What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-27 · 148 added, 144 removed, 227 unchanged (56% of the section changed)

23 unchanged sentences

TRENDS AFFECTING OUR BUSINESS

Demand for consumer goods has remained strong during the first six months of 2023, with inflation slowing and continued positive consumer demand identified for our products;

however, negative macroeconomic conditions and future outlook, including fears of a pending recession, have negatively impacted consumer behaviors.

As a result, net sales and net income increased during the six months ended July 2, 2023;

however, this was primarily driven by price realization and minimal volume increases, as consumers are buying less during the first six months of 2023, compared to the same period in 2022.

Additionally, we continued to experience corresponding incremental costs and gross margin pressures during the six months ended July 2, 2023 (see Results of Operations included in this MD&A).

During the first nine months of 2023, the rate of inflation has slowed and consumer behaviors have shifted, as negative macroeconomic conditions and future outlook, including fears of a pending recession, have negatively impacted consumer behaviors.

Net sales and net income increased during the nine months ended October 1, 2023;

however, this was primarily driven by price realization and minimal volume increases.

Additionally, we continued to experience corresponding incremental costs and gross margin pressures during the nine months ended October 1, 2023 (see Results of Operations included in this MD&A).

Furthermore, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty.

For the six months ended July 2, 2023, this conflict did not have a material impact on our commodity prices or supply availability.

For the nine months ended October 1, 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.

As of July 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;

As of October 1, 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 fluctuating levels of inflation, the likelihood of a potential recession, changes in consumer shopping and consumption behavior, and the conflict between Russia and Ukraine, we may experience increasing supply chain costs, higher inflation and other impacts to our business.

Based on the length and severity of fluctuating levels of inflation, the likelihood of a potential recession, changes in consumer shopping and consumption behavior, and changes in geopolitical events, including the ongoing conflict between Russia and Ukraine and the recent conflict in the Gaza Strip, we may experience increasing supply chain costs, higher inflation and other impacts to our business.

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 2, 2023 July 3, 2022 Percent Change July 2, 2023 July 3, 2022 Percent Change

Three Months Ended Nine Months Ended

October 1, 2023 October 2, 2022 Percent Change October 1, 2023 October 2, 2022 Percent Change

In millions of dollars except per share amounts

16 unchanged sentences

NM = not meaningful

Results of Operations - Second Quarter 2023 vs.

Second Quarter 2022

Net sales increased 5.0% in the second quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 7.7% primarily due to higher list prices, primarily within our North America Confectionery and North America Salty Snacks segments.

This increase was offset by a volume decrease of 2.7% driven primarily by declines in everyday core U.S.

confection brands.

There was no impact from foreign currency exchange rates.

Results of Operations - Third Quarter 2023 vs.

Third Quarter 2022

Net sales increased 11.1% in the third quarter of 2023 compared to the same period of 2022.

The net sales increase reflects a favorable price realization of 9.8% driven by higher list prices primarily within our North America Confectionery and North America Salty Snacks segments and a volume increase of 0.9% driven primarily by an increase in everyday core North America Salty Snacks brands, partially offset by decreases in everyday core U.S.

brands and International brands.

Foreign currency exchange rates resulted in a 0.4% impact.

Marketplace Metrics

For the second quarter of 2023, our total U.S.

For the third quarter of 2023, our total U.S.

retail takeaway increased 2.4% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items.

candy, mint and gum (“CMG”) consumer takeaway increased 1.3% and experienced a CMG market share decline of 83 basis points.

candy, mint and gum (“CMG”) consumer takeaway increased 2.5% and experienced a CMG market share decline of approximately 120 basis points.

Our Salty consumer takeaway was flat for the third quarter of 2023 and experienced a Salty market share decline of 16 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, Incorporated (“IRI”), the Company’s market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.

These metrics are based on measured market scanned purchases as reported by Circana, the Company’s market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.

