HSY Hershey Company

- Earnings per share-diluted from operations $0.37 HERSHEY, Pa., April 24 /PRNewswire-FirstCall/ -- The Hershey Company (NYSE:HSY) today announced sales and earnings for the first quarter ended March 30, 2008. Consolidated net sales were $1,160,342,000 compared with $1,153,109,000 for the first quarter of 2007. Net income for the first quarter of 2008 was $63,245,000, or $0.28 per share-diluted, compared with $93,473,000, or $0.40 per share-diluted, for the comparable period of 2007. For the first quarters of 2008 and 2007, these results, prepared in accordance with generally accepted accounting principles ("GAAP"), include net pre-tax charges of $30.7 million and $40.4 million, or $0.09 and $0.11 per share, respectively. The majority of the 2008 charges were associated with the Global Supply Chain Transformation program announced in February 2007. Net income from operations, which excludes the net charges for the first quarters of 2008 and 2007, was $83,915,000 or $0.37 per share-diluted in 2008, compared with $118,786,000, or $0.51 per share-diluted in 2007. First-Quarter Performance "Net sales increased slightly in the first quarter and were in line with our expectations," said David J. West, President and Chief Executive Officer. "As we previously communicated, the current period was adversely impacted by an unusually early Easter and the mid-January decision to discontinue the roll-out of Ice Breakers PACS. Operating profit targets were achieved in a rising input cost environment. We invested behind our core brands in the first quarter and will continue to do so throughout 2008 to strengthen our position in the marketplace. "During the first quarter, Hershey made significant progress on growth initiatives that will benefit net sales and earnings throughout the remainder of the year. The Hershey's Bliss and Starbucks product launches shipped to customers on schedule in mid-March. Consumer investment, including advertising, sampling and merchandising, will accelerate in the second quarter to ensure the success of these launches. "The expansion of our businesses in Asia is moving ahead steadily. We are focusing on the launch of Hershey's branded products manufactured in and for the Indian market. In China, we continue to make progress and have full manufacturing capabilities to support our portfolio roll-out. "U.S. retail takeaway in the first quarter was up 14.8 percent in channels that account for over 80 percent of our retail business. However, this period benefited from an early Easter season. Excluding seasonal activity, Hershey's retail takeaway increased 1.8 percent. In the channels measured by syndicated data, market share was off 0.8 points. Improvements in certain channels, customers and core brands indicate that marketplace plans, including higher levels of consumer investment and increased retail coverage, are starting to take hold. The price increase announced in late January had a minimal impact during the quarter. Outlook "As we look ahead to the balance of 2008, plans are in place to deliver our sales and earnings objectives. Specifically, the launch of new products, increased levels of brand support, consumer investment, retail coverage and merchandising will continue to build throughout the year. We expect this to result in a sequential improvement in net sales. Additionally, we have good visibility into our full-year cost structure. In Monterrey, Mexico, the construction of our new manufacturing facility is progressing and initial production is underway. We are encouraged by the development of our international investments and will continue to follow a disciplined approach to growth opportunities in emerging markets. Therefore, for the full-year 2008, we continue to expect net sales growth of 3-4 percent and earnings per share-diluted from operations of $1.85 to $1.90," West concluded. Note: In this earnings release, Hershey has provided income measures excluding certain items described above, in addition to net income determined in accordance with GAAP. These non-GAAP financial measures, as shown in the attached pro forma summary of consolidated statements of income, are used in evaluating results of operations for internal purposes. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations. The aforementioned items relate to the Global Supply Chain Transformation program announced in February 2007 and the business realignment in Brazil announced in December 2007. The Global Supply Chain Transformation program is expected to result in pre-tax charges and non- recurring project implementation costs of $525 million - $575 million. Total charges include project management and start-up costs of approximately $50 million. In 2007, the Company recorded GAAP charges related to the Global Supply Chain Transformation program of $400.0 million, or $1.10 per share- diluted. Additionally, in the fourth quarter of 2007 the Company recorded business realignment and impairment charges of $12.6 million, or $0.05 per share-diluted, related to its business in Brazil. In 2008, the Company expects to record total GAAP charges of about $140 million - $160 million, or $0.37 - $0.42 per share-diluted. Below is a reconciliation of GAAP and non- GAAP items to the Company's earnings per share-diluted outlook: 2007 2008 Reported / Expected EPS-Diluted $0.93 $1.43 - $1.53 Total Business Realignment and Impairment Charges $1.15 $0.37 - $0.42 EPS-Diluted from Operations* $2.08 -- Expected EPS-Diluted from Operations* $1.85 - $1.90 *From operations, excluding business realignment and impairment charges. Live Web Cast As previously announced, the Company will hold a conference call with analysts today at 8:30 a.m. Eastern Time. The conference call will be web cast live via Hershey's corporate website http://www.hersheys.com/. Please go to the Investor Relations section of the website for further details. Safe Harbor Statement This release