Hershey Co. (NYSE:HSY)

Inventory Turnover

The inventory turnover ratio exhibits some fluctuations over the analyzed periods. It initially declined from 5.49 to around 4.39, then experienced a mild recovery to levels near or slightly above 5.0 in several later quarters. The most recent periods show a ratio ranging from 4.4 to 5.17, suggesting moderate consistency in inventory management efficiency, though with room for improvement in reducing inventory holding time further.

Receivables Turnover

The receivables turnover ratio displays a pattern of volatility, with values oscillating between approximately 9.3 and 16.3. Periods of higher turnover above 14.0 indicate strong collection efforts, while lower values around 9 to 11 suggest slower receivable collections. Overall, the company manages to maintain relatively high receivables turnover on average, with a tendency for quarter-to-quarter variation.

Payables Turnover

The payables turnover ratio shows a gradual declining trend from highs near 8.9 to just above 6.0 in the most recent periods. This indicates the company is taking longer to pay its suppliers over time. The decline may reflect negotiated extended payment terms or cash flow management strategies, but could also impact supplier relationships if prolonged excessively.

Working Capital Turnover

Working capital turnover demonstrates significant variability with large peaks and troughs. Some periods have exceptionally high ratios (e.g., 73.74 and 70.12) indicative of efficient use of working capital during those quarters, whereas other periods show much lower activity around 7 to 13. This inconsistency suggests fluctuating operational efficiency or seasonality effects impacting working capital management.

Average Inventory Processing Period

The average inventory processing period ranges between approximately 67 and 83 days, with a tendency to increase during certain quarters. This period reflects the time inventory is held before sale, and the relative stability suggests consistent inventory turnover duration, although a slight lengthening in some quarters denotes slower inventory movement at times.

Average Receivable Collection Period

This period varies mainly between about 22 and 39 days, showing a cyclical pattern consistent with the receivables turnover ratio. Shorter collection periods around 22 to 28 days indicate prompt customer payments, but occasional extensions to mid-30s days reflect slower collection during some quarters.

Operating Cycle

The operating cycle, which sums the inventory processing and receivable collection periods, fluctuates between roughly 94 and 122 days. It generally stays around the 100-day mark, indicating a moderately stable total time to convert inventory and receivables into cash, with some quarter-to-quarter variation likely due to changes in either component period.

Average Payables Payment Period

The payables payment period has progressively lengthened from about 41 days to near 61 days over the timeframe. This lengthening complements the declining payables turnover ratio and suggests that the company is systematically extending payment terms to suppliers, potentially improving short-term liquidity but risking supplier relations.

Cash Conversion Cycle

The cash conversion cycle displays a downward trend from a high of 74 days to levels closer to 37-48 days in recent quarters. This improvement denotes that the company is able to reduce the duration between cash outflows and inflows, enhancing liquidity and operational efficiency. Fluctuations remain present, but the overall trend is positive.

The analysis of the quarterly financial data reveals several noteworthy trends in cost of sales, inventories, and inventory turnover ratios over the specified periods.

Cost of Sales

The cost of sales demonstrates a fluctuating pattern throughout the quarters. Starting at approximately 1,123,984 thousand US dollars in March 2019, there is a noticeable dip in the mid-2019 quarters, reaching a low point around June 2019 and June 2020. Subsequently, the cost of sales tends to rise, peaking notably in the last quarter of 2022 at approximately 1,619,653 thousand US dollars. This represents an overall increasing trend towards the end of the period, despite intermittent decreases such as the downturn observed in July 2023. The peaks and troughs suggest seasonality or variability in production or sales volumes.

Inventories

Inventories display a generally upward trend with periodic oscillations. Beginning around 791,289 thousand US dollars in March 2019, inventories increase significantly, reaching over 1,200,000 thousand US dollars in mid-2022 and early 2023. There is a moderate decline in the inventories in some periods, notably during late 2019 and early 2021, but overall, inventories trend higher across the timeframe analyzed. The increase in inventories may support anticipated higher sales volumes or reflect stockpiling strategies.

Inventory Turnover

The inventory turnover ratio, indicating how efficiently inventory is managed relative to cost of sales, reveals variability and mild fluctuations within a range of approximately 4.39 to 5.49. Initial figures show a higher turnover around 5.49 in early 2019, but this falls in the subsequent quarters, reaching lows near 4.39. Mid-2020 to late 2022 shows fluctuations mainly between 4.4 and 5.05, with occasional peaks above 5.0, indicating periods of relatively efficient inventory use. Recently, in mid-2023, the turnover ratio slightly decreased again to about 4.4, suggesting a marginal slowdown in inventory movement efficiency.

