- Earnings per share-diluted from operations $0.37
- March launch of Hershey's Bliss TM and Starbucks(R) new products on
track
- Global Supply Chain Transformation progressing as planned
- Outlook reaffirmed for 2008, growth in net sales 3-4%, with earnings
per share-diluted from operations expected to be in the $1.85 to $1.90
range
HERSHEY, Pa., April 24 /PRNewswire-FirstCall/ -- The Hershey Company
(NYSE: HSY) today announced sales and earnings for the first quarter ended
March 30, 2008. Consolidated net sales were $1,160,342,000 compared with
$1,153,109,000 for the first quarter of 2007. Net income for the first quarter
of 2008 was $63,245,000, or $0.28 per share-diluted, compared with
$93,473,000, or $0.40 per share-diluted, for the comparable period of 2007.
For the first quarters of 2008 and 2007, these results, prepared in
accordance with generally accepted accounting principles ("GAAP"), include net
pre-tax charges of $30.7 million and $40.4 million, or $0.09 and $0.11 per
share, respectively. The majority of the 2008 charges were associated with the
Global Supply Chain Transformation program announced in February 2007. Net
income from operations, which excludes the net charges for the first quarters
of 2008 and 2007, was $83,915,000 or $0.37 per share-diluted in 2008, compared
with $118,786,000, or $0.51 per share-diluted in 2007.
First-Quarter Performance
"Net sales increased slightly in the first quarter and were in line with
our expectations," said David J. West, President and Chief Executive Officer.
"As we previously communicated, the current period was adversely impacted by
an unusually early Easter and the mid-January decision to discontinue the
roll-out of Ice Breakers PACS. Operating profit targets were achieved in a
rising input cost environment. We invested behind our core brands in the first
quarter and will continue to do so throughout 2008 to strengthen our position
in the marketplace.
"During the first quarter, Hershey made significant progress on growth
initiatives that will benefit net sales and earnings throughout the remainder
of the year. The Hershey's Bliss and Starbucks product launches shipped to
customers on schedule in mid-March. Consumer investment, including
advertising, sampling and merchandising, will accelerate in the second quarter
to ensure the success of these launches.
"The expansion of our businesses in Asia is moving ahead steadily. We are
focusing on the launch of Hershey's branded products manufactured in and for
the Indian market. In China, we continue to make progress and have full
manufacturing capabilities to support our portfolio roll-out.
"U.S. retail takeaway in the first quarter was up 14.8 percent in channels
that account for over 80 percent of our retail business. However, this period
benefited from an early Easter season. Excluding seasonal activity, Hershey's
retail takeaway increased 1.8 percent. In the channels measured by syndicated
data, market share was off 0.8 points. Improvements in certain channels,
customers and core brands indicate that marketplace plans, including higher
levels of consumer investment and increased retail coverage, are starting to
take hold. The price increase announced in late January had a minimal impact
during the quarter.
Outlook
"As we look ahead to the balance of 2008, plans are in place to deliver
our sales and earnings objectives. Specifically, the launch of new products,
increased levels of brand support, consumer investment, retail coverage and
merchandising will continue to build throughout the year. We expect this to
result in a sequential improvement in net sales. Additionally, we have good
visibility into our full-year cost structure. In Monterrey, Mexico, the
construction of our new manufacturing facility is progressing and initial
production is underway. We are encouraged by the development of our
international investments and will continue to follow a disciplined approach
to growth opportunities in emerging markets. Therefore, for the full-year
2008, we continue to expect net sales growth of 3-4 percent and earnings per
share-diluted from operations of $1.85 to $1.90," 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 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 $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:
2007 2008
Reported / Expected EPS-Diluted $0.93 $1.43 - $1.53
Total Business Realignment
and Impairment Charges $1.15 $0.37 - $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.
