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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
July 25, 2019
 
Date of Report (Date of earliest event reported)
 
The Hershey Company
 
(Exact name of registrant as specified in its charter)
 
Delaware
 
(State or other jurisdiction of incorporation)
1-183
 
23-0691590
(Commission File Number)
 
(IRS Employer Identification No.)

 
19 East Chocolate Avenue, Hershey, Pennsylvania 17033
 
(Address of Principal Executive Offices) (Zip Code)


Registrant's telephone number, including area code: (717) 534-4200
 
 
 
 
Not Applicable
 
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ]
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, one dollar par value
 
HSY
 
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
¨




Item 2.02.
 
Results of Operations and Financial Condition.

On July 25, 2019, The Hershey Company (the “Company”) announced sales and earnings information for the second quarter ended June 30, 2019. A copy of the Company's press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01.
 
Financial Statements and Exhibits.
 
 
 
 
 
(d)
 
Exhibits.
 
 
 
 
 
 
 
 
 
Exhibit Number
 
Description
 
 
 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
THE HERSHEY COMPANY
 
 
 
 
 
 
Date: July 25, 2019
 
By:
/s/ Steven E. Voskuil
 
 
 
 
Steven E. Voskuil
Senior Vice President, Chief Financial Officer
 

EXHIBIT INDEX

Exhibit Number
 
Description
 



Exhibit


Exhibit 99.1
https://cdn.kscope.io/942959c0dc340d00ad8ac855f8f51ae4-thehersheycompanylogojulya09.jpg
FINANCIAL CONTACT:
 
 
 
MEDIA CONTACT:
Melissa Poole
 
 
 
Jeff Beckman
717-534-7556
 
 
 
717-534-8090

Hershey Reports Second-Quarter 2019 Financial Results;
Updates 2019 Net Sales and Earnings Outlook

HERSHEY, Pa., July 25, 2019 - The Hershey Company (NYSE: HSY) today announced net sales and earnings for the second quarter ended June 30, 2019. The company updated its net sales outlook to the mid-point of the previously guided range, and slightly raised its reported and adjusted earnings outlook to the top half of the previous range.

“We are pleased with our second quarter results and the momentum we are seeing behind our key initiatives for this year,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “We continue to deliver differentiated results by growing both top and bottom line while investing in our brands and capabilities. We are on track to deliver our financial commitments for the year driven by accelerated U.S. performance, a strengthened international business and continued operational excellence.”

Second-Quarter 2019 Financial Results Summary1 
•
Consolidated net sales of $1,767.2 million, an increase of 0.9%.
•
Organic constant currency net sales increased 1.8%.
•
The net impact of acquisitions and divestitures was a 0.6 point headwind, and foreign currency exchange was a 0.3 point headwind.
•
Reported net income of $312.8 million, or $1.48 per share-diluted, an increase of 37%.
•
Adjusted earnings per share-diluted of $1.31, an increase of 14.9%.
1 All comparisons for the second quarter of 2019 are with respect to the second quarter ended July 1, 2018


1


2019 Full-Year Financial Outlook Summary2 
•
Full-year reported net sales are expected to increase around 2%, the mid-point of the previous 1-3% range.
•
The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit.
•
The impact of foreign currency exchange is anticipated to be negligible based on current exchange rates.
•
Full-year reported earnings per share-diluted are expected to be in the $5.54 to $5.66 range, relatively flat with prior year.
•
Full-year adjusted earnings per share-diluted are expected to increase 6% to 7%, the upper half of the previous 5% to 7% range.
2 All comparisons for full-year 2019 are with respect to the full year ended December 31, 2018

Second-Quarter 2019 Results
Consolidated net sales were $1,767.2 million in the second quarter of 2019 versus $1,751.6 million in the year ago period, an increase of 0.9%. Net price realization and volume were a 1.2 point and 0.6 point benefit, respectively. The net impact of acquisitions and divestitures was a 0.6 point headwind, and foreign currency exchange was a 0.3 point headwind.

