Hershey Co. (NYSE:HSY)

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Hershey Co., effective income tax rate (EITR) reconciliation

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Federal statutory income tax rate	21.00%	21.00%	21.00%	21.00%	21.00%
State income taxes, net of Federal income tax benefits	3.20%	2.80%	2.70%	1.80%	2.70%
Business realignment and impairment charges	0.00%	0.00%	0.00%	0.00%	0.60%
Foreign rate differences	-0.10%	-0.20%	-0.50%	-1.50%	-2.00%
Historic and solar tax credits	-9.90%	-6.20%	-7.70%	-3.40%	-3.50%
U.S. tax reform	0.00%	0.00%	0.00%	0.00%	-1.40%
Tax contingencies	0.40%	1.70%	0.10%	0.90%	0.50%
Stock compensation	-0.70%	-0.50%	-0.60%	-1.30%	-0.30%
Valuation allowance release	0.00%	0.00%	0.00%	-1.50%	0.00%
Other, net	0.30%	-1.10%	-0.30%	0.90%	-0.60%
Effective income tax rate	14.20%	17.50%	14.70%	16.90%	17.00%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The effective income tax rate (EITR) remained consistently below the federal statutory rate of 21.00% throughout the period from 2018 to 2022. The EITR exhibited fluctuations, starting at 17.00% in 2018, reaching a period high of 17.50% in 2021, and declining to a period low of 14.20% by the end of 2022.

Primary Downward Drivers of the Effective Tax Rate: Historic and solar tax credits represent the most significant factor reducing the EITR. The impact of these credits grew progressively, moving from a 3.50% reduction in 2018 to a substantial 9.90% reduction in 2022, which served as the primary catalyst for the lower effective rate in the final year.; Foreign rate differences provided a consistent reduction to the tax rate, although this benefit diminished over time, decreasing from 2.00% in 2018 to 0.10% in 2022.; Stock compensation benefits consistently lowered the tax burden, with the most significant impact observed in 2019 at 1.30%.
Factors Contributing to Tax Rate Increases: State income taxes, net of federal benefits, acted as a consistent upward pressure on the EITR. This component showed a general upward trend, rising from 1.80% in 2019 to 3.20% in 2022.; Tax contingencies contributed modest increases to the effective rate, with a notable peak of 1.70% in 2021 compared to a low of 0.10% in 2020.
Non-Recurring and Temporary Adjustments: The 2018 fiscal year was influenced by one-time reductions stemming from U.S. tax reform (1.40%) and business realignment and impairment charges (0.60%).; A valuation allowance release provided a temporary reduction of 1.50% specifically in 2019.

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Hershey Co., components of deferred tax assets and liabilities

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Post-retirement benefit obligations	40,100)	51,026)	58,059)	56,384)	52,915)
Accrued expenses and other reserves	78,523)	81,847)	86,412)	88,590)	85,180)
Stock-based compensation	19,847)	21,898)	18,831)	19,304)	30,448)
Derivative instruments	3,983)	—)	15,550)	16,864)	17,423)
Pension	—)	—)	8,203)	3,952)	8,921)
Lease liabilities	91,099)	95,503)	64,192)	64,988)	12,284)
Accrued trade promotion reserves	23,082)	25,382)	25,877)	21,709)	13,670)
Net operating loss carryforwards	130,944)	152,389)	154,445)	160,584)	161,242)
Capital loss carryforwards	1,999)	2,522)	15,401)	26,022)	26,670)
Other	52,802)	49,760)	10,027)	9,685)	9,969)
Gross deferred tax assets	442,379)	480,327)	456,997)	468,082)	418,722)
Valuation allowance	(137,531)	(167,788)	(193,310)	(206,743)	(239,959)
Deferred tax assets	304,848)	312,539)	263,687)	261,339)	178,763)
Property, plant and equipment, net	(247,964)	(234,474)	(180,633)	(161,449)	(144,044)
Acquired intangibles	(193,160)	(168,087)	(156,439)	(144,314)	(161,003)
Lease ROU assets	(28,573)	(76,285)	(46,778)	(48,419)	—)
Inventories	(72,602)	(20,105)	(21,086)	(29,158)	(21,366)
Derivative instruments	—)	(1,352)	—)	—)	—)
Pension	(11,038)	(11,871)	—)	—)	—)
Other	(39,416)	(47,496)	(58,410)	(46,984)	(28,044)
Deferred tax liabilities	(592,753)	(559,670)	(463,346)	(430,324)	(354,457)
Net deferred tax assets (liabilities)	(287,905)	(247,131)	(199,659)	(168,985)	(175,694)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The net deferred tax position reveals a widening liability trend between 2018 and 2022. Net deferred tax liabilities increased from $175.7 million in 2018 to $287.9 million by the end of 2022. While net deferred tax assets grew during this period, the expansion of deferred tax liabilities occurred at a significantly faster rate, leading to an overall increase in the net liability balance.

