What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 167 added, 100 removed, 225 unchanged (54% of the section changed)

17 unchanged sentences

pantry items, such as baking ingredients, toppings and beverages;

and snack items such as spreads, bars, and snack bites and mixes, popcorn, pretzels and protein bars.

and snack items such as spreads, bars, and snack bites and mixes, popcorn and pretzels.

Business Acquisitions and Divestiture

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Throughout the pandemic we have remained committed to promoting the health and safety of our employees and communities and helping to maintain the global food supply.

In 2022, minimal COVID-19 restrictions remained as the availability of vaccinations (including vaccine boosters) continued to increase around the world, albeit with slower than anticipated rollouts and challenges within certain countries.

Through the first half of 2022, relatively minimal COVID-19 restrictions remained as vaccination status (including vaccine boosters) continued to increase around the world, albeit with slower than anticipated rollouts and challenges within certain countries.

The lifting of restrictions has resulted in daily activities and habits being more representative of pre-pandemic times.

However, beginning in 2021, and continuing through the three months ended April 3, 2022, the continued strong demand for consumer goods and the effects of COVID-19 mitigation strategies have led to broad-based supply chain disruptions across the U.S.

However, beginning in 2021, and continuing through the six months ended July 3, 2022, the continued strong demand for consumer goods and the effects of COVID-19 mitigation strategies have led to broad-based supply chain disruptions across the U.S.

and globally, including inflation on many consumer products, labor shortages and demand outpacing supply.

As a result, during the three months ended April 3, 2022, we continued to experience corresponding incremental costs and gross margin pressures (see Results of Operations included in this MD&A).

As a result, during the six months ended July 3, 2022, we continued to experience corresponding incremental costs and gross margin pressures (see Results of Operations included in this MD&A).

We are continuing to work closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

In addition to COVID-19 and broad-based supply chain disruptions, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty.

For the three months ended April 3, 2022, this conflict did not have a material impact on our commodity prices or supply availability.

For the six months ended July 3, 2022, this conflict did not have a material impact on our commodity prices or supply availability.

However, we are continuing to monitor for any significant escalation or expansion of economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of operations.

We experienced an increase in our net sales and net income during the three months ended April 3, 2022, which was primarily driven by strong everyday performance on our core U.S.

We experienced an increase in our net sales and net income during the three months ended July 3, 2022, which was primarily driven by strong everyday performance on our core U.S.

confection brands and salty snack brands (see Segment Results included in this MD&A), partially offset by the aforementioned supply chain disruptions and gross margin pressures.

As of April 3, 2022, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements;

As of July 3, 2022, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements;

however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can operate effectively during the current economic environment.

We continue to monitor our discretionary spending across the organization (see Liquidity and Capital Resources included in this MD&A).

Based on the length and severity of COVID-19 and the conflict between Russia and Ukraine, including broad-based supply chain disruptions, rising levels of inflation, new trends in outbreaks and hotspots, the spread of COVID-19 variants, resurgences and the continued distribution of vaccinations, we may experience continued volatility in retail foot traffic, consumer shopping and consumption behavior and may experience increasing supply chain costs and higher inflation.

Based on the length and severity of COVID-19 and the conflict between Russia and Ukraine, including broad-based supply chain disruptions, rising levels of inflation, new trends in outbreaks and hotspots, the spread of COVID-19 variants, resurgences of COVID-19 cases and the continued distribution of vaccinations, we may experience continued volatility in retail foot traffic, consumer shopping and consumption behavior and may experience increasing supply chain costs and higher inflation.

We will continue to evaluate the nature and extent of these potential and evolving impacts on our business, consolidated results of operations, segment results, liquidity and capital resources.

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CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended

April 3, 2022 April 4, 2021 Percent Change

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 Percent Change July 3, 2022 July 4, 2021 Percent Change

In millions of dollars except per share amounts

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Business realignment activities — 1.1 (100.0) % 0.3 2.4 (88.5) %

Operating profit 721.0 553.0 30.4 %

Operating profit 456.5 456.7 NM 1,177.5 1,009.7 16.6 %

Operating profit margin 19.2 % 23.0 % 23.4 % 23.6 %

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NM = not meaningful

Results of Operations - First Quarter 2022 vs.

First Quarter 2021

Net sales increased 16.1% in the first quarter of 2022 compared to the same period of 2021, reflecting a favorable price realization of 6.9% primarily due to higher list prices across our reportable segments, a volume increase of 4.6% driven by increases in everyday core U.S.

confection brands, salty snack brands and our international markets.

