The Hershey Company (NYSE:HSY) today announced sales and earnings
for the third quarter ended October 1, 2017. Consolidated net sales
were $2,033.1 million compared with $2,003.5 million for the third
quarter of 2016. Reported net income for the third quarter of 2017
was $273.3 million or $1.28 per share-diluted, compared with $227.4
million or $1.06 per share-diluted for the comparable period of
2016.
“Snacking continues to outpace the market in a
rapidly changing environment,” said Michele Buck, President and
Chief Executive Officer, The Hershey Company. “We’re executing
against the right strategies and investing in the brands and
channels that will continue to drive our business forward.
Hershey’s solid third-quarter results were in-line with our
expectations and we are on track to deliver on the goals we
established earlier this year, including, core brand growth, the
launch of successful innovation and progress against our
multi-year productivity and cost savings initiatives. The
implementation of our confectionery and snacks consumer-driven
demand model continues. The investments we’re making in our power
chocolate brands - Reese’s, Hershey’s, Kit Kat and Kisses - are
resonating with consumers in the marketplace as evidenced by the
third-quarter combined U.S. retail takeaway on these brands of
about 5%. While early, our new warehouse-based snacks initiative is
off to a good start with Hershey’s and Reese’s Popped Snack Mix and
Chocolate Dipped Pretzels progressing as planned. Halloween
seasonal sales are tracking as expected with solid programming,
merchandising and promotions being executed in the
marketplace.”
The Hershey Company’s board of directors
approved a new $100 million stock repurchase authorization.
Hershey’s solid balance sheet and strong cash flow generation gives
the company continued flexibility against its cash priorities,
including, returning cash to shareholders in the form of buy backs
and dividends while also being able to participate in opportunistic
merger and acquisition activity.
As described in the Note below, for the third
quarter of 2017, these results, prepared in accordance with U.S.
generally accepted accounting principles (GAAP), included items
impacting comparability of $7.8 million, or $0.05 per
share-diluted. Reported gross margin of 46.2% represented an
increase of 370 basis points versus the third quarter of 2016,
while reported operating profit of $439.0 million in the third
quarter of 2017 resulted in operating margin of 21.6%. For
the third quarter of 2016, items impacting comparability totaled
$72.4 million, or $0.23 per share-diluted. As described in the
Note, adjusted net income, which excludes these items, was $283.6
million, or $1.33 per share-diluted, for the third quarter of 2017,
compared with $277.3 million, or $1.29 per share-diluted, for the
same period of 2016. The following table presents a summary of
items impacting comparability in each period (see Appendix I for
additional information):
|
Pre-Tax (millions) |
|
Earnings Per Share-Diluted |
|
Three Months Ended |
|
Three Months Ended |
|
October 1,2017 |
|
October 2,2016 |
|
October 1,2017 |
|
October 2,2016 |
Derivative
Mark-to-Market (Gains) Losses |
$ |
(22.0 |
) |
|
$ |
35.8 |
|
|
$ |
(0.08 |
) |
|
$ |
0.10 |
|
Business Realignment
Activities |
8.3 |
|
|
28.0 |
|
|
0.03 |
|
|
0.10 |
|
Acquisition Integration
Costs |
— |
|
|
2.3 |
|
|
— |
|
|
0.01 |
|
Non-Service Related
Pension Expense |
21.5 |
|
|
6.3 |
|
|
0.06 |
|
|
0.02 |
|
Long-Lived Asset
Impairment Charges* |
— |
|
|
— |
|
|
0.04 |
|
|
— |
|
|
$ |
7.8 |
|
|
$ |
72.4 |
|
|
$ |
0.05 |
|
|
$ |
0.23 |
|
* There were no pre-tax impairment charges associated with
long-lived assets during the three months ended October 1, 2017.
However, the long-lived asset impairment charge in the first
quarter of 2017 was not treated as a discrete tax item. Therefore,
the tax impact was included in the estimated annual effective tax
rate resulting in an earnings per share- (EPS) diluted impact for
each of the quarters throughout 2017.
For the first nine months of 2017, consolidated
net sales were $5,575.8 million compared with $5,469.9 million for
the same period of 2016, an increase of 1.9%. Reported net income
for the first nine months of 2017 was $601.8 million or $2.81 per
share-diluted, compared with $603.2 million or $2.80 per
share-diluted for the comparable period of 2016. For the first nine
months of 2017 and 2016, these results, prepared in accordance with
GAAP, included items impacting comparability of $253.3 million and
$133.1 million, or $0.92 and $0.44 per share-diluted, respectively.
Adjusted net income, which excludes these items, was $798.8
million, or $3.73 per share-diluted, for the first nine months of
2017, compared with $698.9 million, or $3.24 per share-diluted, for
the same period of 2016, an increase of 15.1% in adjusted earnings
per share-diluted.
