-- Higher dairy input costs adversely impacting 2007 outlook
-- Outlook for 2007 growth in net sales remains 3-4%, with diluted EPS
from operations now expected to be 4-6%
-- 2007 expectations reflect the Company's continued commitment to
increased consumer and customer investment
HERSHEY, Pa., May 10 /PRNewswire-FirstCall/ -- The Hershey Company
(NYSE: HSY) today announced a revised earnings outlook for 2007 as a result of
increasing dairy input costs.
"During 2007, the focus has been on restoring momentum within Hershey's US
business. The key drivers are accelerating core brand growth, introducing
innovative new products, and improving retail effectiveness. To deliver upon
these goals, we've significantly increased the consumer and customer
investment profile," said Richard H. Lenny, Chairman, President and Chief
Executive Officer. "At the same time, we've made solid progress in broadening
Hershey's geographic footprint through the pursuit of joint ventures in China
and India, as well as beginning the transformation of our global supply chain.
This transformation will yield a more cost-effective flexible network and
create a margin profile that will enable strong investment in our future
growth. We remain committed to these strategic priorities.
"While we've experienced some areas of improvement in the US business,
we're not as far along as we need to be. In addition, within the past few
weeks, the impact of higher dairy costs has significantly increased our cost
profile for the remainder of the year.
"Therefore, to ensure that we maintain the levels of investment that are
required to support our business objectives and are consistent with our goal
of building shareholder value over the long-term, we're revising the 2007
expected growth in diluted earnings per share from operations to 4-6 percent.
We expect net sales growth to remain in the 3-4 percent range," Lenny
concluded.
"On April 20, 2007, the United States Department of Agriculture announced
significant changes to the prices of dairy products effective immediately,"
said David J. West, Executive Vice President, Chief Operating Officer.
"Recognition of the first-half impact of the 2007 revised outlook for dairy
costs will have a disproportionate effect in the second quarter, resulting in
diluted earnings per share from operations of $0.34 - $0.35. We expect year-
over-year earnings performance to improve in the second half as increased
brand investment, including a double-digit growth in advertising, translates
into improved marketplace performance. Hershey's long-term expectations of net
sales growth of 3-4 percent and growth in diluted earnings per share from
operations of 9-11 percent remain in place. These goals will be achieved
through a combination of strong marketplace performance and improved
underlying profitability as the benefits are realized from the Global Supply
Chain Transformation initiative," West concluded.
Note: In this release, Hershey has provided diluted earnings per share
measures excluding certain items. These non-GAAP financial measures 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 $1.62 - $1.76
Total Realignment Charges $0.03 $0.75 - $0.84
Diluted EPS from Operations* $2.37
Expected 4-6% Increase in diluted
EPS from Operations* $2.46 - $2.51
*From operations, excluding business realignment and one-time costs.
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.
SOURCE The Hershey Company
/CONTACT: Mark Pogharian, +1-717-534-7556, or Kirk Saville,
+1-717-534-7641, both of The Hershey Company/
/Web site: http://www.hersheys.com /
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