As outlined in the table below, the company’s second-quarter 2019 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items impacting comparability of $39.7 million, or $0.17 per share-diluted. For the second quarter of 2018, items impacting comparability totaled $22.6 million, or $0.06 per share-diluted.

Reported gross margin was 49.5% in the second quarter of 2019, compared to 45.3% in the second quarter of 2018, an increase of 420 basis points. Adjusted gross margin was 46.5% in the second quarter of 2019, compared to 44.5% in the second quarter of 2018, an increase of 200 basis points. This increase in both reported and adjusted gross margin was driven by favorable mix and fixed cost absorption driven by increased production related to the company’s recently announced July 2019 price increase, favorable commodities, lower waste and net price realization. The favorable impact of mix and fixed cost absorption was approximately 90 basis points in the second quarter and is expected to be offset in the second half, primarily Q3, as inventory levels normalize.

Selling, marketing and administrative expenses increased 0.9% in the second quarter of 2019 versus the second quarter of 2018 driven by advertising. Advertising and related consumer marketing expenses increased 5.6% in the second quarter of 2019 versus the same period last year driven by advertising increases in both North America and our International markets. Selling, marketing and administrative expenses, excluding advertising and related consumer

2


marketing, decreased 1.4% versus the second quarter of 2018 driven by decreased spending related to our Margin for Growth Program and lower acquisition-related costs.

Second-quarter 2019 reported operating profit of $410.1 million increased 29.9% versus the second quarter of 2018, resulting in an operating margin of 23.2%, an increase of 520 basis points driven primarily by gross margin gains. Adjusted operating profit of $370.0 million increased 9.0% versus the second quarter of 2018. This resulted in an adjusted operating margin of 20.9%, an increase of 150 basis points versus the second quarter of 2018 driven primarily by gross margin gains.

The effective tax rate in the second quarter of 2019 was 13.7%, a decrease of 40 basis points versus the second quarter of 2018. The adjusted tax rate in the second quarter of 2019 was 14.8%, a decline of 120 basis points versus the second quarter of 2018. Both the effective and adjusted tax rate favorability were driven primarily by valuation allowance releases in two international locations.

The following table presents a summary of items impacting comparability in each period (see Appendix I for additional information):
 
Pre-Tax (millions)
 
Earnings Per Share-Diluted
 
Three Months Ended
 
Three Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
Derivative Mark-to-Market Gains
$
(53.5
)
 
$
(20.8
)
 
$
(0.25
)
 
$
(0.10
)
Business Realignment Activities
6.4

 
15.3

 
0.03

 
0.07

Acquisition-Related Costs
2.3

 
4.8

 
0.01

 
0.02

Long-Lived Asset Impairment Charges
4.7

 
27.2

 
0.02

 
0.13

Noncontrolling Interest Share of Business Realignment and Impairment Charges
0.4

 
(1.2
)
 
—

 
(0.01
)
Gain on Sale of Licensing Rights
—

 
(2.7
)
 
—

 
(0.01
)
Tax effect of all adjustments reflected above
—

 
—

 
0.02

 
(0.04
)
Total
$
(39.7
)
 
$
22.6

 
$
(0.17
)
 
$
0.06


The following are comments about segment performance for the second quarter of 2019 versus the year-ago period. See the schedule of supplementary information within this press release for additional information on segment net sales and profit.


3


North America (U.S. and Canada)
Hershey’s North America net sales were $1,568.0 million in the second quarter of 2019, an increase of 0.5% versus the same period last year. Pricing was a 1.5 point benefit. Volume was a 0.5 point headwind, the net impact of acquisitions and divestitures was a 0.3 point headwind, and foreign currency exchange rates were a 0.2 point headwind.

Total Hershey U.S. retail takeaway for the 11 weeks ended July 14, 20193, in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores) increased 1.9% versus the prior-year period. Hershey’s U.S. candy, mint and gum retail takeaway increased 1.9%, resulting in flat market share versus the prior-year period.