There was a 4.6% benefit from the 2021 acquisitions of Pretzels, Dot’s and Lily’s.

Results of Operations - Second Quarter 2022 vs.

Second Quarter 2021

Net sales increased 19.3% in the second quarter of 2022 compared to the same period of 2021, reflecting a favorable price realization of 9.5% primarily due to higher list prices across our reportable segments, in addition to lower levels of promotional activity versus the prior year period, a 5.3% benefit from the 2021 acquisitions of Pretzels, Dot’s and Lily’s, and a volume increase of 4.6% driven by the replenishment of distributor inventory levels, primarily in the North America Confectionery segment, along with the favorable price elasticities in the North America Salty Snacks and International segments.

These increases were offset by an unfavorable impact from foreign currency exchange rates of 0.1%.

Marketplace Metrics

For the first quarter of 2022, our total U.S.

retail takeaway declined 1.4% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items.

candy, mint and gum (“CMG”) co nsumer takeaway decreased 4.4% and experienced a CMG market share loss of approximately 156 basis points as a result of capacity constraints limiting the Company’s ability to fully service consumer demand.

For the second quarter of 2022, our total U.S.

retail takeaway increased 17.1% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items.

candy, mint and gum (“CMG”) consumer takeaway increased 17.0% and experienced a CMG market share loss of approximately 61 basis points as a result of capacity constraints limiting the Company’s ability to fully service consumer demand.

The CMG consumer takeaway and market share information reflects measured channels of distribution accounting for approximately 90% of our U.S.

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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 Information Resources, Incorporated (“IRI”), 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.

These metrics are based on measured market scanned purchases as reported by Information Resources,

The Hershey Company | Q2 2022 Form 10-Q | Page 36

Incorporated (“IRI”), 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 increased 13.9% in the first quarter of 2022 compared to the same period of 2021.

The increase was driven by higher sales volume, higher freight and logistics costs, as well as higher supply chain inflation costs.

The increase was partially offset by favorable price realization, supply chain productivity, as well as the incremental $37.1 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases.

Gross margin increased by 100 basis p oints in the first quarter of 2022 compared to the same period of 2021.

The increase was driven by favorable price realization, volume increases and favorable year-over-year mark-to-market impact from commodity derivative instruments.

These factors were offset by higher freight and logistics costs, higher supply chain inflation costs, as well as unfavorable product mix.

Cost of sales increased 29.0% in the second quarter of 2022 compared to the same period of 2021.

The increase was driven by higher sales volume, higher freight and logistics costs, as well as higher supply chain inflation costs and an incremental $25.6 million of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases.

The increase was partially offset by favorable price realization and supply chain productivity.

Gross margin decreased by 440 basis p oints in the second quarter of 2022 compared to the same period of 2021.

The decrease was driven by higher freight and logistics costs, higher supply chain inflation costs, as well as unfavorable year-over-year mark-to-market impact from commodity derivative instruments and unfavorable product mix.

These declines were offset by favorable price realization and volume increases.

SM&A Expenses

SM&A expenses increased $29.5 million, or 6.0%, in the first quarter of 2022.

Total advertising and related consumer marketing expenses decreased 0.7% driven by lower advertising in the North America Confectionery segment in response to sustained consumer demand and capacity constraints on select brands, offset by an increase in the North America Salty Snacks segment to raise brand awareness.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 9.9% in the first quarter of 2022 driven by an increase in acquisition and integration related costs, as well as higher compensation costs and investments in capabilities and technology.

SM&A expenses increased $75.9 million, or 16.2%, in the second quarter of 2022 compared to the same period of 2021.

Total advertising and related consumer marketing expenses increased 3.2% driven by moderate advertising increases across non-capacity constrained brands and segments, which were largely offset by cost efficiencies related to new media partners, primarily benefiting the North America Confectionery segment.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 22.4% in the second quarter of 2022 driven by an increase in acquisition and integration related costs, as well as higher compensation costs and investments in capabilities and technology.

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 the first quarter of 2022, we recorded business realignment costs of $0.3 million versus costs of $1.2 million in the first quarter of 2021 related to the International Optimization Program.

In the second quarter of 2022, we recorded no business realignment costs versus costs of $1.1 million in the second quarter of 2021 related to the International Optimization Program.

