Hershey / PA. (thc) The Hershey Company, the largest producer of quality chocolate in North America and a global leader in chocolate, sweets and refreshments, announced sales and earnings for the fourth quarter and full-year ended December 31, 2013. For the fourth quarter of 2013, consolidated net sales were 1’956’253’000 USD compared with 1’751’035’000 USD for the fourth quarter of 2012. Reported net income for the fourth quarter of 2013 was 186’075’000 USD or 0,82 USD per share-diluted, compared with 149’879’000 USD or 0,66 USD per share-diluted for the comparable period of 2012. Overview:
- Fourth quarter and full-year 2013 net sales increase 11,7 percent and 7,6 percent, respectively
- Fourth quarter earnings per share-diluted of 0,82 USD as reported and 0,86 USD adjusted
- Full-year 2013 earnings per share-diluted of 3,61 USD as reported and 3,72 USD adjusted
- Outlook for 2014 net sales and earnings per share-diluted reaffirmed:
- Full-year net sales expected to increase five to seven percent, driven primarily by volume
- Reported earnings per share-diluted expected to be 4,02 USD to 4,11 USD
- Adjusted earnings per share-diluted expected to increase nine to eleven percent and be in the 4,05 USD to 4,13 USD range
«The Hershey Company ended 2013 strongly with high-quality net sales and adjusted earnings per share-diluted growth slightly exceeding our expectations», said John P. Bilbrey, President and Chief Executive Officer, The Hershey Company. «Net sales increased 11,7 percent in the fourth quarter, driven by solid volume growth in North America and in international markets. Our results are also reflected in our marketplace data. Specifically, in the U.S., we gained candy, mint and gum (CMG) market share in every measured channel for the third consecutive year. As a result, Hershey reclaimed its CMG category leadership position in the U.S. with a 31,1 percent share of the market. Additionally, our China business reached a milestone 10,2 percent share of the chocolate market and, in Canada, our combined candy and mint segments became the category leader in that marketplace. The progress we have made across our business gives us confidence that our strategies are working well and meeting consumer wants and needs. In 2014, our plans are focused on targeted growth initiatives in key global markets, new product launches in both the U.S. and international geographies and continued support of our core brands. I am also pleased with the agreement we entered into last month with Shanghai Golden Monkey. This will build on Hershey´s continuing commitment to the China market and will further accelerate the Company´s scale and geographic footprint in that market. We continue to anticipate that the acquisition will close by the end of the second quarter».
As described in the Note below, for the fourth quarter of 2013, these results, prepared in accordance with U.S. generally accepted accounting principles (GAAP), included pre-tax charges of 10,9 million USD or 0,04 USD per share-diluted. These charges included 5,5 million USD or 0,02 USD per share-diluted, primarily related to the Project Next Century program, 3,0 million USD or 0,02 USD per share-diluted, of acquisition and integration costs and non-service-related pension expense (NSRPE) of 2,4 million USD. Reported gross margin of 43,8 percent increased 70 basis points versus last year, while reported income before interest and income taxes (Ebit) increased 22,0 percent, generating Ebit margin of 15,8 percent, an increase of 140 basis points versus 2012. For the fourth quarter of 2012, results included net pre-tax charges of 24,3 million USD or 0,08 USD per share-diluted. These charges included 7,9 million USD or 0,03 USD per share-diluted, related to the Project Next Century program, NSRPE of 7,6 million USD or 0,02 USD per share-diluted and acquisition and integration costs related to Brookside Foods Limited of 1,3 million USD. Additionally, in the fourth quarter of 2012, the Company recorded a non-cash impairment charge of 7,5 million USD or 0,03 USD per share-diluted, related to its 69 percent investment in Tri-US Inc. of Boulder, Colorado, a company that manufactured nutritional beverages under the «Mix1» brand name.
For the full year 2013, consolidated net sales were 7’146’079’000 USD, compared with 6’644’252’000 USD in 2012, an increase of 7,6 percent. Reported net income for 2013 was 820’470’000 USD or 3,61 USD per share-diluted, compared with 660’931’000 USD or 2,89 USD per share-diluted, for 2012. As described in the Note (not in this press release), for the full years 2013 and 2012, these results, prepared in accordance with GAAP, included net pre-tax charges of 34,0 million USD and 117,7 million USD or 0,11 USD and 0,35 USD per share-diluted, respectively. Charges associated with the Project Next Century program for 2013 and 2012 were 19,1 million USD and 76,3 million USD or 0,05 USD and 0,22 USD per share-diluted. NSRPE for 2013 and 2012 was 10,9 million USD and 20,6 million USD or 0,03 USD and 0,06 USD per share-diluted, respectively.