The following table presents a summary of items
impacting comparability in each period (see Appendix I for
additional information):
|
Pre-Tax (millions) |
|
Earnings Per Share-Diluted |
|
Nine Months Ended |
|
Nine Months Ended |
|
October 1,2017 |
|
October 2,2016 |
|
October 1,2017 |
|
October 2,2016 |
Derivative
Mark-to-Market (Gains) Losses |
$ |
(27.5 |
) |
|
$ |
30.9 |
|
|
$ |
(0.11 |
) |
|
$ |
0.09 |
|
Business Realignment
Activities |
69.7 |
|
|
104.5 |
|
|
0.24 |
|
|
0.40 |
|
Acquisition Integration
Costs |
0.3 |
|
|
3.7 |
|
|
— |
|
|
0.01 |
|
Non-Service Related
Pension Expense |
30.1 |
|
|
20.7 |
|
|
0.08 |
|
|
0.06 |
|
Noncontrolling Interest
Share of Business Realignmentand Impairment Charges
(After-Tax) |
(28.0 |
) |
|
— |
|
|
(0.13 |
) |
|
— |
|
Settlement of Shanghai
Golden Monkey (SGM) Liability |
— |
|
|
(26.7 |
) |
|
— |
|
|
(0.12 |
) |
Long-Lived Asset
Impairment Charges |
208.7 |
|
|
— |
|
|
0.84 |
|
|
— |
|
|
$ |
253.3 |
|
|
$ |
133.1 |
|
|
$ |
0.92 |
|
|
$ |
0.44 |
|
In 2017, the company expects reported earnings
per share-diluted of $3.54 to $3.68, including items impacting
comparability of approximately $1.13 to $1.18 per share-diluted.
This projection, prepared in accordance with GAAP, assumes business
realignment costs of $0.16 to $0.21 per share-diluted, including
Margin for Growth Program costs of $0.11 to $0.16 per
share-diluted, long-lived asset impairment charges of $0.87 per
share-diluted relating to the Margin for Growth Program, and
non-service related pension expense (NSRPE) of about $0.10 per
share-diluted. The total per share-diluted impact relating to the
Margin for Growth Program, included in the amounts above, is
currently estimated to be $0.98 to $1.03.
Third-Quarter Performance
Consolidated net sales were $2,033.1 million in
the third quarter of 2017, an increase of 1.5% versus the third
quarter of 2016, including a 0.4 point benefit from foreign
currency translation. Net sales growth was driven by the North
America segment which benefited from core brand growth, innovation,
including Hershey’s Cookie Layer Crunch, and the launch of
Hershey’s and Reese’s Popped Snack Mix and Chocolate Dipped
Pretzels. Volume was a 0.7 point contribution to sales growth and
net price realization was a 0.4 point benefit.
Adjusted gross margin was 45.3% in the third
quarter of 2017, compared to 45.6% in the third quarter of 2016.
Supply chain productivity and cost savings initiatives, as well as
lower input costs, were more than offset by higher freight rates
and increased manufacturing and distribution costs associated with
an effort to maintain customer service targets, as well as
unfavorable sales mix. Additionally, as discussed last quarter, the
transition to new packaging formats continued and, as expected,
pressured gross margin. Advertising and related consumer marketing
expense increased 3.7% versus the third quarter of 2016.
Advertising expense increased 10%, partially offset by lower
consumer promotions. Selling, marketing and administrative
expenses, excluding advertising and related consumer marketing,
increased 0.2% in the quarter as previously discussed cost savings
and efficiency initiatives were offset by investments in
go-to-market capabilities and employee-related costs. As a
result, consolidated adjusted operating profit of $446.9 million in
the third quarter of 2017 was about the same as the third quarter
of 2016.
Outlook
The company continues to execute against the
priorities outlined earlier in the year. Our seasonal business and
programs are on track and the fourth quarter launch of Hershey's
Gold, a caramelized crème with peanuts and pretzels, should enable
us to deliver on our objectives. The company is committed to its
business model of investing in its brands and go-to-market
capabilities that should strengthen Hershey's leadership position
and build upon marketplace results. The company reaffirms its
full-year constant currency net sales growth of around 1.25% and
expects foreign currency exchange rates to be about neutral, versus
a prior estimate of 0.25 points unfavorable.
For the full year, we expect adjusted gross
margin to increase about 25 basis points versus our previous
outlook of about a 50 basis point increase. Productivity and cost
savings initiatives, as well as lower input costs, are expected to
be partially offset by the aforementioned higher freight, new
packaging and customer service costs. Our brands typically respond
positively to marketplace investments and there is no change to our
full-year North America advertising and related consumer marketing
outlook. International and Other segment advertising and related
consumer marketing expense is estimated to be lower in 2017 versus
2016, resulting in total company spend that should be about the
same as last year. In 2017, the company continues to anticipate its
effective tax rate to be in the 26.5% to 27.0% range. As discussed
earlier this year, the reduction in the 2017 tax rate versus 2016
is primarily driven by favorable foreign rate differential and
investment tax credits, as well as the adoption of Accounting
Standards update 2016-09 for the accounting of employee share-based
payments. As a result, the company continues to expect the full
year increase in adjusted earnings per share-diluted to be around
the high end of its outlook of $4.72 to $4.81, or a 7% to 9%
increase versus last year.