North America advertising and related consumer marketing expenses increased 2.7% in the second quarter of 2019 versus the same period last year driven by advertising. Favorable gross margin resulted in a segment income increase of 6.1% to $470.9 million in the second quarter of 2019, compared to $443.9 million in the second quarter of 2018.
3 Includes candy, mint, gum, salty snacks, meat snacks and grocery items; 11 week period excludes the impact of the Easter shift

International and Other
Second-quarter 2019 net sales for Hershey’s International and Other segment increased 3.9% versus the same period last year, to $199.2 million. Volume was a 9.6 point benefit. Divestitures were a 3.2 point headwind, net price realization was a 1.3 point headwind, and foreign currency exchange rates were a 1.2 point headwind. Combined net sales in our strategic focus markets (Mexico, Brazil, India and China) declined approximately 4%. Excluding an approximate 6.5 point headwind from divestitures and a 2.5 point headwind from foreign currency exchange rates, combined organic constant currency net sales in Mexico, Brazil, India and China grew approximately 5%.

A reconciliation between reported (i) constant currency net sales growth rates and (ii) organic constant currency net sales growth rates is provided below:
 
Three Months Ended June 30, 2019
 
Percentage Change as Reported
 
Impact of Foreign Currency Exchange
 
Percentage Change on Constant Currency Basis
 
Impact of Acquisitions and Divestitures
 
Percentage Change on Organic Constant Currency Basis
Mexico
8.0
 %
 
1.3
 %
 
6.7
 %
 
—
 %
 
6.7
%
Brazil
(3.5
)%
 
(8.2
)%
 
4.7
 %
 
—
 %
 
4.7
%
India
0.3
 %
 
(3.3
)%
 
3.6
 %
 
—
 %
 
3.6
%
China
(33.8
)%
 
(3.9
)%
 
(29.9
)%
 
(33.8
)%
 
3.9
%
Total Strategic Focus Markets
(4.0
)%
 
(2.5
)%
 
(1.5
)%
 
(6.5
)%
 
5.0
%


4


International and Other segment income increased 32.0% to $21.9 million in the second quarter of 2019 driven by gains from volume growth and gross margin expansion.

Unallocated Corporate Expense
Hershey's unallocated corporate expense in the second quarter of 2019 was $122.9 million, an increase of $1.9 million versus the same period of 2018. This increase was driven primarily by compensation increases.

2019 Full-Year Financial Outlook
Full-year reported net sales are expected to increase around 2%. The net impact of acquisitions and divestitures is estimated to be approximately a 0.5 point benefit and the foreign currency exchange rate impact is expected to be minimal based on current exchange rates.

Full-year reported earnings per share-diluted are expected to be roughly in-line with 2018 reported earnings per share-diluted, while adjusted earnings per share-diluted are expected to increase 6% to 7% versus 2018.

Below is a reconciliation of projected 2019 and full-year 2018 earnings per share-diluted calculated in accordance with GAAP to non-GAAP adjusted earnings per share-diluted:

 
2019 (Projected)
 
2018
Reported EPS – Diluted
$5.54 – $5.66
 
$5.58
Derivative mark-to-market gains
—
 
(0.80)
Business realignment activities
0.01 – 0.03
 
0.25
Acquisition-related costs
0.04 – 0.06
 
0.21
Gain on sale of licensing rights
—
 
(0.01)
Pension settlement charges relating to company-directed initiatives
0.03 – 0.05
 
0.03
Long-lived and intangible asset impairment charges
—
 
0.27
Noncontrolling interest share of business realignment and impairment charges
—
 
(0.03)
Tax effect of all adjustments reflected above
—
 
(0.14)
Adjusted EPS – Diluted
$5.68 – $5.74
 
$5.36

2019 projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that will be reflected within corporate unallocated expense in segment results until the related inventory is sold, since we are not able to forecast the impact of the market changes.

5



Live Webcast
At 8:30 a.m. ET today, Hershey will host a conference call to elaborate on second-quarter results. To access this call as a webcast, please go to Hershey’s web site at http://www.thehersheycompany.com.

