1. FIN 667
Lisa Lee and Yinfei Dong
12/17/2014

2. Summary of Hershey
Business Description
Financial Analysis
Valuation
Conclusion
Agenda

3. The Hershey Company
52 Week Price Range: $87.88 – $108.69
Current Price: $98.53
Target Price Range: $100 - $106
Recommendation: Hold
Valuation Method: DCF & Multiple Valuation,
Gordon Growth Method
Overview

4. • Found in 1894, headquarted in Pennsylvania
• Global leading chocolate manufacturer
• Produced under 80 brands in over 70
countries worldwide
• Hershey Trust Co., as trustee for the benefit
of Milton School maintains voting control
over the Hershey company
Introduction and Company Profile
Company Profile
Closing Price 98.53
Average
Daily Volume
1,057,260,000
Market Cap 21.32B
Dividend
Yield
2.14%
P/E 26.23
P/B 13.78
EPS 3.68
EV/EBITDA 14.44
Recent Events/Issues
• The world will run out of cocoa, and the price
of cocoa is raising
• Entered the agreement to acquire majority
share of Golden Monkey (China) in 2013
• Acquired Canadian Confectioner Brookside
Food in 2013

5. SWOT
Strengths
• Strong Market Position and Leadership
• Diverse Products and Strong Portfolio of
Brands
Weakness
• Limited Distributors for Revenue
Generation
• Over Reliance on the U.S. Market
Opportunities
• Focus on Emerging Markets: India and
China
• Increasing Demand of Healthier and Low-
fat Chocolates
• Widely Used of E-commerce and Online
Stores
Threats
• Increasing cost of raw materials
• Consumer habitats

6. Growth Drivers
Key Drivers
• Invested in Hershey’s five core brands
• Hershey has found opportunities from
International market, especially expanding in
emerging market.
• Able to meet target sales growth : 7%-9%

7. Product
Executive overview:
- Hershey shows a
strong sales growth
during the past three
years
- Total revenue
increased 7.6% in
2013
- Total revenue
increased 9.3% in
2012
0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
2011 2012 2013
Total Revenue Gross Profit Net Income
$6080.8
$6644.3
$7146.1
FinancialAnalysis

8. FinancialAnalysis
1,900.00
2,000.00
2,100.00
2,200.00
2,300.00
2,400.00
2,500.00
2,600.00
2011 2012 2013
NOA
NOA
0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
2011 2012 2013
Operating Income
Operating Income
10
20
30
2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12
ROIC

9. Trends
 Food industry is highly affected by unit
price of product
 Price of raw materials increase (cocoa
and dairy)
 Ebola outbreak, a short-term effect
 Expand in emerging markets
FinancialAnalysis

10. Assumptions
Sales Growth 7-9%; 8.5%
Growth Profit Margin
Growth
300 Basis Point
SG&Ａ Increased by 200 Basis
Point (As percentage of
sales
Interest Expense Remain at current level
Restructuring Expense Slowly decreased

11. FriskFactors&SensitivityAnalysis
 HSY’s returns have a
statistically significant positive
correlation with the volatility in
financial markets, interest rates
and other big market players
 HSY’s returns do not have
statistically significant
correlation with price of raw
materials
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
COCOA SUGAR VIX OIL GOLD SP500 NSRGY GM MEZ
Senstivity to Risk Factors
-6
-4
-2
0
2
4
6
8
COCOA SUGAR VIX OIL GOLD SP500 NSRGY GM MEZ
Statistical significance of Risk Factors