Business Segment Results
The following are comments about segment
performance for the third quarter of 2017 versus the year ago
period. See the attached schedule of supplementary information for
additional information on segment net sales and profit.
North America (U.S. and
Canada)
Hershey’s North America net sales were $1,792.4
million in the third quarter of 2017, an increase of 1.6% versus
the same period last year, including a 0.3 point benefit from
foreign currency translation. Volume was a 1.6 point contribution
to sales growth and net price realization was a 0.3 points
headwind.
Total Hershey U.S. retail takeaway1 for the 12
weeks ended October 8, 2017 increased 1.0% in the expanded
multi-outlet combined plus convenience store channels (IRI MULO +
C-Stores). Hershey’s U.S. candy, mint and gum (CMG) retail takeaway
for the 12 weeks ended October 8, 2017, in the MULO + C-Stores
channels increased 1.4%, with market share off 0.3 points. Given
our strong performance in the first half of the year, our
year-to-date CMG market share is up 0.1 points.
Advertising and related consumer marketing
expense increased 5.3% in the third quarter of 2017 versus the year
ago period. The aforementioned increase in supply chain costs and
slightly higher division selling, general and administrative
expense pressured segment income. The company believes that these
marketplace investments will be enablers of future profitable
growth. As a result, North America segment income declined 1.7% to
$554.6 million in the third quarter of 2017, compared to $563.9
million in the third quarter of 2016.
1Includes candy, mint, gum, salty snacks, snack
bars, meat snacks and grocery items.
International and Other
Third-quarter net sales for Hershey’s
International and Other segment increased 0.8% to $240.7 million.
Net price realization was a 4.7 point benefit and volume a 5.2
point headwind. Excluding the 1.3 point impact of favorable foreign
currency exchange rates, net sales declined 0.5%. Combined constant
currency net sales growth in Mexico, Brazil and India was about 8%.
As expected, China net sales were about the same as the year ago
period. International and Other segment income of $16.4 million
compares to segment income of $4.3 million in the third quarter of
2016, driven primarily by cost savings initiatives in China related
to the Margin for Growth program discussed in previous
quarters.
Unallocated Corporate
Expense
Hershey's unallocated adjusted corporate expense
in the third quarter of 2017 was $124.1 million, an increase of
$2.3 million versus the same period of 2016 due primarily to higher
employee-related costs.
Live Webcast
At 8:30 a.m. ET today, Hershey will host a
conference call to elaborate on third-quarter results. To access
this call as a webcast, please go to Hershey’s web site at
http://www.thehersheycompany.com.
Note: In this release,
Hershey references income measures that are not in accordance with
GAAP because they exclude business realignment activities,
impairment of long-lived assets, acquisition integration costs,
settlement of the SGM liability, NSRPE and gains and losses
associated with mark-to-market commodity derivatives. These
non-GAAP financial measures are used in evaluating results of
operations for internal purposes and 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. A reconciliation of the non-GAAP
financial measures referenced in this release to their nearest
comparable GAAP financial measures as presented in the Consolidated
Statements of Income is provided below.
Reconciliation of Certain Non-GAAP Financial
Measures |
Consolidated
results |
|
Three Months Ended |
|
Nine Months Ended |
In thousands
except per share data |
|
October 1, 2017 |
|
October 2, 2016 |
|
October 1, 2017 |
|
October 2, 2016 |