Note: In this release, for the second quarter of 2019, Hershey references income measures that are not in accordance with GAAP because they exclude certain items impacting comparability, including business realignment activities, acquisition-related costs, pension settlement charges related to company-directed initiatives, and gains and losses associated with mark-to-market commodity derivatives. These non-GAAP financial measures are used in evaluating results of operations for internal purposes and 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. A reconciliation of the non-GAAP financial measures referenced in this release to their nearest comparable GAAP financial measures as presented in the Consolidated Statements of Income is provided below.




6


Reconciliation of Certain Non-GAAP Financial Measures
 
Consolidated results
Three Months Ended
 
In thousands except per share data
June 30, 2019
 
July 1, 2018
 
Reported gross profit
$
874,744

 
$
793,420

 
Derivative mark-to-market gains
(53,552
)
 
(20,831
)
 
Business realignment activities
—

 
7,322

 
Acquisition-related costs
—

 
25

 
Non-GAAP gross profit
$
821,192

 
$
779,936

 
 
 
 
 
 
Reported operating profit
$
410,070

 
$
315,724

 
Derivative mark-to-market gains
(53,552
)
 
(20,831
)
 
Business realignment activities
6,378

 
15,296

 
Acquisition-related costs
2,326

 
4,781

 
Long-lived asset impairment charges
4,741

 
27,168

 
Gain on sale of licensing rights
—

 
(2,658
)
 
Non-GAAP operating profit
$
369,963

 
$
339,480

 
 
 
 
 
 
Reported provision for income taxes
$
49,898

 
$
36,687

 
Derivative mark-to-market gains*
(4,541
)
 
(2,754
)
 
Business realignment activities*
1,897

 
11,676

 
Acquisition-related costs*
557

 
1,076

 
Gain on sale of licensing rights*
—

 
(1,203
)
 
Non-GAAP provision for income taxes
$
47,811

 
$
45,482

 
 
 
 
 
 
Reported net income
$
312,840

 
$
226,855

 
Derivative mark-to-market gains
(49,011
)
 
(18,077
)
 
Business realignment activities
4,481

 
3,619

 
Acquisition-related costs
1,769

 
3,705

 
Long-lived asset impairment charges
4,741

 
27,168

 
Noncontrolling interest share of business realignment and impairment charges
417

 
(1,246
)
 
Gain on sale of licensing rights
—

 
(1,455
)
 
Non-GAAP net income
$
275,237

 
$
240,569

 
 
 
 
 
 
Reported EPS - Diluted
$
1.48

 
$
1.08

 
Derivative mark-to-market gains
(0.25
)
 
(0.10
)
 
Business realignment activities
0.03

 
0.07

 
Acquisition-related costs
0.01

 
0.02

 
Long-lived asset impairment charges
0.02

 
0.13

 
Noncontrolling interest share of business realignment and impairment charges
—

 
(0.01
)
 
Gain on sale of licensing rights
—

 
(0.01
)
 
Tax effect of all adjustments reflected above**
0.02

 
(0.04
)
 
Non-GAAP EPS - Diluted
$
1.31

 
$
1.14

 

* The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.
** Adjustments reported above are reported on a pre-tax basis before the tax effect described in the reconciliation above for Non-GAAP provision for income taxes. There is no tax effect associated with adjustments for Long-lived asset impairment charges and Noncontrolling interest share of business realignment and impairment charges.

7


In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:
 
Three Months Ended
 
 
June 30, 2019
 
July 1, 2018
 
As reported gross margin
49.5
%
 
45.3
%
 
Non-GAAP gross margin (1)
46.5
%
 
44.5
%
 
 
 
 
 
 
As reported operating profit margin
23.2
%
 
18.0
%
 
Non-GAAP operating profit margin (2)
20.9
%
 
19.4
%
 
 
 
 
 
 
As reported effective tax rate
13.7
%
 
14.1
%
 
Non-GAAP effective tax rate (3)
14.8
%
 
16.0
%
 

(1)
Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.
(2)
Calculated as non-GAAP operating profit as a percentage of net sales for each period presented.
(3)
Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net).
We present certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange.  To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
A reconciliation between reported (i) constant currency net sales growth rates and (ii) organic constant currency net sales growth rates is provided below:
 