Acquisition and integration costs, primarily related to Shanghai Golden Monkey in 2013 and Brookside in 2012, were 4,1 million USD and 13,4 million USD or 0,03 USD and 0,04 USD per share-diluted. Additionally, 2012 results were impacted by the aforementioned non-cash goodwill impairment charge of 7,5 million USD or 0,03 USD per share-diluted. As described in the Note (not in this press release), adjusted net income for each year, which excludes these net charges, was 844’320’000 USD or 3,72 USD per share-diluted in 2013, compared with 740’040’000 USD or 3,24 USD per share-diluted in 2012, an increase of 14,8 percent in adjusted earnings per share-diluted.
In 2014, the Company expects reported earnings per share-diluted of 4,02 USD to 4,11 USD, including net GAAP charges of about seven million USD to nine million USD or 0,02 USD to 0,03 USD per share-diluted. This projection, prepared in accordance with GAAP, assumes net business realignment charges related to Project Next Century of 0,01 USD to 0,02 USD per share-diluted, non-service-related pension income (NSRPI) of 0,01 USD to 0,02 USD per share-diluted as well as acquisition and transaction costs associated with Shanghai Golden Monkey of 0,02 USD to 0,03 USD per share-diluted. Despite the impact of these charges, in 2014, reported gross margin is expected to increase around 50 basis points.
Fourth Quarter Performance
Hershey´s fourth-quarter net sales increased 11,7 percent, driven primarily by core brand volume growth and new products, a 9,0 point and 3,2 point benefit, respectively. Foreign currency exchange rates were 0,5 points unfavorable. Net sales in North America slightly exceeded expectations driven by a solid holiday season. As expected, fourth quarter net sales outside the U.S. and Canada accelerated, resulting in a 3,5 point contribution to the Company´s overall top-line growth.
Hershey´s U.S. candy, mint and gum (CMG) retail takeaway for the twelve weeks and 52 weeks ended December 28, 2013, in the expanded All Outlet Combined plus convenience store channels (xAOC+C-store), which accounts for approximately 90 percent of our U.S. retail business, was up 5,2 percent and 6,3 percent, respectively and relatively in line with U.S. net sales. Hershey U.S. CMG market share increased 1,1 points in 2013.
Adjusted gross margin for the fourth quarter and full year increased 80 basis points and 220 basis points, respectively, slightly lower than expectations. In the fourth quarter, lower commodity costs and supply chain productivity contributed to gross margin expansion. The gross margin expansion was less than our earlier estimates as greater than expected fourth quarter volume required purchases at higher prices and year-end inventory valuations generated higher costs than anticipated.
Selling, marketing and administrative (SM+A) expenses, excluding advertising, increased ten percent in the fourth quarter, driven by planned investments in global go-to-market capabilities, selling and marketing costs and other employee-related expenses. As a result, adjusted Ebit for the fourth quarter increased 15,3 percent generating adjusted Ebit margin of 16,3 percent, a 50 basis point increase versus last year. For the fourth quarter and full year, advertising increased 20 percent and 21 percent, respectively, supporting new product launches as well as core brands in the U.S. and international markets. Additionally, as previously communicated, the tax rate in the fourth quarter of 34,2 percent was greater than the year ago period resulting in a full-year tax rate of 34,3 percent, in line with our estimate.
The Company expects 2014 net sales growth of five to seven percent, including the impact of foreign currency exchange rates. Net sales will be driven primarily by core brand volume growth as well as innovation such as York Minis, Hershey´s Spreads, Lancaster Soft Crèmes Caramels and Brookside Crunchy Clusters in the U.S., Hershey´s Kisses Deluxe in China and the continued roll-out of our five global brands in key international markets.
As stated in October (not in this press release), gross margin is expected to increase in 2014, driven by productivity and cost savings initiatives. Therefore, the Company expects 2014 adjusted gross margin expansion of around 50 basis points. Advertising and related consumer marketing is expected to increase mid to high single-digits, on a percentage basis versus last year. SM+A expenses, excluding advertising and related consumer marketing, will increase in 2014 building on the investments in go-to-market capabilities established over the last few years, as well as consumer knowledge-based projects related to our Insights Driven Performance initiative. As a result, the Company anticipates adjusted earnings per share-diluted growth for the full year to be in the nine to eleven percent range. The aforementioned outlook excludes estimated operating results for Shanghai Golden Monkey. Completion of the agreement is expected to occur in the second quarter of 2014, subject to necessary government and regulatory approvals and satisfaction of other conditions. Upon completion and excluding integration and transition costs, the Company expects the acquisition to be slightly accretive on an adjusted basis in 2014.
«Our business continues to respond to the investments we have made, as evidenced by our retail takeaway and market share gains and we expect our momentum to continue in 2014», stated Bilbrey. «Core brands, as well as our solid pipeline of new products, will be supported by advertising, merchandising and programming that is expected to continue to drive net sales and earnings growth. We are focused on executing against our annual plan and believe that our agreement with Shanghai Golden Monkey and the confectionery plant under construction in Malaysia, will enable us to achieve the goals outlined in our strategic plan, in a disciplined way», Bilbrey concluded.