This program is focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward.

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Operating Profit and Operating Profit Margin

Operating profit increased 30.4% in the first quarter of 2022 compared to the same period of 2021 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above.

Operating profit margin increased to 27.0% in 2022 from 24.1% in 2021 driven by these same factors.

Operating profit was $456.5 million in the second quarter of 2022 compared to $456.7 million in the same period of 2021 predominantly due to higher SM&A expenses, as noted above, partially offset by higher gross profit.

Operating profit margin decreased to 19.2% in 2022 from 23.0% in 2021 driven by these same factors.

Interest Expense, Net

Net interest expense was $3.2 million lower in the first quarter of 2022 c ompared to the same period of 2021.

The decrease was primarily due to lower long-term debt balances in 2022 versus 2021, specifically resulting from the repayment of $350 million of 3.100% Notes upon their maturity in May 2021.

This decrease was partially offset by higher short-term debt balances in 2022 versus 2021, specifically outstanding commercial paper borrowings.

Net interest expense was $2.3 million higher in the second quarter of 2022 c ompared to the same period of 2021.

The increase was primarily due to higher short-term debt balances in 2022 versus 2021, specifically outstanding commercial paper borrowings.

This increase was partially offset by lower average long-term debt balances, specifically resulting from the repayment of $350 million of 3.100% Notes upon their maturity in May 2021.

Other (Income) Expense, Net

Other (income) expense, net was $10.4 million in the first quarter of 2022 versus net expense of $2.4 million in the first quarter of 2021.

The increase in net expense was primarily due to higher write-downs on equity investments qualifying for tax credits in 2022 versus 2021, offset by lower non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

The effective income tax rate was 21.2% for the first quarter of 2022 compared with 22.8% for the first quarter of 2021.

Relative to the 21% statutory rate, the 2022 and 2021 effective tax rates, were impacted by state taxes, partially offset by investment tax credits and the benefit of employee share-based payments.

Other (income) expense, net was $19.7 million in the second quarter of 2022 versus net expense of $7.2 million in the second quarter of 2021.

The increase in net expense was primarily due to higher write-downs on equity investments qualifying for tax credits in 2022 versus 2021 and higher non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

The Hershey Company | Q2 2022 Form 10-Q | Page 37

Income Taxes and Effective Tax Rate

The effective income tax rate was 21.8% for the second quarter of 2022 compared with 28.0% for the second quarter of 2021.

Relative to the 21% statutory rate, the 2022 effective tax rate was impacted by state taxes, unfavorable foreign rate differential and tax reserves, partially offset by investment tax credits and the benefit of employee share-based payments.

Relative to the 21% statutory rate, the 2021 effective tax rate was impacted by incremental tax reserves incurred as a result of an adverse ruling in connection with a non-U.S.

tax litigation matter as well as state taxes, partially offset by investment tax credits.

Net Income Attributable to The Hershey Company and Earnings Per Share-diluted

Net income increased $137.7 million, or 34.8%, while EPS-diluted increased $0.67, or 35.3%, in the first quarter of 2022 compared to the same period of 2021.

The increase in both net income and EPS diluted was driven primarily by higher gross profit and lower income taxes, partially offset by higher SM&A expenses, as noted above.

Net income increased $14.3 million, or 4.8%, while EPS-diluted increased $0.08, or 5.5%, in the second quarter of 2022 compared to the same period of 2021.

The increase in both net income and EPS-diluted was driven primarily by higher gross profit and lower income taxes, partially offset by higher SM&A expenses and higher other income and expenses, as noted above.

Our 2022 EPS-diluted benefited from lower weighted-average shares outstanding as a result of share repurchases.

Results of Operations - First Six Months 2022 vs.

First Six Months 2021

Net sales increased 17.6% in the first six months of 2022 compared to the same period of 2021, reflecting a favorable price realization of 7.8% primarily due to higher list prices across our reportable segments, a 4.9% benefit from the 2021 acquisitions of Pretzels, Dot’s and Lily’s, and a volume increase of 4.9% driven by an increase in everyday core U.S.

confection brands and our salty snacks portfolio.

Cost of Sales and Gross Margin

Cost of sales increased 20.9% in the first six months of 2022 compared to the same period of 2021.

The increase was driven by higher sales volume, higher freight and logistics costs and additional plant costs.

These drivers were partially offset by an incremental $11.5 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases.

