-- Earnings Per Share-Diluted from Operations $0.35
-- Second Half Profile Reflects Increasing Investment in Consumer and
Customer Programs and Continued Dairy Cost Pressures
-- Full Year 2007 Organic Net Sales to Increase Low-Single Digits,
Earnings Per Share-Diluted from Operations Expected to Decline Mid-
Single Digits
HERSHEY, Pa., July 19 /PRNewswire-FirstCall/ -- The Hershey Company
(NYSE: HSY) today announced sales and earnings for the second quarter ended
July 1, 2007. Consolidated net sales were $1,051,916,000 compared with
$1,051,912,000 for the second quarter of 2006. Net income for the second
quarter of 2007 was $3,554,000 or $0.01 per share-diluted, compared with
$97,897,000, or $0.41 per share-diluted, for the comparable period of 2006.
For the second quarters of 2007 and 2006, these results, prepared in
accordance with generally accepted accounting principles ("GAAP"), include net
pre-tax charges of $124.4 million and $2.6 million, or $0.34 and $0.01 per
share, respectively. The 2007 charges are associated with the Global Supply
Chain Transformation plan announced in February, while the 2006 charges
primarily relate to the completed business realignment initiatives announced
in July 2005. Net income from operations, which excludes the net charges for
the second quarters of 2007 and 2006, was $81,671,000 or $0.35 per share-
diluted in 2007, compared with $99,707,000 or $0.42 per share-diluted in 2006.
Second Quarter Performance
"Results for the second quarter were in-line with the expectations that
were communicated in May," said Richard H. Lenny, Chairman, President and
Chief Executive Officer. "Higher dairy prices and a slower than expected
improvement in the U.S. business adversely impacted results for the second
quarter. Focused investment behind Reese's, Hershey's, and Kisses delivered a
4 percent gain in retail takeaway on these brands. In addition, retail sales
of dark and premium chocolate, behind stronger programming, achieved
sequentially higher growth. However, this performance was more than offset by
lower velocities of some previously introduced new items and heightened
competitive activity within the refreshment segment. As a result, total retail
takeaway was down slightly, 0.4 percent, for the quarter."
First Half Results and Outlook
For the first six months of 2007, consolidated net sales were
$2,205,025,000, compared with $2,191,419,000 for the first six months of 2006.
Reported net income for the first six months of 2007 was $97,027,000 or $0.42
per share-diluted, compared with $220,368,000, or $0.91 per share-diluted, for
the first six months of 2006. For the first six months of 2007 and 2006, these
results, prepared in accordance with GAAP, include net pre-tax charges of
$164.8 million and $4.4 million, or $0.44 and $0.01 per share, respectively.
The 2007 charges are associated with the Global Supply Chain Transformation
plan announced in February, while the 2006 charges primarily relate to the
completed business realignment initiatives announced in July 2005.
Net income from operations, which excludes the net charges for the first
six months of 2007 and 2006, was $200,457,000, or $0.86 per share-diluted,
compared with $223,393,000 or $0.92 per share-diluted in 2006, a decrease of 7
percent in earnings per share-diluted.
"Hershey's results during the first half did not meet expectations.
Focused investment behind our core brands has proven to be beneficial.
However, new product innovation must become more sustainable. We fully intend
to address this through accelerated close-in core brand innovation and new
product platforms, primarily within dark and premium chocolate," Lenny stated.
"Solid progress was made on Hershey's strategic initiatives. The Global
Supply Chain Transformation is on track. Announcements regarding facility
rationalizations have been made while maintaining strong productivity and
service levels. Construction is well underway at the new manufacturing
facility in Monterrey, Mexico with phased-in production expected to begin by
mid-2008. In emerging markets, the government of India approved our joint
venture proposal to establish the Godrej Hershey Foods and Beverages Company.
The business is now up and running and we expect this to be a major
contributor to Hershey's growth over the long term. In China, our
manufacturing joint venture with Lotte is on schedule with production having
begun.
"As we look to the second half of the year, our goal is to ensure the
long-term vitality of Hershey's brand franchises and expand our global
footprint. As such, we'll continue to invest accordingly. To deliver this goal
we're significantly increasing total consumer and customer investment. This
spending will support strong seasonal programming, new products such as
Reese's Whipps, and higher levels of retail coverage. In key global markets
we're developing the appropriate product portfolios and routes-to-market.
"For the second half, we expect sequential improvement in organic net
sales that will result in full year 2007 growth in the low-single digit range.
Higher dairy costs will continue to pressure margins for the balance of the
year, and combined with our commitment to brand investment, will result in a
mid-single digit decline in earnings per share-diluted from operations for
2007. We are taking the appropriate steps to ensure that Hershey enters 2008
with a strong foundation both in the U.S. and within key global markets that
represent attractive long-term potential," Lenny 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 plan announced in February 2007 and the 2005
business realignment initiatives recorded in 2005 and 2006. The Global Supply
Chain Transformation plan will 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 expects to record GAAP charges of about $270 million - $300
million, or $0.75 - $0.84 per share-diluted. Below is a reconciliation of GAAP
and non-GAAP items to the Company's earnings per share-diluted outlook:
2006 2007
Reported / Expected EPS-Diluted $2.34 $1.41 - $1.50
Total Business Realignment Charges $0.03 $0.75 - $0.84
EPS-Diluted from Operations* $2.37
Expected EPS-Diluted from Operations* $2.25
*From operations, excluding business realignment and one-time costs.
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; 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 2006.
