# Hershey (HSY) Financial Model

Free Excel 3-statement financial model and company analysis for Hershey.

- Canonical: https://finamodel.com/companies/hershey
- Industry: Food
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/HSY.xlsx

## Model Purpose

This model evaluates the equity valuation and earnings power of The Hershey Company, specifically assessing how the company's pricing power and cost-saving initiatives can offset the severe margin compression caused by historically high cocoa prices and shifting consumer demand elasticities.

## Company Overview

- **What the company does:** The Hershey Company is a global confectionery and snacking leader, manufacturing and selling chocolate, sweets, mints, and salty snacks.
- **Business segments:**
  - North America Confectionery (~81% of revenue)
  - North America Salty Snacks (~10% of revenue)
  - International (~9% of revenue)
- **Key geographies:** The vast majority of revenue is generated in the United States, with international operations focused on Mexico, EMEA, and India.
- **Business model type:** Asset-heavy, traditional consumer packaged goods (CPG) manufacturing and distribution model.
- **Competitive position:** Hershey holds the #1 market share position in U.S. chocolate and a leading position in U.S. total confection, competing primarily with Mars, Mondelez, and Ferrero.
- **Recent major events:** A massive surge in global cocoa prices in 2024/2025 severely impacting gross margins; the acquisition of Sour Strips (2024); completion of a major ERP implementation (2023/2024); and the ongoing "Triple A" transformation programme aimed at generating $900 million in cost savings between 2023 and 2026.

## Revenue Deep Dive



### North America Confectionery

- **Segment name:** North America Confectionery
- **Revenue driver formula:** `Prior Year Segment Revenue x (1 + Volume Growth % + Price/Mix %)`
- **Historical growth rate:** 3-6% CAGR (heavily price-driven in recent years).
- **Key growth levers and headwinds:** Seasonal strength (Halloween, Holiday, Easter), everyday sweets portfolio expansion, and value-channel growth. Headwinds include price elasticity (volume declines as prices rise) and consumer trade-down.
- **Pricing dynamics:** Highly dependent on list price increases to offset commodity inflation. Hershey announced significant pricing actions in August 2024.
- **Revenue recognition notes:** Recognised upon transfer of control to customers (typically upon delivery). Trade promotions, slotting fees, and discounts are recorded as a reduction to revenue.
- **Seasonality:** Q3 and Q4 are historically strong due to Halloween and Holiday shipments; Q1 is driven by Easter (timing of Easter can shift sales between Q1 and Q2).

### North America Salty Snacks

- **Segment name:** North America Salty Snacks
- **Revenue driver formula:** `Prior Year Segment Revenue x (1 + Volume Growth % + Price/Mix %)`
- **Historical growth rate:** 10-15% CAGR (boosted by acquisitions like Dot's Pretzels and Pretzels Inc.).
- **Key growth levers and headwinds:** Increased household penetration for SkinnyPop and Dot's Pretzels, capacity expansions. Headwinds include broader snacking category slowdowns.
- **Pricing dynamics:** Competitive promotional environment in the salty snack aisle.
- **Revenue recognition notes:** Standard CPG recognition, net of trade promotions.
- **Seasonality:** Relatively stable throughout the year compared to confectionery, with slight upticks around major sporting events (e.g., Super Bowl).

### International

- **Segment name:** International
- **Revenue driver formula:** `Prior Year Segment Revenue x (1 + Organic Volume Growth % + Price/Mix % + FX Impact %)`
- **Historical growth rate:** 5-10% CAGR.
- **Key growth levers and headwinds:** Double-digit growth in Mexico and EMEA, high single-digit growth in India. Headwinds include foreign currency translation and local macroeconomic volatility.
- **Pricing dynamics:** Localised pricing strategies to manage currency devaluation and local inflation.
- **Revenue recognition notes:** Standard CPG recognition.
- **Seasonality:** Varies by region, but generally aligns with local holiday calendars.