Gross margin decreased by 150 basis points in the first six months of 2022 compared to the same period of 2021.

The decrease was driven by higher freight and logistics costs, higher supply chain inflation costs and unfavorable product mix.

These declines were offset by favorable year-over-year mark-to-market impact from commodity derivative instruments, as well as favorable price realization and volume increases.

SM&A Expenses

SM&A expenses increased $105.4 million, or 11.0%, in the first six months of 2022 compared to the same period of 2021.

Total advertising and related consumer marketing expenses increased 1.1% driven by increases in the North America Salty Snacks and International segments to raise brand awareness, offset by lower advertising in the North America Confectionery segment in response to sustained consumer demand and capacity constraints on select brands.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 16.2% in the first six months of 2022 driven by an increase in acquisition and integration related costs, as well as higher compensation costs and investments in capabilities and technology.

Business Realignment Activities

During the first six months of 2022, we recorded busi ness realignment costs of $0.3 million versus $2.4 million in the first six months of 2021 related to the International Optimization Program.

Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit increased 16.6% in the first six months of 2022 compared to the same period of 2021 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above.

Operating profit margin was 23.4% in 2022 and 23.6% in 2021 driven by the same factors noted above that resulted in lower gross margin for the period.

The Hershey Company | Q2 2022 Form 10-Q | Page 38

Interest Expense, Net

Net interest expense was $0.9 million lower in the first six months of 2022 compared to the same period of 2021.

The decrease was primarily due to lower average long-term debt balances, specifically resulting from the repayment of $84.7 million of 8.800% Debentures upon their maturity in February 2021 and $350 million of 3.100% Notes upon their maturity in May 2021.

Other (Income) Expense, Net

Other (income) expense, net was $30.1 million in the first six months of 2022 versus expense of $9.6 million in the first six months of 2021.

Income Taxes and Effective Tax Rate

Our effective income tax rate was 21.4% for the first six months of 2022 compared with 25.1% for the first six months of 2021.

Relative to the 21% statutory rate, the 2022 effective tax rate was impacted by state taxes, tax reserves and unfavorable foreign rate differential, partially offset by investment tax credits and the benefit of employee share-based payments.

Relative to the 21% statutory rate, the 2021 effective tax rate was impacted by incremental tax reserves incurred as a result of an adverse ruling in connection with a non-U.S.

tax litigation matter as well as state taxes, partially offset by investment tax credits and the benefit of employee share-based payments.

Net Income Attributable to The Hershey Company and Earnings Per Share-diluted

Net income increased $152.0 million , or 21.8%, while EPS-diluted increased $0.75, or 22.4%, in the first six months of 2022 compared to the same period of 2021.

The increase in both net income and EPS-diluted was driven primarily by higher gross profit, partially offset by higher SM&A expenses and higher other income and expenses.

Our 2022 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases.

The Hershey Company | Q2 2022 Form 10-Q | Page 39

SEGMENT RESULTS

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

Three Months Ended

April 3, 2022 April 4, 2021

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

In millions of dollars

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Unallocated corporate expense (1) 188.9 151.3 339.1 289.1

Unallocated mark-to-market gains on commodity derivatives (2) (27.4) (2.3)

Unallocated mark-to-market losses (gains) on commodity derivatives (2) 40.8 (3.4) 13.5 (5.7)

Costs associated with business realignment activities 0.7 3.5 2.0 10.4

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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 results, which accounted for 83.1% and 86.5% of our net sales for the three months ended April 3, 2022 and April 4, 2021, respectively, were as follows:

Three Months Ended

April 3, 2022 April 4, 2021 Percent Change

North America Confectionery results, which accounted for 80.5% and 85.0% of our net sales for the three months ended July 3, 2022 and July 4, 2021, respectively, were as follows:

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 Percent Change July 3, 2022 July 4, 2021 Percent Change

In millions of dollars

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Segment margin 32.4 % 32.8 % 33.9 % 32.6 %

Results of Operations - First Quarter 2022 vs.

First Quarter 2021

Net sales of our North America Confectionery segment increased $231.6 million or 11.7% in the first quarter of 2022 compared to the same period of 2021, reflecting a favorable price realization of 6.8% due to list price increases on certain products across our portfolio, a volume increase of 3.8% due to an increase in everyday core U.S.

confection brands and a 1.1% increase from the 2021 acquisition of Lily’s.

Results of Operations - Second Quarter 2022 vs.

