* Earnings per share from operations $0.51 diluted, in-line with year ago
* Progress made against long-term strategic initiatives
* Outlook reaffirmed for 2007, growth in net sales 3-4% and diluted EPS
from operations 7-9%
HERSHEY, Pa., April 19 /PRNewswire-FirstCall/ -- The Hershey Company
(NYSE: HSY) today announced sales and earnings for the first quarter ended
April 1, 2007. Consolidated net sales were $1,153,109,000 compared with
$1,139,507,000 for the first quarter of 2006. Net income for the first quarter
of 2007 was $93,473,000, or $0.40 per share-diluted, compared with
$122,471,000, or $0.50 per share-diluted, for the comparable period of 2006.
For the first quarters of 2007 and 2006, these results, prepared in
accordance with generally accepted accounting principles ("GAAP"), include net
pre-tax charges of $40.4 million and $1.7 million, or $0.11 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 relate
to the completed business realignment initiatives announced in July 2005. Net
income from operations, which excludes the net charges for the first quarters
of 2007 and 2006, was $118,786,000, or $0.51 per share-diluted in 2007,
compared with $123,686,000, or $0.51 per share-diluted in 2006.
First-Quarter Performance
"Results for the first quarter were essentially in-line with our
expectations," said Richard H. Lenny, Chairman, President and Chief Executive
Officer. "Net sales increased 1.2 percent, as we're building momentum behind
our new products and continue to benefit from the growth in dark chocolate.
Seasons and a rebound in Canada provided additional growth during the quarter.
However, growth was adversely affected by slower single serve sales. This is
being driven in part by marketplace performance that has not yet achieved
desired levels. While we did experience an improvement in core brand takeaway,
the residual impact of last year's limited editions and discontinued items
resulted in only a 1.5 percent increase in measured takeaway. The price
increase announced on April 4, 2007, had no impact during the quarter.
"Core brand growth is anticipated to accelerate as we move into the second
half of the year. The combination of stronger consumer programming and more
effective in-store support should deliver an improvement in retail takeaway
and sales growth. Where brands have already received strong programming, the
response has been solid. Specifically, investment in the Reese's franchise,
including the recently launched Reese's Crispy Crunchy, resulted in an
increase of over 5 percent in retail takeaway.
"New product platforms, including refreshment, premium and dark chocolate
are well positioned to make meaningful contributions in 2007. Hershey's Cacao
Reserve distribution is on track, and we'll continue to invest in trial
driving initiatives to establish this brand. Cacao Reserve is the fastest
growing new item at retail, with York Tins and Ice Breaker Sours Gum also
ranked as top-10 new brands in the first quarter. These new products are
consistent with our strategy of delivering a premium value proposition while
extending Hershey's iconic brands.
"We made good progress against Hershey's major strategic initiatives.
These will position the Company to achieve its long-term marketplace and
financial goals. We recently announced that we entered into an agreement to
create the Godrej Hershey Foods and Beverages Company joint venture in India.
This followed the January announcement of an agreement to create a
manufacturing joint venture with Lotte in China. Both of these initiatives
will enable us to deliver profitable growth in high potential emerging
markets. The Global Supply Chain Transformation plan is on track and
progressing as expected.
Outlook
"As we look ahead to the balance of 2007, core brand investment, improved
customer programming and innovative new products will enable the Company to
meet its objectives with momentum building throughout the year. For the full
year 2007, we expect net sales growth of 3-4 percent with diluted earnings per
share from operations to increase in the 7-9 percent range," Lenny concluded.
