HERSHEY, Pa., Jan. 25 /PRNewswire-FirstCall/ -- The Hershey Company
(NYSE: HSY) today announced record sales and earnings from operations for the
fourth quarter ended December 31, 2005. Consolidated net sales were
$1,352,873,000 compared with $1,267,963,000 for the fourth quarter of 2004, an
increase of 6.7 percent. Net income for the fourth quarter of 2005 was
$172,847,000, or $.70 per share-diluted, compared with $167,116,000, or $.67
per share-diluted, for the comparable period of 2004.
These results, prepared in accordance with generally accepted accounting
principles ("GAAP"), include total pre-tax charges of $17.6 million, or $.04
per share-diluted, associated with the previously announced business
realignment initiatives to advance the Company's value-enhancing strategy. Net
income from operations, which excludes the business realignment charges for
the fourth quarter of 2005, was $181,060,000, or $.74 per share-diluted,
compared with $167,116,000, or $.67 per share-diluted for 2004, an increase of
10.4 percent.
The results also reflect the expensing of employee stock options and other
share-based compensation in accordance with Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 123 (Revised 2004)
Share-Based Payment ("SFAS No. 123R"). Excluding the impact of SFAS No. 123R
from both periods, net income from operations for the fourth quarter of 2005
was $185,676,000, or $.76 per share-diluted, compared with $170,286,000, or
$.68 per share-diluted in 2004, an increase in earnings per share-diluted of
11.8 percent.
The Company adopted SFAS No. 123R under the modified retrospective method.
Under this method, results for periods prior to 2005 have been adjusted to
reflect expensing of share-based compensation in accordance with SFAS No. 123R
and the full-year results for 2005 are reported as though stock options and
other share-based compensation had been expensed beginning January 1, 2005.
The additional expense recorded in the fourth quarter of 2005 totaled $7.0
million after tax, or $.03 per share-diluted, of which $2.4 million or $.01
per share-diluted is included in the business realignment charge. The
additional expense recorded in the fourth quarter of 2004 was $3.2 million
after tax, or $.01 per share-diluted.
Full-Year Results
For the full year 2005, consolidated net sales were $4,835,974,000
compared with $4,429,248,000, an increase of 9.2 percent. Net income for 2005
was $493,244,000, or $1.99 per share-diluted, compared with $577,901,000, or
$2.25 per share-diluted, for 2004.
Net income for 2005 includes total pre-tax charges of $119.0 million, or
$.29 per share-diluted, related to the business realignment initiatives
mentioned above. Net income for 2004 includes the benefit of a $61.1 million,
or $.24 per share-diluted, non-cash reduction of income tax expense resulting
from the second quarter adjustment to tax contingency reserves following the
completion of prior years' tax audits. Net income from operations, which
excludes these items, for the full-year 2005 was $567,265,000, or $2.28 per
share-diluted, compared with $516,820,000, or $2.01 per share-diluted, an
increase of 13.4 percent.
Both years also reflect the impact of the adoption of SFAS No. 123R. The
additional expense for the full year recorded as a result of SFAS No. 123R
totaled $21.7 million after tax, or $.09 per share-diluted in 2005, of which
$2.4 million or $.01 per share-diluted is included in the business realignment
charge. The additional expense recorded in 2004 was $13.0 million after tax,
or $.05 per share-diluted. Excluding this impact, net income from operations
in 2005 was $586,541,000, or $2.36 per share-diluted, compared with
$529,798,000, or $2.06 per share-diluted in 2004, an increase of 14.6 percent.
Fourth-Quarter Performance
"Fourth-quarter results were solid with balanced performance in sales,
operating margin, and profitability," said Richard H. Lenny, Chairman,
President and Chief Executive Officer. "Sales growth for the quarter of 6.7
percent was driven by organic sales growth of nearly four percent from new
products and strong seasonal shipments. Business acquisitions accounted for
the additional growth. Hershey's marketplace performance strengthened during
the quarter as our takeaway within the U.S. confectionery category increased
by seven percent, resulting in a 1.4 point gain in market share.
"EBIT margin from operations expanded as productivity programs more than
offset higher costs. Sales growth and margin improvement, excluding the
share-based compensation expense, delivered diluted earnings per share from
operations of $.76, an increase of 11.8 percent versus 2004."
