HERSHEY, Pa., Oct. 16 /PRNewswire-FirstCall/-- The Hershey Company
(NYSE: HSY) today announced sales and earnings for the third quarter ended
September 28, 2008. Consolidated net sales were $1,489,609,000 compared with
$1,399,469,000 for the third quarter of 2007. Reported net income for the
third quarter of 2008 was $124,538,000 or $0.54 per share-diluted, compared
with $62,784,000 or $0.27 per share-diluted, for the comparable period of
2007.
For the third quarters of 2008 and 2007, these results, prepared in
accordance with generally accepted accounting principles ("GAAP"), include net
pre-tax charges of $31.0 million and $151.9 million, or $0.10 and $0.41 per
share, respectively. The majority of these charges were associated with the
Global Supply Chain Transformation program announced in February 2007. Net
income from operations, which is adjusted to exclude the net charges for the
third quarters of 2008 and 2007, was $145,813,000 or $0.64 per share-diluted
in 2008, compared with $157,230,000 or $0.68 per share-diluted in 2007, a
decrease of 6 percent in earnings per share-diluted.
For the first nine months of 2008, consolidated net sales were
$3,755,388,000 compared with $3,604,494,000 for the first nine months of 2007.
Reported net income for the first nine months of 2008 was $229,250,000 or
$1.00 per share-diluted, compared with $159,811,000 or $0.69 per
share-diluted, for the first nine months of 2007.
For the first nine months of 2008 and 2007, these results, prepared in
accordance with GAAP, include net pre-tax charges of $101.0 million and $316.7
million, or $0.30 and $0.85 per share, respectively. The majority of these
charges were associated with the Global Supply Chain Transformation program.
Net income from operations, which is adjusted to exclude the net charges
for the first nine months of 2008 and 2007, was $296,680,000, or $1.30 per
share-diluted, compared with $357,687,000 or $1.54 per share-diluted in 2007,
a decrease of 16 percent in earnings per share-diluted.
Total Global Supply Chain Transformation program costs to date are $496
million, and the forecast for total charges related to the program remains at
$550 million to $575 million. This forecast includes a projection for pension
settlement costs required in accordance with applicable accounting standards.
As described in Appendix A, this projection of non-cash charges could increase
by up to $75 million. For the full-year 2008, total GAAP charges related to
the program, excluding possible increases in pension settlement charges, are
expected to be $135 million to $145 million.
Third Quarter Performance and Outlook
"Hershey's third quarter results reflect the progress we continue to make
implementing our consumer-driven demand model," said David J. West, President
and Chief Executive Officer. "As anticipated, net sales were solid,
increasing 6.4 percent. Excluding the impact of the timing of shipments
stemming from the buy-in related to the August price increase, sales growth
was approximately 4 percent. This growth was driven by price realization,
overall growth in core brands and new products, partially offset by softness
in snacks and refreshment. Halloween is off to a good start with solid
programming and merchandising in place.
"Third quarter results were in line with our expectations and reflect
higher commodity costs resulting from the execution of hedging strategies
announced in August and implemented within the quarter. These added costs
offset the benefit of higher revenue generated by the buy-in related to the
August price increase. Additionally, we continued to increase core brand
support in the U.S. and within key international markets. In the U.S.,
advertising and consumer brand-building investment increased by about 25
percent in the third quarter.
"We have seen positive results where we have focused our resources. U.S.
retail takeaway in the third quarter increased 4.0 percent in channels that
account for over 80 percent of our retail business. U.S. market share was
about equal to the prior year's third quarter in the channels measured by
syndicated data.
"We're making good progress against our major strategic initiatives. We'll
continue to make the necessary consumer investments to strengthen Hershey's
leadership position and build upon our latest marketplace results. Therefore,
for the full-year 2008, we expect net sales growth of 3-4 percent and earnings
per share-diluted from operations towards the lower end of the $1.85 to $1.90
range. In 2009, we expect net sales growth of 2-3 percent as the pricing
action previously announced will be partially offset by lower volumes. We
expect 2009 earnings per share-diluted from operations to increase, however,
it will be at a rate below our long-term objective of 6-8 percent growth due
to higher commodity prices, which remain at levels well above a year ago
despite recent declines, as well as greater levels of consumer investment,"
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. 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 $550 million - $575 million.