12. DCFValuation
2011 2012 2013 2014 2015 2016 2017 2018
Net Sales 6080.8 6644.2 7146.1 7753.5 8412.6 9127.6 9903.5 10745.3 8.50%
Cost of Sales (GOGS) 3548.9 3784.4 3865.2 4186.9 4542.8 4928.9 5347.9 5802.5 54.00%
Gross Profit 2531.9 2859.8 3280.9 3566.6 3869.8 4198.7 4555.6 4942.8
Gross Profit Percentage 41.64% 43.04% 45.91% 46.00% 46.00% 46.00% 46.00% 46.00%
Operating Expenses
Selling, General and Administrative 1477.7 1703.8 1922.5 2248.5 2439.6 2647.0 2872.0 3116.1 29.00%
SG&A % of Revenue 24.30% 25.64% 26.90% 29.00% 29.00% 29.00% 29.00% 29.00%
Total Operating Expenses 1477.457 1703.8 1922.5 2248.5 2439.6 2647.0 2872.0 3116.4
EBIT 1055 1111.1 1339.7 1318.1 1430.1 1551.7 1683.6 1826.4
EBIT Margin 17.35% 16.72% 18.75% 17.00% 17.00% 17.00% 17.00% 17.00%
Interest Expense 92.2 95.6 88.4 92.6 95.6 98.7 102.0 105.5 5.00%
Earnings Before Income Taxes 962.8 1015.5 1251.3 1225.5 1334.5 1453.0 1581.6 1720.9
Income Tax Expense 333.9 354.6 430.8 428.9 467.1 508.5 553.6 602.3 35%
Net Income 628.9 660.9 820.5 796.6 867.4 944.4 1028.0 1118.6
Profit Margin 10.34% 9.95% 11.48% 10.27% 10.31% 10.35% 10.38% 10.41%
Sales Growth 9.27% 7.55% 8.50% 8.50% 8.50% 8.50% 8.50%
Cost of Long Term Debt
Effective Income Tax Rate
Historical Projected
Assumpions
Revenue Growth %
COGS as a % of Revenue
SG&A as a % of Revenue

13. DCFValuation
2011 2012 2013 2014 2015 2016 2017 2018
Assets
Current Assets
Cash and Equivalents 693.7 728.3 1118.5 1685.7 1848.0 1979.1 2066.9 2095.6
Inventory 649 633.3 659.5 715.6 776.4 842.4 914.0 991.7 Inventory Turnover Ratio 10.8
Accounts Receivable 536.3 583.6 530.4 637.3 691.4 750.2 814.0 883.2 Days Sales Outstanding 30
Marketable Securities 268.1 144.7 55.4 14.1 38.5
Other Current Assets 167.6 168.2 178.8 155.1 168.3 182.6 198.1 214.9 Other Current Assets as a % of Revenue 2.0%
Total Current Assets 2046.6 2113.4 2487.2 3461.7 3628.7 3809.6 4007.1 4223.9
Net PP&E 1559.7 1674.1 1805.3 1919.5 2048.5 2193.0 2353.5 2531.1
Goodwill & Intangible Assets & Other Assets 767.3 954.8 1064.8 775.4 841.3 912.8 990.3 1074.5 Goodwill & Intangible Assets % of Revenue 10.0%
Total Assets 4407.1 4754.7 5357.51 6156.6 6518.5 6915.4 7350.9 7829.5
Liabilities Days Payable Outstanding 140
Accounts Payable 1034.1 1095.2 1241.1 1605.9 1742.4 1890.5 2051.2 2225.6 Other Liabilities as a % of Revenue 10.0%
Short-Term Debt 42.1 118.2 166 199.2 239.0 286.8 344.2 413.1 % of Previous Short Term Debt 1.2
Long-Term Debt 1846.1 1788.7 1796.01 1852.7 1912.2 1974.8 2040.4 2109.3 Net Other Captial % of Revenue 58.0%
Other Liabilities & Minority Interest & Deferred LT Liability627.5 715.9 549.5 775.4 841.3 912.8 990.3 1074.5
Total Liabilities 3549.8 3718 3752.61 4433.2 4735.0 5064.9 5426.2 5822.5
Stockholders' Equity
Common Stock 359.9 359.9 359.9 359.9 359.9 359.9 359.9 359.9
Retained Earnings 4707.9 5027.6 5454.3 5860.5 6302.9 6784.6 7308.9 7879.4
Net Other Capital -4210.5 -4350.8 -4209.3 -4497.0 -4879.3 -5294.0 -5744.0 -6232.3 .
Total Stockholders' Equity 857.3 1036.7 1604.9 1723.4 1783.5 1850.5 1924.8 2007.0
Total Liabilities and Equity 4407.1 4754.7 5357.51 6156.6 6518.5 6915.4 7351.0 7829.5
Parity Check 0 0 0 0.0 0.0 0.0 0.0 0.0
Historical Projected
Assumptions