Cost of Sales and Gross Margin

Cost of sales decreased 1.0% in the second quarter of 2023 compared to the same period of 2022.

The decrease was driven by an incremental $2.3 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases, price realization and favorable supply chain productivity.

These decreases were partially offset by higher logistics and labor costs.

Cost of sales increased 3.1% in the third quarter of 2023 compared to the same period of 2022.

The increase was driven by higher sales volume and higher supply chain costs, including higher logistics and labor costs.

The Hershey Company | Q3 2023 Form 10-Q | Page 39

Gross margin increased by 340 basis points in the second quarter of 2023 compared to the same period of 2022.

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

These increases were offset by higher logistics and labor costs.

was partially offset by $31.1 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases, favorable price realization and supply chain productivity.

Gross margin increased by 430 basis points in the third quarter of 2023 compared to the same period of 2022.

The increase was driven by favorable year-over-year mark-to-market impact from commodity derivative instruments and favorable price realization These increases were offset by higher logistics and labor costs.

SM&A Expenses

SM&A expenses increased $28.3 million, or 5.2%, in the second quarter of 2023 compared to the same period of 2022.

Total advertising and related consumer marketing expenses increased 14.9% driven by increases across reportable segments.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 1.3% in the second quarter of 2023 driven by 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 2023, we recorded $0.3 million business realignment benefits related to the International Optimization Program.

There were no business realignment costs in the second 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.

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.

SM&A expenses increased $72.5 million, or 13.1%, in the third quarter of 2023 compared to the same period of 2022.

Total advertising and related consumer marketing expenses increased 20.0% driven primarily by North America Confectionery and North America Salty Snacks.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 9.9% in the third quarter of 2023 driven by higher compensation costs and investments in capabilities and technology across segments.

Operating Profit and Operating Profit Margin

Operating profit was $560.7 million in the second quarter of 2023 compared to $456.5 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 was $735.9 million in the third quarter of 2023 compared to $556.6 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 increased to 24.3% in 2023 from 20.4% in 2022 driven by the same factors noted above that resulted in higher gross margin for the period.

Interest Expense, Net

Net interest expense was $3.3 million higher in the second quarter of 2023 compared 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.

Net interest expense was $4.4 million higher in the third quarter of 2023 compared to the same period of 2022.

The increase was primarily due to higher rates on long-term debt balances in 2023 versus 2022, specifically related to the $350 million 4.25% Notes and $400 million 4.50% Notes issued in May 2023.

The increase was partially offset by higher interest income.

Other (Income) Expense, Net

Other (income) expense, net was $84.5 million in the second quarter of 2023 versus net expense of $19.7 million in the second quarter of 2022.

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

Other (income) expense, net was $42.7 million in the third quarter of 2023 versus net expense of $48.1 million in the third 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 third quarter of 2022.

Income Taxes and Effective Tax Rate

The effective income tax rate was 7.4% for the second quarter of 2023 compared with 21.8% for the second quarter of 2022.

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

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.

The effective income tax rate was 20.6% for the third quarter of 2023 compared with 15.6% for the third quarter of 2022.

Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by investment tax credits, partially offset by state taxes and tax reserves.

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

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

Net income increased $91.4 million, or 29.0%, while EPS-diluted increased $0.45, or 29.4%, in the second 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 and lower income taxes, partially offset by higher SM&A expenses and higher other income and expenses.

Net income increased $119.1 million, or 29.8%, while EPS-diluted increased $0.58, or 29.9%, in the third 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 and lower other income and expenses, partially offset by higher SM&A expenses and higher income taxes.

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.

Results of Operations - First Nine Months 2023 vs.

First Nine Months 2022

Net sales increased 9.5% in the first nine months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 9.1% primarily due to higher list prices across our reportable segments and a volume increase of 0.4% driven by increases in everyday core brands within the North America Salty Snacks and International segments, partially offset by a decrease in everyday core U.S.

There was no impact from foreign currency exchange rates.

