- Full-year 2007 reported earnings per share $0.93 diluted;
$2.08 diluted from operations
- Consumer investment to increase significantly in 2008, supporting core
brands globally and the U.S. launch of Hershey's Bliss(TM) and
Starbucks(R) new products
- Outlook for 2008 growth in net sales 3-4%, with diluted EPS from
operations expected to be in the $1.85 to $1.90 range
HERSHEY, Pa., Jan. 24 /PRNewswire-FirstCall/ -- The Hershey Company
(NYSE: HSY) today announced sales and earnings for the fourth quarter ended
December 31, 2007. Consolidated net sales were $1,342,222,000 compared with
$1,336,609,000 for the fourth quarter of 2006. Reported net income for the
fourth quarter of 2007 was $54,343,000 or $0.24 per share-diluted, compared
with $153,572,000 or $0.65 per share-diluted, for the comparable period of
2006.
For the fourth quarters of 2007 and 2006, these results, prepared in
accordance with generally accepted accounting principles ("GAAP"), include net
pre-tax charges of $95.9 million and $5.6 million, or $0.30 and $0.02 per
share-diluted, respectively. The majority of the 2007 charges, $83.3 million,
are associated with the Global Supply Chain Transformation program announced
in February, while $12.6 million was the result of business realignment and
impairment charges in Brazil. The 2006 charges primarily related to the
completed business realignment initiatives announced in July 2005. Net income
from operations, which excludes the net charges for the fourth quarters of
2007 and 2006, was $124,120,000 or $0.54 per share-diluted in 2007, compared
with $157,007,000 or $0.67 per share-diluted in 2006, a decrease of 19.4
percent in earnings per share-diluted.
For the full year 2007, consolidated net sales were $4,946,716,000
compared with $4,944,230,000, an increase of 0.1 percent. Reported net income
for 2007 was $214,154,000 or $0.93 per share-diluted, compared with
$559,061,000 or $2.34 per share-diluted, for 2006. For 2007 and 2006, these
results, prepared in accordance with GAAP, included net pre-tax charges of
$412.6 million and $11.6 million, or $1.15 and $0.03 per share-diluted,
respectively. The majority of the 2007 charges, $400.0 million, are associated
with the Global Supply Chain Transformation program announced in February,
while $12.6 million was the result of business realignment and impairment
charges in Brazil. The 2006 charges primarily related to the completed
business realignment initiatives announced in July 2005. Net income from
operations, which excludes the net charges for 2007 and 2006, was $481,807,000
or $2.08 per share-diluted in 2007, compared with $566,634,000 or $2.37 per
share-diluted in 2006, a decrease of 12.2 percent in earnings per share-
diluted.
Fourth-Quarter and Full Year Business Performance
"Hershey's results for the fourth quarter were in line with our
expectations," said David J. West, President and Chief Executive Officer. "As
previously communicated, the U.S. business is operating in a challenging
environment that includes higher input and operating costs, as well as
heightened levels of competitive activity. These factors did not subside in
the fourth quarter. U.S. retail takeaway in the fourth quarter and full year,
in channels that account for over 80 percent of our retail business, was up
0.9 percent and 1.3 percent, respectively. Retail takeaway was not as strong
in the channels measured by syndicated data, thus market share declined by
about 1.3 points in both the fourth quarter and full year in these channels.
As anticipated, inventory levels at key distributors declined in the fourth
quarter. This should lead to shipments and retail takeaway patterns that are
more closely aligned in 2008.
"Our primary goal in 2008 is to stabilize U.S. business marketplace
performance. Markedly higher brand-building support, including advertising,
quality merchandising, enhanced retail coverage and new chocolate products
within the premium and trade-up segments will enable us to achieve this goal.
Hershey will launch the Starbucks and Hershey's Bliss product lines in March.
These additions enhance our premium and trade-up portfolio and will broaden
Hershey's participation in faster-growing segments of the category.
