The Hershey Company (HSY) Cash Flow Statement

The OCF/NI ratio has been volatile, ranging from 0.71 in 2024Q1 to 3.05 in 2025Q3, indicating that net income is not consistently translating into cash. The recent dip to 0.92 in 2026Q2, coupled with a negative working capital change of -$120.3M, suggests that accruals are consuming cash, possibly due to inventory builds ahead of seasonal demand. Investors should monitor whether this is a temporary seasonal effect or a sign of deteriorating earnings quality.

The FCF margin has been erratic, ranging from -1.8% to 36.0%, with the most recent quarter at 11.8%. This volatility is largely driven by working capital swings and capex timing, but the cumulative FCF over the period remains positive, indicating that the business is still generating cash. However, the recent FCF margin is below the peer average of 15.7% (MKC), suggesting that Hershey's cash conversion is under pressure relative to its peers.

The capex/revenue ratio has been on an upward trend, with the latest quarter at 3.2% but the trailing four quarters averaging around 5.5%. This suggests that Hershey is investing more heavily in its asset base, which may be necessary to support growth in salty snacks and confectionery. However, the elevated capex, combined with rising D&A (from $107.8M to $136.1M over the period), implies that the company is building a larger asset base that will require ongoing maintenance, potentially pressuring future FCF if returns on investment do not materialize.

The working capital swings are consistent with the seasonal nature of the confectionery business, where inventory builds ahead of major holidays and then liquidates. However, the magnitude of these swings has increased, with the negative changes in 2026Q1 and 2026Q2 totaling -$407.4M, which may indicate that Hershey is holding more inventory or extending payment terms to customers. This could be a response to supply chain disruptions or a deliberate strategy to ensure product availability, but it also ties up cash and may signal inefficiencies in working capital management.

The company has consistently returned capital to shareholders through dividends and buybacks, with dividends alone averaging around $275M per quarter. In 2026Q2, the combined payout ratio (dividends plus buybacks) relative to FCF was 199%, suggesting that Hershey is funding shareholder returns with cash reserves or incremental borrowing. While the balance sheet appears healthy with a low debt-to-equity ratio, this trend is not sustainable if FCF remains at current levels, and investors should monitor whether management adjusts the payout policy to align with cash generation.

The cumulative OCF/NI ratio is 1.43, indicating that operating cash flow has been stronger than net income on a cumulative basis, which is a positive sign. However, the cumulative FCF of $3.99B is only 70% of cumulative net income, suggesting that a significant portion of earnings is being reinvested into the business. This divergence may be acceptable if the investments generate future growth, but it also means that reported earnings overstate the cash available to shareholders. The gap is likely driven by the aggressive expansion into salty snacks and the associated capital expenditures.