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 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 outlook:
2006 2007
Reported / Expected Diluted EPS $2.34 $1.70 - $1.83
Total Realignment Charges $0.03 $0.75 - $0.84
Diluted EPS from Operations* $2.37
Expected 7-9% Increase in diluted $2.54 - $2.58
EPS from Operations*
*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 recent
product recall and temporary plant closure in Canada 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 April 1, 2007 and April 2, 2006
(in thousands except per share amounts)
First Quarter
2007 2006
Net Sales $1,153,109 $1,139,507
Costs and Expenses:
Cost of Sales 739,078 707,365
Selling, Marketing and Administrative 216,433 216,794
Business Realignment Charge 27,545 3,331
Total Costs and Expenses 983,056 927,490
Income Before Interest and Income Taxes
(EBIT) 170,053 212,017
Interest Expense, net 28,255 25,203
Income Before Income Taxes 141,798 186,814
Provision for Income Taxes 48,325 64,343
Net Income $ 93,473 $ 122,471
Net Income Per Share - Basic - Common $ 0.42 $ 0.52
- Basic - Class B $ 0.37 $ 0.47
- Diluted $ 0.40 $ 0.50
Shares Outstanding - Basic - Common 169,836 178,892
- Basic - Class B 60,816 60,818
- Diluted 233,708 243,147
Key Margins:
Gross Margin 35.9 % 37.9 %
EBIT Margin 14.7 % 18.6 %
Net Margin 8.1 % 10.7 %
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended April 1, 2007 and April 2, 2006
(in thousands except per share amounts)
First Quarter
2007 2006
Net Sales $1,153,109 $1,139,507
Costs and Expenses:
Cost of Sales 729,219(a) 708,964(b)
Selling, Marketing and Administrative 213,447(c) 216,794
Business Realignment Charge ---(d) ---(e)
Total Costs and Expenses 942,666 925,758
Income Before Interest and Income Taxes
(EBIT) 210,443 213,749
Interest Expense, net 28,255 25,203
Income Before Income Taxes 182,188 188,546
Provision for Income Taxes 63,402 64,860
Net Income $ 118,786 $ 123,686
Net Income Per Share - Basic - Common $ 0.53 $ 0.53
- Basic - Class B $ 0.48 $ 0.48
- Diluted $ 0.51 $ 0.51
Shares Outstanding - Basic - Common 169,836 178,892
- Basic - Class B 60,816 60,818
- Diluted 233,708 243,147
Key Margins:
Adjusted Gross Margin 36.8 % 37.8 %
Adjusted EBIT Margin 18.3 % 18.8 %
Adjusted Net Margin 10.3 % 10.9 %
(a) Excludes business realignment charge of $9.9 million pre-tax or $6.2
million after-tax for the first quarter of 2007.
(b) Excludes business realignment credit of $(1.6) million pre-tax or
$(1.0) million after-tax for the first quarter of 2006.
(c) Excludes business realignment and project implementation charges of
$3.0 million pre-tax or $1.8 million after-tax for the first quarter
of 2007.
(d) Excludes business realignment charge of $27.5 million pre-tax or
$17.3 million after-tax for the first quarter of 2007.
(e) Excludes business realignment charge of $3.3 million pre-tax or $2.2
million after-tax for the first quarter of 2006.
The Hershey Company
Consolidated Balance Sheets
as of April 1, 2007 and December 31, 2006
(in thousands of dollars)
Assets 2007 2006
Cash and Cash Equivalents $ 60,483 $ 97,141
Accounts Receivable - Trade (Net) 405,908 522,673
Deferred Income Taxes 59,649 61,360
Inventories 664,703 648,820
Prepaid Expenses and Other 89,502 87,818
Total Current Assets 1,280,245 1,417,812
Net Plant and Property 1,611,323 1,651,300
Goodwill 502,815 501,955
Other Intangibles 139,284 140,314
Other Assets 451,607 446,184
Total Assets $3,985,274 $4,157,565
Liabilities and Stockholders' Equity
Loans Payable $ 722,597 $ 843,998
Accounts Payable 198,147 155,517
Accrued Liabilities 405,327 454,023
Taxes Payable 39,005 --
Total Current Liabilities 1,365,076 1,453,538
Long-Term Debt 1,248,137 1,248,128
Other Long-Term Liabilities 520,617 486,473
Deferred Income Taxes 230,743 286,003
Total Liabilities 3,364,573 3,474,142
Total Stockholders' Equity 620,701 683,423
Total Liabilities and Stockholders' Equity $3,985,274 $4,157,565
SOURCE The Hershey Company
/CONTACT: Financial Contact: Mark Pogharian, +1-717-534-7556, or Media
Contact: Kirk Saville, +1-717-534-7641/
/Web site: http://www.hersheys.com /
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