In summary, the data indicate that cost of sales and inventories have generally increased over the timeframe, with cost of sales showing more pronounced variability. Inventory turnover ratios remain relatively stable but oscillate, reflecting intermittent changes in inventory management efficiency. These trends may suggest adjustments in operational processes, demand fluctuations, and inventory policy changes impacting the financial dynamics of the periods reviewed.

Net Sales

The net sales figures exhibit notable fluctuations across the quarters, with periodic declines followed by recoveries. Initial quarters show a decline from 2,016,488 thousand US dollars in March 2019 to 1,767,217 thousand in June 2019, then a rebound to over 2.1 million by September 2019. The trend repeats with dips in mid-year quarters (e.g., June 2020, July 2021, July 2023) and strong recoveries in the subsequent quarters. Over the full period, net sales demonstrate an upward movement, peaking at 2,987,614 thousand US dollars by April 2023, indicating overall growth despite interim volatility.

Accounts Receivable, Trade, Net

The accounts receivable balance also follows a cyclical pattern broadly aligned with net sales trends. High values appear in quarters corresponding with elevated sales, for instance, 868,426 thousand US dollars in April 2022 and 929,482 thousand in October 2022. Lower balances tend to occur in the middle quarters each year, such as June 2019, June 2020, and July 2021. This pattern suggests seasonality in customer credit terms or collection timing. The overall level of receivables has risen over the period, paralleling the increase in net sales, which could imply consistent credit extension practices relative to sales growth.

Receivables Turnover Ratio

The receivables turnover ratio exhibits variability, oscillating between peaks above 16 and lows near 9, reflecting changes in the speed of collecting outstanding receivables. Higher turnover ratios are often observed in mid-year quarters, indicating improved collection efficiency or tighter credit management during those periods. The ratio generally remains above 10, signifying a consistent ability to collect receivables approximately 10 or more times per year. Fluctuations appear inversely correlated with accounts receivable balances, illustrating typical working capital dynamics.

Overall Insights

The data reveal a pattern of seasonality affecting net sales and accounts receivable, with mid-year quarters showing dips and subsequent recoveries. Despite these fluctuations, net sales demonstrate a clear upward trend over the full period, accompanied by proportional increases in accounts receivable. The receivables turnover ratio’s variation suggests changes in collection efficiency and credit policy adjustments throughout the year, maintaining a generally healthy turnover rate. Collectively, these patterns indicate stable operational performance with cyclical working capital variations consistent with the company’s business cycle.

Cost of Sales

The cost of sales exhibited a fluctuating pattern over the observed periods. Beginning at approximately 1.12 billion USD in the first quarter of 2019, it dipped in the second quarter to around 892 million USD, followed by a recovery in the third and fourth quarters back to above 1.15 billion USD. Throughout 2020, the cost of sales showed a moderate decline in the second quarter, coinciding with the early pandemic phase, but rebounded thereafter, ultimately reaching a peak of nearly 1.62 billion USD in the fourth quarter of 2022. The subsequent quarters into 2023 saw a slight decrease yet remained significantly elevated compared to earlier years, indicating increased sales volume or higher costs over time.

Accounts Payable

Accounts payable showed a consistent upward trend from 500 million USD in the first quarter of 2019 to just over 1 billion USD by the second quarter of 2023. This steady increase suggests a growing reliance on credit from suppliers or delayed payments, potentially reflecting higher operational scale or changes in working capital management. The incremental rise appears relatively smooth, without abrupt spikes or drops, indicating stable supplier relationships or procurement cycles.

Payables Turnover Ratio

The payables turnover ratio demonstrated a gradual decline over the period, starting at around 8.67 in early 2019 and decreasing steadily to just above 6 by mid-2023. A declining payables turnover ratio typically corresponds to slower payments to suppliers or an increase in accounts payable relative to the cost of sales. This trend aligns with the observed increase in accounts payable and suggests elongation of payment cycles. Overall, this could imply more favorable credit terms negotiated with suppliers or strategic cash flow management, albeit potentially at the expense of supplier goodwill if prolonged significantly.

The analyzed financial data reveals several notable trends over the observed quarterly periods.

Working Capital

Working capital exhibits significant volatility throughout the periods. It starts with negative values in early 2019, indicating a working capital deficit, which deepens by mid-2019. A marked improvement occurs at the end of 2019 with a positive working capital of 108,309 thousand US dollars. Entering 2020, working capital fluctuates sharply, moving from a negative balance in the first quarter to a substantial positive position by the fourth quarter.

The positive trend continues through early 2021 but reverses sharply at the end of 2021 when working capital turns negative again, reaching a trough during 2022. In the most recent periods of 2023, working capital shows recovery by returning to a positive position, although it remains more moderate compared to the peak in late 2020.

Net Sales

Net sales demonstrate an overall upward trend across the periods. There is some quarter-to-quarter variability, but the general direction is growth. Starting at approximately 2 billion US dollars in early 2019, sales show resilience with some seasonal dips.