The Hershey Company | Q3 2023 Form 10-Q | Page 40

Results of Operations - First Six Months 2023 vs.

First Six Months 2022

Net sales increased 8.7% in the first six months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 8.6% primarily due to higher list prices across our reportable segments and a volume increase of 0.2% driven by increases in everyday core brands within the North America Salty Snacks and International segments, partially offset by a decrease in everyday core U.S.

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

Marketplace Metrics

For the first nine months of 2023, our total U.S.

retail takeaway increased 7.5% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items.

CMG consumer takeaway increased 7.2% and experienced a CMG market share decline of 96 basis points.

Our Salty consumer takeaway increased 10.7% and experienced a Salty market share decline of 1 basis point.

Cost of Sales and Gross Margin

Cost of sales increased 6.1% in the first six months of 2023 compared to the same period of 2022.

Cost of sales increased 5.0% in the first nine months of 2023 compared to the same period of 2022.

The increase was driven by an incremental $28.0 million of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases, higher sales volume and higher supply chain costs, including higher logistics and labor costs.

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

Gross margin increased by 130 basis points in the first six months of 2023 compared to the same period of 2022.

Gross margin increased by 230 basis points in the first nine months of 2023 compared to the same period of 2022.

The increases were driven by favorable price realization and volume increases.

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SM&A Expenses

SM&A expenses increased $85.7 million, or 8.0%, in the first six months of 2023 compared to the same period of 2022.

Total advertising and related consumer marketing expenses increased 11.6% driven by increased investment in core brands and sponsorships in the North America Confectionery segment..

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 6.4% in the first six months of 2023 driven by an increase in compensation costs, investments in capabilities and technology and broad-based marketplace inflation.

SM&A expenses increased $158.1 million, or 9.8%, in the first nine months of 2023 compared to the same period of 2022.

Total advertising and related consumer marketing expenses increased 14.5% driven by increases across reportable segments, primarily North America Confectionery and North America Salty Snacks.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 7.6% in the first nine months of 2023 driven by an increase in compensation costs, investments in capabilities and technology and broad-based marketplace inflation.

Business Realignment Activities

During the first six months of 2023, we recorded business realignment costs of $0.4 million versus $0.3 million in the first six months of 2022 related to the International Optimization Program.

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies.

During the first nine months of 2023, we recorded business realignment costs of $0.4 million versus $0.3 million in the first nine months of 2022 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 15.5% in the first six months of 2023 compared to the same period of 2022 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above.

Operating profit increased 20.9% in the first nine months of 2023 compared to the same period of 2022 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above.

Operating profit margin was 24.6% in 2023 and 22.3% in 2022 driven by the same factors noted above that resulted in higher gross margin for the period.

Interest Expense, Net

Net interest expense was $7.8 million higher in the first six months of 2023 compared 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.

Net interest expense was $12.1 million higher in the first nine months of 2023 compared 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 and higher rates on long-term debt balances in 2023 versus 2022, specifically related to the $350 million 4.25% and $400 million 4.50% Notes issued in May 2023.

The increase was partially offset by higher interest income in 2023 compared to 2022.

The Hershey Company | Q2 2023 Form 10-Q | Page 40

Other (Income) Expense, Net

Other (income) expense, net was $87.5 million in the first six months of 2023 versus expense of $30.1 million in the first six months of 2022.

The increase in net expense was primarily due to higher 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.

Other (income) expense, net was $130.2 million in the first nine months of 2023 versus expense of $78.2 million in the first nine months of 2022.

The increase in net expense was primarily due to higher write-downs on equity investments qualifying for tax credits in 2023 versus the first quarter of 2022 and higher interest and amortization costs due to higher discount rates for pension and other post-retirement benefit plans.

The Hershey Company | Q3 2023 Form 10-Q | Page 41

Income Taxes and Effective Tax Rate

Our effective income tax rate was 17.1% for the first six months of 2023 compared with 21.4% for the first six months of 2022.