Deferred Tax Asset Components and Valuation: Gross deferred tax assets remained relatively stable, fluctuating between $418.7 million in 2018 and $480.3 million in 2021, before closing at $442.4 million in 2022. A significant positive trend is observed in the valuation allowance, which decreased consistently from $239.9 million in 2018 to $137.5 million in 2022, indicating an increased probability of realizing the underlying tax assets. However, traditional tax shields are depleting; net operating loss carryforwards declined from $161.2 million to $130.9 million, and capital loss carryforwards dropped sharply from $26.7 million to $2.0 million over the five-year span. These declines were partially offset by a substantial increase in assets related to lease liabilities, which rose from $12.3 million in 2018 to $91.1 million in 2022.
Deferred Tax Liability Drivers: Deferred tax liabilities showed a continuous upward trajectory, growing from $354.5 million in 2018 to $592.8 million in 2022. The primary driver of this increase was the net property, plant, and equipment component, which grew from $144.0 million to $247.9 million, suggesting ongoing capital investment and resulting timing differences between book and tax depreciation. Acquired intangibles also contributed to the liability growth, ending the period at $193.2 million. A notable volatility is observed in inventory-related liabilities, which spiked to $72.6 million in 2022 from $20.1 million in 2021.
Net Position Synthesis: The overall financial trajectory indicates a shift toward a higher net deferred tax liability. The increase in net deferred tax assets—from $178.8 million to $304.8 million—was insufficient to counteract the $238.3 million increase in total deferred tax liabilities. Consequently, the net liability position expanded by approximately 64% over the analyzed period, reflecting a growing gap between taxable and financial accounting treatments of assets and liabilities.

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Hershey Co., deferred tax assets and liabilities, classification

US$ in thousands

		Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
	Non-current deferred tax assets, net	40,498)	40,873)	29,369)	31,033)	1,166)
	Non-current deferred tax liabilities, net	328,403)	288,004)	229,028)	200,018)	176,860)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

An analysis of the deferred tax accounts from 2018 to 2022 reveals a consistent expansion of both deferred tax assets and liabilities, with the growth of liabilities significantly outpacing that of assets. The company maintains a substantial net deferred tax liability position that has widened over the five-year period.

Non-current Deferred Tax Assets: A significant increase in assets occurred between 2018 and 2019, where the balance rose from 1.17 million to 31.03 million. Following a slight contraction in 2020 to 29.37 million, the balance grew again to reach 40.87 million in 2021 and remained relatively stable at 40.50 million by the end of 2022.
Non-current Deferred Tax Liabilities: A steady and uninterrupted upward trend is observed in deferred tax liabilities. The balance grew from 176.86 million in 2018 to 328.40 million in 2022. The most pronounced annual increases occurred between 2020 and 2022, indicating an accumulation of temporary differences that will result in future taxable amounts.
Net Deferred Tax Position: The gap between deferred tax liabilities and assets has expanded progressively. In 2018, the net deferred tax liability was approximately 175.69 million. By 2022, this net position increased to approximately 287.91 million, reflecting a growing future tax obligation relative to the available deferred tax assets.

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Hershey Co., Financial Data: Reported vs. Adjusted