## Cost Structure



### Variable Costs / COGS

- **Line-by-line breakdown:** Raw materials (cocoa, sugar, dairy, peanuts), packaging, direct manufacturing labour, overhead, and freight/logistics.
- **Gross margin range:** Historically 43-45% (Adjusted), but facing severe contraction (guidance of 650-700 bps contraction in 2025 due to cocoa prices).
- **Key input costs and commodity exposures:** Cocoa is the single largest exposure, followed by sugar and dairy. The company uses forward contracts and derivatives to hedge, but sustained high prices eventually flow through the P&L.
- **How COGS scales with revenue:** Generally linear with volume, but currently distorted by massive commodity inflation that outpaces price realisation.

### Operating Expenses

- **R&D:** Minimal as a % of revenue (typically <1%), focused on product innovation and packaging.
- **SG&A:** Typically 18-20% of revenue. Includes advertising and related consumer marketing (historically 7-9% of sales), selling, and administrative expenses.
- **Depreciation & Amortisation:** Typically 2.5-3.5% of revenue, driven by heavy manufacturing footprint and amortisation of acquired intangibles.
- **Stock-Based Compensation:** ~0.5% of revenue.
- **Restructuring / one-time charges:** Frequent adjustments for business realignment (e.g., the "Triple A" programme) and acquisition integration costs.

### Margin Profile

- **Gross margin:** 43-45% historically, dropping to ~37-38% in 2025.
- **Operating margin:** 22-23% historically, compressing in the near term.
- **Net margin:** 14-16% historically.
- **Margin trend:** Compressing significantly in 2025 due to historically high cocoa prices, sugar inflation, and incremental labour costs, partially offset by the Triple A productivity programme.

## Balance Sheet Structure

- **Total assets:** ~$11.5 billion.
- **Key asset categories:** Property, Plant & Equipment (manufacturing facilities), Goodwill, and Other Intangibles (from acquisitions like Amplify and Dot's).
- **Goodwill & intangibles:** ~40-45% of total assets, reflecting a history of bolt-on acquisitions in the snacking space.
- **Working capital profile:**
  - **Days Sales Outstanding (DSO):** 25-30 days.
  - **Days Inventory Outstanding (DIO):** 60-75 days (elevated recently due to strategic stockpiling of raw materials and ERP transitions).
  - **Days Payable Outstanding (DPO):** 50-60 days.
  - **Net working capital as % of revenue:** Typically slightly positive to flat.
  - **Is working capital positive or negative?** Generally positive. Inventory management is a critical use of cash during commodity price spikes.
- **PP&E:** ~$3.5 billion. Consists of manufacturing plants, distribution centres, and equipment. Useful lives: Buildings (20-40 years), Machinery (3-15 years).
- **Right-of-use assets / operating leases:** Material but manageable, typically ~$300-$400 million, primarily for warehousing and office space.

## Capital Expenditure & Investment

- **Capex as % of revenue:** Historically 4-5.5% ($605 million in 2024, guiding down to $425-$450 million in 2025).
- **Maintenance capex vs. growth capex:** Roughly 40% maintenance, 60% growth/efficiency (e.g., new chocolate making facility in Hershey, ERP software capitalisation).
- **Major capex programmes underway or planned:** ERP implementation (largely complete) and domestic capacity expansion for core chocolate and salty snacks.
- **Capitalised software / development costs:** Material due to the recent multi-year ERP system implementation.
- **M&A pattern:** Bolt-on acquirer focused on high-growth snacking brands (e.g., Sour Strips in 2024, Dot's Pretzels, SkinnyPop).

## Debt & Capital Structure

- **Total debt:** ~$4.5 billion - $5.0 billion.
- **Debt/EBITDA ratio:** ~1.5x - 2.0x (conservative leverage profile).
- **Credit rating:** A- (S&P) / A1 (Moody's).
- **Key debt instruments:** Senior unsecured notes, commercial paper programme, and revolving credit facilities.
- **Maturity profile:** Well-laddered with a mix of short-term commercial paper and long-term bonds extending out 10-30 years.
- **Interest rate profile:** Predominantly fixed-rate bonds, with floating exposure on commercial paper. Weighted average cost of debt is ~3.5-4.5%.
- **Share repurchase programme:** Active but opportunistic. $500 million authorisation in Dec 2023, with $470 million remaining as of year-end 2024 (paused in Q4 2024).
- **Dividend policy:** Consistent dividend grower. Target payout ratio is typically around 50% of adjusted earnings.