Full-Year Performance
In commenting on the full year, Lenny said, "2005 was a very strong year
for Hershey. We delivered record sales growth, expanded our category
leadership, and achieved record profitability and returns from operations.
Sales growth for the year of nine percent included organic sales growth of six
percent, with the remainder from business acquisitions. The organic sales
growth was well-balanced between benefit-driven innovation, price realization,
and solid seasonal performance.
"Our ability to deliver a superior value proposition to both consumers and
customers is evident in Hershey's marketplace performance. In both the U.S.
confectionery market and the broader U.S. snack market, Hershey was the
fastest growing company in terms of market share gains.
"The combination of strong sales growth and improved operating margin
resulted in diluted earnings per share from operations of $2.36, an increase
of 14.6 percent versus 2004, excluding the impact of SFAS No. 123R. This marks
the fifth consecutive year of double-digit increases in earnings per share-
diluted from operations.
"As we enter 2006, Hershey's value-enhancing strategy remains relevant and
sustainable. Product news across the portfolio including limited editions,
new platforms, and benefit upgrades to existing brands will be the key driver
of our sales growth. At retail, we intend to further leverage Hershey's
leadership position in all major classes of trade and in the very important
single-serve packaging format.
"While input costs will be broadly higher in 2006, the combination of net
price realization and productivity initiatives across the business system is
expected to yield an improvement in operating margins. Therefore, for 2006, we
expect net sales to increase at a rate somewhat above our 3-4 percent long-
term goal, and expect diluted earnings per share from operations, which
excludes business realignment charges, to increase at a rate slightly above
our 9-11 percent long-term goal," Lenny concluded.
Based on current estimates, the cost to implement the business realignment
program will result in total pre-tax charges of approximately $140 million to
$150 million, or $.35 to $.38 per share-diluted on an after-tax basis. Total
pre-tax charges of $119.0 million, or $.29 per share-diluted, were recorded in
the second half of 2005, with the remainder to be substantially recorded in
the first half of 2006.
Note: In this sales and 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 income statements, 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 release also references income measures excluding the impact of SFAS
No. 123R. These measures provide information to investors which is consistent
with the manner in which the Company evaluated its performance during 2005.
The Company believes that providing these non-GAAP measures in the period of
the adoption of this new accounting standard provides additional information
to investors to facilitate the comparison of past and present operations.
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: the Company's ability to
implement and generate expected ongoing annual savings from the program to
advance its value-enhancing strategy; changes in the Company's business
environment, including actions of competitors and changes in consumer
preferences; customer and consumer response to selling price increases;
changes in governmental laws and regulations, including taxes; market demand
for new and existing products; changes in raw material and other costs;
pension cost factors such as actuarial assumptions, market performance, and
employee retirement decisions; changes in the value of the Company's Common
Stock; the Company's ability to implement improvements to and reduce costs
associated with its supply chain; and such other matters as discussed in the
Company's Annual Report on Form 10-K for 2004.
The Hershey Company
Summary of Consolidated Statements of Income
for the periods ended December 31, 2005 and December 31, 2004
(in thousands except per share amounts)
Fourth Quarter Twelve Months
2005 2004 2005 2004
Net Sales $1,352,873 $1,267,963 $4,835,974 $4,429,248
Costs and Expenses:
Cost of Sales 824,865 764,740 2,965,540 2,680,437
Selling, Marketing and
Administrative 225,002 221,706 912,986 867,104
Business Realignment
Charge 11,694 --- 96,537 ---
Total Costs and
Expenses 1,061,561 986,446 3,975,063 3,547,541
Income Before Interest
and Income Taxes (EBIT) 291,312 281,517 860,911 881,707
Interest Expense, net 24,255 17,939 87,985 66,533
Income Before Income Taxes 267,057 263,578 772,926 815,174
Provision for Income Taxes 94,210 96,462 279,682 237,273
Net Income $172,847 $167,116 $493,244 $577,901
Net Income Per Share
- Basic - Common $0.73 $0.69 $2.07 $2.33
- Basic - Class B $0.66 $0.63 $1.87 $2.12
- Diluted $0.70 $0.67 $1.99 $2.25
Shares Outstanding
- Basic - Common 180,991 186,032 183,747 193,037
- Basic - Class B 60,818 60,842 60,821 60,844
- Diluted 245,417 250,582 248,292 256,934
Key Margins:
Gross Margin 39.0% 39.7% 38.7% 39.5%
EBIT Margin 21.5% 22.2% 17.8% 19.9%
Net Margin 12.8% 13.2% 10.2% 13.0%
Note: The results reported for 2005 and 2004 reflect the adoption of SFAS
No. 123R.