Hershey Co., adjustments to financial statements

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Adjustment to Total Assets
Total assets (as reported)	10,948,820)	10,412,231)	9,131,845)	8,140,395)	7,703,020)
Less: Noncurrent deferred tax assets, net	40,498)	40,873)	29,369)	31,033)	1,166)
Total assets (adjusted)	10,908,322)	10,371,358)	9,102,476)	8,109,362)	7,701,854)
Adjustment to Total Liabilities
Total liabilities (as reported)	7,649,276)	7,655,002)	6,893,962)	6,395,401)	6,295,754)
Less: Noncurrent deferred tax liabilities, net	328,403)	288,004)	229,028)	200,018)	176,860)
Total liabilities (adjusted)	7,320,873)	7,366,998)	6,664,934)	6,195,383)	6,118,894)
Adjustment to Total The Hershey Company Stockholders’ Equity
Total The Hershey Company stockholders’ equity (as reported)	3,299,544)	2,757,229)	2,234,352)	1,739,222)	1,398,721)
Less: Net deferred tax assets (liabilities)	(287,905)	(247,131)	(199,659)	(168,985)	(175,694)
Total The Hershey Company stockholders’ equity (adjusted)	3,587,449)	3,004,360)	2,434,011)	1,908,207)	1,574,415)
Adjustment to Net Income Attributable To The Hershey Company
Net income attributable to The Hershey Company (as reported)	1,644,817)	1,477,512)	1,278,708)	1,149,692)	1,177,562)
Add: Deferred income tax expense (benefit)	36,889)	13,374)	26,880)	(15,072)	36,255)
Net income attributable to The Hershey Company (adjusted)	1,681,706)	1,490,886)	1,305,588)	1,134,620)	1,213,817)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The removal of deferred taxes from the financial statements results in a consistent shift in the reported financial position from 2018 through 2022. The most significant impacts are observed on the balance sheet, where the adjustment leads to a reduction in total liabilities and a corresponding increase in stockholders' equity, while the impact on net income remains relatively marginal.

Balance Sheet Asset Trends: Total assets grew steadily from 7.7 billion USD in 2018 to 10.9 billion USD in 2022. The variance between reported and adjusted total assets is minimal throughout the period, indicating that deferred tax assets represent a very small fraction of the overall asset base. The difference between reported and adjusted assets expanded from 1.16 million USD in 2018 to 40.5 million USD in 2022, though it remains immaterial relative to total scale.
Liability and Solvency Adjustments: A significant divergence is observed between reported and adjusted total liabilities. Reported liabilities increased from 6.29 billion USD in 2018 to 7.65 billion USD in 2022. The adjusted figures are consistently lower, as the removal of deferred tax liabilities reduces the reported debt profile. This gap widened over the five-year period, increasing from 176.8 million USD in 2018 to 328.4 million USD in 2022, suggesting a growing accumulation of deferred tax obligations over time.
Impact on Stockholders' Equity: Adjusted stockholders' equity is consistently higher than reported equity across all years. Reported equity rose from 1.39 billion USD in 2018 to 3.29 billion USD in 2022, while adjusted equity climbed from 1.57 billion USD to 3.58 billion USD. The positive adjustment to equity grew from 175.6 million USD in 2018 to 287.9 million USD in 2022, demonstrating that the removal of deferred tax liabilities improves the perceived net worth and solvency ratios of the entity.
Net Income Variations: Net income attributable to the company exhibited a general upward trend, increasing from 1.17 billion USD in 2018 to 1.64 billion USD in 2022. The adjustments for deferred taxes had a negligible impact on profitability compared to the balance sheet. The adjusted net income was higher than the reported figure in four of the five years, with the exception of 2019, where adjusted net income was 15 million USD lower than reported.

Overall, the adjustment process reveals that deferred taxes primarily function as a significant liability on the balance sheet. The removal of these items strengthens the equity position and lowers the liability profile without substantially altering the annual profitability trends.

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Hershey Co., Financial Ratios: Reported vs. Adjusted

Hershey Co., adjusted financial ratios

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net Profit Margin
Reported net profit margin	15.79%	16.47%	15.69%	14.40%	15.11%
Adjusted net profit margin	16.14%	16.62%	16.02%	14.21%	15.58%
Total Asset Turnover
Reported total asset turnover	0.95	0.86	0.89	0.98	1.01
Adjusted total asset turnover	0.96	0.87	0.90	0.98	1.01
Financial Leverage
Reported financial leverage	3.32	3.78	4.09	4.68	5.51
Adjusted financial leverage	3.04	3.45	3.74	4.25	4.89
Return on Equity (ROE)
Reported ROE	49.85%	53.59%	57.23%	66.10%	84.19%
Adjusted ROE	46.88%	49.62%	53.64%	59.46%	77.10%
Return on Assets (ROA)
Reported ROA	15.02%	14.19%	14.00%	14.12%	15.29%
Adjusted ROA	15.42%	14.38%	14.34%	13.99%	15.76%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

An analysis of financial performance from 2018 to 2022 reveals a period of relative stability in profitability and asset efficiency, contrasted by a systemic reduction in financial leverage and a corresponding decline in return on equity. The removal of deferred taxes provides a modified perspective on the company's capital structure and return metrics, though the overarching trends remain consistent across both reported and adjusted figures.

