Hershey: Announces Second Quarter Results

Hershey / PA. (thc) The Hershey Company announced sales and earnings for the second quarter ended July 1, 2012. Consolidated net sales were 1’414’444’000 USD compared with 1’325’171’000 USD for the second quarter of 2011. Reported net income for the second quarter of 2012 was 135’685’000 USD or 0,59 USD per share-diluted, compared with 130’019’000 USD or 0,56 USD per share-diluted for the comparable period of 2011. Summary:

  • Net sales increase 6,7 percent
  • Earnings per share-diluted of 0,59 USD as reported and 0,66 USD adjusted
  • Full year net sales growth reaffirmed; expected to increase 7-9 percent, including Brookside acquisition
  • Outlook for 2012 reported and adjusted earnings per share-diluted updated:
    • Reported earnings per share-diluted expected to be 2,88 USD to 2,98 USD
    • Adjusted earnings per share-diluted expected to increase 12-14 percent, greater than the previous estimate of 10-12 percent

These results, prepared in accordance with U.S. generally accepted accounting principles (GAAP), included net pre-tax charges, as well as non-service-related pension expense (NSRPE) of 24,9 million USD or 0,07 USD per share-diluted. The majority of these charges, 19,0 million USD or 0,05 USD per share-diluted, were related to the Project Next Century program. Additionally, acquisition and integration costs related to the Brookside Foods Ltd. (Brookside) acquisition were 1,3 million USD or 0,01 USD per share-diluted and NSRPE was 4,5 million USD or 0,01 USD per share-diluted. For the second quarter of 2011, results included Project Next Century pre-tax charges of 9,4 million USD or 0,02 USD per share-diluted, which were more than offset by an adjustment of 11,2 million USD or 0,02 USD per share-diluted, resulting in a net credit of 1,8 million USD, due to a reduction of previous estimates. Pre-tax charges for NSRPE were 0,4 million USD for the second quarter of 2011. Adjusted net income, which excludes these net charges, was 151’493’000 USD or 0,66 USD per share-diluted in the second quarter of 2012, compared with 129’288’000 USD or 0,56 USD per share-diluted in the second quarter of 2011, an increase of 17,9 percent in adjusted earnings per share-diluted. See the Note for a reconciliation of GAAP and non-GAAP items.

For the first six months of 2012, consolidated net sales were 3’146’508’000 USD, compared with 2’889’394’000 USD for the first six months of 2011. Reported net income for the first six months of 2012 was 334’336’000 USD or 1,46 USD per share-diluted, compared with 290’134’000 USD or 1,26 USD per share-diluted, for the first six months of 2011.

As described in the Note, for the first six months of 2012 and 2011, these results, prepared in accordance with GAAP, included net pre-tax charges of 58,5 million USD and 9,6 million USD or 0,16 USD and 0,03 USD per share-diluted, respectively. Charges associated with the Project Next Century program for the first six months in 2012 and 2011 were 42,6 million USD and 7,9 million USD or 0,12 USD and 0,02 USD per share-diluted, respectively. NSRPE for the first six months in 2012 and 2011 were 8,7 million USD and 1,7 million USD or 0,02 USD and 0,01 USD per share-diluted, respectively. Additionally, for the first six months in 2012, acquisition and integration costs related to the Brookside acquisition were 7,2 million USD or 0,02 USD per share-diluted. As described in the Note, adjusted net income for the first six months of 2012, which excludes these net charges, was 371’403’000 USD or 1,62 USD per share-diluted, compared with 296’422’000 USD or 1,29 USD per share-diluted in 2011, an increase of 25,6 percent in adjusted earnings per share-diluted.

In 2012, the Company expects reported earnings per share-diluted of 2,88 USD to 2,98 USD. These results, prepared in accordance with GAAP, include business realignment charges, NSRPE and acquisition and integration costs of 0,25 USD to 0,29 USD per share-diluted. The majority of these charges, 0,16 USD to 0,19 USD per share-diluted, are related to the Project Next Century program. NSRPE and acquisition and integration costs related to the Brookside acquisition are expected to be 0,05 USD per share-diluted and 0,04 USD to 0,05 USD per share-diluted, respectively. Despite the impact of these charges in 2012, reported gross margin is expected to increase 120 to 130 basis points. The forecast for total pre-tax GAAP charges and non-recurring project implementation costs related to the Project Next Century program has been increased from a range of 150 million USD to 160 million USD to a range of 160 million USD to 180 million USD, due to revised estimates of possible higher disposition costs for the Company´s century-old facility at 19 East Chocolate Avenue in Hershey, Pennsylvania. The expected timing of events and estimated costs and savings is included in Appendix I, attached to this press release.