Second Quarter 2021

Net sales of our North America Confectionery segment increased $218.7 million, or 12.9%, in the second quarter of 2022 compared to the same period of 2021, reflecting a favorable price realization of 9.8% due to list price increases on certain products across our portfolio, a volume increase of 2.6% due to an increase in everyday core U.S.

confection brands and a 0.8% increase from the 2021 acquisition of Lily’s, partially offset by an unfavorable impact from foreign currency exchange rates of 0.3%.

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 increased approximately 21.5% during the first quarter of 2022 compared to the same period of 2021.

Our North America Confectionery segment income increased $139.3 million or 21.7% in the first quarter of 2022 compared to the same period of 2021, primarily due to favorable price realization and volume increases, partially offset by higher freight and logistics costs, higher supply chain inflation costs, as well as, unfavorable product mix.

Our net sales increased approximately 5.3% during the second quarter of 2022 compared to the same period of 2021.

Our North America Confectionery segment income increased $64.4 million, or 11.6%, in the second quarter of 2022 compared to the same period of 2021, primarily due to favorable price realization and volume increases, partially offset by higher freight and logistics costs, higher supply chain inflation costs, as well as, unfavorable product mix.

Results of Operations - First Six Months 2022 vs.

First Six Months 2021

Net sales of our North America Confectionery segment increased $450.4 million or 12.3% in the first six months of 2022 compared to the same period of 2021, reflecting a favorable price realization of 8.0% due to list price increases on certain products across our portfolio, a volume increase of 3.4% due to an increase in everyday core U.S.

confection brands and a 1.0% increase from the 2021 acquisition of Lily’s, partially offset by an unfavorable impact from foreign currency exchange rates of 0.1%.

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 increased approximately 11.6% during the first six months of 2022 compared to the same period of 2021.

Our North America Confectionery segment income increased $203.6 million or 17.0% in the first six months of 2022 compared to the same period of 2021, primarily due to favorable price realization and volume increases, partially offset by higher freight and logistics costs, higher supply chain inflation costs, as well as, unfavorable product mix.

The Hershey Company | Q2 2022 Form 10-Q | Page 41

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The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products.

North America Salty Snacks results, which accounted for 8.5% and 5.3% of our net sales for the three months ended April 3, 2022 and April 4, 2021, respectively, were as follows:

Three Months Ended

April 3, 2022 April 4, 2021 Percent Change

North America Salty Snacks results, which accounted for 10.8% and 6.4% of our net sales for the three months ended July 3, 2022 and July 4, 2021, respectively, were as follows:

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 Percent Change July 3, 2022 July 4, 2021 Percent Change

In millions of dollars

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Segment margin 14.6 % 20.3 % 12.2 % 20.6 %

Results of Operations - First Quarter 2022 vs.

First Quarter 2021

Net sales of our North America Salty Snacks segment increased $104.7 million or 86.2% in the first quarter of 2022 compared to the same period of 2021, reflecting a 69.0% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 13.2% due to higher prices on certain products and related trade promotions and a volume increase of 4.0% primarily related to SkinnyPop and Pirates Booty snacks.

Our North America Salty Snacks segment income decreased $4.1 million or 16.1% in the first quarter of 2022 compared to the same period of 2021 due to unfavorable product mix, as well as higher supply chain inflation costs and increased advertising and related consumer marketing costs, partially offset by favorable price realization and volume increases.

Results of Operations - Second Quarter 2022 vs.

Second Quarter 2021

Net sales of our North America Salty Snacks segment increased $128.1 million, or 99.9%, in the second quarter of 2022 compared to the same period of 2021, reflecting a 71.6% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 14.6% due to higher prices on certain products and related trade promotions and a volume increase of 13.7% primarily related to SkinnyPop and Pirate’s Booty snacks.

Our North America Salty Snacks segment income increased $11.4 million, or 43.8%, in the second quarter of 2022 compared to the same period of 2021 due to favorable price realization and volume increases, partially offset by higher freight and logistics costs, higher supply chain inflation costs, as well as unfavorable product mix.

Results of Operations - First Six Months 2022 vs.

First Six Months 2021

Net sales of our North America Salty Snacks segment increased $232.8 million, or 93.3%, in the first six months of 2022 compared to the same period of 2021, reflecting a 70.4% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 14.1% due to higher prices on certain products and related trade promotions and a volume increase of 8.8% primarily related to SkinnyPop and Pirate’s Booty snacks.