## Cash Flow Characteristics

- **Operating cash flow conversion:** Consistently >1.0x of Net Income.
- **Free cash flow margin:** 12-15% historically, though pressured in 2024/2025 by high capex and inventory costs.
- **Major non-cash items:** Depreciation & amortisation, stock-based compensation, and mark-to-market losses/gains on commodity derivatives.
- **Working capital cash flow impact:** Inventory builds (especially cocoa) have been a material use of cash recently.
- **Capex intensity:** Moderate (returning to ~4% of sales in 2025).
- **Cash tax rate vs. GAAP effective tax rate:** Cash taxes generally track the effective tax rate, which is guided to 14-15% for 2025 (benefiting from tax credits and incentives).

## Sheet Structure

1. **Assumptions**: Hardcoded drivers for macroeconomic factors, segment growth, pricing, commodity inflation, and capital allocation.
2. **Income Statement**: Consolidated P&L mirroring the 10-K, ending in both GAAP and Adjusted Net Income.
3. **Revenue & Margin Build**: Detailed schedules for North America Confectionery, North America Salty Snacks, and International, calculating Volume, Price/Mix, and Segment Income.
4. **Balance Sheet**: Standard US GAAP balance sheet with detailed working capital and intangibles lines.
5. **Cash Flow Statement**: Indirect method, starting from Net Income, detailing working capital changes, capex, dividends, and debt issuance/repayment.
6. **Working Capital Schedule**: DSO, DIO, DPO calculations driving the balance sheet and cash flow statement.
7. **PP&E & Intangibles Schedule**: Capex, depreciation, software capitalisation, and amortisation roll-forwards.
8. **Debt & Interest Schedule**: Tranche-by-tranche debt roll-forward, commercial paper balances, and interest expense calculation.
9. **DCF Valuation**: Unlevered free cash flow calculation, WACC assumptions, terminal value, and implied share price.

## Key Financial Relationships

1. `North America Confectionery Revenue = Prior Year NA Confectionery Revenue * (1 + NA Confectionery Volume Growth + NA Confectionery Price/Mix)`
2. `North America Salty Snacks Revenue = Prior Year NA Salty Snacks Revenue * (1 + NA Salty Snacks Volume Growth + NA Salty Snacks Price/Mix)`
3. `International Revenue = Prior Year International Revenue * (1 + International Volume Growth + International Price/Mix + FX Impact)`
4. `Consolidated Net Sales = NA Confectionery Revenue + NA Salty Snacks Revenue + International Revenue`
5. `Cost of Sales = Consolidated Net Sales * (1 - Gross Margin %)` *(Note: Gross margin must be dynamically linked to commodity inflation assumptions).*
6. `Selling, Marketing and Administrative (SM&A) = Consolidated Net Sales * SM&A % of Sales`
7. `Segment Income = Segment Revenue * Segment Margin %`
8. `Adjusted Operating Profit = Consolidated Net Sales - Cost of Sales - SM&A - Depreciation & Amortisation + Transformation Programme Savings`
9. `Interest Expense = Average Total Debt * Weighted Average Interest Rate`
10. `Ending Inventory = (Cost of Sales / 365) * Days Inventory Outstanding (DIO)`
11. `Dividends Paid = Prior Year Adjusted EPS * Target Payout Ratio * Shares Outstanding`
12. `Free Cash Flow = Cash from Operations - Capital Additions (including software)`

## Cross-Sheet Dependencies

- **Revenue & Margin Build** feeds the top line and segment profit on the **Income Statement**.
- **Income Statement** generates Net Income, which is the starting point for the **Cash Flow Statement**.
- **Working Capital Schedule** uses Revenue and COGS from the **Income Statement** to calculate balances for the **Balance Sheet**, and the period-over-period changes feed the **Cash Flow Statement**.
- **PP&E & Intangibles Schedule** calculates D&A, which feeds the **Income Statement** (operating expenses) and **Cash Flow Statement** (non-cash add-back), while ending balances go to the **Balance Sheet**.
- **Debt & Interest Schedule** uses cash flow deficits/surpluses from the **Cash Flow Statement** to determine revolver/commercial paper drawdowns, updating debt on the **Balance Sheet** and calculating interest expense for the **Income Statement**. This creates a circular reference that must be managed with an interest circuit breaker.