Three Months Ended June 30, 2019
 
Percentage Change as Reported
 
Impact of Foreign Currency Exchange
 
Percentage Change on Constant Currency Basis
 
Impact of Acquisitions and Divestitures
 
Percentage Change on Organic Constant Currency Basis
North America segment
 
 
 
 
 
 
 
 
 
Canada
(3.7
)%
 
(3.6
)%
 
(0.1
)%
 
—
 %
 
(0.1
)%
Total North America segment
0.5
 %
 
(0.2
)%
 
0.7
 %
 
(0.3
)%
 
1.0
 %
 
 
 
 
 
 
 
 
 
 
International and Other segment
 
 
 
 
 
 
 
 
 
Mexico
8.0
 %
 
1.3
 %
 
6.7
 %
 
—
 %
 
6.7
 %
Brazil
(3.5
)%
 
(8.2
)%
 
4.7
 %
 
—
 %
 
4.7
 %
India
0.3
 %
 
(3.3
)%
 
3.6
 %
 
—
 %
 
3.6
 %
China
(33.8
)%
 
(3.9
)%
 
(29.9
)%
 
(33.8
)%
 
3.9
 %
Total International and Other segment
3.9
 %
 
(1.2
)%
 
5.1
 %
 
(3.2
)%
 
8.3
 %
 
 
 
 
 
 
 
 
 
 
Total Company
0.9
 %
 
(0.3
)%
 
1.2
 %
 
(0.6
)%
 
1.8
 %

8


Appendix I
Details of the charges included in GAAP results, as summarized in the press release (above), are as follows:
Mark-to-Market Gains on Commodity Derivatives: The mark-to-market (gains) losses on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding (gains) losses are reclassified from unallocated to segment income. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period.

Business Realignment Activities: We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability.  During the first quarter of 2017, we commenced the Margin for Growth Program to drive continued net sales, operating profit and earnings per share-diluted growth over the next several years.  This program is focused on improving global efficiency and effectiveness, optimizing the company’s supply chain, streamlining the company’s operating model and reducing administrative expenses to generate long-term savings. During the second quarter of 2019, business realignment charges related primarily to severance expenses and other third-party costs related to this program. During the second quarter of 2018, business realignment charges related primarily to severance expenses, accelerated depreciation and other third-party costs related to this program.

Acquisition-Related Costs: Costs incurred during the second quarter of 2019 related to the integration of the 2018 acquisitions of Amplify Snack Brands, Inc and Pirate Brands. Costs incurred during the second quarter of 2018 included legal and consultant fees incurred to effectuate the Amplify acquisition, as well as other costs relating to the integration of the business.

Long-Lived Asset Impairment Charges: During the second quarter of 2019, we recorded impairment charges, which are predominantly comprised of select land that has not yet met the held for sale criteria. Additionally, included within our impairment charges is a contingency, that arose following the divestiture of Tyrrells, Inc. in July 2018. During the second quarter of 2018, we recorded estimated losses to reduce the carrying values of the Shanghai Golden Monkey and Tyrrells businesses presented as held for sale to their estimated fair values less costs to sell.

Noncontrolling Interest Share of Business Realignment and Impairment Charges: Certain of the business realignment and impairment charges recorded in connection with the Margin for Growth Program related to a joint venture in which we own a 50% controlling interest.  Therefore, we have also adjusted for the portion of these charges included within the income (loss) attributed to the noncontrolling interest.

9



Gain on Sale of Licensing Rights: During the second quarter of 2018, we recorded a gain on the sale of licensing rights for a non-core trademark relating to a brand marketed outside of the United States.

Tax Effect of All Adjustments: This line item reflects the aggregate tax effect of all pre-tax adjustments reflected in the preceding line items of the applicable table. The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company’s quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.