Our effective income tax rate was 18.3% for the first nine months of 2023 compared with 19.7% for the first nine months of 2022.

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

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

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

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

Net income increased $145.1 million, or 17.1%, while EPS-diluted increased $0.73, or 17.8%, in the first six months 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 and lower income taxes, partially offset by higher SM&A expenses and higher other income and expenses.

Net income increased $264.2 million, or 21.2%, while EPS-diluted increased $1.32, or 21.9%, in the first nine months of 2023 compared to the same period of 2022.

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

Our 2023 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases.

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

Three Months Ended Six Months Ended

July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022

Three Months Ended Nine Months Ended

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

In millions of dollars

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Unallocated corporate expense (1) 199.3 179.6 563.0 518.9

Unallocated mark-to-market losses (gains) on commodity derivatives (2) (6.8) 40.8 3.5 13.5

Costs associated with business realignment activities 1.5 0.7 3.8 2.0

Unallocated mark-to-market losses on commodity derivatives (2) 1.8 50.0 5.2 63.5

(Benefits) costs associated with business realignment activities (0.4) 0.4 3.4 2.4

Operating profit 735.9 556.7 2,096.5 1,734.1

12 unchanged sentences

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 80.0% and 80.5% of our net sales for the three months ended July 2, 2023 and July 3, 2022, respectively, were as follows:

Three Months Ended Six Months Ended

July 2, 2023 July 3, 2022 Percent Change July 2, 2023 July 3, 2022 Percent Change

North America Confectionery results, which accounted for 81.1% and 81.9% of our net sales for the three months ended October 1, 2023 and October 2, 2022, respectively, were as follows:

Three Months Ended Nine Months Ended

October 1, 2023 October 2, 2022 Percent Change October 1, 2023 October 2, 2022 Percent Change

In millions of dollars

2 unchanged sentences

Segment margin 34.5 % 31.6 % 34.7 % 33.1 %

Results of Operations - Second Quarter 2023 vs.

Second Quarter 2022

Net sales of our North America Confectionery segment increased $84.0 million, or 4.4%, in the second quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 8.4% primarily due to list price increases on certain products across our portfolio.

This increase was partially offset by a volume decrease of 3.6% due to a decrease in everyday core U.S.

Results of Operations - Third Quarter 2023 vs.

Third Quarter 2022

Net sales of our North America Confectionery segment increased $222.0 million, or 9.9%, in the third quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 11.1% primarily due to list price increases on certain products across our portfolio.

The increase was partially offset by a volume decrease of 1.0% due to a decrease in everyday core U.S.

confection brands, and an unfavorable impact from foreign currency exchange rates of 0.2%.

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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 3.7% during the second quarter of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $38.2 million, or 6.2%, in the second quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization, partially offset by volume declines, higher supply chain inflation costs, including higher logistics and labor costs, as well as unfavorable product mix.

Results of Operations - First Six Months 2023 vs.

First Six Months 2022

Net sales of our North America Confectionery segment increased $319.0 million or 7.7% in the first six months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 8.9% due to list price increases on certain products across our portfolio.

The increase was offset by a volume decrease of 0.8% primarily driven by a decrease in everyday core U.S.

Our net sales for licensing and owned retail increased approximately 11.6% during the third quarter of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $140.7 million, or 19.9%, in the third quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization, partially offset by volume declines, higher supply chain inflation costs, including higher logistics and labor costs, as well as unfavorable product mix.

Results of Operations - First Nine Months 2023 vs.

First Nine Months 2022

Net sales of our North America Confectionery segment increased $541.2 million, or 8.5%, in the first nine months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 9.8% due to list price increases on certain products across our portfolio.

The increase was partially offset by a volume decrease of 1.0% primarily driven by a decrease in everyday core U.S.

confection brands, and an unfavorable impact from foreign currency exchange rates of 0.3%.