contains statements which are forward-looking. These statements are made based upon current expectations which are subject to risk and uncertainty. Actual results may differ materially from those contained in the forward-looking statements. Factors which could cause results to differ materially include, but are not limited to: our ability to implement and generate expected ongoing annual savings from the initiatives to transform our supply chain and advance our value-enhancing strategy; changes in raw material and other costs and selling price increases; our ability to execute our supply chain transformation within the anticipated timeframe in accordance with our cost estimates; the impact of future developments related to the product recall and temporary plant closure in Canada in the fourth quarter of 2006, including our ability to recover costs we incurred for the recall and plant closure from responsible third-parties; the impact of future developments related to the investigation by government regulators of alleged pricing practices by members of the confectionery industry, including risks of subsequent litigation or further government action; pension cost factors, such as actuarial assumptions, market performance and employee retirement decisions; changes in our stock price, and resulting impacts on our expenses for incentive compensation, stock options and certain employee benefits; market demand for our new and existing products; changes in our business environment, including actions of competitors and changes in consumer preferences; changes in governmental laws and regulations, including taxes; risks and uncertainties related to our international operations; and such other matters as discussed in our Annual Report on Form 10-K for 2007. All information in this press release is as of April 24, 2008. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. The Hershey Company Summary of Consolidated Statements of Income for the periods ended March 30, 2008 and April 1, 2007 (in thousands except per share amounts) First Quarter 2008 2007 Net Sales $1,160,342 $1,153,109 Costs and Expenses: Cost of Sales 783,890 739,078 Selling, Marketing and Administrative 249,949 216,433 Business Realignment and Impairment Charges, net 4,085 27,545 Total Costs and Expenses 1,037,924 983,056 Income Before Interest and Income Taxes (EBIT) 122,418 170,053 Interest Expense, net 24,386 28,255 Income Before Income Taxes 98,032 141,798 Provision for Income Taxes 34,787 48,325 Net Income $63,245 $93,473 Net Income Per Share - Basic - Common $0.29 $0.42 - Basic - Class B $0.26 $0.37 - Diluted $0.28 $0.40 Shares Outstanding - Basic - Common 166,771 169,836 - Basic - Class B 60,806 60,816 - Diluted 228,926 233,708 Key Margins: Gross Margin 32.4% 35.9% EBIT Margin 10.6% 14.7% Net Margin 5.5% 8.1% The Hershey Company Pro Forma Summary of Consolidated Statements of Income for the periods ended March 30, 2008 and April 1, 2007 (in thousands except per share amounts) First Quarter 2008 2007 Net Sales $1,160,342 $1,153,109 Costs and Expenses: Cost of Sales 758,736(a) 729,219(b) Selling, Marketing and Administrative 248,515( c ) 213,447(d) Business Realignment and Impairment Charges, net --(e) --(f) Total Costs and Expenses 1,007,251 942,666 Income Before Interest and Income Taxes (EBIT) 153,091 210,443 Interest Expense, net 24,386 28,255 Income Before Income Taxes 128,705 182,188 Provision for Income Taxes 44,790 63,402 Net Income $83,915 $118,786 Net Income Per Share - Basic - Common $0.38 $0.53 - Basic - Class B $0.34 $0.48 - Diluted $0.37 0.51 Shares Outstanding - Basic - Common 166,771 169,836 - Basic - Class B 60,806 60,816 - Diluted 228,926 233,708 Key Margins: Adjusted Gross Margin 34.6% 36.8% Adjusted EBIT Margin 13.2% 18.3% Adjusted Net Margin 7.2% 10.3% (a) Excludes business realignment and impairment charges of $25.2 million pre-tax or $17.5 million after-tax for the first quarter of 2008. (b) Excludes business realignment and impairment charges of $9.9 million pre-tax or $6.2 million after-tax for the first quarter of 2007. (c) Excludes business realignment and impairment charges of $1.4 million pre-tax or $.6 million after-tax for the first quarter of 2008. (d) Excludes business realignment and impairment charges of $3.0 million pre-tax or $1.8 million after-tax for the first quarter of 2007. (e) Excludes business realignment and impairment charges of $4.1 million pre-tax or $2.6 million after-tax for the first quarter of 2008. (f) Excludes business realignment and impairment charges of $27.5 million pre-tax or $17.3 million after-tax for the first quarter of 2007. The Hershey Company Consolidated Balance Sheets as of March 30, 2008 and December 31, 2007 (in thousands of dollars) Assets 2008 2007 Cash and Cash Equivalents $152,875 $129,198 Accounts Receivable - Trade (Net) 298,668 487,285 Deferred Income Taxes 73,539 83,668 Inventories 619,406 600,185 Prepaid Expenses and Other 118,115 126,238 Total Current Assets 1,262,603 1,426,574 Net Plant and Property 1,510,667 1,539,715 Goodwill 582,326 584,713 Other Intangibles 168,459 155,862 Other Assets 542,962 540,249 Total Assets $4,067,017 $4,247,113 Liabilities, Minority Interest and Stockholders' Equity Loans Payable $479,037 $856,392 Accounts Payable 231,982 223,019 Accrued Liabilities 466,050 538,986 Taxes Payable 23,921 373 Total Current Liabilities 1,200,990 1,618,770 Long-Term Debt 1,528,691 1,279,965 Other Long-Term Liabilities 523,410 544,016 Deferred Income Taxes 178,800 180,842 Total Liabilities 3,431,891 3,623,593 Minority Interest 43,935 30,598 Total Stockholders' Equity 591,191 592,922 Total Liabilities, Minority Interest and Stockholders' Equity $4,067,017 $4,247,113 DATASOURCE: The Hershey Company CONTACT: Financial, Mark Pogharian, +1-717-534-7556, or Media, Kirk Saville, +1-717-534-7641, both of The Hershey Company Web site: http://www.hersheys.com/

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