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended December 31, 2005 and December 31, 2004
(in thousands except per share amounts)
Fourth Quarter Twelve Months
2005 2004 2005 2004
Net Sales $1,352,873 $1,267,963 $4,835,974 $4,429,248
Costs and Expenses:
Cost of Sales 818,927(a) 764,740 2,943,081(a) 2,680,437
Selling, Marketing
and Administrative 225,002 221,706 912,986 867,104
Business Realignment
Charge ---(b) --- ---(b) ---
Total Costs and
Expenses 1,043,929 986,446 3,856,067 3,547,541
Income Before Interest
and Income Taxes (EBIT) 308,944 281,517 979,907 881,707
Interest Expense, net 24,255 17,939 87,985 66,533
Income Before Income
Taxes 284,689 263,578 891,922 815,174
Provision for Income
Taxes 103,629 96,462 324,657 298,354(c)
Net Income $181,060 $167,116 $567,265 $516,820
Net Income Per Share
- Basic - Common $0.76 $0.69 $2.38 $2.08
- Basic - Class B $0.69 $0.63 $2.15 $1.89
- Diluted $0.74 $0.67 $2.28 $2.01
Shares Outstanding
- Basic - Common 180,991 186,032 183,747 193,037
- Basic - Class B 60,818 60,842 60,821 60,844
- Diluted 245,417 250,582 248,292 256,934
Key Margins:
Adjusted Gross Margin 39.5% 39.7% 39.1% 39.5%
Adjusted EBIT Margin 22.8% 22.2% 20.3% 19.9%
Adjusted Net Margin 13.4% 13.2% 11.7% 11.7%
Note:The results reported for 2005 and 2004 reflect the adoption of SFAS
No. 123R.
(a) Excludes business realignment charge of $5.9 million pre-tax or $(.6)
million after-tax for the fourth quarter and $22.5 million pre-tax or
$13.4 million after-tax for the twelve months.
(b) Excludes business realignment charge of $11.7 million pre-tax or $8.8
million after-tax for the fourth quarter and $96.5 million pre-tax or
$60.6 million after-tax for the twelve months.
(c) Excludes adjustment to income tax contingency reserves of ($61.1)
million for the twelve months.
The Hershey Company
Consolidated Balance Sheets
as of December 31, 2005 and December 31, 2004
(in thousands of dollars)
Assets 2005 2004
Cash and Cash Equivalents $67,183 $54,837
Accounts Receivable - Trade (Net) 559,289 408,930
Deferred Income Taxes 78,196 61,756
Inventories 610,284 557,180
Prepaid Expenses and Other 93,988 114,991
Total Current Assets 1,408,940 1,197,694
Net Plant and Property 1,659,138 1,682,698
Goodwill 487,338 463,947
Other Intangibles 142,626 125,233
Other Assets 597,194 343,212
Total Assets $4,295,236 $3,812,784
Liabilities and Stockholders' Equity
Loans Payable $819,115 $622,320
Accounts Payable 167,812 148,686
Accrued Liabilities 507,843 469,185
Taxes Payable 23,453 42,280
Total Current Liabilities 1,518,223 1,282,471
Long-Term Debt 942,755 690,602
Other Long-Term Liabilities 412,929 383,379
Deferred Income Taxes 400,253 319,230
Total Liabilities 3,274,160 2,675,682
Total Stockholders' Equity 1,021,076 1,137,102
Total Liabilities and Stockholders' Equity $4,295,236 $3,812,784
Note: The Consolidated Balance Sheets as of December 31, 2005 and 2004
reflect the adoption of SFAS No. 123R.
SOURCE The Hershey Company
01/25/2006
CONTACT: MEDIA CONTACT: Stephanie L. Moritz, +1-717-534-7641, or
FINANCIAL CONTACT: James A. Edris, +1-717-534-7556, both of The Hershey
Company
Web site: http://www.hersheys.com
(HSY)
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