1 unchanged sentence

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 23.2% during the first six months of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $144.2 million or 10.3% in the first six months of 2023 compared to the same period of 2022, primarily due to favorable price realization, partially offset by volume declines, 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 14.3% during the first nine months of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $284.8 million or 13.5% in the first nine months of 2023 compared to the same period of 2022, primarily due to favorable price realization, partially offset by volume declines, higher supply chain inflation costs, including higher logistics and labor costs, as well as unfavorable product mix.

North America Salty Snacks

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

North America Salty Snacks results, which accounted for 10.9% and 10.8% of our net sales for the three months ended July 2, 2023 and July 3, 2022, respectively, were as follows:

Three Months Ended Six Months Ended

July 2, 2023 July 3, 2022 Percent Change July 2, 2023 July 3, 2022 Percent Change

North America Salty Snacks results, which accounted for 11.4% and 10.1% of our net sales for the three months ended October 1, 2023 and October 2, 2022, respectively, were as follows:

Three Months Ended Nine Months Ended

October 1, 2023 October 2, 2022 Percent Change October 1, 2023 October 2, 2022 Percent Change

In millions of dollars

2 unchanged sentences

Segment margin 16.6 % 16.2 % 16.7 % 13.6 %

Results of Operations - Second Quarter 2023 vs.

Second Quarter 2022

Net sales of our North America Salty Snacks segment increased $16.1 million, or 6.3%, in the second quarter of 2023 compared to the same period of 2022.

This increase reflects a favorable price realization of 6.6%, due to list price increases on certain products across our portfolio, primarily SkinnyPop and Dot’s Homestyle Pretzels snacks, partially offset by a volume decrease of 0.3%.

Our North America Salty Snacks segment income increased $6.4 million, or 17.1%, in the second quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization, volume increases on certain products, and favorable product mix, partially offset by increased advertising and related consumer marketing costs.

Results of Operations - First Six Months 2023 vs.

First Six Months 2022

Net sales of our North America Salty Snacks segment increased $60 million, or 12.4%, in the first six months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 8.6%, due to list price increases on certain products across our portfolio, and a volume increase of 3.8% primarily related to SkinnyPop and Dot’s Homestyle Pretzels snacks.

Our North America Salty Snacks segment income increased $31.8 million, or 54.2%, in the first six months of 2023 compared to the same period of 2022, due to favorable price realization, volume increases and favorable product mix, partially offset by increased advertising and related consumer marketing costs.

Results of Operations - Third Quarter 2023 vs.

Third Quarter 2022

Net sales of our North America Salty Snacks segment increased $70.2 million, or 25.5%, in the third quarter of 2023 compared to the same period of 2022.

This reflects a volume increase of 22.2%, primarily due to Dot’s Homestyle Pretzels and SkinnyPop snacks, and a favorable price realization of 3.3%, due to list price increases on certain products across our portfolio, primarily SkinnyPop snacks.

Our North America Salty Snacks segment income increased $12.9 million, or 29.0%, in the third quarter of 2023 compared to the same period of 2022, primarily due to volume increases on certain products and favorable price realization, partially offset by increased advertising and related consumer marketing costs and additional supply chain expenses related to the voluntary removal of certain Paqui branded items.

Results of Operations - First Nine Months 2023 vs.

First Nine Months 2022

Net sales of our North America Salty Snacks segment increased $130.1 million, or 17.2%, in the first nine months of 2023 compared to the same period of 2022, reflecting a volume increase of 10.3%, primarily related to SkinnyPop and Dot’s Homestyle Pretzels snacks, and a favorable price realization of 6.9%, due to list price increases on certain products across our portfolio, primarily Dot’s Homestyle Pretzels and SkinnyPop snacks.

Our North America Salty Snacks segment income increased $44.7 million, or 43.3%, in the first nine months of 2023 compared to the same period of 2022, due to favorable price realization and volume increases, partially offset by increased advertising and related consumer marketing costs and increased supply chain costs, including incremental supply chain expenses incurred in the third quarter of 2023 related to the voluntary removal of certain Paqui branded items.