The Hershey Company
Summary of Consolidated Statements of Income
for the periods ended July 1, 2007 and July 2, 2006
(in thousands except per share amounts)
Second Quarter Six Months
2007 2006 2007 2006
Net Sales $1,051,916 $1,051,912 $2,205,025 $2,191,419
Costs and Expenses:
Cost of Sales 722,478 644,077 1,461,556 1,351,442
Selling, Marketing
and Administrative 216,870 221,478 433,303 438,272
Business Realignment
Charge, net 79,728 4,240 107,273 7,571
Total Costs and
Expenses 1,019,076 869,795 2,002,132 1,797,285
Income Before
Interest and
Income Taxes
(EBIT) 32,840 182,117 202,893 394,134
Interest Expense, net 29,213 27,490 57,468 52,693
Income Before
Income Taxes 3,627 154,627 145,425 341,441
Provision for
Income Taxes 73 56,730 48,398 121,073
Net Income $3,554 $97,897 $97,027 $220,368
Net Income Per Share
- Basic - Common $0.02 $0.42 $0.43 $0.95
- Basic - Class B $0.01 $0.38 $0.39 $0.86
- Diluted - Common $0.01 $0.41 $0.42 $0.91
Shares Outstanding
- Basic - Common 168,309 175,779 169,078 177,344
- Basic - Class B 60,815 60,817 60,815 60,818
- Diluted 231,963 240,124 232,841 241,644
Key Margins:
Gross Margin 31.3% 38.8% 33.7% 38.3%
EBIT Margin 3.1% 17.3% 9.2% 18.0%
Net Margin 0.3% 9.3% 4.4% 10.1%
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended July 1, 2007 and July 2, 2006
(in thousands except per share amounts)
Second Quarter Six Months
2007 2006 2007 2006
Net Sales $1,051,916 $1,051,912 $2,205,025 $2,191,419
Costs and Expenses:
Cost of Sales 681,171(a) 645,677(d) 1,410,390(a) 1,354,641(d)
Selling, Marketing
and Administrative 213,523(b) 221,478 426,970(b) 438,272
Business Realignment
Charge, net ---(c) ---(e) ---(c) ---(e)
Total Costs and
Expenses 894,694 867,155 1,837,360 1,792,913
Income Before
Interest and Income
Taxes (EBIT) 157,222 184,757 367,665 398,506
Interest Expense, net 29,213 27,490 57,468 52,693
Income Before
Income Taxes 128,009 157,267 310,197 345,813
Provision for
Income Taxes 46,338 57,560 109,740 122,420
Net Income $81,671 $99,707 $200,457 $223,393
Net Income Per Share
- Basic - Common $0.37 $0.43 $0.90 $0.96
- Basic - Class B $0.33 $0.39 $0.80 $0.87
- Diluted - Common $0.35 $0.42 $0.86 $0.92
Shares Outstanding
- Basic - Common 168,309 175,779 169,078 177,344
- Basic - Class B 60,815 60,817 60,815 60,818
- Diluted 231,963 240,124 232,841 241,644
Key Margins:
Adjusted Gross Margin 35.2% 38.6% 36.0% 38.2%
Adjusted EBIT Margin 14.9% 17.6% 16.7% 18.2%
Adjusted Net Margin 7.8% 9.5% 9.1% 10.2%
(a) Excludes business realignment charge of $41.3 million pre-tax or $26.3
million after-tax for the second quarter and $51.2 million pre-tax or
$32.5 million after-tax for the six months.
(b) Excludes business realignment charge of $3.4 million pre-tax or $2.1
million after-tax for the second quarter and $6.3 million pre-tax or
$3.9 million after-tax for the six months.
(c) Excludes business realignment charge of $79.7 million pre-tax or $49.7
million after-tax for the second quarter and $107.3 million pre-tax or
$67.0 million after-tax for the six months.
(d) Excludes business realignment credit of $(1.6) million pre-tax or
$(1.0) million after-tax for the second quarter and $(3.2) million
pre-tax or $(2.0) million after-tax for the six months.
(e) Excludes business realignment charge of $4.2 million pre-tax or $2.8
million after-tax for the second quarter and $7.6 million pre-tax or
$5.0 million after-tax for the six months.
The Hershey Company
Consolidated Balance Sheets
as of July 1, 2007 and December 31, 2006
(in thousands of dollars)
Assets 2007 2006
Cash and Cash Equivalents $38,822 $97,141
Accounts Receivable - Trade (Net) 378,178 522,673
Deferred Income Taxes 55,976 61,360
Inventories 813,836 648,820
Prepaid Expenses and Other 138,828 87,818
Total Current Assets 1,425,640 1,417,812
Net Plant and Property 1,588,163 1,651,300
Goodwill 508,849 501,955
Other Intangibles 234,549 140,314
Other Assets 510,035 446,184
Total Assets $4,267,236 $4,157,565
Liabilities, Minority Interest and Stockholders' Equity
Loans Payable $926,189 $843,998
Accounts Payable 248,099 155,517
Accrued Liabilities 426,873 454,023
Taxes Payable 56 ---
Total Current Liabilities 1,601,217 1,453,538
Long-Term Debt 1,287,246 1,248,128
Other Long-Term Liabilities 590,144 486,473
Deferred Income Taxes 200,950 286,003
Total Liabilities 3,679,557 3,474,142
Minority Interest 16,378 ---
Total Stockholders' Equity 571,301 683,423
Total Liabilities, Minority
Interest and Stockholders' Equity $4,267,236 $4,157,565
SOURCE 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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