What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-07-28 · 140 added, 140 removed, 252 unchanged (53% of the section changed)

34 unchanged sentences

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.

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.

Through the first nine months 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 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.

However, beginning in 2021, and continuing through the nine months ended October 2, 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 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).

As a result, during the nine months ended October 2, 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 six months ended July 3, 2022, this conflict did not have a material impact on our commodity prices or supply availability.

For the nine months ended October 2, 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 July 3, 2022, which was primarily driven by strong everyday performance on our core U.S.

We experienced an increase in our net sales during the three months ended October 2, 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 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.

As of October 2, 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 in 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 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.

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 COVID-19 outbreaks and hotspots, the spread of and emergence of new 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 Six Months Ended

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

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

In millions of dollars except per share amounts

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SM&A expense as a percent of net sales 20.2 % 20.6 % 20.9 % 21.8 %

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

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

Business realignment activities — 0.4 NM 0.3 2.7 (90.0) %

Operating profit 556.6 574.8 (3.2) % 1,734.1 1,584.6 9.4 %

Operating profit margin 20.4 % 24.4 % 22.3 % 23.8 %

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Net income including noncontrolling interest 399.5 444.9 (10.2) % 1,248.5 1,143.0 9.2 %

Net gain attributable to noncontrolling interest — — NM — 1.1 (100.0) %

Net gain attributable to noncontrolling interest — — NM — 1.1 NM

Net income attributable to The Hershey Company $ 399.5 $ 444.9 (10.2) % $ 1,248.5 $ 1,141.9 9.3 %

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NM = not meaningful

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.

Results of Operations - Third Quarter 2022 vs.

Third Quarter 2021

Net sales increased 15.6% in the third quarter of 2022 compared to the same period of 2021, reflecting a favorable price realization of 7.7% primarily due to higher list prices and favorable price elasticities across our reportable segments, a volume increase of 4.1% driven by increased consumer demand and a 4.1% benefit from the 2021 acquisitions of Pretzels and Dot’s.

These increases were offset by an unfavorable impact from foreign currency exchange rates of 0.3%.

Marketplace Metrics

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

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

retail takeaway increased 12.7% 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.

candy, mint and gum (“CMG”) consumer takeaway increased 12.2% and experienced a CMG market share gain of approximately 23 basis points.

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,

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.

The Hershey Company | Q3 2022 Form 10-Q | Page 38

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 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.

Cost of sales increased 24.7% in the third quarter of 2022 compared to the same period of 2021.

The increase was driven by higher sales volume, higher supply chain inflation costs, including higher logistics and labor costs, and an incremental $47.7 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.

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

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

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

SM&A Expenses

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.

SM&A expenses increased $65.8 million, or 13.5%, in the third quarter of 2022 compared to the same period of 2021.

Total advertising and related consumer marketing expenses increased 5.4% driven by advertising increases in our confectionery brands and increased investment in our salty snacks portfolio, which were partially offset by cost efficiencies related to new media partners.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 17.8% in the third 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 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.

In the third quarter of 2022, we recorded no business realignment costs versus costs of $0.4 million in the third 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 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 was $556.6 million in the third quarter of 2022 compared to $574.8 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 20.4% in 2022 from 24.4% in 2021 driven by these same factors.

Interest Expense, Net

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

Net interest expense was $5.2 million higher in the third 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.

This increase was partially offset by lower average long-term debt balances.

Other (Income) Expense, Net

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.

Other (income) expense, net was $48.1 million in the third quarter of 2022 versus net expense of $23.0 million in the third 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.

The effective income tax rate was 15.6% for the third quarter of 2022 compared with 14.7% for the third quarter of 2021.

Relative to the 21% statutory rate, the 2022 effective tax rate was impacted by investment tax credits, partially offset by state taxes.

Relative to the 21% statutory rate, the 2021 effective tax rate benefited from investment tax credits and the utilization (during the third quarter of 2021) of previously generated capital losses, partially offset by state taxes.

The Hershey Company | Q3 2022 Form 10-Q | Page 39

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

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.

Net income decreased $45.4 million, or 10.2%, while EPS-diluted decreased $0.20, or 9.3%, in the third quarter of 2022 compared to the same period of 2021.

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

Results of Operations - First Nine Months 2022 vs.

First Nine Months 2021

Net sales increased 16.9% in the first nine months of 2022 compared to the same period of 2021, reflecting a favorable price realization of 7.7% primarily due to higher list prices across our reportable segments, a volume increase of 4.7% driven by an increase in everyday core brands across our reportable segments and a 4.6% benefit from the 2021 acquisitions of Pretzels, Dot’s and Lily’s.

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

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.

Cost of sales increased 22.3% in the first nine months of 2022 compared to the same period of 2021.

The increase was driven by higher sales volume, higher supply chain inflation costs, including higher logistics and labor costs, unfavorable product mix and an incremental $36.2 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 250 basis points in the first nine months of 2022 compared to the same period of 2021.

These declines were offset by 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.

SM&A expenses increased $171.1 million, or 11.8%, in the first nine months of 2022 compared to the same period of 2021.

