The Hershey Company (NYSE:HSY):
? Net Sales increase 5.9%
? Earnings per share-diluted of $0.31 as reported and $0.43
adjusted
? 2009 outlook for net sales growth to be in 3-5%
long-term range and increase in adjusted earnings per share-diluted
to be slightly above the 6-8% range
The Hershey Company (NYSE:HSY) today announced sales and
earnings for the second quarter ended July 5, 2009. Consolidated
net sales were $1,171,183,000 compared with $1,105,437,000 for the
second quarter of 2008. Net income for the second quarter of 2009
was $71,298,000 or $0.31 per share-diluted, compared with
$41,467,000 or $0.18 per share-diluted, for the comparable period
of 2008.
For the second quarters of 2009 and 2008, these results,
prepared in accordance with generally accepted accounting
principles (�GAAP�), include net pre-tax charges of $42.7 million
and $39.3 million, or $0.12 and $0.11 per share-diluted,
respectively. These charges were associated with the Global Supply
Chain Transformation (�GSCT�) program. Adjusted net income, which
excludes these net charges, was $97,965,000 or $0.43 per
share-diluted in the second quarter of 2009, compared with
$66,952,000, or $0.29 per share-diluted in the second quarter of
2008, an increase of 48 percent in adjusted earnings per
share-diluted.
For the first six months of 2009, consolidated net sales were
$2,407,214,000 compared with $2,265,779,000 for the first six
months of 2008. Reported net income for the first six months of
2009 was $147,192,000 or $0.64 per share-diluted, compared with
$104,712,000 or $0.46 per share-diluted, for the first six months
of 2008.
For the first six months of 2009 and 2008, these results,
prepared in accordance with GAAP, include net pre-tax charges of
$61.7 million and $69.9 million, or $0.17 and $0.20 per share,
respectively. These charges were associated with the GSCT program.
Adjusted net income for the first six months of 2009, which
excludes these net charges, was $183,957,000, or $0.81 per
share-diluted, compared with $150,867,000 or $0.66 per
share-diluted in 2008, an increase of 23 percent in adjusted
earnings per share-diluted.
Total GSCT program costs to date are $591.7 million. The
forecast for total charges related to the program has been narrowed
and is now expected to be $640 million to $665 million and includes
$40 million to $65 million of non-cash pension settlement charges,
discussed in prior quarters and described in Appendix A. For 2009,
total GAAP charges related to the GSCT program are expected to be
$85 million to $120 million, including non-cash pension settlement
charges of $40 million to $50 million.
Second Quarter Performance and
Outlook
�Hershey�s second quarter results reflect continued momentum in
the marketplace,� said David J. West, President and Chief Executive
Officer. �Investments in our core brands and retail selling
capabilities have resulted in strong gains in net sales, profit and
U.S. market share. Net sales increased by 5.9 percent driven by the
U.S. pricing action announced in August 2008, partially offset by
volume declines associated with pricing elasticity and the impact
of unfavorable foreign currency exchange rates. Core brands are
responding to the investments in advertising, in-store programming
and merchandising. In the second quarter, advertising increased 46
percent as we were on air supporting our core brands, the Easter
season and the kick-off of our annual S�mores promotion.
�U.S. retail takeaway for the 24-weeks ended June 14, 2009,
which along with the comparable period in 2008 encompasses each
year�s entire Easter season results, in channels that account for
over 80 percent of our retail business, was up 8.9 percent. In the
channels measured by syndicated data, U.S. market share in the
second quarter and year-to-date periods increased an identical 0.5
points.
�Performance was balanced across all
classes of trade. Where we have focused resources, particularly in
the food and convenience channels, results have exceeded our
expectations. In the convenience store channel, Hershey has
outpaced category retail takeaway for 11 consecutive four-week
periods. In the second quarter, convenience store retail takeaway
was up mid-single digits.
�Adjusted income before interest and income taxes increased 19.5
percent in the second quarter, resulting in a 150 basis point
margin improvement, driven by net price realization; volume trends
that were better than our initial expectations, particularly for
our standard and king-size bars; supply chain efficiencies; and
productivity gains. Offsetting a portion of these gains were higher
commodity and energy costs, employee-related costs, including
pension expense, and greater levels of consumer investment
spending.
�Despite the challenging economic environment, we have
maintained strong momentum. As we enter the third quarter, we are
well-positioned to deliver on our financial objectives.
Brand-building initiatives are having the desired effect and have
helped to mitigate volume declines due to price elasticity. We
expect consumers to see markedly higher promoted price points in
the upcoming Halloween and Holiday seasons, which represent
approximately one-third of our U.S. revenues in the second half of
the year. Additionally, in the fourth quarter we begin to lap the
August 2008 every day price increase. We intend to make the
necessary consumer investments to ensure that the category
continues to perform well in the second half of the year and are
closely monitoring consumer and competitor response to our pricing
models. Therefore, we are planning additional increases in
advertising for the full year and expect advertising expense to
increase 40 to 45 percent in 2009. This investment will benefit the
business in both the near term and next year. As a result, we
expect full year net sales growth to be within our 3 to 5 percent
long-term objective.