Total charges include project management and start-up costs of approximately
$60 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 $135 million - $145
million, or $0.39 - $0.42 per share-diluted. These estimates exclude possible
increases related to SFAS No. 88, pension settlement costs discussed in
Appendix A. 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 - $1.51
Total Business Realignment
and Impairment Charges $1.15 $0.39 - $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.
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 14 years.
The Global Supply Chain Transformation program charges recorded in 2007
and year-to-date in 2008 have included pension settlement charges in the
amount of approximately $19 million as employees leaving the Company under the
program have been withdrawing lump sums from the defined benefit pension
plans. An additional charge will occur in the fourth quarter of 2008 related
to Hershey's hourly pension plan. These charges are included in the current
Global Supply Chain Transformation program estimates of $550 - $575 million.
In addition to the settlement charges reflected above, additional SFAS No.
88 pension settlement charges of up to $75 million may be incurred depending
on decisions of impacted salaried employees to withdraw funds during the
balance of 2008 and of impacted hourly employees to withdraw funds in 2009.
The amount of the potential charges has increased significantly because of
recent declines in financial markets.
The likely range of possible additional charges for fourth quarter 2008 is
zero to $27 million. There will be no charge if withdrawals by salaried
employees are below the SFAS No. 88 settlement threshold level and will be
approximately $27 million, based on current market conditions, if they are
above the threshold level.
The likely range of possible additional charges for 2009 is zero to $50
million. There would be no charge if withdrawals by hourly employees are below
the SFAS No. 88 settlement threshold level and $25 million to $50 million
based on current market conditions, if they are above the threshold level.
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, changes in consumer preferences
and behavior, and the impact of economic and financial market conditions on
our customers, suppliers, consumers and lenders; 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
October 16, 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.
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.
The Hershey Company
Summary of Consolidated Statements of Income
for the periods ended September 28, 2008 and September 30, 2007
(in thousands except per share amounts)
Third Quarter Nine Months
2008 2007 2008 2007
Net Sales $1,489,609 $1,399,469 $3,755,388 $3,604,494
Costs and Expenses:
Cost of Sales 988,380 928,846 2,495,196 2,390,402
Selling, Marketing
and Administrative 272,401 229,809 788,962 663,112
Business Realignment
and Impairment
Charges, net 8,877 112,043 34,748 219,316
Total Costs and
Expenses 1,269,658 1,270,698 3,318,906 3,272,830
Income Before
Interest and Income
Taxes (EBIT) 219,951 128,771 436,482 331,664
Interest Expense, net 24,915 33,055 72,911 90,523
Income Before
Income Taxes 195,036 95,716 363,571 241,141
Provision for
Income Taxes 70,498 32,932 134,321 81,330
Net Income $124,538 $62,784 $229,250 $159,811
Net Income Per Share
- Basic - Common $0.56 $0.28 $1.03 $0.72
- Basic - Class B $0.51 $0.26 $0.93 $0.65
- Diluted - Common $0.54 $0.27 $1.00 $0.69
Shares Outstanding
- Basic - Common 166,682 167,165 166,696 168,444
- Basic - Class B 60,784 60,812 60,798 60,814
- Diluted - Common 228,670 230,388 228,757 232,026
Key Margins:
Gross Margin 33.6% 33.6% 33.6% 33.7%