Reported gross
profit |
|
$ |
940,222 |
|
|
$ |
850,848 |
|
|
$ |
2,609,992 |
|
|
$ |
2,415,622 |
|
Derivative
mark-to-market (gains) losses |
|
(21,954 |
) |
|
35,791 |
|
|
(27,486 |
) |
|
30,851 |
|
Business realignment
activities |
|
213 |
|
|
24,470 |
|
|
6,475 |
|
|
57,948 |
|
NSRPE |
|
2,779 |
|
|
2,620 |
|
|
8,344 |
|
|
9,132 |
|
Non-GAAP gross
profit |
|
$ |
921,260 |
|
|
$ |
913,729 |
|
|
$ |
2,597,325 |
|
|
$ |
2,513,553 |
|
|
|
|
|
|
|
|
|
|
Reported operating
profit |
|
$ |
439,020 |
|
|
$ |
374,024 |
|
|
$ |
946,292 |
|
|
$ |
976,295 |
|
Derivative
mark-to-market (gains) losses |
|
(21,954 |
) |
|
35,791 |
|
|
(27,486 |
) |
|
30,851 |
|
Business realignment
activities |
|
8,257 |
|
|
27,962 |
|
|
69,699 |
|
|
104,487 |
|
Acquisition integration
costs |
|
— |
|
|
2,265 |
|
|
311 |
|
|
3,727 |
|
NSRPE |
|
21,540 |
|
|
6,360 |
|
|
30,123 |
|
|
20,666 |
|
Long-lived asset
impairment charges |
|
— |
|
|
— |
|
|
208,712 |
|
|
— |
|
Non-GAAP operating
profit |
|
$ |
446,863 |
|
|
$ |
446,402 |
|
|
$ |
1,227,651 |
|
|
$ |
1,136,026 |
|
|
|
|
|
|
|
|
|
|
Reported provision for
income taxes |
|
$ |
126,788 |
|
|
$ |
100,434 |
|
|
$ |
275,291 |
|
|
$ |
297,671 |
|
Derivative
mark-to-market (gains) losses * |
|
(3,078 |
) |
|
13,566 |
|
|
(2,726 |
) |
|
11,694 |
|
Business realignment
activities* |
|
1,112 |
|
|
5,576 |
|
|
18,312 |
|
|
16,409 |
|
Acquisition integration
costs* |
|
— |
|
|
859 |
|
|
118 |
|
|
1,413 |
|
NSRPE* |
|
8,171 |
|
|
2,432 |
|
|
11,440 |
|
|
7,900 |
|
Long-lived asset
impairment charges** |
|
(8,710 |
) |
|
— |
|
|
29,264 |
|
|
— |
|
Non-GAAP provision for
income taxes |
|
$ |
124,283 |
|
|
$ |
122,867 |
|
|
$ |
331,699 |
|
|
$ |
335,087 |
|
|
|
|
|
|
|
|
|
|
Reported net
income |
|
$ |
273,303 |
|
|
$ |
227,403 |
|
|
$ |
601,848 |
|
|
$ |
603,191 |
|
Derivative
mark-to-market (gains) losses |
|
(18,876 |
) |
|
22,225 |
|
|
(24,760 |
) |
|
19,157 |
|
Business realignment
activities |
|
7,145 |
|
|
22,386 |
|
|
51,387 |
|
|
88,073 |
|
Acquisition integration
costs |
|
— |
|
|
1,406 |
|
|
193 |
|
|
2,314 |
|
NSRPE |
|
13,369 |
|
|
3,928 |
|
|
18,683 |
|
|
12,766 |
|
Long-lived asset
impairment charges |
|
8,710 |
|
|
— |
|
|
179,448 |
|
|
— |
|
Noncontrolling interest
share of business realignment and impairment
charges |
|
(5 |
) |
|
— |
|
|
(27,967 |
) |
|
— |
|
Settlement of SGM
liability |
|
— |
|
|
— |
|
|
— |
|
|
(26,650 |
) |
Non-GAAP net
income |
|
$ |
283,646 |
|
|
$ |
277,348 |
|
|
$ |
798,832 |
|
|
$ |
698,851 |
|
|
|
|
|
|
|
|
|
|
Reported EPS -
Diluted |
|
$ |
1.28 |
|
|
$ |
1.06 |
|
|
$ |
2.81 |
|
|
$ |
2.80 |
|
Derivative
mark-to-market (gains) losses |
|
(0.08 |
) |
|
0.10 |
|
|
(0.11 |
) |
|
0.09 |
|
Business realignment
activities |
|
0.03 |
|
|
0.10 |
|
|
0.24 |
|
|
0.40 |
|
Acquisition integration
costs |
|
— |
|
|
0.01 |
|
|
— |
|
|
0.01 |
|
NSRPE |
|
0.06 |
|
|
0.02 |
|
|
0.08 |
|
|
0.06 |
|
Long-lived asset
impairment charges |
|
0.04 |
|
|
— |
|
|
0.84 |
|
|
— |
|
Noncontrolling interest
share of business realignmentand impairment charges |
|
— |
|
|
— |
|
|
(0.13 |
) |
|
— |
|
Settlement of SGM
liability |
|
— |
|
|
— |
|
|
— |
|
|
(0.12 |
) |
Non-GAAP EPS -
Diluted |
|
$ |
1.33 |
|
|
$ |
1.29 |
|
|
$ |
3.73 |
|
|
$ |
3.24 |
|
* The tax effect for each adjustment is determined by
calculating the tax impact of the adjustment on the company's
quarterly effective tax rate.** There were no pre-tax impairment
charges associated with long-lived assets during the three months
ended October 1, 2017. However, the long-lived asset impairment
charge in the first quarter of 2017 was not treated as a discrete
tax item. Therefore, the tax impact was included in the estimated
annual effective tax rate resulting in an EPS-diluted impact for
each of the quarters throughout 2017.