## Sign Convention

- **Income Statement:** Revenue is positive. Expenses (COGS, SG&A, Interest, Taxes) are entered as positive numbers but subtracted in subtotal formulas (e.g., `Gross Profit = Revenue - COGS`).
- **Balance Sheet:** All assets, liabilities, and equity balances are positive.
- **Cash Flow Statement:** Cash inflows (e.g., Net Income, D&A, increase in payables, debt issuance) are positive. Cash outflows (e.g., increase in inventory, capex, dividends, debt repayment) are negative.
- **Growth Rates & Margins:** Positive percentages indicate growth or profit; negative percentages indicate contraction or loss.

## Things Most Likely to Go Wrong

1. **Gross Margin Disconnect:** Failing to model the massive 650-700 bps gross margin contraction guided for 2025 due to cocoa prices will render the model entirely inaccurate.
2. **GAAP vs. Adjusted Metrics:** Hershey heavily relies on Adjusted Gross Margin and Adjusted EPS. The model must clearly bridge GAAP to Adjusted by excluding mark-to-market commodity derivative losses and business realignment costs.
3. **Easter Timing Shifts:** Easter shifts between Q1 and Q2. If building a quarterly model, failing to adjust for this will create false YoY growth signals.
4. **ERP Implementation Laps:** Q4 2023 and Q1 2024 had significant inventory builds and drawdowns related to an ERP launch. Historical volume growth rates in these quarters are distorted and should not be straight-lined.
5. **Price Elasticity:** Assuming volume remains flat while pushing 4-5% price increases is unrealistic. The model must link price increases to volume declines (elasticity).
6. **Software Capitalisation:** Hershey capitalises significant software costs (ERP). Ensure these are captured in Capex and amortised properly, not expensed immediately in SG&A.
7. **Interest Circularity:** Debt balances drive interest expense, which lowers net income, which lowers cash, which requires more debt. Ensure a toggle is built to break this circularity.
8. **Share Count Drift:** Hershey frequently repurchases shares to offset dilution from stock-based compensation. Ensure the share count does not artificially inflate if buybacks are paused.

## Validation Checks

1. "Consolidated Net Sales growth should be >= 2.0% for 2025 based on management guidance; flag if below."
2. "Adjusted Gross Margin must drop to ~37.5-38.5% in 2025 (reflecting the 650-700 bps contraction from 2024's 44.8%); flag if >40%."
3. "Capex should be between $425M and $450M in 2025; flag if outside this range."
4. "Adjusted Effective Tax Rate should be 14.0% - 15.0%; flag if outside this band."
5. "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
6. "Debt/EBITDA should remain below 2.5x; flag if leverage exceeds this threshold."
7. "Dividend payout ratio should remain between 45-55% of Adjusted Net Income."
8. "Triple A programme savings should add exactly $125M to operating profit in 2025."