Safe Harbor Statement
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements can be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “projected,” “estimated,” and “potential,” among others. These statements are made based upon current expectations that are subject to risk and uncertainty. Because actual results may differ materially from those contained in the forward-looking statements, you should not place undue reliance on the forward-looking statements when deciding whether to buy, sell or hold the company's securities. Factors that could cause results to differ materially include, but are not limited to: issues or concerns related to the quality and safety of our products, ingredients or packaging; changes in raw material and other costs, along with the availability of adequate supplies of raw materials; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; disruption to our manufacturing operations or supply chain; failure to successfully execute and integrate acquisitions, divestitures and joint ventures; changes in governmental laws and regulations, including taxes; political, economic, and/or financial market conditions; risks and uncertainties related to our international operations; disruptions, failures or security breaches of our information technology infrastructure; our ability to hire, engage and retain a talented global workforce; our ability to realize expected cost savings and operating efficiencies associated with strategic initiatives or restructuring programs; complications with the design or implementation of our new enterprise resource planning system; and such other matters as discussed in our Annual Report on Form 10-K for the year ended December 31, 2018. All information in this press release is as of June 30, 2019. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.


10


The Hershey Company
Consolidated Statements of Income
for the periods ended June 30, 2019 and July 1, 2018
(unaudited) (in thousands except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Second Quarter
 
Six Months
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
 
$
1,767,217

 
$
1,751,615

 
$
3,783,705

 
$
3,723,574

Cost of sales
 
892,473

 
958,195

 
2,016,457

 
1,956,094

Gross profit
 
 
874,744

 
793,420

 
1,767,248

 
1,767,480

 
 
 
 
 
 
 
 
Selling, marketing and administrative expense
453,793

 
449,548

 
907,366

 
934,872

Long-lived asset impairment charges
4,741

 
27,168

 
4,741

 
27,168

Business realignment costs
6,140

 
980

 
6,202

 
9,204

 
 
 
 
 
 
 
 
 
Operating profit
410,070

 
315,724

 
848,939

 
796,236

Interest expense, net
 
33,776

 
34,952

 
71,234

 
64,291

Other (income) expense, net
 
13,125

 
20,766

 
18,602

 
22,708

 
 
 
 
 
 
 
 
 
Income before income taxes
 
363,169

 
260,006

 
759,103

 
709,237

Provision for income taxes
 
49,898

 
36,687

 
141,951

 
135,199

 
 
 
 
 
 
 
 
 
 
Net income including noncontrolling interest
313,271

 
223,319

 
617,152

 
574,038

 
 
 
 
 
 
 
 
 
 
Less: Net income (loss) attributable to noncontrolling interest
431

 
(3,536
)
 
(46
)
 
(3,020
)
Net income attributable to The Hershey Company
$
312,840

 
$
226,855

 
$
617,198

 
$
577,058

 
 
 
 
 
 
 
 
 
 
Net income per share
- Basic
- Common
$
1.54

 
$
1.11

 
$
3.03

 
$
2.82

 
- Diluted
- Common
$
1.48

 
$
1.08

 
$
2.93

 
$
2.73

 
- Basic
- Class B
$
1.39

 
$
1.01

 
$
2.75

 
$
2.56

 
 
 
 
 
 
 
 
 
 
Shares outstanding
- Basic
- Common
149,025

 
148,948

 
148,864

 
149,534

 
- Diluted
- Common
210,817

 
210,378

 
210,568

 
211,170

 
- Basic
- Class B
60,614

 
60,620

 
60,614

 
60,620

 
 
 
 
 
 
 
 
Key margins:
 
 
 
 
 
 
 
Gross margin
 
49.5
%
 
45.3
%
 
46.7
%
 
47.5
%
Operating profit margin
 
23.2
%
 
18.0
%
 
22.4
%
 
21.4
%
Net margin
 
17.7
%
 
13.0
%
 
16.3
%
 
15.5
%
 
 
 
 
 
 
 
 
 
 
 

11



The Hershey Company
Supplementary Information – Segment Results
for the periods ended June 30, 2019 and July 1, 2018
(unaudited) (in thousands of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Second Quarter
 
Six Months
 
 
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
$
1,568,040

 
$
1,559,952

 
0.5
 %
 
$
3,374,998

 
$
3,311,640

 
1.9
 %
International and Other
 
199,177

 
191,663

 
3.9
 %
 
408,707

 
411,934

 
(0.8
)%
Total
 
$
1,767,217

 
$
1,751,615

 
0.9
 %
 
$
3,783,705

 
$
3,723,574

 
1.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment income:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
$
470,898