14. DCFValuation
Free Cash Flow
2011 2012 2013 2014 2015 2016 2017 2018 Assumptions
Beginning Cash 884.6 693.7 728.3 1118.5 1685.7 1848.0 1979.1 2066.9
Net Income 629 660.9 820.5 796.6 867.4 944.4 1028.0 1118.6
Cash Flow from Operating Activities
Depreciation & Amortization 215.8 210 201 234.7 249.5 266.3 285.1 306.0 Depreciation as % of Prior year net PPE 13.00%
Adj to Net Income 55 24.3 -44.2 0.0 0.0 0.0 0.0 0.0
(Increase)/Decrease in Current Assets -124.77 -23.9 -42.8 -139.2 -128.2 -139.1 -150.9 -163.7
Increase/(Decrease) in Current Liabilities 7.86 21.7 13.4 590.7 202.4 219.6 238.3 258.5
Changes in Other Assets and Liabilities -195 201.7 240.5 0.0 0.0 0.0 0.0 0.0
Net Cash Provided by Operating Activities 587.89 1094.7 1188.4 1482.7 1191.2 1291.3 1400.5 1519.4
Cash Flow from Investing Activities
Capital Expenditures -324 -258.7 -323.6 -348.9 -378.6 -410.7 -445.7 -483.5 CAPX % of Revenue 4.50%
Other Cash Flows From Investing -16 -214.6 -28 -38.8 -42.1 -45.6 -49.5 -53.7 Other cash flows as % of Revenue 0.50%
Net Cash (Used by) Investing Activities -340 -473.3 -351.6 -387.7 -420.6 -456.4 -495.2 -537.3
Cash Flow from Financing Activities
Dividend (Payments) -304.1 -341.2 -393.8 -390.3 -425.0 -462.8 -503.7 -548.1 Dividend as % of Net income 49%
Sale/(Purchase) of Stock -200.1 -261.9 -155.4 -194.3 -242.8 -303.5 -379.4 -474.2 Stock (Purchase) as % from PY 25%
Increase/(Decrease) in LT Debt 3.8 -17.7 54.2 56.7 59.5 62.5 65.6 68.9 Long-term Debt % increase from PY 5%
Other cash flow from Financial Activities 61.6 33.9 48.4 50.8 53.4 56.0 58.8 61.8 Other CF % increase from PY 5%
Net Cash (Used by) Financing Activities -438.8 -586.9 -446.6 -527.9 -608.3 -703.8 -817.5 -953.4
Change in Cash and Equivalents -190.91 34.5 390.2 567.2 162.3 131.1 87.8 28.7
Ending Cash 693.69 728.2 1118.5 1685.7 1848.0 1979.1 2066.9 2095.6
Historical Projected

15. DCFValuation
2014 2015 2016 2017 2018
Earnings Before Interest and Taxes 1318.1 1430.1 1551.7 1683.6 1826.4
x (1-Tax Rate) 856.8 929.6 1008.6 1094.3 1187.2
+ Depreciation and Amortization 234.7 249.5 266.3 285.1 306.0
- Capital Expenditures 348.9 378.6 410.7 445.7 483.5
- Change in Net Working Capital 576.5 -9.3 -15.0 -20.6 -26.4
= Free Cash Flow 166.1 809.9 879.2 954.4 1036.0
Projected
Projected Free Cash Flow
Calculate Cost ofEquity Using CAPM Risk-Free Market Risk Company β
3.6% 9.2% 0.65
CapitalAssets Pricing Model
Cost ofEquity = Rf + β(Rm - Rf) 7.2%
Market Cap Debt Preferred
Amounts 22,148.8 1,796.0 0.0
Cost ofFinancing 7.2% 5.0% 0.0%
Equity Debt Preferred
Cost of 6.7% 0.2% 0.0%
TotalWACC 6.9%
WACC = (Ke)(E/(D+E+P)) + (Kd)(1-t)(D/(D+E+P)) Terminal Growth Multiple Method
Final Year EBITDA= 2,132.4
Enterprise Value / EBITDA Multiple 14.4x
Final Year Valuation= 30,706.1
Perpetuity Method FCF5(1 + g)
(WACC - g)
Perpetuity Growth Rate 3.0%
Terminal Value 27,360.7