From 2020 to 2023, the sales figures increase notably, reaching highs close to 3 billion US dollars in early 2023. This represents steady growth and may suggest effective demand management, product acceptance, or price adjustments over time.

Working Capital Turnover Ratio

The working capital turnover ratio is sporadically reported, limiting a continuous trend analysis. However, where available, it indicates exceptionally high values in certain periods, notably 73.74 in late 2019 and 70.12 in mid-2023, suggesting efficient use of working capital to generate net sales during these quarters.

In other quarters with available data, the ratio fluctuates between 7.5 and 13.75, reflecting a variable but generally efficient conversion of working capital into sales. This ratio’s volatility corresponds with the swings observed in working capital levels.

In summary, the company exhibits a pattern of volatility in working capital paired with steady growth in net sales. Despite fluctuations in liquidity management as indicated by working capital and turnover ratios, the sales growth suggests operational strength. The company’s ability to rebound working capital to positive figures after periods of deficit may indicate deliberate financial management response to changing operational conditions.

The analyzed data reflects the company's inventory management efficiency over multiple quarters spanning from March 2019 to July 2023, as evidenced by two key metrics: inventory turnover ratio and average inventory processing period in days.

Inventory Turnover Ratio

This ratio exhibited fluctuations throughout the observed periods, indicating variability in how often the company cycled through its inventory. Notably, there was a decline from 5.49 in March 2019 to a trough around 4.39 in September 2019, followed by a recovery nearing the 5.0 mark by December 2019. During the 2020 periods, turnover ratios generally hovered below the earlier 2019 values, with a low around 4.44 to 4.57, potentially indicative of slower sales or elevated inventory levels amid uncertain market conditions.

From 2021 onward, the ratio increased slightly, peaking at 5.17 in April 2023 before dipping again to 4.4 in July 2023. The general pattern points to temporary improvements in inventory turnover efficiency but with recurring declines, suggesting ongoing challenges in maintaining consistent inventory management performance.

Average Inventory Processing Period

The average duration for inventory processing inversely correlates with the turnover ratio. The number of days rose from 67 in early 2019 to a high of 83 by September 2019, indicating slower inventory movement. A subsequent decrease to about 68 days by December 2019 suggested improved turnover speed.

In 2020, the processing period again elongated to around 79 to 82 days, consistent with the reduced turnover ratio during that timeframe. This extended period could reflect slower product sales or supply chain disruptions.

Between 2021 and 2023, the processing period fluctuated mostly between 71 and 83 days, with slight improvements observed near the end of 2022 and early 2023 before rising again. This pattern signals challenges in consistently reducing inventory holding time.

Overall, the data suggests the company experienced variability in inventory management effectiveness over the observed quarters. Periods of improved turnover underwent intermittent reversals, likely influenced by broader market conditions or operational factors. The oscillations in inventory processing duration reinforce the volatility seen in the turnover ratios. Continuous efforts may be necessary to stabilize and enhance inventory control in order to optimize working capital utilization and respond flexibly to demand changes.

Receivables Turnover Ratio

The receivables turnover ratio exhibits a cyclical pattern within each year, alternating between lower and higher values across quarters. Generally, higher ratios tend to occur in the second and fourth quarters, while the first and third quarters reveal lower turnover rates. Over the full period, the ratio fluctuates approximately within a range of 9.31 to 16.32. Notably, peaks in mid-2021 and mid-2023 suggest periods of enhanced collection efficiency.

Average Receivable Collection Period

The average collection period corresponds inversely to the receivables turnover ratio, varying between approximately 22 and 39 days. There is a clear seasonal trend where shorter collection periods coincide with quarters exhibiting higher turnover ratios, typically the second and fourth quarters. This pattern indicates recurring fluctuations in the speed of receivables collection throughout the year. The collection period tends to be longer in the first and third quarters and shorter in the second and fourth quarters.

Overall Trend Analysis

Across the examined timeframe, no substantial upward or downward long-term trend is evident for either ratio. Instead, the data reveal consistent seasonal variability, suggesting periodic shifts in working capital management or sales patterns that impact receivables turnover and collection times. The company demonstrates the ability to accelerate collection in certain quarters, thereby improving cash flow efficiencies temporarily. However, these improvements are not sustained uniformly across all periods.

Implications

The recurring seasonality implies that operational factors or customer payment behaviors may influence receivables dynamics periodically. Management could investigate underlying causes for these seasonal fluctuations to potentially stabilize or improve overall receivables performance. Maintaining a receivables turnover ratio above 10 and collection periods around one month aligns with industry expectations, yet opportunities may exist to optimize receivables management further to support liquidity and operational efficiency.