Total advertising and related consumer marketing expenses increased 2.5% driven by increases in the North America Salty Snacks and International segments to raise brand awareness.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 16.7% in the first nine 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.

During the first nine months of 2022, we recorded business realignment costs of $0.3 million versus $2.7 million in the first nine 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 increased 9.4% in the first nine 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 22.3% in 2022 and 23.8% 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.

Net interest expense was $4.3 million higher in the first nine months of 2022 compared 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.

The increase was partially offset 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.

The Hershey Company | Q3 2022 Form 10-Q | Page 40

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.

Other (income) expense, net was $78.2 million in the first nine months of 2022 versus expense of $32.6 million in the first nine 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.

Our effective income tax rate was 19.7% for the first nine months of 2022 compared with 21.4% for the first nine months of 2021.

Relative to the 21% statutory rate, the 2022 effective tax rate was impacted by investment tax credits, partially offset by state taxes.

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.

tax litigation matter as well as state taxes, partially offset by investment tax credits and the utilization (during the third quarter of 2021) of previously generated capital losses.

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.

Net income increased $106.6 million, or 9.3%, while EPS-diluted increased $0.55, or 10.0%, in the first nine 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 and lower income taxes, 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.

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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 CODM and used for resource allocation and internal management reporting and performance evaluation.

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.

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

In millions of dollars

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(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 (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses.

(2) Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains).

See Note 13 to the Unaudited Consolidated Financial Statements.

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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 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

North America Confectionery results, which accounted for 81.9% and 85.8% of our net sales for the three months ended October 2, 2022 and October 3, 2021, respectively, were as follows:

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

In millions of dollars

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Segment margin 31.6 % 32.4 % 33.1 % 32.5 %

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%.

Results of Operations - Third Quarter 2022 vs.

Third Quarter 2021

Net sales of our North America Confectionery segment increased $211.4 million, or 10.4%, in the third quarter of 2022 compared to the same period of 2021, reflecting a favorable price realization of 7.7% primarily due to list price increases on certain products across our portfolio and a volume increase of 3.0% due to an increase in everyday core U.S.

confection brands.

These increases were 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 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 net sales for licensing and owned retail increased approximately 9.2% during the third quarter of 2022 compared to the same period of 2021.

Our North America Confectionery segment income increased $51.2 million, or 7.8%, in the third quarter of 2022 compared to the same period of 2021, primarily due to favorable price realization and volume increases, partially offset by higher supply chain inflation costs, including higher logistics and labor costs, higher supply chain inflation costs, as well as, unfavorable product mix.

Results of Operations - First Nine Months 2022 vs.

First Nine Months 2021

Net sales of our North America Confectionery segment increased $661.7 million or 11.6% in the first nine months of 2022 compared to the same period of 2021, reflecting a favorable price realization of 7.7% 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 0.7% increase 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 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.

Our net sales for licensing and owned retail increased approximately 10.6% during the first nine months of 2022 compared to the same period of 2021.

Our North America Confectionery segment income increased $254.9 million or 13.8% in the first nine months of 2022 compared to the same period of 2021, 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.

The Hershey Company | Q3 2022 Form 10-Q | Page 43

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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 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

North America Salty Snacks results, which accounted for 10.1% and 6.2% of our net sales for the three months ended October 2, 2022 and October 3, 2021, respectively, were as follows:

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

In millions of dollars

2 unchanged sentences

Segment margin 16.2 % 20.1 % 13.6 % 20.4 %

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.

Results of Operations - Third Quarter 2022 vs.

Third Quarter 2021

Net sales of our North America Salty Snacks segment increased $127.9 million, or 86.9%, in the third quarter of 2022 compared to the same period of 2021, reflecting a 65.5% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 12.5% due to higher prices on certain products, in addition to lower levels of promotional activity versus the prior year period, and a volume increase of 9.0% primarily related to SkinnyPop , Pirate’s Booty , and Paqui snacks.

Our North America Salty Snacks segment income increased $14.9 million, or 50.3%, in the third 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, including higher logistics and labor costs, and increased advertising and related consumer marketing costs.

Results of Operations - First Nine Months 2022 vs.

First Nine Months 2021

Net sales of our North America Salty Snacks segment increased $360.7 million, or 90.9%, in the first nine months of 2022 compared to the same period of 2021, reflecting a 68.5% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 12.9% due to higher prices on certain products, in addition to lower levels of promotional activity versus the prior year period and a volume increase of 9.5% primarily related to SkinnyPop and Pirate’s Booty snacks.

Our North America Salty Snacks segment income increased $22.1 million, or 27.3%, in the first nine months 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 | Q3 2022 Form 10-Q | Page 44

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The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products.

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 8.7% 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

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 Asia, Europe, the Middle East and Africa (“AEMEA”) and other regions.

International results, which accounted for 8.0% and 8.0% of our net sales for the three months ended October 2, 2022 and October 3, 2021, respectively, were as follows:

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

In millions of dollars

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Segment margin 16.3 % 10.4 % 16.7 % 13.6 %

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 $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%.

Results of Operations - Third Quarter 2022 vs.