International

1 unchanged sentence

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 9.0% and 8.7% of our net sales for the three months ended July 2, 2023 and July 3, 2022, respectively, were as follows:

Three Months Ended Six Months Ended

July 2, 2023 July 3, 2022 Percent Change July 2, 2023 July 3, 2022 Percent Change

International results, which accounted for 7.5% and 8.0% of our net sales for the three months ended October 1, 2023 and October 2, 2022, respectively, were as follows:

Three Months Ended Nine Months Ended

October 1, 2023 October 2, 2022 Percent Change October 1, 2023 October 2, 2022 Percent Change

In millions of dollars

2 unchanged sentences

Segment margin 14.0 % 16.3 % 17.8 % 16.7 %

Results of Operations - Second Quarter 2023 vs.

Second Quarter 2022

Net sales of our International segment increased $17.6 million, or 8.5%, in the second quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 3.4%, a volume increase of 2.8%, primarily attributable to solid marketplace growth across the segment, and a favorable impact from foreign currency exchange rates of 2.3%, primarily driven by Mexico.

The net sales increase was primarily driven by Mexico and Brazil & Latin America (“LATAM”), where net sales increased by 22.6% and 12.7%, respectively.

Our International segment generated income of $41.1 million in the second quarter of 2023 compared to $30.7 million in the second quarter of 2022, driven primarily by favorable price realization, volume increases and favorable product mix, partially offset by supply chain costs.

Results of Operations - First Six Months 2023 vs.

First Six Months 2022

Net sales of our International segment increased $60.1 million, or 14.0%, in the first six months of 2023 compared to the same period of 2022, reflecting a volume increase of 7.8%, primarily attributable to solid marketplace growth across the segment, a favorable price realization of 4.3% and a favorable impact from foreign currency exchange rates of 1.9%, primarily driven by Mexico.

The net sales increase was primarily driven by LATAM and Mexico, where net sales increased by 25.8% and 20.3%, respectively.

Our International segment generated income of $96.2 million in the first six months of 2023 compared to $72.7 million in the first six months of 2022, driven primarily by favorable price realization, volume increases and favorable product mix, partially offset by supply chain costs.

Results of Operations - Third Quarter 2023 vs.

Third Quarter 2022

Net sales of our International segment increased $9.6 million, or 4.4%, in the third quarter of 2023 compared to the same period of 2022, reflecting a favorable impact from foreign currency exchange rates of 5.6%, primarily driven by Mexico and favorable price realization of 4.1%.

The increase was partially offset by volume declines of 5.3% across the segment.

The net sales increase was primarily driven by Mexico, where net sales increased by 19.0%.

Our International segment generated income of $31.7 million in the third quarter of 2023 compared to $35.4 million in the third quarter of 2022, driven primarily by volume declines and unfavorable product mix, partially offset by favorable price realization and lower supply chain costs.

Results of Operations - First Nine Months 2023 vs.

First Nine Months 2022

Net sales of our International segment increased $69.7 million, or 10.8%, in the first nine months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 4.2%, volume increases of 3.4%, primarily attributable to marketplace growth across the segment, and a favorable impact from foreign currency exchange rates of 3.2%, primarily driven by Mexico.

The net sales increase was primarily driven by Mexico and Brazil and Latin America, where net sales increased by 19.9% and 12.8%, respectively.

Our International segment generated income of $127.8 million in the first nine months of 2023 compared to $108.1 million in the first nine months of 2022, driven primarily by favorable price realization, volume increases and favorable supply chain costs, partially offset by unfavorable product mix.

Unallocated Corporate Expense

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

In the second quarter of 2023, unallocated corporate expense totaled $186.6 million, as compared to $188.9 million in the second quarter of 2022.

The decrease was primarily driven by a loss recognized in the prior year on the sale of non-operating assets, partially offset by an increase in acquisition and integration related costs, as well as investments in capabilities and technology and higher compensation costs.