In the assessment of our results, we review and discuss the
following financial metrics that are derived from the reported and
non-GAAP financial measures presented above:
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
October 1, 2017 |
|
October 2, 2016 |
|
October 1, 2017 |
|
October 2, 2016 |
As reported gross
margin |
|
46.2 |
% |
|
42.5 |
% |
|
46.8 |
% |
|
44.2 |
% |
Non-GAAP gross margin
(1) |
|
45.3 |
% |
|
45.6 |
% |
|
46.6 |
% |
|
46.0 |
% |
|
|
|
|
|
|
|
|
|
As reported operating
profit margin |
|
21.6 |
% |
|
18.7 |
% |
|
17.0 |
% |
|
17.8 |
% |
Non-GAAP operating
profit margin (2) |
|
22.0 |
% |
|
22.3 |
% |
|
22.0 |
% |
|
20.8 |
% |
|
|
|
|
|
|
|
|
|
As reported effective
tax rate |
|
31.6 |
% |
|
30.6 |
% |
|
32.4 |
% |
|
33.0 |
% |
Non-GAAP effective tax
rate (3) |
|
30.4 |
% |
|
30.7 |
% |
|
29.3 |
% |
|
32.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Calculated as non-GAAP gross profit as a percentage of net
sales for each period presented.(2) Calculated as non-GAAP
operating profit as a percentage of net sales for each period
presented.(3) Calculated as non-GAAP provision for income taxes as
a percentage of non-GAAP income before taxes (calculated as
non-GAAP operating profit minus non-GAAP interest expense, net plus
or minus non-GAAP other (income) expense, net).
We present certain percentage changes in net
sales on a constant currency basis, which excludes the impact of
foreign currency exchange. To present this information for
historical periods, current period net sales for entities reporting
in other than the U.S. dollar are translated into U.S. dollars at
the average monthly exchange rates in effect during the
corresponding period of the prior fiscal year, rather than at the
actual average monthly exchange rates in effect during the current
period of the current fiscal year. As a result, the foreign
currency impact is equal to the current year results in local
currencies multiplied by the change in average foreign currency
exchange rate between the current fiscal period and the
corresponding period of the prior fiscal year.
A reconciliation between reported and constant
currency growth rates is provided below:
|
Three Months Ended October 1,
2017 |
|
Percentage Change asReported |
|
Impact of ForeignCurrency
Exchange |
|
Percentage Changeon ConstantCurrency
Basis |
North America
segment |
|
|
|
|
|
Canada |
12.1 |
% |
|
4.6 |
% |
|
7.5 |
% |
Total North America
segment |
1.6 |
% |
|
0.3 |
% |
|
1.3 |
% |
|
|
|
|
|
|
International and Other
segment |
|
|
|
|
|
Mexico |
15.5 |
% |
|
5.9 |
% |
|
9.6 |
% |
Brazil |
6.4 |
% |
|
3.1 |
% |
|
3.3 |
% |
India |
20.9 |
% |
|
4.9 |
% |
|
16.0 |
% |
Greater
China |
(7.3 |
)% |
|
(0.2 |
)% |
|
(7.1 |
)% |
Total International and
Other segment |
0.8 |
% |
|
1.3 |
% |
|
(0.5 |
)% |
|
|
|
|
|
|
Total Company |
1.5 |
% |
|
0.4 |
% |
|
1.1 |
% |
We also present the percentage change in
projected 2017 net sales on a constant currency basis. To
determine this, projected 2017 net sales for entities reporting in
currencies other than the U.S. dollar are translated into U.S.
dollars at the company's average monthly exchange rates in effect
during the corresponding period of the prior fiscal year, and are
compared to the 2016 results translated into U.S. dollars using the
same 2016 average monthly exchange rates.
Below is a reconciliation of projected 2017 and full-year 2016
earnings per share-diluted calculated in accordance with GAAP to
non-GAAP adjusted earnings per share-diluted:
|
2017 (Projected) |
|
|
2016 |
|
Reported EPS –
Diluted |
$3.54
- $3.68 |
|
|
$3.34 |
|
Derivative
mark-to-market losses |
— |
|
|
0.66 |
|
Business realignment
costs (including Margin for Growth Program costs) |
0.16 -
0.21 |
|
|
0.42 |
|
Acquisition and
integration costs |
— |
|
|
0.02 |
|
Non-service related
pension expense |
0.10 |
|
|
0.08 |
|
Settlement of SGM
liability |
— |
|
|
(0.12) |
|
Long-lived asset
impairment charges |
0.87 |
|
|
0.01 |
|
Adjusted EPS –
Diluted |
$4.72 - $4.81 |
|
|
$4.41 |
|
Our 2017 projected earnings per share-diluted,
as presented above, does not include the impact of mark-to-market
gains and losses on our commodity derivative contracts that will be
reflected within corporate unallocated expenses in our segment
results until the related inventory is sold, since we are not able
to forecast the impact of the market changes.
Appendix I
Details of the charges included in GAAP results,
as summarized in the press release (above), are as follows:
Mark-to-Market (Gains) Losses on Commodity
Derivatives: Commensurate with our discontinuance of hedge
accounting treatment for commodity derivatives, we are adjusting
the mark-to-market (gains) losses on such commodity derivatives,
until such time as the related inventory is sold. Since we often
purchase commodity contracts to price inventory requirements in
future years, we make this adjustment to facilitate the
year-over-year comparison of cost of sales on a basis that reflects
the derivative gains and losses with the underlying economic
exposure being hedged for the period.
