net expense was primarily driven by an increase of $32.8 million of higher write-downs on equity investments qualifying for tax credits in 2024 versus 2023, partially offset by a decrease of $10.6 million of lower non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Other (income) expense, net totaled an expense of $237.2 million in 2023 versus an expense of $206.1 million in 2022, an increase of $31.1 million, or 15.1%. The increase in the net expense was primarily driven by an increase of $22.2 million of higher write-downs on equity investments qualifying for tax credits in 2023 versus 2022 and an increase of $9.5 million of higher non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

Our effective income tax rate was 10.2% for 2024 compared with 14.3% for 2023. Relative to the 21% statutory rate, the 2024 effective tax rate benefited from investment tax credits, partially offset by state taxes. The 2023 effective rate, relative to the 21% statutory rate, benefited from investment tax credits, partially offset by state taxes.

Our effective income tax rate was 14.3% for 2023 compared with 14.2% for 2022. Relative to the 21% statutory rate, the 2023 effective tax rate benefited from investment tax credits, partially offset by state taxes. The 2022 effective rate, relative to the 21% statutory rate, benefited from investment tax credits, partially offset by state taxes.

Net Income and Earnings Per Share-diluted

Net income was $2,221.2 million in 2024 compared to $1,861.8 million in 2023, an increase of $359.4 million, or 19.3%. Earnings Per Share (“EPS”)-diluted was $10.92 in 2024 compared to $9.06 in 2023, an increase of $1.86, or 20.5%. The increase in both net income and EPS-diluted was driven primarily by higher gross profit, lower SM&A expenses and lower income taxes, partially offset by higher business realignment costs and higher other income and expenses. Our 2024 EPS-diluted benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

Net income was $1,861.8 million in 2023 compared to $1,644.8 million in 2022, an increase of $217.0 million, or 13.2%. EPS-diluted was $9.06 in 2023 compared to $7.96 in 2022, an increase of $1.1, or 13.8%. The increase in both net income and EPS-diluted was driven primarily by higher gross profit, partially offset by higher SM&A expenses, higher income taxes, and higher other income and expenses. Our 2023 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.