"In high-potential emerging markets, we continue to follow a disciplined
approach in pursuing appropriate growth opportunities that will increase our
scale. The integration of our joint venture in China and Godrej business in
India continues with both businesses operating effectively. To improve our
position in Brazil we have restructured the business and entered into a joint
venture agreement with Bauducco, a leading baked goods manufacturer, and will
leverage their strong sales and distribution capabilities throughout the
country.
"During 2007 many of our input costs increased and have remained at
significantly higher levels than historical averages. We expect overall
commodity and energy costs to increase at similar levels in 2008. A portion of
these costs, as well as planned increases in consumer investment spending,
will be offset by the aggressive pursuit of operating productivity and savings
from the Global Supply Chain Transformation program. Despite the challenges of
the overall cost environment, we'll continue to invest in our U.S. and
international businesses to strengthen our core brands in key markets. For
2008, we anticipate net sales growth to be in the 3-4 percent range. Given the
increased spending against key growth initiatives and the difficult cost
environment, we anticipate 2008 earnings per share-diluted from operations of
$1.85 to $1.90.
"As we look to the long term, Hershey has many opportunities to leverage
its global brands and U.S. scale. We are currently evaluating these,
especially as they relate to consumer insights and innovation. Additionally,
we are assessing our margin structure given the continued escalation of
operating costs. We'll complete this work in the coming months and in the
second quarter of 2008 provide greater details of our assessment, including
innovation plans, core brand-building initiatives, international growth
objectives, portfolio strategy and long-term net sales and earnings per share
goals," 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 and business realignment and impairment
charges in Brazil recorded in 2007 and the 2005 business realignment
initiatives recorded in 2005 and 2006. The Global Supply Chain Transformation
program 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 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:
2006 2007 2008
Reported / Expected EPS-Diluted $2.34 $0.93 $1.43 - $1.53
Total Business Realignment
and Impairment Charges $0.03 $1.15 $0.37 - $0.42
EPS-Diluted from Operations* $2.37 $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 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 2006. All
information in this press release is as of January 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 December 31, 2007 and December 31, 2006
(in thousands except per share amounts)
Fourth Quarter Twelve Months
2007 2006 2007 2006
Net Sales $1,342,222 $1,336,609 $4,946,716 $4,944,230
Costs and Expenses:
Cost of Sales 924,745 854,543 3,315,147 3,076,718
Selling, Marketing
and Administrative 232,762 200,264 895,874 860,378
Business Realignment
and Impairment
Charges, net 57,552 5,437 276,868 14,576
Total Costs and
Expenses 1,215,059 1,060,244 4,487,889 3,951,672
Income Before Interest
and Income Taxes (EBIT) 127,163 276,365 458,827 992,558
Interest Expense, net 28,062 31,528 118,585 116,056
Income Before Income
Taxes 99,101 244,837 340,242 876,502
Provision for Income
Taxes 44,758 91,265 126,088 317,441
Net Income $54,343 $153,572 $214,154 $559,061
Net Income Per Share
- Basic - Common $0.24 $0.68 $0.96 $2.44
- Basic - Class B $0.22 $0.61 $0.87 $2.19
- Diluted - Common $0.24 $0.65 $0.93 $2.34
Shares Outstanding
- Basic - Common 166,873 170,944 168,050 174,722
- Basic - Class B 60,808 60,816 60,813 60,817
- Diluted - Common 229,722 235,292 231,449 239,071
Key Margins:
