Hershey, Pa., Oct. 16 - The Hershey Company today announced sales and earnings for the third quarter ended September 28, 2008. Consolidated net sales were $1,489,609,000 compared with $1,399,469,000 for the third quarter of 2007.
Reported net income for the third quarter of 2008 was $124,538,000 or $0.54 per share-diluted, compared with $62,784,000 or $0.27 per share-diluted, for the comparable period of 2007.
For the third quarters of 2008 and 2007, these results, prepared in accordance with generally accepted accounting principles ("GAAP"), include net pre-tax charges of $31.0 million and $151.9 million, or $0.10 and $0.41 per share, respectively. The majority of these charges were associated with the Global Supply Chain Transformation program announced in February 2007. Net income from operations, which is adjusted to exclude the net charges for the third quarters of 2008 and 2007, was $145,813,000 or $0.64 per share-diluted in 2008, compared with $157,230,000 or $0.68 per share-diluted in 2007, a decrease of 6 percent in earnings per share-diluted.
For the first nine months of 2008, consolidated net sales were $3,755,388,000 compared with $3,604,494,000 for the first nine months of 2007. Reported net income for the first nine months of 2008 was $229,250,000 or $1.00 per share-diluted, compared with $159,811,000 or $0.69 per share-diluted, for the first nine months of 2007.
For the first nine months of 2008 and 2007, these results, prepared in accordance with GAAP, include net pre-tax charges of $101.0 million and $316.7 million, or $0.30 and $0.85 per share, respectively. The majority of these charges were associated with the Global Supply Chain Transformation program.
Net income from operations, which is adjusted to exclude the net charges for the first nine months of 2008 and 2007, was $296,680,000, or $1.30 per share-diluted, compared with $357,687,000 or $1.54 per share-diluted in 2007, a decrease of 16 percent in earnings per share-diluted.
Total Global Supply Chain Transformation program costs to date are $496 million, and the forecast for total charges related to the program remains at $550 million to $575 million. This forecast includes a projection for pension settlement costs required in accordance with applicable accounting standards. As described in Appendix A, this projection of non-cash charges could increase by up to $75 million. For the full-year 2008, total GAAP charges related to the program, excluding possible increases in pension settlement charges, are expected to be $135 million to $145 million.
Third Quarter Performance and Outlook
"Hershey's third quarter results reflect the progress we continue to make implementing our consumer-driven demand model," said David J. West, President and Chief Executive Officer. "As anticipated, net sales were solid, increasing 6.4 percent. Excluding the impact of the timing of shipments stemming from the buy-in related to the August price increase, sales growth was approximately 4 percent. This growth was driven by price realization, overall growth in core brands and new products, partially offset by softness in snacks and refreshment. Halloween is off to a good start with solid programming and merchandising in place.
"Third quarter results were in line with our expectations and reflect higher commodity costs resulting from the execution of hedging strategies announced in August and implemented within the quarter. These added costs offset the benefit of higher revenue generated by the buy-in related to the August price increase. Additionally, we continued to increase core brand support in the U.S. and within key international markets. In the U.S., advertising and consumer brand-building investment increased by about 25 percent in the third quarter.
"We have seen positive results where we have focused our resources. U.S. retail takeaway in the third quarter increased 4.0 percent in channels that account for over 80 percent of our retail business. U.S. market share was about equal to the prior year's third quarter in the channels measured by syndicated data.
"We're making good progress against our major strategic initiatives. We'll continue to make the necessary consumer investments to strengthen Hershey's leadership position and build upon our latest marketplace results. Therefore, for the full-year 2008, we expect net sales growth of 3-4 percent and earnings per share-diluted from operations towards the lower end of the $1.85 to $1.90 range. In 2009, we expect net sales growth of 2-3 percent as the pricing action previously announced will be partially offset by lower volumes. We expect 2009 earnings per share-diluted from operations to increase, however, it will be at a rate below our long-term objective of 6-8 percent growth due to higher commodity prices, which remain at levels well above a year ago despite recent declines, as well as greater levels of consumer investment," West concluded.
Reported / Expected EPS-Diluted $0.93 $1.43 - $1.51
Total Business Realignment
and Impairment Charges $1.15 $0.39 - $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.