Our North America Salty Snacks segment income increased $7.3 million, or 14.2%, in the second quarter of 2022 compared to the same period of 2021, due to favorable price realization and volume increases, partially offset by unfavorable product mix, as well as higher supply chain inflation costs and increased advertising and related consumer marketing costs.

The Hershey Company | Q2 2022 Form 10-Q | Page 42

International

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Currently, this includes our operations in Asia, Latin America, Europe, Africa and the Middle East, along with exports to these regions.

International results, which accounted for 8.4% and 8.2% of our net sales for the three months ended April 3, 2022 and April 4, 2021, respectively, were as follows:

Three Months Ended

April 3, 2022 April 4, 2021 Percent Change

International results, which accounted for 8.7% and 8.6% of our net sales for the three months ended July 3, 2022 and July 4, 2021, respectively, were as follows:

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 Percent Change July 3, 2022 July 4, 2021 Percent Change

In millions of dollars

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Segment margin 14.8 % 16.2 % 16.9 % 15.3 %

Results of Operations - First Quarter 2022 vs.

First Quarter 2021

Net sales of our International segment increased $34.0 million or 17.9% in the first quarter of 2022 compared to the same period of 2021, reflecting a volume increase of 11.9% and a favorable price realization of 5.8%.

Results of Operations - Second Quarter 2022 vs.

Second Quarter 2021

Net sales of our International segment increased $36.4 million, or 21.3%, in the second quarter of 2022 compared to the same period of 2021, reflecting a volume increase of 17.6% and a favorable price realization of 3.0%.

The volume increase was primarily attributable to solid marketplace growth in Brazil, Mexico, and India, where net sales increased by 23.4%, 21.5%, and 14.1%, respectively.

These increases also benefited from a favorable impact from foreign currency exchange rates of 0.7%.

Our International segment generated income of $42.0 million in the first quarter of 2022 compared to $27.4 million in the first quarter of 2021 with the improvement primarily resulting from execution of our International Optimization Program in China, as we streamline and optimize our China operating model, as well as volume increases and favorable price realization.

Our International segment generated income of $30.7 million in the second quarter of 2022 compared to $27.6 million in the second quarter of 2021 with the improvement primarily resulting from execution of our International Optimization Program in China, as we streamline and optimize our China operating model, as well as volume increases and favorable price realization.

Results of Operations - First Six Months 2022 vs.

First Six Months 2021

Net sales of our International segment increased $70.2 million, or 19.5%, in the first six months of 2022 compared to the same period of 2021, reflecting a volume increase of 18.2% and a favorable price realization of 0.9%.

The volume increase was primarily attributable to solid marketplace growth in Brazil, Mexico, and India, where net sales increased by 28.0%, 25.5%, and 14.3%, respectively.

These increases also benefited from a favorable impact from foreign currency exchange rates of 0.4%.

Our International segment generated income of $72.7 million in the first six months of 2022 compared to $55.0 million in the first six months of 2021 primarily resulting from volume increases and favorable price realization, as well as the execution of our International Optimization Program in China, as we streamline and optimize our China operating model.

The Hershey Company | Q2 2022 Form 10-Q | Page 43

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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, (d) acquisition-related costs and (e) other gains or losses that are not integral to segment performance.

In the first quarter of 2022, unallocated corporate expense totaled $150.3 million, as compared to $137.8 million in the first quarter of 2021.

The increase is primarily driven by higher acquisition and integration related costs, as well as incremental investments in capabilities and technology and higher group insurance costs, partially offset by lower incentive compensation.

In the second quarter of 2022, unallocated corporate expense totaled $188.9 million, as compared to $151.3 million in the second quarter of 2021.

The increase is primarily driven by higher acquisition and integration related costs, as well as incremental investments in capabilities and technology and higher compensation costs.

In the first six months of 2022, unallocated corporate expense totaled $339.1 million, as compared to $289.1 million in the first six months of 2021.

The increase is primarily driven by higher acquisition and integration related costs, as well as incremental investments in capabilities and technology and higher compensation costs.

LIQUIDITY AND CAPITAL RESOURCES

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Commercial paper may also be issued, from time to time, to finance ongoing business transactions, such as the repayment of long-term debt, business acquisitions and for other general corporate purposes.

At April 3, 2022, our cash and cash equivalents totaled $338.1 million, an increase of $8.8 million compared to the 2021 year-end balance.