 
$
443,859

 
6.1
 %
 
$
1,035,659

 
$
978,285

 
5.9
 %
International and Other
 
21,944

 
16,627

 
32.0
 %
 
42,187

 
34,307

 
23.0
 %
Total segment income
 
492,842

 
460,486

 
7.0
 %
 
1,077,846

 
1,012,592

 
6.4
 %
Unallocated corporate expense (1)
 
122,879

 
121,006

 
1.5
 %
 
237,383

 
244,973

 
(3.1
)%
Mark-to-market adjustment for commodity derivatives (2)
 
(53,552
)
 
(20,831
)
 
157.1
 %
 
(25,585
)
 
(117,081
)
 
(78.1
)%
Long-lived asset impairment charges
 
4,741

 
27,168

 
(82.5
)%
 
4,741

 
27,168

 
(82.5
)%
Costs associated with business realignment initiatives
 
6,378

 
15,296

 
(58.3
)%
 
6,862

 
31,247

 
(78.0
)%
Acquisition-related costs
 
2,326

 
4,781

 
(51.3
)%
 
5,506

 
32,707

 
(83.2
)%
Gain on sale of licensing rights
 
—

 
(2,658
)
 
NM

 
—

 
(2,658
)
 
NM

Operating profit
 
410,070

 
315,724

 
29.9
 %
 
848,939

 
796,236

 
6.6
 %
Interest expense, net
 
33,776

 
34,952

 
(3.4
)%
 
71,234

 
64,291

 
10.8
 %
Other (income) expense, net
 
13,125

 
20,766

 
(36.8
)%
 
18,602

 
22,708

 
(18.1
)%
Income before income taxes
 
$
363,169

 
$
260,006

 
39.7
 %
 
$
759,103

 
$
709,237

 
7.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, and (d) other gains or losses that are not integral to segment performance.
(2) Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses.
NM - not meaningful

 
 
 
Second Quarter
 
Six Months
 
 
 
2019
 
2018
 
2019
 
2018
Segment income as a percent of net sales:
 
 
 
 
 
 
 
 
North America
 
30.0
%
 
28.5
%
 
30.7
%
 
29.5
%
International and Other
 
11.0
%
 
8.7
%
 
10.3
%
 
8.3
%


12


The Hershey Company
Consolidated Balance Sheets
as of June 30, 2019 and December 31, 2018
 (in thousands of dollars)
 
 
 
 
Assets
2019
 
2018
 
(unaudited)
 
 
Cash and cash equivalents
$
365,963

 
$
587,998

Accounts receivable - trade, net
538,746

 
594,145

Inventories
957,953

 
784,879

Prepaid expenses and other
230,896

 
272,159

 
 
 
 
Total current assets
2,093,558

 
2,239,181

 
 
 
 
Property, plant and equipment, net
2,107,185

 
2,130,294

Goodwill
1,805,955

 
1,801,103

Other intangibles
1,257,868

 
1,278,292

Other assets
499,303

 
252,984

Deferred income taxes
29,691

 
1,166

 
 
 
 
Total assets
$
7,793,560

 
$
7,703,020

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Accounts payable
$
479,792

 
$
502,314

Accrued liabilities
650,922

 
679,163

Accrued income taxes
16,748

 
33,773

Short-term debt
886,779

 
1,197,929

Current portion of long-term debt
353,186

 
5,387

 
 
 
 
Total current liabilities
2,387,427

 
2,418,566

 
 
 
 
Long-term debt
2,888,043

 
3,254,280

Other long-term liabilities
636,913

 
446,048

Deferred income taxes
197,096

 
176,860

 
 
 
 
Total liabilities
6,109,479

 
6,295,754

 
 
 
 
Total stockholders' equity
1,684,081

 
1,407,266

 
 
 
 
Total liabilities and stockholders' equity
$
7,793,560

 
$
7,703,020



13