Profitability and Asset Returns: Net profit margins remained relatively stable over the five-year period, fluctuating between approximately 14% and 16.6%. Reported and adjusted margins track closely, with adjusted margins generally appearing higher from 2020 onward. Similarly, Return on Assets (ROA) exhibited minimal volatility, maintaining a range between 14% and 15.4%. The close alignment between reported and adjusted ROA suggests that the impact of deferred tax adjustments on overall asset productivity is marginal.
Asset Utilization: Total asset turnover experienced a gradual decline from 1.01 in 2018 to a low of 0.86 in 2021, before recovering to 0.95 in 2022. The adjusted turnover ratios show negligible deviation from the reported figures, indicating that deferred tax liabilities or assets have an insignificant effect on the measurement of asset employment efficiency.
Financial Leverage and Return on Equity: A pronounced downward trend is observed in financial leverage, which decreased from 5.51 to 3.32 on a reported basis and from 4.89 to 3.04 on an adjusted basis. This consistent reduction in leverage is strongly correlated with a sharp decline in Return on Equity (ROE), which fell from a reported 84.19% in 2018 to 49.85% in 2022. The adjusted ROE figures are consistently lower than the reported values, suggesting that the removal of deferred taxes increases the equity base or reduces the net income attributed to equity, thereby lowering the resulting return percentage.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to The Hershey Company	1,644,817)	1,477,512)	1,278,708)	1,149,692)	1,177,562)
Net sales	10,419,294)	8,971,337)	8,149,719)	7,986,252)	7,791,069)
Profitability Ratio
Net profit margin¹	15.79%	16.47%	15.69%	14.40%	15.11%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to The Hershey Company	1,681,706)	1,490,886)	1,305,588)	1,134,620)	1,213,817)
Net sales	10,419,294)	8,971,337)	8,149,719)	7,986,252)	7,791,069)
Profitability Ratio
Adjusted net profit margin²	16.14%	16.62%	16.02%	14.21%	15.58%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ Net profit margin = 100 × Net income attributable to The Hershey Company ÷ Net sales
= 100 × 1,644,817 ÷ 10,419,294 = 15.79%

² Adjusted net profit margin = 100 × Adjusted net income attributable to The Hershey Company ÷ Net sales
= 100 × 1,681,706 ÷ 10,419,294 = 16.14%

A consistent upward trajectory in net income is observed from 2019 through 2022, following a slight decline in 2019. This growth is reflected in both reported and adjusted figures, indicating a strengthening of the bottom line over the analyzed five-year period. While nominal earnings have risen, profit margins have exhibited more volatility, characterized by a mid-period peak and a subsequent slight contraction.

Net Income Growth Patterns: Reported net income rose from 1,149,692 thousand US dollars in 2019 to 1,644,817 thousand US dollars in 2022, representing a steady increase in absolute profitability. Adjusted net income followed a nearly identical path, growing from 1,134,620 thousand US dollars in 2019 to 1,681,706 thousand US dollars by the end of 2022. The most significant year-over-year growth occurred between 2020 and 2021.
Adjusted Net Profit Margin Analysis: The adjusted net profit margin experienced a fluctuation over the period, starting at 15.58% in 2018 and dipping to 14.21% in 2019. A recovery followed, with the margin peaking at 16.62% in 2021 before moderating to 16.14% in 2022. This suggests that while overall income increased, the efficiency of converting revenue into profit reached its maximum in 2021.
Comparison Between Reported and Adjusted Metrics: Adjusted net income generally exceeded reported net income in most years, particularly in 2018, 2020, 2021, and 2022. The variance between reported and adjusted net profit margins remained narrow throughout the period, typically differing by less than 0.5 percentage points. This indicates that the adjustments made to the reported figures have a consistent and relatively limited impact on the overall margin percentage.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net sales	10,419,294)	8,971,337)	8,149,719)	7,986,252)	7,791,069)
Total assets	10,948,820)	10,412,231)	9,131,845)	8,140,395)	7,703,020)
Activity Ratio
Total asset turnover¹	0.95	0.86	0.89	0.98	1.01
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Net sales	10,419,294)	8,971,337)	8,149,719)	7,986,252)	7,791,069)
Adjusted total assets	10,908,322)	10,371,358)	9,102,476)	8,109,362)	7,701,854)
Activity Ratio
Adjusted total asset turnover²	0.96	0.87	0.90	0.98	1.01

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ Total asset turnover = Net sales ÷ Total assets
= 10,419,294 ÷ 10,948,820 = 0.95

² Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 10,419,294 ÷ 10,908,322 = 0.96

The asset base exhibits a consistent growth trajectory over the five-year period from 2018 to 2022. Reported total assets increased from $7,703,020 thousand to $10,948,820 thousand, while adjusted total assets mirrored this expansion, rising from $7,701,854 thousand to $10,908,322 thousand.