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| NA Confectionery Price/Mix Growth | 3.5 | % | Reflects carryover pricing from Aug 2024 and planned 2025 increases |
| NA Confectionery Volume Growth | -1.5 | % | Reflects expected price elasticity and slight consumer trade-down |
| NA Salty Snacks Revenue Growth | 5.0 | % | Normalisation after 2024 ERP lap distortions, driven by SkinnyPop/Dot's |
| International Revenue Growth | 4.0 | % | Continued strength in Mexico/EMEA offset by FX headwinds |
| Adjusted Gross Margin (2025) | 38.0 | % | Reflects guided 650-700 bps contraction from 2024 due to peak cocoa costs |
| SM&A as % of Sales | 18.5 | % | Historical average, balancing brand investment with Triple A cost savings |
| Triple A Incremental Savings (2025) | 125.0 | $M | Direct management guidance for 2025 cost structure improvement |
| Days Sales Outstanding (DSO) | 28 | Days | Historical average based on recent balance sheets |
| Days Inventory Outstanding (DIO) | 70 | Days | Elevated to reflect higher raw material costs and strategic stockpiling |
| Days Payable Outstanding (DPO) | 55 | Days | Historical average |
| Capital Expenditures (2025) | 435.0 | $M | Midpoint of management guidance ($425M - $450M) |
| Adjusted Effective Tax Rate | 14.5 | % | Midpoint of management guidance (14% - 15%) |
| Weighted Average Interest Rate | 4.2 | % | Based on current debt stack and commercial paper rates |
| Dividend per Share Growth | 5.0 | % | Conservative growth reflecting margin pressure but commitment to payout |
| Share Repurchases (2025) | 0.0 | $M | Assumed paused in near-term to preserve cash amid cocoa crisis |
| WACC | 7.5 | % | Standard consumer staples discount rate |
| Terminal Growth Rate | 2.0 | % | Long-term GDP / inflation alignment |

## Data Sources & Benchmarks

- **Filings:** SEC EDGAR (The Hershey Company 10-K, 8-K earnings releases).
- **Investor Relations:** The Hershey Company IR website (earnings presentations, prepared remarks transcripts).
- **Key Peers for Benchmarking:** Mondelez International (MDLZ), Mars (private, but useful for category data), Kellanova (K), General Mills (GIS), Tootsie Roll Industries (TR).
- **Industry Data Sources:** NielsenIQ / IRI (for U.S. retail takeaway data, market share in candy/mint/gum), ICCO (International Cocoa Organization) for global cocoa spot and futures pricing.
- **Consensus Estimates:** FactSet or Bloomberg for forward EPS and revenue estimates.

## Sources

- The Hershey Company Q4 2024 Earnings Release (February 6, 2025)
- The Hershey Company Q4 2024 Earnings Call Prepared Remarks (February 5, 2025)
- The Hershey Company 2024 Annual Report on Form 10-K (Filed February 2025)
- Historical SEC Filings (FY2021 - FY2023) for trend analysis and segment reporting structures.

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## Frequently asked questions

### What is The Hershey Company's primary business?

The Hershey Company is a global leader in confectionery and snacking, manufacturing and selling a wide range of chocolate, sweets, mints, and salty snacks. Its business is primarily focused on the North American market, holding the number one market share in U.S. chocolate.

### What are the main revenue segments for The Hershey Company?

The Hershey Company generates the vast majority of its revenue from North America Confectionery, accounting for approximately 81% of total sales. North America Salty Snacks contributes about 10%, with the remaining 9% coming from International operations.

### What is a key capital expenditure assumption in The Hershey Company's financial model?

The financial model assumes Capex as a percentage of revenue at 0.0536, reflecting the company's asset-heavy manufacturing and distribution model. This includes investments in manufacturing plants, distribution centers, and equipment, with a mix of maintenance and growth-oriented spending.

### What factors are considered in the working capital profile for Hershey's valuation?

The working capital profile for Hershey considers Days Sales Outstanding (DSO) of 25-30 days, Days Inventory Outstanding (DIO) of 60-75 days, and Days Payable Outstanding (DPO) of 50-60 days. Net working capital is generally positive, with inventory management being a critical use of cash during commodity price spikes.

### Can I download an Excel financial model for The Hershey Company?

Yes, an Excel financial model for The Hershey Company is available for download. This general corporate model provides a forecast horizon from FY2026 to FY2030, allowing users to analyze the company's future financial performance.

### What is Hershey's competitive position in the market?

Hershey holds the number one market share position in U.S. chocolate and a leading position in U.S. total confection. The company competes primarily with major players like Mars, Mondelez, and Ferrero in the global confectionery and snacking market.

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