16. DCFValuation
Discount Cash Flows Back to Year 0 Using WACC as the Discount Rate
Terminal
2014 2015 2016 2017 2018 Value
Cash Flow 166.1 809.9 879.2 954.4 1,036.0 30,706.1
Present Value of Cash Flow 155.4 708.7 719.7 730.8 742.1 21,995.6
Enterprise Value of Company based on DCF 25,052.3
Calculating price per share
EV/EBITDA MultipleMethod
Enterprise Value of Company based on DCF 25,052.3
- Long-Term Debt 1,796.0
= Value of Equity 23,256.3
Shares Outstanding (millions) 220.9
$105.28
EV/EBITDA Multiple Method

17. DCFValuation
Discount Cash Flows Back to Year 0 Using WACC as the Discount Rate
Terminal
2014 2015 2016 2017 2018 Value
Cash Flow 166.1 809.9 879.2 954.4 1,036.0 27,360.7
Present Value of Cash Flow 155.4 708.7 719.7 730.8 742.1 19,599.2
Enterprise Value of Company based on DCF 22,655.9
Calculating price per share
Perpetuity Method
Enterprise Value of Company based on DCF 22,655.9
- Long-Term Debt 1,796.0
= Value of Equity 20,859.9
Shares Outstanding (millions) 220.9
$94.43
Perpetuity Method

18. GordonGrowthValuation
Using current earnings per share
of $3.76, current payout ratio of 57%
the current dividend per share is
calculated to be $2.14. We used cost
of equity of 7.2% and an expected
growth rate of 5% as the discounted
rate. Hershey’s stock is expected to be
$102.29 per share, indicating the
stock is on target compared to its
current price of $98.53.
Current Dividends per share $2.14
Cost of Equity (CAPM) 7.20%
Expected Growth rate 5.00%
$102.29
Growth rate Value
7.0000% $1,146.61
6.7500% $508.41
6.2500% $239.70
5.7500% $156.31
5.2500% $115.68
5.0000% $102.29
4.7500% $91.63
3.5000% $59.95
3.0000% $52.56
Gordon Growth Model Value =

19. ComparableCompanies
7.15
34.9
17.81
93.21
0
50
100
Hershey Mondelez General Mills Nestle
Total Sales in 2013 ($Billion)
Sales in 2013
43%
31%
16%
0.06 0.04
US Confectionary Market Share
Hershey Mars Others Nestle Mendelez
0
0.1
0.2
0.3
0.4
0.5
0.6
Hershey Mondelez Nestle Gerneral Mills
Profitability Ratio
Operating Margin Net Profit Margin
Current
Price
Net Sales Growth
(2013)
Hershey $98.28 7.6%
Modelez $39.2 0.8%
Nestle $75.05 2.7%
General Mills $52.75 7%

20. MultipleValuation
($Million) EV EBITDA Revenue EV to EBITDA EV to Revenue
Hershey 23295 1613 7146 14.44 3.26
Nestle 238800 16059 92373 14.87 2.59
General Mills 40346 3315 17774 12.17 2.26
Mondelez 81952 5321 35299 15.4 2.32
Average 96100 6758 38148 14.22 2.61
Mean 14.66 2.45
($Million) EV Equity Value per Share
EV to EBITDA 22936/23646 $102.86 - $106.04
EV to Revenue 17505/18851.06 $78.51 – $83.64

21. FootballField
Target Price Range:$100-$106
CurrentPrice: $98.28
Hold
68.28
78.51
102.86
94.43
83.46
83.64
106.05
105.28
60 65 70 75 80 85 90 95 100 105 110
P/E
EV/REVENUE
EV/EBITDA
DCF

22. Thankyou!
Q&A