Adjusted Total Asset Turnover Trend: A non-linear trend is observed in the adjusted total asset turnover ratio. The ratio began at 1.01 in 2018 and experienced a steady decline over the subsequent three years, reaching a minimum of 0.87 in 2021. This downward trend suggests a period where asset growth outpaced revenue growth. However, a significant recovery occurred in 2022, with the ratio increasing to 0.96, indicating an improvement in the efficiency of asset utilization.
Comparative Analysis of Reported and Adjusted Metrics: The variance between reported and adjusted total asset turnover is marginal but persistent. From 2020 through 2022, the adjusted turnover ratio remained slightly higher than the reported ratio. This indicates that the adjustments applied to the asset base slightly optimize the efficiency metric, though the overarching trend remains identical across both reporting methods.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Total assets	10,948,820)	10,412,231)	9,131,845)	8,140,395)	7,703,020)
Total The Hershey Company stockholders’ equity	3,299,544)	2,757,229)	2,234,352)	1,739,222)	1,398,721)
Solvency Ratio
Financial leverage¹	3.32	3.78	4.09	4.68	5.51
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets	10,908,322)	10,371,358)	9,102,476)	8,109,362)	7,701,854)
Adjusted total The Hershey Company stockholders’ equity	3,587,449)	3,004,360)	2,434,011)	1,908,207)	1,574,415)
Solvency Ratio
Adjusted financial leverage²	3.04	3.45	3.74	4.25	4.89

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ Financial leverage = Total assets ÷ Total The Hershey Company stockholders’ equity
= 10,948,820 ÷ 3,299,544 = 3.32

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total The Hershey Company stockholders’ equity
= 10,908,322 ÷ 3,587,449 = 3.04

A consistent reduction in financial leverage is observed between December 31, 2018, and December 31, 2022. Both reported and adjusted leverage ratios demonstrate a steady year-over-year decline, indicating a transition toward a more conservative capital structure and a reduction in the relative reliance on debt financing.

Adjusted Financial Leverage Trends: The adjusted financial leverage ratio decreased from 4.89 in 2018 to 3.04 in 2022. This represents a cumulative reduction of approximately 37.8% over the five-year period, signifying a strengthening of the company's solvency position when accounting for specific balance sheet adjustments.
Comparison of Reported and Adjusted Metrics: A persistent variance is maintained between reported and adjusted leverage figures, with the adjusted ratio remaining consistently lower than the reported ratio across all periods. By December 31, 2022, the adjusted leverage was 3.04 compared to the reported leverage of 3.32. This divergence is driven by the difference between reported and adjusted stockholders' equity, where adjusted equity is consistently higher, thereby lowering the resulting leverage ratio.
Drivers of Leverage Reduction: The decline in leverage ratios is primarily attributable to the growth rate of stockholders' equity outpacing the growth rate of total assets. Reported stockholders' equity increased by approximately 136% from 2018 to 2022, while reported total assets increased by approximately 42% over the same interval. This disproportionate growth in equity effectively diluted the financial leverage ratio over time.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to The Hershey Company	1,644,817)	1,477,512)	1,278,708)	1,149,692)	1,177,562)
Total The Hershey Company stockholders’ equity	3,299,544)	2,757,229)	2,234,352)	1,739,222)	1,398,721)
Profitability Ratio
ROE¹	49.85%	53.59%	57.23%	66.10%	84.19%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to The Hershey Company	1,681,706)	1,490,886)	1,305,588)	1,134,620)	1,213,817)
Adjusted total The Hershey Company stockholders’ equity	3,587,449)	3,004,360)	2,434,011)	1,908,207)	1,574,415)
Profitability Ratio
Adjusted ROE²	46.88%	49.62%	53.64%	59.46%	77.10%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ ROE = 100 × Net income attributable to The Hershey Company ÷ Total The Hershey Company stockholders’ equity
= 100 × 1,644,817 ÷ 3,299,544 = 49.85%

² Adjusted ROE = 100 × Adjusted net income attributable to The Hershey Company ÷ Adjusted total The Hershey Company stockholders’ equity
= 100 × 1,681,706 ÷ 3,587,449 = 46.88%

A comprehensive analysis of the financial performance between 2018 and 2022 reveals a divergent trend between profitability growth and capital efficiency. While adjusted net income has shown a general upward trajectory, a significant and consistent increase in stockholders' equity has resulted in a progressive decline in the adjusted return on equity (ROE).