Business Realignment Activities: We
periodically undertake restructuring and cost reduction activities
as part of ongoing efforts to enhance long-term profitability.
During the first quarter of 2017, we commenced the Margin for
Growth Program to drive continued net sales, operating income and
earnings per share-diluted growth over the next several
years. This program is focused on improving global efficiency
and effectiveness, optimizing the company’s supply chain,
streamlining the company’s operating model and reducing
administrative expenses to generate long-term savings.
For the three- and nine-month periods of 2017, business
realignment charges related primarily to severance expenses, other
third-party advisory costs and non-cash accelerated depreciation
expense related to this program, in addition to severance expenses
incurred under a voluntary separation plan included within the
Operational Optimization Program, a program commenced in 2016 to
optimize our production and supply chain network, including the
integration of the China sales force and consolidation of
production within certain facilities in China and North
America. During the three- and nine-month periods of 2016, we
incurred costs relating primarily to non-cash accelerated
depreciation expense, severance expense, and other third-party
advisory costs relating to this program, in addition to pension
settlement charges driven by individuals who departed under the
2015 productivity initiative receiving lump-sum pension
distributions.
Acquisition Integration Costs: Costs
incurred during the three- and nine-month periods of 2017 and 2016
related to the integration of the 2016 acquisition of Ripple Brand
Collective, LLC as we incorporate this business into our operating
practices and information systems.
Non-Service Related Pension Expense:
Non-service related pension expense (NSRPE) includes interest
costs, the expected return on pension plan assets, the amortization
of actuarial gains and losses, and certain curtailment and
settlement losses or credits. The NSRPE can fluctuate from
year-to-year as a result of changes in market interest rates and
market returns on pension plan assets. We believe that the service
cost component of our total pension benefit costs closely reflects
the operating costs of our business and provides for a better
comparison of our operating results from year-to-year.
Therefore, we exclude the NSRPE from our internal performance
measures. Our most significant defined benefit pension plans have
been closed to new participants for a number of years, resulting in
ongoing service costs that are stable and predictable.
Long-Lived Asset Impairment Charges:
During the first quarter of 2017, in conjunction with the Margin
for Growth Program, we wrote-down certain intangible assets and
property, plant and equipment.
Noncontrolling Interest Share of Business
Realignment and Impairment Charges: Certain of the business
realignment and impairment charges recorded in connection with the
Margin for Growth Program related to a joint venture in which we
own a 50% controlling interest. Therefore, we have also
adjusted for the portion of these charges included within the loss
attributed to the noncontrolling interest.
Settlement of SGM Liability: In the fourth
quarter of 2015, we reached an agreement with the SGM selling
shareholders to reduce the originally-agreed purchase price for the
remaining 20% of SGM, and we completed the purchase on February 3,
2016. In the first quarter of 2016, we recorded a $26.7 million
gain relating to the settlement of the SGM liability, representing
the net carrying amount of the recorded liability in excess of the
cash paid to settle the obligation for the remaining 20% of the
outstanding shares.
Safe Harbor Statement
This release contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Many of these forward-looking statements can be identified
by the use of words such as “intend,” “believe,” “expect,”
“anticipate,” “should,” “planned,” “projected,” “estimated,” and
“potential,” among others. These statements are made based upon
current expectations that are subject to risk and uncertainty.
Because actual results may differ materially from those contained
in the forward-looking statements, you should not place undue
reliance on the forward-looking statements when deciding whether to
buy, sell or hold the company's securities. 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, along with the availability of adequate supplies of
raw materials; selling price increases, including volume declines
associated with pricing elasticity; market demand for our new and
existing products; increased marketplace competition; disruption to
our manufacturing operations or supply chain; failure to
successfully execute and integrate acquisitions, divestitures and
joint ventures; changes in governmental laws and regulations,
including taxes; political, economic, and/or financial market
conditions; risks and uncertainties related to our international
operations; disruptions, failures or security breaches of our
information technology infrastructure; our ability to hire, engage
and retain a talented global workforce; our ability to realize
expected cost savings and operating efficiencies associated with
strategic initiatives or restructuring programs; complications with
the design or implementation of our new enterprise resource
planning system; and such other matters as discussed in our Annual
Report on Form 10-K for the year ended December 31, 2016 and our
Quarterly Report on Form 10-Q for the quarter ended July 2, 2017.
All information in this press release is as of October 26, 2017.