The Hershey Company
Summary of Consolidated Statements of Income
for the periods ended September 28, 2008 and September 30, 2007
(in thousands except per share amounts)
Third Quarter Nine Months
2008 2007 2008 2007
Net Sales $1,489,609 $1,399,469 $3,755,388 $3,604,494
Costs and Expenses:
Cost of Sales 988,380 928,846 2,495,196 2,390,402
Selling, Marketing
and Administrative 272,401 229,809 788,962 663,112
Business Realignment
and Impairment
Charges, net 8,877 112,043 34,748 219,316
Total Costs and
Expenses 1,269,658 1,270,698 3,318,906 3,272,830
Income Before
Interest and Income
Taxes (EBIT) 219,951 128,771 436,482 331,664
Interest Expense, net 24,915 33,055 72,911 90,523
Income Before
Income Taxes 195,036 95,716 363,571 241,141
Provision for
Income Taxes 70,498 32,932 134,321 81,330
Net Income $124,538 $62,784 $229,250 $159,811
Net Income Per Share
- Basic - Common $0.56 $0.28 $1.03 $0.72
- Basic - Class B $0.51 $0.26 $0.93 $0.65
- Diluted - Common $0.54 $0.27 $1.00 $0.69
Shares Outstanding
- Basic - Common 166,682 167,165 166,696 168,444
- Basic - Class B 60,784 60,812 60,798 60,814
- Diluted - Common 228,670 230,388 228,757 232,026
Key Margins:
Gross Margin 33.6% 33.6% 33.6% 33.7%
EBIT Margin 14.8% 9.2% 11.6% 9.2%
Net Margin 8.4% 4.5% 6.1% 4.4%
The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended September 28, 2008 and September 30, 2007
(in thousands except per share amounts)
Third Quarter Nine Months
2008 2007 2008 2007
Net Sales $1,489,609 $1,399,469 $3,755,388 $3,604,494
Costs and Expenses:
Cost of Sales 968,415(a) 891,394(d) 2,435,050(a) 2,301,784(d)
Selling, Marketing
and Administrative 270,213(b) 227,414(e) 782,897(b) 654,384(e)
Business Realignment
and Impairment
Charges, net ---( c ) ---(f) ---( c ) ---(f)
Total Costs and
Expenses 1,238,628 1,118,808 3,217,947 2,956,168
Income Before
Interest and
Income Taxes (EBIT) 250,981 280,661 537,441 648,326
Interest Expense, net 24,915 33,055 72,911 90,523
Income Before
Income Taxes 226,066 247,606 464,530 557,803
Provision for
Income Taxes 80,253 90,376 167,850 200,116
Net Income $145,813 $157,230 $296,680 $357,687
Net Income Per Share
- Basic - Common $0.66 $0.71 $1.34 $1.60
- Basic - Class B $0.59 $0.64 $1.21 $1.44
- Diluted - Common $0.64 $0.68 $1.30 $1.54
Shares Outstanding
- Basic - Common 166,682 167,165 166,696 168,444
- Basic - Class B 60,784 60,812 60,798 60,814
- Diluted - Common 228,670 230,388 228,757 232,026
Key Margins:
Adjusted Gross Margin 35.0% 36.3% 35.2% 36.1%
Adjusted EBIT Margin 16.8% 20.1% 14.3% 18.0%
Adjusted Net Margin 9.8% 11.2% 7.9% 9.9%
(a) Excludes business realignment and impairment charges of
$20.0 million pre-tax or $13.9 million after-tax for the third
quarter and $60.1 million pre-tax or $41.3 million after-tax for the
nine months.
(b) Excludes business realignment and impairment charges of $2.2 million
pre-tax or $1.4 million after-tax for the third quarter and
$6.1 million pre-tax or $3.7 million after-tax for the nine months.
( c ) Excludes business realignment and impairment charges of $8.9 million
pre-tax or $6.0 million after-tax for the third quarter and
$34.7 million pre-tax or $22.4 million after-tax for the nine
months.
(d) Excludes business realignment and impairment charges of
$37.5 million pre-tax or $24.0 million after-tax for the third
quarter and $88.6 million pre-tax or $56.5 million after-tax for the
nine months.
(e) Excludes business realignment and impairment charges of $2.4 million
pre-tax or $1.4 million after-tax for the third quarter and
$8.7 million pre-tax or $5.4 million after-tax for the nine months.
(f) Excludes business realignment and impairment charges of
$112.0 million pre-tax or $69.0 million after-tax for the third
quarter and $219.3 million pre-tax or $136.0 million after-tax for
the nine months.
The Hershey Company
Consolidated Balance Sheets
as of September 28, 2008 and December 31, 2007
(in thousands of dollars)
Assets 2008 2007
Cash and Cash Equivalents $135,632 $129,198
Accounts Receivable - Trade (Net) 614,392 487,285
Deferred Income Taxes 52,512 83,668
Inventories 674,320 600,185
Prepaid Expenses and Other 173,799 126,238
Total Current Assets 1,650,655 1,426,574
Net Plant and Property 1,479,567 1,539,715
Goodwill 570,082 584,713
Other Intangibles 163,738 155,862
Other Assets 567,337 540,249
Total Assets $4,431,379 $4,247,113
Liabilities, Minority Interest and
Stockholders' Equity
Loans Payable $729,297 $856,392
Accounts Payable 317,612 223,019
Accrued Liabilities 505,950 538,986
Taxes Payable 10,633 373
Total Current Liabilities 1,563,492 1,618,770
Long-Term Debt 1,510,831 1,279,965
Other Long-Term Liabilities 532,441 544,016
Deferred Income Taxes 172,486 180,842
Total Liabilities 3,779,250 3,623,593
Minority Interest 38,245 30,598
Total Stockholders' Equity 613,884 592,922
Total Liabilities, Minority Interest
and Stockholders' Equity $4,431,379 $4,247,113