In the first six months of 2023, unallocated corporate expense totaled $363.7 million, as compared to $339.1 million in the first six months of 2022.

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, partially offset by a loss recognized in the prior year on the sale of non-operating assets.

In the third quarter of 2023, unallocated corporate expense totaled $199.3 million, as compared to $179.6 million in the third quarter of 2022.

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

In the first nine months of 2023, unallocated corporate expense totaled $563.0 million, as compared to $518.9 million in the first nine months of 2022.

The increase was primarily driven by higher acquisition and integration related costs, as well as incremental investments in capabilities and technology and higher compensation costs, partially offset by a loss recognized in the prior year on the sale of non-operating assets.

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 July 2, 2023, our cash and cash equivalents totaled $446.2 million, a decrease of $17.7 million compared to the 2022 year-end balance.

We believe we have sufficient liquidity to satisfy our cash needs, including our new unsecured revolving credit facility which allows the Company to borrow up to $1.35 billion with the option to increase borrowings by an additional $500 million with the consent of the lenders.

At October 1, 2023, our cash and cash equivalents totaled $471.3 million, an increase of $7.4 million compared to the 2022 year-end balance.

We believe we have sufficient liquidity to satisfy our cash needs, including our unsecured revolving credit facility which allows the Company to borrow up to $1.35 billion with the option to increase borrowings by an additional $500 million with the consent of the lenders.

Additional details 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 2, 2023 was held by subsidiaries domiciled outside of the United States.

Approximately 85% of the balance of our cash and cash equivalents at October 1, 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.

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

Six Months Ended

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

Nine Months Ended

In millions of dollars October 1, 2023 October 2, 2022

Net cash provided by (used in):

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Operating activities

We generated cash of $1,049.8 million from operating activities in the first six months of 2023, an decrease of $64.0 million compared to $1,113.8 million in the same period of 2022.

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

We generated cash of $1,565.6 million from operating activities in the first nine months of 2023, an increase of $5.4 million compared to $1,560.2 million in the same period of 2022.

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

• Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, a write-down of equity investments and other charges) resulted in $314.9 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:

◦ In the aggregate, select net working capital items, specifically, trade accounts receivable, inventory, accounts payable and accrued liabilities, consumed cash of $449.6 million in 2023, compared to $212.6 million in 2022.

This $188.2 million fluctuation was mainly driven by the timing of vendor and supplier payments.

• Timing of income tax payments contributed to a decrease in operating cash of $3.7 million in 2023, compared to an increase of $51.9 million in 2022.

This $237.4 million fluctuation was mainly driven by an increase in cash used by accounts receivable due to an increase in sales of U.S.

seasonal products and the timing of vendor and supplier payments.

◦ Timing of income tax payments contributed to an increase in operating cash of $83.2 million in 2023, compared to an increase of $125.0 million in 2022.

This $41.7 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 $264.5 million for income taxes during 2023 compared to $190.7 million in the same period of 2022.

• The decrease in cash provided by operating activities was partially offset by the following net cash inflows:

◦ 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 $167.0 million of higher cash flow in 2023 relative to 2022.

◦ Other assets and liabilities consumed cash of $93.7 million in 2023, compared to $67.8 million in 2022.

This $26.0 million fluctuation was primarily due to our purchase of an irrevocable group annuity contract to settle a portion of our post retirement benefit obligation, partially offset by the timing of certain prepaid expenses and other current assets.

Investing activities

We used cash of $516.0 million for investing activities in the first six months of 2023, an increase of $165.0 million compared to $351.0 million in the same period of 2022.

We used cash of $735.5 million for investing activities in the first nine months of 2023, an increase of $225.5 million compared to $510.0 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, innovation and cost savings, were $330.5 million in the first six months of 2023 compared to $241.0 million in the same period of 2022.

Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $548.6 million in the first nine months of 2023 compared to $360.0 million in the same period of 2022.

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

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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 $19.1 million in the first six months of 2023, compared to $116.2 million in the same period of 2022.

We invested approximately $18.1 million in the first nine months of 2023, compared to $159.7 million in the same period of 2022.

• Business Acquisition .

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Financing activities

We used cash of $506.7 million for financing activities in the first six months of 2023, a decrease of $248.7 million compared to $755.4 million in the same period of 2022.

We used cash of $784.4 million for financing activities in the first nine months of 2023, a decrease of $291.6 million compared to $1,076.0 million in the same period of 2022.

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

The Hershey Company | Q3 2023 Form 10-Q | Page 44

• 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 2023, we generated cash of $170.0 million predominately through the issuance of short-term commercial paper, as well as an increase in short-term foreign bank borrowings.

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

The Hershey Company | Q2 2023 Form 10-Q | Page 43

During the first nine months of 2023, we generated cash of $126.1 million predominately through the issuance of short-term commercial paper, as well as an increase in short-term foreign bank 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.

• Long-term debt borrowings and repayments .

During the first six months of 2023, we issued $350 million of 4.250% Notes due in May 2028 and $400 million of 4.500% Notes due in May 2033 (the “2023 Notes”).

Proceeds from the issuance of the 2023 Notes, net of discounts and issuance costs, totaled $744,092.

Additionally, in May 2023 we repaid $250 million of 2.625% Notes and $500 million of 3.375% Notes due upon their maturity During the first six months of 2022, long-term debt borrowings and repayments were minimal.

During the first nine months of 2023, we issued $350 million of 4.250% Notes due in May 2028 and $400 million of 4.500% Notes due in May 2033 (the “2023 Notes”).

Proceeds from the issuance of the 2023 Notes, net of discounts and issuance costs, totaled $744 million.

Additionally, in May 2023 we repaid $250 million of 2.625% Notes and $500 million of 3.375% Notes due upon their maturity.

During the first nine 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 $413.5 million during the first six months of 2023, an increase of $52.5 million compared to $361.0 million in the same period of 2022.

Total dividend payments to holders of our Common Stock and Class B Common Stock were $651.3 million during the first nine months of 2023, an increase of $83.3 million compared to $568.0 million in the same period of 2022.

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

Quarter Ended

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

In millions of dollars except per share amounts April 2, 2023 July 2, 2023 October 1, 2023

Dividends paid per share – Common stock $ 1.036 $ 1.036 $ 1.192

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Total cash dividends paid $ 207.4 $ 206.1 $ 237.8

Declaration date January 31, 2023 April 25, 2023

Record date February 17, 2023 May 19, 2023

Payment date March 15, 2023 June 15, 2023

Declaration date January 31, 2023 April 25, 2023 July 27, 2023

Record date February 17, 2023 May 19, 2023 August 18, 2023

Payment date March 15, 2023 June 15, 2023 September 15, 2023

• Share repurchases .

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

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 July 2, 2023, approximately $370 million remained available for repurchases under our May 2021 share repurchase authorization.

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 October 1, 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.

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• Proceeds from exercised stock options and employee tax withholding.

During the first six months of 2023, we received $22.0 million from employee exercises of stock options and paid $33.0 million of employee taxes withheld from share-based awards.

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

During the first nine months of 2023, we received $24.3 million from employee exercises of stock options and paid $34.1 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.

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

The Hershey Company | Q3 2023 Form 10-Q | Page 45

Recent Accounting Pronouncements

Information on recently adopted and issued accounting standards is included in Note 1 to the Unaudited Consolidated Financial Statements.

The Hershey Company | Q2 2023 Form 10-Q | Page 44

Safe Harbor Statement

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

• 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 | Q3 2023 Form 10-Q | Page 46

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

• 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 2022 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2023 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, our Quarterly Report on Form 10-Q for the quarterly periods ended April 2, 2023 and July 3, 2023, 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