About Hershey

• The company was founded by Milton S. Hershey in 1894 and is headquartered in Hershey, PA.

• Hershey has approximately 13,000 employees worldwide.• It operates in the geographic regions North America and

International (50 different countries). • With more than 80 brands, Hershey produces chocolate and sugar

confectionery products . • 90% of its revenue come from the United States.

Chocolate industry sales of the U.S. from 2013 – 2017 (in Billion $) http://www.statista.com/statistics/262473/chocolate-sales-of-the-united-states/

2013 2014 2015 2016 2017

20.1 20.6 21.2 21.7 22.7

Hershey’s Products

• Its principal product groups include chocolate and confectionery products, gum and mint refreshment products, and pantry items such as baking ingredients, toppings and beverages. Its brands include Hershey's, Reese's, and Kisses.

Hershey’s Competitors

• Hershey has the largest share of the US Chocolate market.• Its closest competitor is Mars (Mars, Snickers, M&M, Twix...).• Threat of competition from Nestlé & Cadbury Schweppes (now part

of Kraft Foods) is mitigated trough licensing agreements.

5Y Stock Comparison Competitors(HSY – Mars – Mondelèz – S&P500 – Nestlé)

Historical Financial & Value Drivers Historical 2010 2011 2012 2013 2014

Revenue 5,671,009 6,080,788 6,644,252 7,146,079 7,421,768 COGS 4,765,711 5,025,760 5,533,104 5,806,404 6,032,193

EBIT 905,298 1,055,028 1,111,148 1,339,675 1,389,575 Taxes 299,065 333,883 354,648 430,849 459,131

EBT 808,864 962,845 1,015,579 1,251,319 1,306,043 Implied Taxes 334,720 365,849 388,021 461,271 488,496

NOPAT 570,578 689,179 723,127 878,404 901,079 Depreciation 215,763 210,037 201,033 211,532

Fixed + WC Investment (10,652) (64,673) 115,697 (902,030)FCF 894,290 868,491 1,195,134 210,581

Value Drivers Historical 2011 2012 2013 2014

Sales Growth 6.57% 6.74% 8.48% 7.02% 3.71%Operating Profit Margin 15.96% 17.35% 16.72% 18.75% 18.72%

Effective Tax Rate 36.97% 34.68% 34.92% 34.43% 35.15%Investment Rate 1.5% 8.9% -13.2% 100.1%

Cost of Capital (WACC) 6.02%ROIC 25.26% 27.46% 26.89% 27.66%

Sales Growth = (sales– sales-1 )/ salesn

Operating profit margin = Sales / EBITTax rate = Taxes / EBTInvestment rate = (FC+WC)/NOPATROIC = NOPAT / ((InvCapBeg+InvCapEnd)/2)

WACC – Capital Asset Pricing ModelBook Value Market Value

Debt 2,325,771 2,325,771 Equity 1,519,530 22,480,000,000 Total Debt and Equity 3,845,301 22,482,325,771

Capital structure of debt 60.48% 0.01%Capital structure of equity 39.52% 99.99%Total 100.00% 100.00%

DEBTCredit rating (Moody AA) 3.56% 3.56%Tax rate 35.15% 35.15%After tax cost of debt Rd(1-T) 2.31% 2.31%

EQUITYRF (30YR) 2.49% 2.49%β current beta <1 = more stable (1 = price moves with market) 0.64 64.00%Expected return 8.00% 8.00%

MRP = expected return – risk free rate 5.51% 5.51%Re(1-t) 3.90% 3.90%

CAPM = re = RF + β (MRP) 6.0164% 6.0164%WACC 3.2829% 6.0159%

http://finra-markets.morningstar.com/BondCenter/Results.jsp https://www.moodys.com/research/Moodys-Disclosures-on-Credit-Ratings-of-The-Hershey-Company--PR_238214 http://www.bondsonline.com/Todays_Market/Composite_Bond_Yields_table.php http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2015 http://finance.yahoo.com/echarts?s=HSY+Interactive#symbol=HSY;range=

Forecast & Residual Period Forecast Residual 2015 2016 2017 2018 2019 Revenue 7,792,856 8,221,464 8,714,751 9,281,210 9,930,895 10,104,686 COGS 6,331,465 6,589,259 7,071,762 7,717,051 8,157,936 8,199,653 EBIT 1,461,392 1,632,204 1,642,989 1,564,159 1,772,959 1,905,033 Taxes 514,848 575,026 578,825 551,053 624,614 671,143 NOPAT 946,543 1,057,179 1,064,164 1,013,106 1,148,346 1,233,890 Depreciation 209,591 209,591 209,591 209,591 209,591 209,591

Fixed + WC Investment 47,327 74,003 31,925 (81,048) 45,934 74,459 FCF 1,203,462 1,340,772 1,305,680 1,141,649 1,403,871 1,517,940 PV 1,135,341 1,193,283 1,096,274 904,293 1,049,054 26,589,567

Value Drivers Forecast Residual 2015 2016 2017 2018 2019 Sales Growth 5.00% 5.50% 6.00% 6.50% 7.00% 7.00%Operating Profit Margin 18.75% 19.9% 18.9% 16.9% 17.9% 18.9%Effective Tax Rate 35.2% 35.2% 35.2% 35.2% 35.2% 35.2%Investment Rate 5.0% 7.0% 3.0% -8.0% 4.0% Cost of Capital (WACC) 6.02% 6.02% 6.02% 6.02% 6.02% 6.02%ROIC estimated 29.00%Spread (ROIC – WACC) 22.98%Residual Growth estimated 1.75%

Residual Investment Rate calculated 6.034%

Estimate of Corporate Value

GROWTH RATE MODELPV of Forecast 17% 5,378,245

PV of Residual or Terminal Value 83% 26,589,567

PV of All Future Cash Flows 31,967,811

Cash and Marketable Securies 471,985

Corporate Value 32,439,796

Value of Debt 22,480,000,000

Value of Equity Holders 22,447,560,204

Value per Equity Share 105.64

Summary

• In conclusion, Hershey Corporation will continue to be successful in the Chocolate and Confectioners Market.

• The emergence of business in Asia and continued growth in North America and Europe will keep the company on its path of steady growth.

• Chocolate is a staple that is consumed during all cycles of the economy and the brand name recognition and promise of Hershey will keep the company in good standing.

References

• http://www.thehersheycompany.com/investors/stock-information/stock-quote-and-charts.aspx• http://www.thehersheycompany.com/investors/company-profile.aspx• http://www.marketwatch.com/investing/stock/hsy/financials/• http://finra-markets.morningstar.com/BondCenter/Results.jsp • https://www.moodys.com/research/Moodys-Disclosures-on-Credit-Ratings-of-The-Hershey-Company--PR_238214

http://www.bondsonline.com/Todays_Market/Composite_Bond_Yields_table.php • http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?

data=yieldYear&year=2015 • http://finance.yahoo.com/echarts?s=HSY+Interactive#symbol=HSY;range= • http://www.statista.com/statistics/238794/market-share-of-the-leading-chocolate-companies-in-the-us/• http://www.statista.com/statistics/262473/chocolate-sales-of-the-united-states/