At July 3, 2022, our cash and cash equivalents totaled $339.7 million, an increase of $10.5 million compared to the 2021 year-end balance.

We believe we have sufficient liquidity to satisfy our cash needs;

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Additional detail regarding the net uses of cash are outlined in the following discussion.

Approximately 80% of the balance of our cash and cash equivalents at April 3, 2022 was held by subsidiaries domiciled outside of the United States.

Approximately 85% of the balance of our cash and cash equivalents at July 3, 2022 was held by subsidiaries domiciled outside of the United States.

We intend to continue to reinvest the remainder of the earnings outside of the United States for which there would be a material tax implication to distributing, such as withholding tax, for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings.

We believe we have sufficient liquidity to satisfy our cash needs for at least the next twelve months, including our cash needs in the United States.

We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for the foreseeable future.

Acquisition spending and/or share repurchases could potentially increase our debt.

Operating cash flow and access to capital markets are expected to satisfy our various short- and long-term cash flow requirements, including acquisitions and capital expenditures.

Cash Flow Summary

The following table is derived from our Consolidated Statements of Cash Flows:

Three Months Ended

In millions of dollars April 3, 2022 April 4, 2021

Six Months Ended

In millions of dollars July 3, 2022 July 4, 2021

Net cash provided by (used in):

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Increase (decrease) in cash and cash equivalents $ 10.5 $ (717.8)

The Hershey Company | Q2 2022 Form 10-Q | Page 44

Operating activities

We generated cash of $656.5 million from operating activities in the first three months of 2022, an increase of $46.9 million compared to $609.6 million in the same period of 2021.

We generated cash of $1,113.8 million from operating activities in the first six months of 2022, an increase of $96.1 million compared to $1,017.7 million in the same period of 2021.

This increase in net cash provided by operating activities was mainly driven by the following factors:

• Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, a write-down of equity investments and other charges) resulted in $218.1 million of higher cash flow in 2022 relative to 2021.

The Hershey Company | Q1 2022 Form 10-Q | Page 38

• The increase in cash provided by operating activities was partially offset by the following net cash outflows:

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This $64.2 million fluctuation was mainly driven by a higher year-over-year build up of U.S.

inventories to satisfy product requirements and maintain sufficient levels to accommodate customer requirements and an increase in cash used by accounts receivable due to a longer Easter season in 2022 as compared to prior year, partially offset by the timing of vendor and supplier payments and higher accrued incentive compensation related to annual performance that was paid in the first quarter of 2022.

inventories to satisfy product requirements and maintain sufficient levels to accommodate customer requirements and an increase in cash used by accounts receivable due to the timing of customer payments, partially offset by the timing of vendor and supplier payments.

Investing activities

We used cash of $164.0 million for investing activities in the first three months of 2022, an increase of $27.0 million compared to $137.0 million in the same period of 2021.

This increase in net cash used in investing activities was mainly driven by the following factors:

We used cash of $351.0 million for investing activities in the first six months of 2022, a decrease of $349.1 million compared to $700.1 million in the same period of 2021.

This decrease in net cash used in investing activities was mainly driven by the following factors:

• Capital spending .

Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion projects, innovation and cost savings, were $141.1 million in the first three months of 2022 compared to $114.5 million in the same period of 2021.

We expect our full year 2022 capital expenditures, including capitalized software, to approximate $600 million, the high end of our previously announced range of $550 million to $600 million.

Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion projects, innovation and cost savings, were $241.0 million in the first six months of 2022 compared to $227.6 million in the same period of 2021.

We expect our full year 2022 capital expenditures, including capitalized software, to approximate $600 million.

Our 2022 capital expenditures are largely driven by our key strategic initiatives, including expanding the agility and capacity of the Company’s supply chain and building digital infrastructure across the enterprise.

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We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and renewable energy tax credits.

We invested approximately $22.5 million in the first three months of 2022, compared to $25.1 million in the same period of 2021.

We invested approximately $116.2 million in the first six months of 2022, compared to $57.4 million in the same period of 2021.

• Business Acquisition .

In June 2021, we acquired Lily's for an initial cash purchase price of $418.2 million.

Further details regarding our business acquisition activity is provided in Note 2 to the Unaudited Consolidated Financial Statements.

Financing activities

We used cash of $463.5 million for financing activities in the first three months of 2022, a decrease of $28.3 million compared to $491.8 million in the same period of 2021.