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 2007. All
information in this press release is as of April 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 March 30, 2008 and April 1, 2007
(in thousands except per share amounts)
First Quarter
2008 2007
Net Sales $1,160,342 $1,153,109
Costs and Expenses:
Cost of Sales 783,890 739,078
Selling, Marketing and Administrative 249,949 216,433
Business Realignment and Impairment
Charges, net 4,085 27,545
Total Costs and Expenses 1,037,924 983,056
Income Before Interest and Income Taxes (EBIT) 122,418 170,053
Interest Expense, net 24,386 28,255
Income Before Income Taxes 98,032 141,798
Provision for Income Taxes 34,787 48,325
Net Income $63,245 $93,473
Net Income Per Share - Basic - Common $0.29 $0.42
- Basic - Class B $0.26 $0.37
- Diluted $0.28 $0.40
Shares Outstanding - Basic - Common 166,771 169,836
- Basic - Class B 60,806 60,816
- Diluted 228,926 233,708
Key Margins:
Gross Margin 32.4% 35.9%
EBIT Margin 10.6% 14.7%
Net Margin 5.5% 8.1%
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended March 30, 2008 and April 1, 2007
(in thousands except per share amounts)
First Quarter
2008 2007
Net Sales $1,160,342 $1,153,109
Costs and Expenses:
Cost of Sales 758,736(a) 729,219(b)
Selling, Marketing and Administrative 248,515( c ) 213,447(d)
Business Realignment and Impairment
Charges, net --(e) --(f)
Total Costs and Expenses 1,007,251 942,666
Income Before Interest and Income Taxes (EBIT) 153,091 210,443
Interest Expense, net 24,386 28,255
Income Before Income Taxes 128,705 182,188
Provision for Income Taxes 44,790 63,402
Net Income $83,915 $118,786
Net Income Per Share - Basic - Common $0.38 $0.53
- Basic - Class B $0.34 $0.48
- Diluted $0.37 0.51
Shares Outstanding - Basic - Common 166,771 169,836
- Basic - Class B 60,806 60,816
- Diluted 228,926 233,708
Key Margins:
Adjusted Gross Margin 34.6% 36.8%
Adjusted EBIT Margin 13.2% 18.3%
Adjusted Net Margin 7.2% 10.3%
(a) Excludes business realignment and impairment charges of $25.2
million pre-tax or $17.5 million after-tax for the first quarter of
2008.
(b) Excludes business realignment and impairment charges of $9.9 million
pre-tax or $6.2 million after-tax for the first quarter of 2007.
(c) Excludes business realignment and impairment charges of $1.4 million
pre-tax or $.6 million after-tax for the first quarter of 2008.
(d) Excludes business realignment and impairment charges of $3.0 million
pre-tax or $1.8 million after-tax for the first quarter of 2007.
(e) Excludes business realignment and impairment charges of $4.1 million
pre-tax or $2.6 million after-tax for the first quarter of 2008.
(f) Excludes business realignment and impairment charges of $27.5
million pre-tax or $17.3 million after-tax for the first quarter of
2007.
The Hershey Company
Consolidated Balance Sheets
as of March 30, 2008 and December 31, 2007
(in thousands of dollars)
Assets 2008 2007
Cash and Cash Equivalents $152,875 $129,198
Accounts Receivable - Trade (Net) 298,668 487,285
Deferred Income Taxes 73,539 83,668
Inventories 619,406 600,185
Prepaid Expenses and Other 118,115 126,238
Total Current Assets 1,262,603 1,426,574
Net Plant and Property 1,510,667 1,539,715
Goodwill 582,326 584,713
Other Intangibles 168,459 155,862
Other Assets 542,962 540,249
Total Assets $4,067,017 $4,247,113
Liabilities, Minority Interest
and Stockholders' Equity
Loans Payable $479,037 $856,392
Accounts Payable 231,982 223,019
Accrued Liabilities 466,050 538,986
Taxes Payable 23,921 373
Total Current Liabilities 1,200,990 1,618,770
Long-Term Debt 1,528,691 1,279,965
Other Long-Term Liabilities 523,410 544,016
Deferred Income Taxes 178,800 180,842
Total Liabilities 3,431,891 3,623,593
Minority Interest 43,935 30,598
Total Stockholders' Equity 591,191 592,922
Total Liabilities, Minority Interest
and Stockholders' Equity $4,067,017 $4,247,113
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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