Analysis of Debt
Total Debt (Carrying Amount)
Hershey Co., balance sheet: debt
US$ in thousands
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 total debt carrying amount exhibited a period of volatility between 2018 and 2022, characterized by a growth phase that peaked in 2021 followed by a moderate contraction in 2022. From a baseline of approximately 4.46 billion USD in 2018, total debt reached a maximum of 5.03 billion USD in 2021 before declining to 4.79 billion USD by the end of 2022.
- Long-Term Debt Trajectory
- The long-term portion of debt showed a consistent upward trend from 2018 to 2020, increasing from 3.25 billion USD to 4.09 billion USD. This balance remained stable through 2021 but experienced a significant reduction in 2022, falling to 3.34 billion USD, which suggests a period of active deleveraging or the repayment of major long-term notes.
- Short-Term and Current Obligation Volatility
- Short-term debt and the current portion of long-term debt displayed substantial fluctuations throughout the period. Short-term debt plummeted from 1.20 billion USD in 2018 to minimal levels in 2019 and 2020, before spiking to 939 million USD in 2021. Similarly, the current portion of long-term debt shifted unpredictably, peaking at 703 million USD in 2019 and again at 754 million USD in 2022, reflecting the cyclical nature of debt maturities.
- Debt Structure and Composition
- The overall debt profile remains predominantly composed of long-term obligations. While the short-term components are highly volatile, the long-term portion consistently represents the majority of the total carrying amount. However, the shift in 2022—where long-term debt decreased while the current portion of long-term debt increased—indicates a higher concentration of debt maturing within the next twelve months.
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Total Debt (Fair Value)
| Dec 31, 2022 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Short-term debt | 693,790) |
| Current portion of long-term debt | 749,345) |
| Long-term portion of long-term debt | 2,854,165) |
| Total debt (fair value) | 4,297,300) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 0.90 |
Based on: 10-K (reporting date: 2022-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt: 3.07%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 4.40% | 693,790) | 30,527) | |
| 2.63% | 250,000) | 6,563) | |
| 3.38% | 500,000) | 16,875) | |
| 2.05% | 300,000) | 6,150) | |
| 0.90% | 300,000) | 2,700) | |
| 3.20% | 300,000) | 9,600) | |
| 2.30% | 500,000) | 11,500) | |
| 7.20% | 193,639) | 13,942) | |
| 2.45% | 300,000) | 7,350) | |
| 1.70% | 350,000) | 5,950) | |
| 3.38% | 300,000) | 10,125) | |
| 3.13% | 400,000) | 12,500) | |
| 2.65% | 350,000) | 9,275) | |
| 6.10% | 73,479) | 4,482) | |
| Total | 4,810,908) | 147,538) | |
| 3.07% | |||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 147,538 ÷ 4,810,908 = 3.07%
Interest Costs Incurred
Hershey Co., interest costs incurred
US$ in thousands
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 total interest costs incurred exhibited a period of gradual growth followed by a notable contraction and subsequent partial recovery between 2018 and 2022. Total costs peaked in 2020 before experiencing a significant decline in 2021, then rising again in 2022.
- Total Interest Costs Incurred
- Aggregate interest costs rose from 151,950 thousand US$ in 2018 to a peak of 160,204 thousand US$ in 2020. A sharp decrease occurred in 2021, where costs fell to 139,156 thousand US$, representing a 13.1% reduction from the 2020 peak. By 2022, total costs increased to 148,226 thousand US$, though this figure remained below the 2019 and 2020 levels.
- Interest Expense Trends
- Interest expense served as the primary driver of total costs. After increasing slightly from 2018 through 2020, a significant drop to 129,846 thousand US$ was recorded in 2021. The subsequent increase to 140,095 thousand US$ in 2022 suggests a shift in the debt profile or changes in prevailing interest rates during that period.
- Capitalized Interest Patterns
- Capitalized interest demonstrated a consistent upward trajectory from 2018 to 2021, rising from 5,092 thousand US$ to a peak of 9,310 thousand US$. This suggests an increase in investment in qualifying assets during these years. A reversal occurred in 2022, with capitalized interest declining to 8,131 thousand US$, indicating a potential slowdown in new capital projects or the completion of major asset developments.
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Adjusted Interest Coverage Ratio
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 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= 2,057,166 ÷ 140,095 = 14.68
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 2,057,166 ÷ 148,226 = 13.88
The analysis of interest coverage ratios reveals a general strengthening of the company's ability to service its debt obligations over the five-year period from 2018 to 2022. While a slight contraction occurred in 2019, the subsequent years demonstrate a clear upward trajectory in solvency margins, with a significant increase occurring between 2020 and 2021.
- Interest coverage ratio (without capitalized interest)
- This metric remained relatively stable from 2018 through 2020, fluctuating between a high of 10.74 and a low of 10.08. A substantial increase is observed in 2021, where the ratio rose to 14.84, before experiencing a marginal decline to 14.68 in 2022. This trend indicates a robust capacity to cover interest expenses from operating profits.
- Adjusted interest coverage ratio (with capitalized interest)
- The adjusted ratio closely mirrors the trend of the non-adjusted metric but remains consistently lower, reflecting the additional impact of capitalized interest on debt service capacity. This ratio decreased from 10.25 in 2018 to 9.72 in 2019, followed by a recovery to 10.29 in 2020. A significant jump was recorded in 2021 to 13.85, maintaining a stable level at 13.88 in 2022.
The minimal variance between the two ratios suggests that capitalized interest does not materially impair the overall debt service profile. The marked improvement in coverage ratios since 2020 indicates an enhanced financial cushion, suggesting either a significant increase in earnings before interest and taxes or a reduction in the overall interest burden.
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