Adjusted Net Income Trends: Adjusted net income experienced a slight contraction in 2019, falling to US$ 1,134,620 thousand from US$ 1,213,817 thousand in 2018. However, this was followed by a period of sustained growth, reaching US$ 1,681,706 thousand by December 31, 2022. This demonstrates a steady expansion of earnings capacity following the 2019 dip.
Adjusted Stockholders' Equity Growth: A consistent and aggressive increase in adjusted stockholders' equity is observed throughout the analyzed period. Equity grew from US$ 1,574,415 thousand in 2018 to US$ 3,587,449 thousand in 2022. This continuous accumulation of equity suggests a strengthening of the balance sheet, although it serves as the primary driver for the compression of return ratios.
Adjusted Return on Equity (ROE) Analysis: The adjusted ROE exhibits a continuous downward trend, decreasing from 77.10% in 2018 to 46.88% in 2022. This decline occurs despite the overall growth in adjusted net income. The pattern indicates that the rate of equity growth significantly outpaced the rate of income growth, leading to a reduction in the efficiency of generating profit relative to the shareholders' invested capital.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to The Hershey Company	1,644,817)	1,477,512)	1,278,708)	1,149,692)	1,177,562)
Total assets	10,948,820)	10,412,231)	9,131,845)	8,140,395)	7,703,020)
Profitability Ratio
ROA¹	15.02%	14.19%	14.00%	14.12%	15.29%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to The Hershey Company	1,681,706)	1,490,886)	1,305,588)	1,134,620)	1,213,817)
Adjusted total assets	10,908,322)	10,371,358)	9,102,476)	8,109,362)	7,701,854)
Profitability Ratio
Adjusted ROA²	15.42%	14.38%	14.34%	13.99%	15.76%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ ROA = 100 × Net income attributable to The Hershey Company ÷ Total assets
= 100 × 1,644,817 ÷ 10,948,820 = 15.02%

² Adjusted ROA = 100 × Adjusted net income attributable to The Hershey Company ÷ Adjusted total assets
= 100 × 1,681,706 ÷ 10,908,322 = 15.42%

A consistent upward trajectory is observed in both reported and adjusted net income between 2018 and 2022. During this period, the asset base expanded steadily, indicating significant growth in the organization's resource footprint. While profitability increased in absolute terms, the efficiency of asset utilization fluctuated before returning to levels seen at the start of the period.

Net Income Trajectory: Reported net income attributable to the company rose from 1,177,562 thousand USD in 2018 to 1,644,817 thousand USD by 2022. Adjusted net income followed a similar growth pattern, increasing from 1,213,817 thousand USD to 1,681,706 thousand USD. The adjusted figures generally exceeded reported net income from 2020 onward, suggesting the impact of non-recurring expenses or accounting adjustments on the reported results.
Asset Base Expansion: Total assets demonstrated a sustained increase over the five-year period. Reported total assets grew from 7,703,020 thousand USD in 2018 to 10,948,820 thousand USD in 2022. Adjusted total assets mirrored this expansion, ending the period at 10,908,322 thousand USD. This represents a substantial increase in the company's total investment in assets to support its operations.
Adjusted Return on Assets (ROA) Trends: The Adjusted ROA followed a U-shaped trend over the analysis period. After an initial high of 15.76% in 2018, the ratio declined to 13.99% in 2019. A steady recovery followed, with the ratio increasing to 14.34% in 2020, 14.38% in 2021, and reaching 15.42% by 2022. This pattern suggests that the growth in the asset base initially outpaced the growth in adjusted net income in 2019, but the company subsequently improved its asset productivity.
Comparative Analysis of Reported and Adjusted ROA: Reported ROA and Adjusted ROA moved in close correlation throughout the period. Reported ROA saw a dip to 14.00% in 2020 before recovering to 15.02% in 2022. The Adjusted ROA remained slightly higher than the reported figure in the final three years of the period, indicating that adjustments to net income and assets generally improved the perceived efficiency of the company's asset utilization.

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