We used cash of $755.4 million for financing activities in the first six months of 2022, a decrease of $286.3 million compared to $1,041.7 million in the same period of 2021.

This decrease in net cash used in financing activities was mainly driven by the following factors:

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In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs.

During the first three months of 2022, we used cash of $65.6 million to reduce a portion of our short-term commercial paper borrowings originally used to fund our 2021 acquisitions of Dot’s and Pretzels, partially offset by an increase in short-term foreign bank borrowings.

During the first three months of 2021, we used cash of $6.1 million to reduce a portion of our short-term foreign bank borrowings.

During the first six months of 2022, we used cash of $24.5 million to reduce a portion of our short-term commercial paper borrowings originally used to fund our 2021 acquisitions of Dot’s and Pretzels, partially offset by an increase in short-term foreign bank borrowings.

During the first six months of 2021, we generated cash of $137.0 million predominantly through the issuance of short-term commercial paper, partially offset by a reduction in short-term foreign borrowings.

• Long-term debt borrowings and repayments .

During the first three months of 2022, long-term debt activity was minimal.

During the first three months of 2021, we repaid $84.7 million of 8.800% Debentures due upon their maturity.

During the first six months of 2022, long-term debt activity was minimal.

During the first six months of 2021, we repaid $84.7 million of 8.800% Debentures due upon their maturity and $350.0 million of 3.100% Notes due upon their maturity.

The Hershey Company | Q2 2022 Form 10-Q | Page 45

• Dividend payments .

Total dividend payments to holders of our Common Stock and Class B Common Stock were $181.1 million during the first three months of 2022, an increase of $18.4 million compared to $162.7 million in the same period of 2021.

Total dividend payments to holders of our Common Stock and Class B Common Stock were $361.0 million during the first six months of 2022, an increase of $36.7 million compared to $324.3 million in the same period of 2021.

Details regarding our 2022 cash dividends paid to stockholders are as follows:

The Hershey Company | Q1 2022 Form 10-Q | Page 39

Quarter Ended

In millions of dollars except per share amounts April 3, 2022

In millions of dollars except per share amounts April 3, 2022 July 3, 2022

Dividends paid per share – Common stock $ 0.901 $ 0.901

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Total cash dividends paid $ 181.1 $ 179.9

Declaration date February 2, 2022

Record date February 18, 2022

Payment date March 15, 2022

Declaration date February 2, 2022 April 27, 2022

Record date February 18, 2022 May 20, 2022

Payment date March 15, 2022 June 15, 2022

• Share repurchases .

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Details regarding our share repurchases are as follows:

Quarter Ended

In millions April 3, 2022 April 4, 2021

Six Months Ended

In millions July 3, 2022 July 4, 2021

Milton Hershey School Trust repurchase $ 203.4 $ —

Shares repurchased in the open market under pre-approved share repurchase programs — 150.0

Shares repurchased in the open market to replace Treasury Stock issued for stock options and incentive compensation 151.9 284.3

Cash used for total share repurchases $ 355.3 $ 434.3

Total shares repurchased under pre-approved share repurchase programs — 0.9

In February 2022, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School Trust, pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the Milton Hershey School Trust at a price equal to $203.35 per share, for a total purchase price of $203.4 million.

In July 2018, our Board of Directors approved a $500 million share repurchase authorization.

As of April 3, 2022, approximately $110 million remained available for repurchases of our Common Stock under this program.

As of July 3, 2022, approximately $110 million remained available for repurchases of our Common Stock under this program.

The share repurchase program does not have an expiration date.

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• Proceeds from exercised stock options and employee tax withholding.

During the first three months of 2022, we received $16.7 million from employee exercises of stock options and paid $29.0 million of employee taxes withheld from share-based awards.

During the first three months of 2021, we received $15.1 million from employee exercises of stock options and paid $11.9 million of employee taxes withheld from share-based awards.

During the first six months of 2022, we received $21.8 million from employee exercises of stock options and paid $33.9 million of employee taxes withheld from share-based awards.

During the first six months of 2021, we received $31.7 million from employee exercises of stock options and paid $14.9 million of employee taxes withheld from share-based awards.

Variances are driven primarily by the number of shares exercised and the share price at the date of grant.

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• Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations;

• Such other matters as discussed in our 2021 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

• Such other matters as discussed in our 2021 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2022 and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date this Quarterly Report on Form 10-Q is filed.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis