What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-11-04 · 114 added, 197 removed, 195 unchanged (61% of the section changed)

18 unchanged sentences

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

Business Acquisitions and Divestiture

In December 2021, we completed the acquisition of Pretzels Inc.

(“Pretzels”), previously a privately held company that manufactures and sells pretzels and other salty snacks for other branded products and private labels in the United States.

Pretzels is an industry leader in the pretzel category with a product portfolio that includes filled, gluten free and seasoned pretzels, as well as extruded snacks that complements Hershey’s snacks portfolio.

Based in Bluffton, Indiana, Pretzels operates three manufacturing locations in Indiana and Kansas.

Pretzels provides Hershey deep pretzel category and product expertise and the manufacturing capabilities to support brand growth and future pretzel innovation.

Additionally, we completed the acquisition of Dot’s Pretzels, LLC (“Dot’s”), previously a privately held company that produces and sells pretzels and other snack food products to retailers and distributors in the United States, with Dot’s Homestyle Pretzels snacks as its primary product.

Dot’s is the fastest-growing scale brand in the pretzel category and complements Hershey’s snacks portfolio.

In June 2021, we completed the acquisition of Lily’s Sweets, LLC (“Lily’s”), previously a privately held company that sells a line of sugar-free and low-sugar confectionery foods to retailers and distributors in the United States and Canada.

Lily’s products include dark and milk chocolate style bars, baking chips, peanut butter cups and other confection products that complement Hershey’s confectionery and confectionery-based portfolio.

In January 2021, we completed the divestiture of Lotte Shanghai Foods Co., Ltd., which was previously included within the International segment results in our consolidated financial statements.

Total proceeds from the divestiture and the impact on our consolidated financial statements were immaterial.

Business Acquisitions

On April 14, 2023, we entered into a definitive agreement to acquire certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc., a leader in the production and co-packing of microwave popcorn and ready-to-eat popcorn, and a co-manufacturer of the Company’s SkinnyPop brand.

Through the transaction, the Company will mainly acquire property, plant and equipment, as well as leased manufacturing facilities in Indiana and Pennsylvania.

The purchase consideration totaled approximately $164 million and will be financed with cash on hand and short-term borrowings.

The acquisition is subject to customary regulatory approvals and is expected to close during the second quarter of 2023.

The Hershey Company | Q1 2023 Form 10-Q | Page 32

TRENDS AFFECTING OUR BUSINESS

On March 11, 2020, the World Health Organization designated coronavirus disease 2019 (“COVID-19”) as a global pandemic, which has spread worldwide and impacted various markets around the world, including the U.S.

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 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 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 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).

Demand for consumer goods has remained strong during the first three months of 2023, with continued positive consumer patterns identified for our products;

however, negative macroeconomic conditions, including inflation on inputs to consumer products, labor shortages and demand outpacing supply, have resulted in continued broad-based supply chain disruptions across the U.S.

and globally.

As a result, we continued to experience corresponding incremental costs and gross margin pressures during the three months ended April 2, 2023 (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 nine months ended October 2, 2022, this conflict did not have a material impact on our commodity prices or supply availability.

In addition to 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 2, 2023, 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 during the three months ended October 2, 2022, which was primarily driven by strong everyday performance on our core U.S.

Net sales and net income increased during the three months ended April 2, 2023, 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 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.

As of April 2, 2023, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements in both the short-term and in the long-term;

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 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.

Based on the length and severity of broad-based supply chain disruptions, fluctuating levels of inflation, changes in consumer shopping and consumption behavior, and the conflict between Russia and Ukraine, we 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 Nine Months Ended

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

Three Months Ended

April 2, 2023 April 3, 2022 Percent Change

In millions of dollars except per share amounts

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SM&A expense as a percent of net sales 19.5 % 19.7 %

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

Business realignment activities 0.8 0.3 196.0 %

Operating profit 799.9 721.0 10.9 %

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Effective income tax rate 22.7% 21.2%

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 NM

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

Net income $ 587.2 $ 533.5 10.1 %

Net income per share—diluted $ 2.85 $ 2.57 10.9 %

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NM = not meaningful

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%.

Results of Operations - First Quarter 2023 vs.

First Quarter 2022

Net sales increased 12.1% in the first quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 8.9% primarily due to higher list prices, primarily within our North America Confectionery and North America Salty Snacks segments and a volume increase of 3.3% driven by increased consumer demand across reportable segments.

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

Marketplace Metrics

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

For the first quarter of 2023, 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 12.2% and experienced a CMG market share gain of approximately 23 basis points.

candy, mint and gum (“CMG”) consumer takeaway increased 12.3% and experienced a CMG market share decline of approximately 70 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 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

Cost of Sales and Gross Margin

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.

Cost of sales increased 13.0% in the first quarter of 2023 compared to the same period of 2022.

The increase was driven by higher sales volume, higher supply chain inflation costs, including higher logistics and labor costs and an incremental $61.4 million of unfavorable mark-to-market activity on our commodity derivative instruments intended

The Hershey Company | Q1 2023 Form 10-Q | Page 34

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 third quarter of 2022 compared to the same period of 2021.

Gross margin decreased by 40 basis p oints in the first quarter of 2023 compared to the same period of 2022.

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.

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SM&A Expenses

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.

SM&A expenses increased $57.4 million, or 10.9%, in the first quarter of 2023 compared to the same period of 2022.

Total advertising and related consumer marketing expenses increased 8.8% driven by advertising increases across reportable segments.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 12.1% in the first quarter of 2023 driven by an increase in acquisition and integration related costs, as well as higher compensation costs, investments in capabilities and technology and broad-based marketplace inflation.

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 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.

In the first quarter of 2023, we recorded $0.8 million business realignment costs versus costs of $0.3 million in the first quarter of 2022 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 $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 $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.

Other (Income) Expense, Net

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.

Income Taxes and Effective Tax Rate

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 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 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 $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 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 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.

Operating profit was $799.9 million in the first quarter of 2023 compared to $721.0 million in the same period of 2022 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above.

Operating profit margin decreased to 26.8% in 2023 from 27.0% in 2022 driven by the same factors noted above that resulted in lower gross margin for the period.

Interest Expense, Net

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

Net interest expense was $4.5 million higher in the first quarter of 2023 c ompared to the same period of 2022.

The increase was primarily due to higher rates on short-term debt balances in 2023 versus 2022, specifically related to outstanding commercial paper borrowings.

Other (Income) Expense, Net

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.

Other (income) expense, net was $2.9 million in the first quarter of 2023 versus net expense of $10.4 million in the first quarter of 2022.

The decrease in net expense was primarily due to lower write-downs on equity investments qualifying for tax credits in 2023 versus the first quarter of 2022 and higher non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

Our effective income tax rate was 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 utilization (during the third quarter of 2021) of previously generated capital losses.

The effective income tax rate was 22.7% for the first quarter of 2023 compared with 21.2% for the first quarter of 2022.

Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by state taxes, partially offset by employee share-based payments.

Relative to the 21% statutory rate, the 2022 effective tax rate was impacted by 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 $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.

Net income increased $53.7 million, or 10.1%, while EPS-diluted increased $0.28, or 10.9%, in the first quarter of 2023 compared to the same period of 2022.

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 income taxes, as noted above.

Our 2023 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

The Hershey Company | Q1 2023 Form 10-Q | Page 35

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

Three Months Ended Nine Months Ended

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

Three Months Ended

April 2, 2023 April 3, 2022

In millions of dollars

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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 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

North America Confectionery results, which accounted for 82.1% and 83.1% of our net sales for the three months ended April 2, 2023 and April 3, 2022, respectively, were as follows:

Three Months Ended

April 2, 2023 April 3, 2022 Percent Change

In millions of dollars

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Segment margin 36.2 % 35.3 %

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.

Results of Operations - First Quarter 2023 vs.

First Quarter 2022

Net sales of our North America Confectionery segment increased $235.2 million, or 10.6%, in the first quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 9.5% primarily due to list price increases on certain products across our portfolio and a volume increase of 1.4% due to an increase in everyday core U.S.

confection brands.

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This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore.

Our net sales for licensing and owned retail increased approximately 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 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.

Our net sales for licensing and owned retail increased approximately 21.6% during the first quarter of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $105.9 million, or 13.5%, in the first quarter of 2023 compared to the same period of 2022, 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 | Q1 2023 Form 10-Q | Page 37

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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 10.1% 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

North America Salty Snacks results, which accounted for 9.0% and 8.5% of our net sales for the three months ended April 2, 2023 and April 3, 2022, respectively, were as follows:

Three Months Ended

April 2, 2023 April 3, 2022 Percent Change

In millions of dollars

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Segment margin 17.3 % 9.4 %

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

Results of Operations - First Quarter 2023 vs.

First Quarter 2022

Net sales of our North America Salty Snacks segment increased $43.9 million, or 19.4%, in the first quarter of 2023 compared to the same period of 2022.

This increase reflects a favorable price realization of 10.9% due to list price increases on certain products across our portfolio, primarily SkinnyPop and Dot’s Homestyle Pretzels snacks, and a volume increase of 8.5% driven primarily by SkinnyPop snacks.

Our North America Salty Snacks segment income increased $25.5 million, or 119.7%, in the first quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization, volume increases and favorable freight costs, partially offset by higher supply chain costs.

International

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

We currently, have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Latin America, as well as 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

We currently, have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions.

International results, which accounted for 8.9% and 8.4% of our net sales for the three months ended April 2, 2023 and April 3, 2022, respectively, were as follows:

Three Months Ended

April 2, 2023 April 3, 2022 Percent Change

In millions of dollars

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Segment margin 20.7 % 18.8 %

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 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.

Results of Operations - First Quarter 2023 vs.

First Quarter 2022

Net sales of our International segment increased $42.3 million, or 19.0%, in the first quarter of 2023 compared to the same period of 2022, reflecting a volume increase of 17.4%, a favorable impact from foreign currency exchange rates of 1.5% and a favorable price realization of 0.1%.

The volume increase was primarily attributable to solid marketplace growth in Brazil, India and Mexico, where net sales increased by 27.7%, 24.2% and 18.2%, respectively.

Our International segment generated income of $55.0 million in the first quarter of 2023 compared to $42.0 million in the first quarter of 2022, driven primarily by favorable price realization and volume increases, partially offset by higher freight and logistics costs.

The Hershey Company | Q1 2023 Form 10-Q | Page 38

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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 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.

In the first quarter of 2023, unallocated corporate expense totaled $177.1 million, as compared to $150.3 million in the first quarter of 2022.

The increase was primarily driven by an increase in acquisition and integration related costs, as well as higher compensation costs, investments in capabilities and technology and broad-based marketplace inflation.

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 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 and in the current economic environment.

At April 2, 2023, our cash and cash equivalents totaled $460.3 million, a decrease of $3.5 million compared to the 2022 year-end balance.

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 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.

Additionally, at April 2, 2023, we had outstanding short- and long-term debt totaling $4.7 billion, of which $758.1 million was classified as the current portion of long-term debt.

Of the $758.1 million, $500 million of 3.375% Notes are due upon maturity on May 1, 2023 and $250 million of 2.625% Notes are due upon maturity on May 15, 2023.

We believe we can satisfy these debt obligations with cash generated from our operations, issuing new debt, and/or by borrowing on our unsecured revolving credit facility.

Approximately 90% of the balance of our cash and cash equivalents at April 2, 2023 was held by subsidiaries domiciled outside of the United States.

A majority of this balance is distributable to the United States without material tax implications, such as withholding tax.

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 for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings.

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.

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

Nine Months Ended

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

Three Months Ended

In millions of dollars April 2, 2023 April 3, 2022

Net cash provided by (used in):

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Effect of exchange rate changes on cash and cash equivalents (18.4) (20.2)

Cash classified as assets held for sale — 11.4

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

Net change in cash and cash equivalents $ (3.5) $ 8.8

The Hershey Company | Q1 2023 Form 10-Q | Page 39

Operating activities

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.

We generated cash of $755.4 million from operating activities in the first three months of 2023, an increase of $98.9 million compared to $656.5 million in the same period of 2022.

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

• Timing of income tax payments contributed to an increase in operating cash of $174.2 million in 2023, compared to $127.3 million in 2022.

This $46.9 million fluctuation was primarily due to the variance in actual tax expense for 2023 relative to the timing of quarterly estimated tax payments.

We paid cash of $12.3 million for income taxes during 2023 compared to $10.0 million in the same period of 2022.

• 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 $33.9 million of higher cash flow in 2023 relative to 2022.

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

• Net working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $212.3 million in 2022, compared to $185.3 million in 2021.

This $27.0 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 the timing of customer payments, partially offset by the timing of vendor and supplier payments.

Investing activities

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:

We used cash of $188.3 million for investing activities in the first three months of 2023, an increase of $24.3 million compared to $164.0 million in the same period of 2022.

This increase 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 $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 our supply chain and building digital infrastructure across the enterprise.

Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $176.1 million in the first three months of 2023 compared to $141.1 million in the same period of 2022.

Expenditures increased due to progress on capacity expansion projects and our ERP system implementation.

We expect 2023 capital expenditures, including capitalized software, to approximate $800 million to $900 million.

The increase in our 2023 capital expenditures is largely driven by our key strategic initiatives, including core confection capacity expansion and continued investments in a digital infrastructure including the build and upgrade of a new ERP system across the enterprise.

We intend to use our existing cash and internally generated funds to meet our 2023 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 $159.7 million in the first nine months of 2022, compared to $75.9 million in the same period of 2021.

• Business Acquisition .

In June 2021, we acquired Lily's for an initial cash purchase price of $419.5 million.

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

We invested approximately $12.3 million in the first three months of 2023, compared to $22.5 million in the same period of 2022.

Financing activities

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.

We used cash of $552.2 million for financing activities in the first three months of 2023, an increase of $88.7 million compared to $463.5 million in the same period of 2022.

This increase 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 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.

During the first three months of 2023, we used cash of $90.7 million to reduce a portion of our short-term commercial paper borrowings , partially offset by an increase in short-term foreign bank borrowings.

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.

• Long-term debt borrowings and repayments .

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

During the first three months of 2023 and the first three months of 2022, long-term debt borrowings and repayments were minimal.

• Dividend payments .

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.

Total dividend payments to holders of our Common Stock and Class B Common Stock were $207.4 million during the first three months of 2023, an increase of $26.3 million compared to $181.1 million in the same period of 2022.

Details regarding our 2023 cash dividends paid to stockholders are as follows:

The Hershey Company | Q1 2023 Form 10-Q | Page 40

Quarter Ended

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

In millions of dollars except per share amounts April 2, 2023

Dividends paid per share – Common stock $ 1.036

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Total cash dividends paid $ 207.4

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

Declaration date January 31, 2023

Record date February 17, 2023

Payment date March 15, 2023

• Share repurchases .

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Details regarding our share repurchases are as follows:

Nine Months Ended

In millions October 2, 2022 October 3, 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 151.9 308.0

Cash used for total share repurchases $ 355.3 $ 458.0

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 February 2023, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School Trust (the “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 $239.91 per share, for a total purchase price of $239.9 million.

In February 2022, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the 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 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.

In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization.

This program is to commence after the existing 2018 authorization is completed and is to be utilized at management’s discretion.

As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization was completed and as of April 2, 2023, approximately $370 million remained available for repurchases under our May 2021 share repurchase authorization.

The share repurchase program does not have an expiration date.

We expect 2023 share repurchases to be in line with our traditional buyback strategy.

• Proceeds from exercised stock options and employee tax withholding.

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.

During the first three months of 2023, we received $15.2 million from employee exercises of stock options and paid $28.3 million of employee taxes withheld from share-based awards.

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.

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

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The factors that could cause our actual results to differ materially from the results projected in our forward-looking statements include, but are not limited to the following:

• Our business and financial results may be negatively impacted by the failure to successfully manage a disruption in consumer and trade patterns, as well as operational challenges associated with the actual or perceived effects of a disease outbreak, including epidemics, pandemics or similar widespread public health concerns, such as the COVID-19 pandemic;

• Our Company’s reputation or brand image might be impacted as a result of issues or concerns relating to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters, which in turn could result in litigation or otherwise negatively impact our operating results;

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• Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products;

The Hershey Company | Q3 2022 Form 10-Q | Page 49

• Political, economic and/or financial market conditions, including impacts on our business arising from the conflict between Russia and Ukraine, could negatively impact our financial results;

The Hershey Company | Q1 2023 Form 10-Q | Page 42

• Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations;

• 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 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.”

• Such other matters as discussed in our 2022 Annual Report on Form 10-K 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