Average Inventory Processing Period

The average inventory processing period exhibits fluctuations over the observed quarters. Initially, it ranged between 67 and 83 days from the first quarter of 2019 until the end of 2020, with occasional peaks near 82 to 83 days. Post-2020, the period stabilizes somewhat, mostly maintaining between 71 and 83 days, with a slight decrease observed towards the last two quarters of 2022 and the first two quarters of 2023. This indicates a moderately consistent inventory turnover rate with some variability, suggesting possible changes in inventory management or demand cycles.

Average Receivable Collection Period

The average receivable collection period shows a varied pattern, ranging predominantly from 22 to 39 days across the time span. Periods of lower collection days (around 22 to 28) are interspersed with higher values (up to 39 days). There is no clear sustained trend upwards or downwards, but the data suggests some oscillations in collection efficiency with a tendency to maintain collection within roughly one month. The fluctuations may point to variations in credit terms or customer payment behavior.

Operating Cycle

The operating cycle follows the combined trends of inventory processing and receivable collection periods, generally oscillating between 94 and 122 days. It peaks around the third quarter of 2019 before dipping toward the fourth quarter of 2019. Subsequent quarters show periodic increases and decreases, with values hovering between 97 and 113 days from 2021 onward. The pattern underscores moderate stability in the operating cycle length, suggesting that working capital management remains relatively consistent with some short-term variations likely driven by operational factors.

Payables turnover ratio trends

The payables turnover ratio shows a gradual decline over the observed periods. Starting at 8.67 in the first quarter of 2019, it fluctuates moderately around values between 7.1 and 8.3 through 2020 and 2021. However, from 2022 onwards, a more pronounced decrease is observed, dropping steadily from 6.18 in the first quarter of 2022 to 6.01 by mid-2023. This trend indicates a slowing pace in the company's rate of paying off its suppliers over time.

Average payables payment period trends

The average payables payment period depicts an inverse pattern to the payables turnover ratio, reflecting the amount of time taken to settle payables. Beginning at 42 days in early 2019, the period lengthens gradually with some fluctuations, reaching between 44 and 51 days from late 2019 through 2021. A more marked increase occurs in 2022, where the payment period extends beyond 58 days, culminating at 61 days by mid-2023. This suggests the company is taking longer to pay its payables in recent periods.

Relationship between turnover ratio and payment period

The inverse relationship between the payables turnover ratio and the average payment period is evident throughout the timeline. As the turnover ratio declines, the average payment period correspondingly increases, reflecting slower payment practices. The trend beginning in 2022, with a sharper decrease in turnover ratio alongside a notable increase in payment days, may indicate changes in the company's working capital management or payment policies.

Overall implications

The progressive lengthening of the payables payment period and the reducing payables turnover ratio could imply that the company is extending its payables to conserve cash or improve liquidity. However, such trends require monitoring to avoid potential supplier relationship issues or negative impacts on credit terms. The steady increase in payment days over the last two years highlights a strategic shift or response to external factors influencing payment behavior.

The analysis of the financial metrics over the observed periods reveals several notable trends and patterns with respect to the company's operational efficiency and working capital management.

Average Inventory Processing Period

The average inventory processing period showed variability throughout the periods, oscillating between the mid-60s to low 80s in days. Initially, it started at 67 days and rose to a peak around 83 days in multiple quarters (notably in September 2019 and mid-2023). There is no consistent trend of significant improvement or deterioration, suggesting fluctuations in inventory turnover rates or possible seasonal influences on stock levels.

Average Receivable Collection Period

The receivable collection period exhibited considerable fluctuation between 22 and 39 days but generally centered around the high 20s to mid-30s. The shorter collection periods, often found around 22 to 26 days during some quarters in 2021 and 2023, indicate periods of more efficient receivables management. However, the occasional spikes to near 39 days suggest intermittent delays in collections or variations in credit terms.

Average Payables Payment Period

The payables payment period consistently increased over time, beginning around 42 days in early 2019, moving progressively upward, and reaching around 60 to 61 days by mid-2023. This trend suggests a strategic extension of payment terms or improved management of cash outflows, potentially to preserve liquidity.

Cash Conversion Cycle

The cash conversion cycle (CCC), which measures the net time between cash outflows for inventory purchases and actual cash receipts from sales, showed some variability with a tendency toward shorter cycles in recent periods. Initially fluctuating between 48 and 74 days, the CCC decreased notably in the last few quarters, reaching as low as 37 days around April 2023 before slightly rising to 48 days by July 2023. This reduction indicates improved operational efficiency and faster cash turnover.

Overall, the data indicates that while inventory turnover periods have fluctuated without a clear sustained trend, the company has generally maintained control over its receivables collection time, showing sporadic improvements. The extension of payables payment periods over time suggests deliberate management of accounts payable to better manage cash flow. The combined effect of these factors has contributed to a shorter cash conversion cycle in recent periods, reflecting enhanced liquidity management and operational efficiency.