Second Quarter Performance and Outlook

«The Hershey Company reported another quarter of solid marketplace and financial results», said John P. Bilbrey, President and Chief Executive Officer. «The investments we have made in our business over the last few years have enabled us to deliver predictable, profitable and sustainable growth, despite the challenging global macroeconomic conditions that continue to exist. In the second quarter, Hershey´s net sales increased 6,7 percent. Net price realization was a 6,6 point benefit, slightly better than we expected and volume, excluding the Brookside acquisition, was off 1,1 points due to volume elasticity associated with the pricing action taken last year. The Brookside acquisition was a 2,4 point benefit in the quarter and foreign currency exchange rate a 1,2 point headwind. Over the remainder of the year, excluding the benefit of the Brookside acquisition, we expect the organic net sales contribution from net price realization and volume to be more balanced».

«Through the first half of the year, the U.S. candy, mint and gum (CMG) category and Hershey marketplace performance has outpaced the historical category growth rate. Specifically, Hershey U.S. CMG retail takeaway for the 24 weeks ended June 16, 2012, in the expanded All Outlet Combined plus convenience store channels (xAOC+C), which accounts for approximately 90 percent of our U.S. retail business, was up 6,1 percent, resulting in a market share gain of 0,3 points. Our marketplace performance reflects a good Easter season sell through that resulted in a 0,9 point market share gain in this season, successful new product launches, strong performance by our sweets and refreshment product line and a sequential improvement in everyday chocolate. Results have been solid where we have focused resources, with Hershey U.S. CMG retail takeaway and market share up across virtually all measured channels. In the second quarter, advertising expense increased about ten percent versus the year ago period. For the first six months of 2012, advertising is up about twelve percent versus 2011 and in line with the low-double digits percentage increase forecasted for the full year».

«Input costs were higher in the second quarter and in line with our estimates. Despite this increase, gross margin expanded due to net price realization, supply chain efficiencies and productivity gains. As expected, selling, marketing and administrative (SM+A) expenses, excluding advertising, increased mid-teens on a percentage basis versus last year. Over the remainder of the year we expect SM+A expenses, excluding advertising, to increase at about the same rate as we continue to make planned investments in marketing and go-to-market capabilities in both the U.S. and international markets. Additionally, certain tax items were concluded in the second quarter that we thought would occur in the second half of the year. We continue to expect the full-year tax rate to be about 35 percent».

«As we enter the third quarter, we are well-positioned to deliver on our financial objectives. We have good visibility into the orders for the upcoming Halloween and Holiday seasons where consumers will see higher price points. Seasonal specific advertising in the second half of the year will be greater than last year. For the full-year 2012, we expect advertising to increase low-double digits on a percentage basis versus the prior year, supporting seasons, new product launches and core brands in both the U.S. and international markets. We´ll also continue with the distribution and rollout of Jolly Rancher Crunch ‘N Chew candy, Ice Breakers Duo mints, Rolo Minis and Hershey´s Simple Pleasures chocolates. Brand building initiatives are having the desired effect and have helped mitigate volume declines due to price elasticity. Our plans are on track and we expect organic volume growth to accelerate in the second half of the year and be up for the full-year 2012. Therefore, including estimated net sales of the Brookside acquisition, about a 1,5 point benefit at current exchange rates, we expect full-year net sales growth of about seven to nine percent, including the impact of foreign currency exchange rates».

«We continue to expect that input costs in 2012 will be higher than last year and there is no material change to our full-year inflation outlook. As previously mentioned, due to greater net price realization we now expect adjusted gross margin to increase 100 to 120 basis points. This is greater than our previous estimate of about a 90 to 100 basis point increase. As previously mentioned, SM+A costs, including advertising, are on track. As a result, we expect full-year adjusted earnings per share-diluted growth of twelve to 14 percent. This is greater than our previous estimate of a ten to twelve percent increase», Bilbrey concluded.

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