EBIT Margin 14.8% 9.2% 11.6% 9.2%
Net Margin 8.4% 4.5% 6.1% 4.4%
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended September 28, 2008 and September 30, 2007
(in thousands except per share amounts)
Third Quarter Nine Months
2008 2007 2008 2007
Net Sales $1,489,609 $1,399,469 $3,755,388 $3,604,494
Costs and Expenses:
Cost of Sales 968,415(a) 891,394(d) 2,435,050(a) 2,301,784(d)
Selling, Marketing
and Administrative 270,213(b) 227,414(e) 782,897(b) 654,384(e)
Business Realignment
and Impairment
Charges, net ---( c ) ---(f) ---( c ) ---(f)
Total Costs and
Expenses 1,238,628 1,118,808 3,217,947 2,956,168
Income Before
Interest and
Income Taxes (EBIT) 250,981 280,661 537,441 648,326
Interest Expense, net 24,915 33,055 72,911 90,523
Income Before
Income Taxes 226,066 247,606 464,530 557,803
Provision for
Income Taxes 80,253 90,376 167,850 200,116
Net Income $145,813 $157,230 $296,680 $357,687
Net Income Per Share
- Basic - Common $0.66 $0.71 $1.34 $1.60
- Basic - Class B $0.59 $0.64 $1.21 $1.44
- Diluted - Common $0.64 $0.68 $1.30 $1.54
Shares Outstanding
- Basic - Common 166,682 167,165 166,696 168,444
- Basic - Class B 60,784 60,812 60,798 60,814
- Diluted - Common 228,670 230,388 228,757 232,026
Key Margins:
Adjusted Gross Margin 35.0% 36.3% 35.2% 36.1%
Adjusted EBIT Margin 16.8% 20.1% 14.3% 18.0%
Adjusted Net Margin 9.8% 11.2% 7.9% 9.9%
(a) Excludes business realignment and impairment charges of
$20.0 million pre-tax or $13.9 million after-tax for the third
quarter and $60.1 million pre-tax or $41.3 million after-tax for the
nine months.
(b) Excludes business realignment and impairment charges of $2.2 million
pre-tax or $1.4 million after-tax for the third quarter and
$6.1 million pre-tax or $3.7 million after-tax for the nine months.
( c ) Excludes business realignment and impairment charges of $8.9 million
pre-tax or $6.0 million after-tax for the third quarter and
$34.7 million pre-tax or $22.4 million after-tax for the nine
months.
(d) Excludes business realignment and impairment charges of
$37.5 million pre-tax or $24.0 million after-tax for the third
quarter and $88.6 million pre-tax or $56.5 million after-tax for the
nine months.
(e) Excludes business realignment and impairment charges of $2.4 million
pre-tax or $1.4 million after-tax for the third quarter and
$8.7 million pre-tax or $5.4 million after-tax for the nine months.
(f) Excludes business realignment and impairment charges of
$112.0 million pre-tax or $69.0 million after-tax for the third
quarter and $219.3 million pre-tax or $136.0 million after-tax for
the nine months.
The Hershey Company
Consolidated Balance Sheets
as of September 28, 2008 and December 31, 2007
(in thousands of dollars)
Assets 2008 2007
Cash and Cash Equivalents $135,632 $129,198
Accounts Receivable - Trade (Net) 614,392 487,285
Deferred Income Taxes 52,512 83,668
Inventories 674,320 600,185
Prepaid Expenses and Other 173,799 126,238
Total Current Assets 1,650,655 1,426,574
Net Plant and Property 1,479,567 1,539,715
Goodwill 570,082 584,713
Other Intangibles 163,738 155,862
Other Assets 567,337 540,249
Total Assets $4,431,379 $4,247,113
Liabilities, Minority Interest and
Stockholders' Equity
Loans Payable $729,297 $856,392
Accounts Payable 317,612 223,019
Accrued Liabilities 505,950 538,986
Taxes Payable 10,633 373
Total Current Liabilities 1,563,492 1,618,770
Long-Term Debt 1,510,831 1,279,965
Other Long-Term Liabilities 532,441 544,016
Deferred Income Taxes 172,486 180,842
Total Liabilities 3,779,250 3,623,593
Minority Interest 38,245 30,598
Total Stockholders' Equity 613,884 592,922
Total Liabilities, Minority Interest
and Stockholders' Equity $4,431,379 $4,247,113
SOURCE The Hershey Company