�While our year-over-year commodity cost
increase remains significant, it will be less than our initial
estimate of $175 million. We have visibility into most of the cost
structure, except costs for dairy products which remain lower than
our initial estimates. While there is not a developed futures
market for dairy, over the remainder of the year we do not expect
material price inflation for dairy products. Our first-half
performance has given us the flexibility to increase full-year
brand-building advertising. We�ll also make further investments in
category management and global go-to-market capabilities that will
benefit the Company over the long term. Considering our strong
first-half performance, a good start to the third quarter, solid
seasonal programming and, based on year-to-date price/volume
elasticity trends, we now expect the increase in adjusted earnings
per share-diluted for the full year to be slightly above our
long-term objective of 6 to 8 percent,� West concluded.
Note: In this
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.
In 2008, the Company recorded GAAP charges of $130.0 million, or
$0.38 per share-diluted, attributable to the GSCT program and $45.7
million, or $0.13 per share-diluted, related to intangible
trademark values, primarily Mauna Loa, recorded in the fourth
quarter of 2008. Additionally, the Company recorded business
realignment and impairment charges of $4.9 million, or $0.01 per
share-diluted, related to the business realignment in Brazil.
In 2009, the Company expects to record total GAAP charges,
including possible non-cash pension settlement charges (see
Appendix A), of about $85 million to $120 million, or $0.24 to
$0.33 per share-diluted.
The GSCT program is expected to result in total pre-tax charges
and non-recurring project implementation costs of $640 million to
$665 million, including possible non-cash pension settlement
charges (see Appendix A) in 2009 and 2010. Total charges include
project management and start-up costs of approximately $60
million.
Appendix A
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 88, Employers� Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits (as amended) (�SFAS No. 88�) requires pension
settlement charges to be recorded if withdrawals from pension plans
in a calendar year exceed a certain level.
Pension settlement charges are non-cash charges for the Company.
Such charges accelerate the recognition of pension expenses related
to actuarial gains and losses resulting from interest rate changes
and differences in actual versus assumed returns on pension assets.
The Company normally amortizes actuarial gains and losses over a
period of about 13 years.
The GSCT program charges recorded in 2007 and 2008 included
pension settlement charges of approximately $25 million as
employees leaving the Company under the program have withdrawn lump
sums from the defined benefit pension plans. Pension settlement
charges recorded during the first six months of 2009 totaled
approximately $31 million.
In addition to the settlement charges reflected above,
incremental SFAS No. 88 pension settlement charges of $15 million
to $34 million are included in the total GSCT program estimates
based upon the current trends of employee withdrawals, with $15
million to $20 million of this amount projected for 2009.
The GSCT program is expected to result in total pre-tax charges
and non-recurring project implementation costs of $640 million to
$665 million, including estimated pension settlement charges in
2009 and 2010.
Safe Harbor
Statement
This release contains statements that are forward-looking. These
statements are made based upon current expectations that are
subject to risk and uncertainty. Actual results may differ
materially from those contained in the forward-looking statements.
Factors that could cause results to differ materially include, but
are not limited to: issues or concerns related to the quality and
safety of our products, ingredients or packaging; changes in raw
material and other costs and selling price increases, including
volume declines associated with pricing elasticity; market demand
for our new and existing products; increased marketplace
competition; political, economic, and/or financial market
conditions; changes in governmental laws and regulations, including
taxes; risks and uncertainties related to our international
operations; 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; our ability to achieve expected
ongoing annual savings from our supply chain transformation and the
implementation of our supply chain transformation within the
anticipated timeframe in accordance with our cost estimates; and
such other matters as discussed in our Annual Report on Form 10-K
for 2008. All information in this press release is as of July 23,
2009. 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.
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
www.hersheys.com. Please go to the Investor Relations section of
the website for further details.