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 |
Consolidated Statements of
Income |
for the periods ended October 1, 2017 and
October 2, 2016 |
(unaudited) (in thousands except per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
Nine Months |
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
|
$ |
2,033,121 |
|
|
$ |
2,003,454 |
|
|
$ |
5,575,790 |
|
|
$ |
5,469,937 |
|
Cost of sales |
|
1,092,899 |
|
|
1,152,606 |
|
|
2,965,798 |
|
|
3,054,315 |
|
Gross
profit |
|
|
940,222 |
|
|
850,848 |
|
|
2,609,992 |
|
|
2,415,622 |
|
|
|
|
|
|
|
|
|
Selling, marketing and administrative expense |
497,182 |
|
|
474,494 |
|
|
1,404,970 |
|
|
1,408,759 |
|
Long-lived asset impairment charges |
— |
|
|
— |
|
|
208,712 |
|
|
— |
|
Business realignment costs |
4,020 |
|
|
2,330 |
|
|
50,018 |
|
|
30,568 |
|
|
|
|
|
|
|
|
|
|
Operating
profit |
439,020 |
|
|
374,024 |
|
|
946,292 |
|
|
976,295 |
|
Interest
expense, net |
|
24,589 |
|
|
24,387 |
|
|
72,456 |
|
|
66,730 |
|
Other
(income) expense, net |
|
13,630 |
|
|
21,800 |
|
|
23,557 |
|
|
8,703 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
400,801 |
|
|
327,837 |
|
|
850,279 |
|
|
900,862 |
|
Provision
for income taxes |
|
126,788 |
|
|
100,434 |
|
|
275,291 |
|
|
297,671 |
|
|
|
|
|
|
|
|
|
|
|
Net income
including noncontrolling interest |
274,013 |
|
|
227,403 |
|
|
574,988 |
|
|
603,191 |
|
|
|
|
|
|
|
|
|
|
|
Less: Net income (loss) attributable to noncontrolling
interest |
710 |
|
|
— |
|
|
(26,860 |
) |
|
— |
|
Net income
attributable to The Hershey Company |
$ |
273,303 |
|
|
$ |
227,403 |
|
|
$ |
601,848 |
|
|
$ |
603,191 |
|
|
|
|
|
|
|
|
|
|
|
Net income
per share |
- Basic |
- Common |
$ |
1.32 |
|
|
$ |
1.09 |
|
|
$ |
2.91 |
|
|
$ |
2.88 |
|
|
- Diluted |
- Common |
$ |
1.28 |
|
|
$ |
1.06 |
|
|
$ |
2.81 |
|
|
$ |
2.80 |
|
|
- Basic |
- Class B |
$ |
1.20 |
|
|
$ |
0.99 |
|
|
$ |
2.64 |
|
|
$ |
2.63 |
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding |
- Basic |
- Common |
151,418 |
|
|
153,259 |
|
|
152,004 |
|
|
153,943 |
|
|
- Diluted |
- Common |
213,392 |
|
|
215,161 |
|
|
214,123 |
|
|
215,758 |
|
|
- Basic |
- Class B |
60,620 |
|
|
60,620 |
|
|
60,620 |
|
|
60,620 |
|
|
|
|
|
|
|
|
|
Key
margins: |
|
|
|
|
|
|
|
Gross margin |
|
46.2 |
% |
|
42.5 |
% |
|
46.8 |
% |
|
44.2 |
% |
Operating profit margin |
|
21.6 |
% |
|
18.7 |
% |
|
17.0 |
% |
|
17.8 |
% |
Net margin |
|
13.4 |
% |
|
11.4 |
% |
|
10.8 |
% |
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
The Hershey Company |
Supplementary Information – Segment
Results |
for the periods ended October 1, 2017 and
October 2, 2016 |
(unaudited) (in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
Nine Months |
|
|
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
Net
sales: |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,792,377 |
|
|
$ |
1,764,528 |
|
|
1.6 |
% |
|
$ |
4,946,537 |
|
|
$ |
4,842,840 |
|
|
2.1 |
% |
International and Other |
|
240,744 |
|
|
238,926 |
|
|
0.8 |
% |
|
629,253 |
|
|
627,097 |
|
|
0.3 |
% |
Total |
|
$ |
2,033,121 |
|
|
$ |
2,003,454 |
|
|
1.5 |
% |
|
$ |
5,575,790 |
|
|
$ |
5,469,937 |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
554,578 |
|
|
$ |
563,946 |
|
|
(1.7 |
)% |
|
$ |
1,568,098 |
|
|
$ |
1,519,059 |
|
|
3.2 |
% |
International and Other |
|
16,400 |
|
|
4,284 |
|
|
282.8 |
% |
|
26,491 |
|
|
(12,411 |
) |
|
NM |
|
Total
segment income |
|
570,978 |
|
|
568,230 |
|
|
0.5 |
% |
|
1,594,589 |
|
|
1,506,648 |
|
|
5.8 |
% |
Unallocated
corporate expense (1) |
|
124,115 |
|
|
121,828 |
|
|
1.9 |
% |
|
366,938 |
|
|
370,622 |
|
|
(1.0 |
)% |
Mark-to-market adjustment forcommodity derivatives (2) |