Third Quarter 2021

Net sales of our International segment increased $29.1 million, or 15.4%, in the third quarter of 2022 compared to the same period of 2021, reflecting a volume increase of 12.2% and a favorable price realization of 4.4%.

The volume increase was primarily attributable to solid marketplace growth in India, AEMEA, and Brazil, where net sales increased by 28.9%, 15.8% and 12.6%, respectively.

These increases were partially offset by an unfavorable impact from foreign currency exchange rates of 1.2%.

Our International segment generated income of $35.4 million in the third quarter of 2022 compared to $19.6 million in the third quarter of 2021 driven primarily by favorable price realization and volume increases, partially offset by higher freight and logistics costs.

Results of Operations - First Nine Months 2022 vs.

First Nine Months 2021

Net sales of our International segment increased $99.3 million, or 18.1%, in the first nine months of 2022 compared to the same period of 2021, reflecting a volume increase of 15.0% and a favorable price realization of 3.2%.

The volume increase was primarily attributable to solid marketplace growth in Brazil, Mexico, and India, where net sales increased by 22.4%, 20.3%, and 18.8%, 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.

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

Our International segment generated income of $108.1 million in the first nine months of 2022 compared to $74.5 million in the first nine months of 2021 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.

The Hershey Company | Q3 2022 Form 10-Q | Page 45

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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 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.

In the third quarter of 2022, unallocated corporate expense totaled $179.6 million, as compared to $145.0 million in the third quarter of 2021.

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

In the first nine months of 2022, unallocated corporate expense totaled $518.9 million, as compared to $434.0 million in the first nine 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.

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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 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.

At October 2, 2022, our cash and cash equivalents totaled $327.7 million, a decrease of $1.5 million compared to the 2021 year-end balance.

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

however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during the ongoing COVID-19 pandemic.

however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during the ongoing COVID-19 pandemic and in the current economic environment.

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

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.

Approximately 80% of the balance of our cash and cash equivalents at October 2, 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.

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

Six Months Ended

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

Nine Months Ended

In millions of dollars October 2, 2022 October 3, 2021

Net cash provided by (used in):

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Cash classified as assets held for sale — 11.4

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

Decrease in cash and cash equivalents $ (1.5) $ (468.5)

The Hershey Company | Q3 2022 Form 10-Q | Page 46

Operating activities

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.

We generated cash of $1,560.2 million from operating activities in the first nine months of 2022, an increase of $156.5 million compared to $1,403.7 million in the same period of 2021.

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

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Investing activities

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.

We used cash of $510.0 million for investing activities in the first nine months of 2022, a decrease of $329.7 million compared to $839.7 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 $241.0 million in the first six months of 2022 compared to $227.6 million in the same period of 2021.

Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion projects, innovation and cost savings, were $360.0 million in the first nine months of 2022 compared to $347.5 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.

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

We intend to use our existing cash and internally generated funds to meet our 2022 capital requirements.

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

We invested approximately $159.7 million in the first nine months of 2022, compared to $75.9 million in the same period of 2021.

• Business Acquisition .

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Financing activities

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:

We used cash of $1,076.0 million for financing activities in the first nine months of 2022, an increase of $38.2 million compared to $1,037.8 million in the same period of 2021.

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

• Short-term borrowings, net.

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 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.

During the first nine months of 2022, we used cash of $145.6 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 nine months of 2021, we generated cash flow of $340.0 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 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.

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

During the first nine 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 | Q3 2022 Form 10-Q | Page 47

• Dividend payments .

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.

Total dividend payments to holders of our Common Stock and Class B Common Stock were $568.0 million during the first nine months of 2022, an increase of $62.8 million compared to $505.2 million in the same period of 2021.

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

Quarter Ended

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

In millions of dollars except per share amounts April 3, 2022 July 3, 2022 October 2, 2022

Dividends paid per share – Common stock $ 0.901 $ 0.901 $ 1.036

1 unchanged sentence

Total cash dividends paid $ 181.1 $ 179.9 $ 207.0

Declaration date February 2, 2022 April 27, 2022

Record date February 18, 2022 May 20, 2022

Payment date March 15, 2022 June 15, 2022

Declaration date February 2, 2022 April 27, 2022 July 27, 2022

Record date February 18, 2022 May 20, 2022 August 19, 2022

Payment date March 15, 2022 June 15, 2022 September 15, 2022

• Share repurchases .

3 unchanged sentences

Details regarding our share repurchases are as follows:

Six Months Ended

In millions July 3, 2022 July 4, 2021

Nine Months Ended

In millions October 2, 2022 October 3, 2021

Milton Hershey School Trust repurchase $ 203.4 $ —

5 unchanged sentences

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

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

As of October 2, 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.

3 unchanged sentences

• Proceeds from exercised stock options and employee tax withholding.

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.

During the first nine months of 2022, we received $30.8 million from employee exercises of stock options and paid $34.7 million of employee taxes withheld from share-based awards.

During the first nine months of 2021, we received $39.5 million from employee exercises of stock options and paid $16.1 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, 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.”

• Such other matters as discussed in our 2021 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the quarterly periods ended April 3, 2022 and July 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