�
The Hershey Company Summary of Consolidated Statements
of Income for the periods ended July 5, 2009 and June 29,
2008 (in thousands except per share amounts) � � �
Second Quarter
�
Six Months
� �
2009
2008
2009
2008
� Net Sales $ 1,171,183 $ 1,105,437 $ 2,407,214 $ 2,265,779 � Costs
and Expenses: Cost of Sales 717,893 722,926 1,513,696 1,506,816
Selling, Marketing and Administrative 298,710 266,612 573,166
516,561
Business Realignment and
Impairment Charges, net
37,904 21,786 50,742 25,871 � Total Costs and Expenses 1,054,507
1,011,324 2,137,604 2,049,248 � Income Before Interest and Income
Taxes (EBIT) 116,676 94,113 269,610 216,531 Interest Expense, net
22,734 23,610 46,630 47,996 � Income Before Income Taxes 93,942
70,503 222,980 168,535 Provision for Income Taxes 22,644 29,036
75,788 63,823 � Net Income $ 71,298 $ 41,467 $ 147,192 $ 104,712 �
Net Income Per Share
�
- Basic - Common
$ 0.32 $ 0.19 $ 0.66 $ 0.47
�
- Basic - Class B
$ 0.29 $ 0.17 $ 0.60 $ 0.43
�
- Diluted - Common
$ 0.31 $ 0.18 $ 0.64 $ 0.46 �
Shares Outstanding
- Basic - Common
166,846 166,624 166,817 166,701
�
- Basic - Class B
60,710 60,806 60,710 60,806
�
- Diluted - Common
228,489 228,664 228,396 228,798 � Key Margins: Gross Margin 38.7%
34.6% 37.1% 33.5% EBIT Margin 10.0% 8.5% 11.2% 9.6% Net Margin 6.1%
3.8% 6.1% 4.6% �
The Hershey Company Pro Forma Summary of
Consolidated Statements of Income for the periods ended July
5, 2009 and June 29, 2008 (in thousands except per share
amounts) � � �
Second Quarter
�
Six Months
� �
2009
2008
2009
2008
� Net Sales $ 1,171,183 $ 1,105,437 $ 2,407,214 $ 2,265,779 � Costs
and Expenses: Cost of Sales 714,777(a) 707,899(d) 1,506,529(a)
1,466,635(d) Selling, Marketing and Administrative 297,039(b)
264,169(e) 569,412(b) 512,684(e)
Business Realignment and
Impairment Charges, net
�(c) �(f) �(c) �(f) � Total Costs and Expenses 1,011,816 972,068
2,075,941 1,979,319 � Income Before Interest and Income Taxes
(EBIT) 159,367 133,369 331,273 286,460 Interest Expense, net 22,734
23,610 46,630 47,996 � Income Before Income Taxes 136,633 109,759
284,643 238,464 Provision for Income Taxes 38,668 42,807 100,686
87,597 � Adjusted Net Income $ 97,965 $ 66,952 $ 183,957 $ 150,867
�
Adjusted Net Income Per Share
�
- Basic - Common
$ 0.44 $ 0.30 $ 0.83 $ 0.68
�
- Basic - Class B
$ 0.40 $ 0.27 $ 0.75 $ 0.61
�
- Diluted - Common
$ 0.43 $ 0.29 $ 0.81 $ 0.66 �
Shares Outstanding
- Basic - Common
166,846 166,624 166,817 166,701
�
- Basic - Class B
60,710 60,806 60,710 60,806
�
- Diluted - Common
228,489 228,664 228,396 228,798 � Key Margins: Adjusted Gross
Margin 39.0% 36.0% 37.4% 35.3% Adjusted EBIT Margin 13.6% 12.1%
13.8% 12.6% Adjusted Net Margin 8.4% 6.1% 7.6% 6.7% � (a) Excludes
business realignment and impairment charges of $3.1 million pre-tax
or $2.0 million after-tax for the second quarter and $7.2 million
pre-tax or $4.2 million after-tax for the six months. (b) Excludes
business realignment and impairment charges of $1.7 million pre-tax
or $1.1 million after-tax for the second quarter and $3.8 million
pre-tax or $2.2 million after-tax for the six months. (c) Excludes
business realignment and impairment charges of $37.9 million
pre-tax or $23.6 million after-tax for the second quarter and $50.7
million pre-tax or $30.3 million after-tax for the six months. (d)
Excludes business realignment and impairment charges of $15.0
million pre-tax or $10.0 million after-tax for the second quarter
and $40.2 million pre-tax or $27.4 million after-tax for the six
months. (e) Excludes business realignment and impairment charges of
$2.4 million pre-tax or $1.7 million after-tax for the second
quarter and $3.9 million pre-tax or $2.2 million after-tax for the
six months. (f) Excludes business realignment and impairment
charges of $21.8 million pre-tax or $13.8 million after-tax for the
second quarter and $25.9 million pre-tax or $16.4 million after-tax
for the six months. �
The Hershey Company Consolidated
Balance Sheets as of July 5, 2009 and December 31, 2008
(in thousands of dollars) � � � �
Assets
2009
2008
� Cash and Cash Equivalents $ 28,768 $ 37,103 Accounts Receivable -
Trade (Net) 272,542 455,153 Deferred Income Taxes 65,854 70,903
Inventories 642,505 592,530 Prepaid Expenses and Other 169,255
189,256 � Total Current Assets 1,178,924 1,344,945 � Net Plant and
Property 1,440,530 1,458,949 Goodwill 563,622 554,677 Other
Intangibles 125,315 110,772 Deferred Income Taxes 21,182 13,815
Other Assets 163,849 151,561 � Total Assets $ 3,493,422 $ 3,634,719
�
Liabilities and Stockholders'
Equity
� Loans Payable $ 261,929 $ 501,504 Accounts Payable 279,706
249,454 Accrued Liabilities 460,304 504,065 Taxes Payable � 15,189
� Total Current Liabilities 1,001,939 1,270,212 � Long-Term Debt
1,504,475 1,505,954 Other Long-Term Liabilities 503,638 504,963
Deferred Income Taxes 26,190 3,646 � Total Liabilities 3,036,242
3,284,775 � Total Stockholders' Equity 457,180 349,944 � Total
Liabilities and Stockholders' Equity $ 3,493,422 $ 3,634,719
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