|
(21,954 |
) |
|
35,791 |
|
|
NM |
|
|
(27,486 |
) |
|
30,851 |
|
|
NM |
|
Long-lived
asset impairmentcharges |
|
— |
|
|
— |
|
|
— |
% |
|
208,712 |
|
|
— |
|
|
NM |
|
Costs
associated with businessrealignment initiatives |
|
8,257 |
|
|
27,962 |
|
|
(70.5 |
)% |
|
69,699 |
|
|
104,487 |
|
|
(33.3 |
)% |
Non-service
related pension |
|
21,540 |
|
|
6,360 |
|
|
238.7 |
% |
|
30,123 |
|
|
20,666 |
|
|
45.8 |
% |
Acquisition
integration costs |
|
— |
|
|
2,265 |
|
|
(100.0 |
)% |
|
311 |
|
|
3,727 |
|
|
(91.7 |
)% |
Operating
profit |
|
439,020 |
|
|
374,024 |
|
|
17.4 |
% |
|
946,292 |
|
|
976,295 |
|
|
(3.1 |
)% |
Interest
expense, net |
|
24,589 |
|
|
24,387 |
|
|
0.8 |
% |
|
72,456 |
|
|
66,730 |
|
|
8.6 |
% |
Other
(income) expense, net |
|
13,630 |
|
|
21,800 |
|
|
(37.5 |
)% |
|
23,557 |
|
|
8,703 |
|
|
170.7 |
% |
Income
before income taxes |
|
$ |
400,801 |
|
|
$ |
327,837 |
|
|
22.3 |
% |
|
$ |
850,279 |
|
|
$ |
900,862 |
|
|
(5.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes centrally-managed (a) corporate functional
costs relating to legal, treasury, finance, and human resources,
(b) expensesassociated with the oversight and administration of our
global operations, including warehousing, distribution and
manufacturing,information systems and global shared services, (c)
non-cash stock-based compensation expense, and (d) other gains or
losses that arenot integral to segment performance. (2) Net
(gains) losses on mark-to-market valuation of commodity derivative
positions recognized in unallocated derivative (gains) losses. NM -
not meaningful |
|
|
|
Third Quarter |
|
Nine Months |
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Segment
income as a percent of net sales:
|
|
|
|
|
|
|
|
|
North America |
|
30.9 |
% |
|
32.0 |
% |
|
31.7 |
% |
|
31.4 |
% |
International and Other |
|
6.8 |
% |
|
1.8 |
% |
|
4.2 |
% |
|
(2.0 |
)% |
The Hershey Company |
Consolidated Balance Sheets |
as of October 1, 2017 and December 31,
2016 |
(in thousands of dollars) |
|
|
|
|
Assets |
2017
|
|
2016
|
|
(unaudited) |
|
|
Cash and cash
equivalents |
$ |
275,056 |
|
|
$ |
296,967 |
|
Accounts receivable -
trade, net |
742,832 |
|
|
581,381 |
|
Inventories |
938,187 |
|
|
745,678 |
|
Prepaid expenses and
other |
258,379 |
|
|
192,752 |
|
|
|
|
|
Total current
assets |
2,214,454 |
|
|
1,816,778 |
|
|
|
|
|
Property, plant and
equipment, net |
2,050,124 |
|
|
2,177,248 |
|
Goodwill |
822,348 |
|
|
812,344 |
|
Other intangibles |
375,455 |
|
|
492,737 |
|
Other assets |
174,611 |
|
|
168,365 |
|
Deferred income
taxes |
18,485 |
|
|
56,861 |
|
|
|
|
|
Total assets |
$ |
5,655,477 |
|
|
$ |
5,524,333 |
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
Accounts payable |
$ |
529,442 |
|
|
$ |
522,536 |
|
Accrued
liabilities |
673,435 |
|
|
750,986 |
|
Accrued income
taxes |
19,109 |
|
|
3,207 |
|
Short-term debt |
815,588 |
|
|
632,471 |
|
Current portion of
long-term debt |
300,096 |
|
|
243 |
|
|
|
|
|
Total current
liabilities |
2,337,670 |
|
|
1,909,443 |
|
|
|
|
|
Long-term debt |
2,054,132 |
|
|
2,347,455 |
|
Other long-term
liabilities |
402,396 |
|
|
400,161 |
|
Deferred income
taxes |
22,303 |
|
|
39,587 |
|
|
|
|
|
Total liabilities |
4,816,501 |
|
|
4,696,646 |
|
|
|
|
|
Total stockholders'
equity |
838,976 |
|
|
827,687 |
|
|
|
|
|
Total liabilities and
stockholders' equity |
$ |
5,655,477 |
|
|
$ |
5,524,333 |
|
|
|
|
|
|
FINANCIAL CONTACT: |
|
|
|
MEDIA CONTACT: |
Mark Pogharian |
|
|
|
Jennifer Sniderman |
717-534-7556 |
|
|
|
717-534-6275 |
Hershey (NYSE:HSY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Hershey (NYSE:HSY)
Historical Stock Chart
From Apr 2023 to Apr 2024