Gross Margin 31.1% 36.1% 33.0% 37.8%
EBIT Margin 9.5% 20.7% 9.3% 20.1%
Net Margin 4.0% 11.5% 4.3% 11.3%
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended December 31, 2007 and December 31, 2006
(in thousands except per share amounts)
Fourth Quarter Twelve Months
2007 2006 2007 2006
Net Sales $1,342,222 $1,336,609 $4,946,716 $4,944,230
Costs and Expenses:
Cost of Sales 890,273(a) 854,543(d) 3,192,057(a) 3,079,917(d)
Selling, Marketing
and Administrative 228,867(b) 200,106(e) 883,251(b) 860,112(e)
Business Realignment
and Impairment
Charges, net --- (c) --- (f) --- (c) --- (f)
Total Costs and
Expenses 1,119,140 1,054,649 4,075,308 3,940,029
Income Before Interest
and Income Taxes (EBIT) 223,082 281,960 871,408 1,004,201
Interest Expense, net 28,062 31,528 118,585 116,056
Income Before Income
Taxes 195,020 250,432 752,823 888,145
Provision for Income
Taxes 70,900 93,425 271,016 321,511
Net Income $124,120 $157,007 $481,807 $566,634
Net Income Per Share
- Basic - Common $0.56 $0.70 $2.16 $2.47
- Basic - Class B $0.50 $0.63 $1.95 $2.22
- Diluted - Common $0.54 $0.67 $2.08 $2.37
Shares Outstanding
- Basic - Common 166,873 170,944 168,050 174,722
- Basic - Class B 60,808 60,816 60,813 60,817
- Diluted - Common 229,722 235,292 231,449 239,071
Key Margins:
Adjusted Gross Margin 33.7% 36.1% 35.5% 37.7%
Adjusted EBIT Margin 16.6% 21.1% 17.6% 20.3%
Adjusted Net Margin 9.2% 11.7% 9.7% 11.5%
(a) Excludes business realignment and impairment charges of $34.5 million
pre-tax or $24.3 million after-tax for the fourth quarter and $123.1
million pre-tax or $80.9 million after-tax for the twelve months.
(b) Excludes business realignment and impairment charges of $3.9 million
pre-tax or $2.5 million after-tax for the fourth quarter and $12.6
million pre-tax or $7.8 million after-tax for the twelve months.
(c) Excludes business realignment and impairment charges of $57.6 million
pre-tax or $43.0 million after-tax for the fourth quarter and $276.9
million pre-tax or $178.9 million after-tax for the twelve months.
(d) Includes no business realignment and impairment charges (credits) for
the fourth quarter and excludes business realignment credit of $(3.2)
million pre-tax or $(2.0) million after-tax for the twelve months.
(e) Excludes business realignment and impairment charges of $0.2 million
pre-tax or $0.1 million after-tax for the fourth quarter and $0.3
million pre-tax or $0.2 million after-tax for the twelve months.
(f) Excludes business realignment and impairment charges of $5.4 million
pre-tax or $3.3 million after-tax for the fourth quarter and $14.6
million pre-tax or $9.4 million after-tax for the twelve months.
The Hershey Company
Consolidated Balance Sheets
as of December 31, 2007 and December 31, 2006
(in thousands of dollars)
Assets 2007 2006
Cash and Cash Equivalents $129,198 $97,141
Accounts Receivable - Trade (Net) 487,285 522,673
Deferred Income Taxes 83,668 61,360
Inventories 600,185 648,820
Prepaid Expenses and Other 126,238 87,818
Total Current Assets 1,426,574 1,417,812
Net Plant and Property 1,539,715 1,651,300
Goodwill 584,713 501,955
Other Intangibles 155,862 140,314
Other Assets 540,249 446,184
Total Assets $4,247,113 $4,157,565
Liabilities, Minority Interest and
Stockholders' Equity
Loans Payable $856,392 $843,998
Accounts Payable 223,019 155,517
Accrued Liabilities 538,986 454,023
Taxes Payable 373 ---
Total Current Liabilities 1,618,770 1,453,538
Long-Term Debt 1,279,965 1,248,128
Other Long-Term Liabilities 544,016 486,473
Deferred Income Taxes 180,842 286,003
Total Liabilities 3,623,593 3,474,142
Minority Interest 30,598 ---
Total Stockholders' Equity 592,922 683,423
Total Liabilities, Minority Interest and
Stockholders' Equity $4,247,113 $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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