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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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______________________________
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FORM
8-K
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CURRENT
REPORT
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Pursuant
to Section 13 or 15(d) of the
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Securities
Exchange Act of 1934
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July
19,
2007
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Date
of Report (Date of earliest event
reported)
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The
Hershey
Company
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(Exact
name of registrant as specified in its
charter)
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Delaware
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(State
or other jurisdiction of
incorporation)
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1-183
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23-0691590
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(Commission
File Number)
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(IRS
Employer Identification No.)
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100
Crystal A Drive, Hershey,
Pennsylvania 17033
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(Address
of Principal Executive Offices) (Zip
Code)
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Registrant's
telephone number, including area code: (717)
534-4200
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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:
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[ ]
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Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
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|
[ ]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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|
[ ]
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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[ ]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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INFORMATION
TO BE INCLUDED IN REPORT
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Item
2.02
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Results
of Operations and Financial
Condition
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On
July
19, 2007, The Hershey Company (“the Company”) announced sales and earnings for
the second quarter of 2007. A copy of the Company’s press release is
attached hereto as Exhibit 99.1 and incorporated herein by
reference.
The
information in this Current Report, including the Exhibit, 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.
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Item
9.01
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Financial
Statements and Exhibits
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(d)
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Exhibits
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99.1
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Press
Release dated July 19, 2007
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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, thereunto
duly authorized.
Date: July
19, 2007
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THE
HERSHEY COMPANY
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By:
/s/ David J.
West
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David
J. West
Executive
Vice President, Chief Operating
Officer
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EXHIBIT
INDEX
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Exhibit
No.
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Description
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99.1
|
The
Hershey Company Press Release dated July 19,
2007
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Exhibit
99.1
HERSHEY
ANNOUNCES SECOND QUARTER RESULTS
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·
|
Earnings
per share-diluted from operations
$0.35
|
|
·
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Second
half profile reflects increasing investment in consumer and customer
programs and continued dairy cost
pressures
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|
·
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Full
year 2007 organic net sales to increase low-single digits, earnings
per
share-diluted from operations expected to decline mid-single
digits
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HERSHEY,
Pa., July 19, 2007 — The Hershey Company (NYSE: HSY) today announced
sales and earnings for the second quarter ended July 1, 2007. Consolidated
net
sales were $1,051,916,000 compared with $1,051,912,000 for the second quarter
of
2006. Net income for the second quarter of 2007 was $3,554,000 or $0.01 per
share-diluted, compared with $97,897,000, or $0.41 per share-diluted, for
the
comparable period of 2006.
For
the
second quarters of 2007 and 2006, these results, prepared in accordance with
generally accepted accounting principles (“GAAP”), include net pre-tax charges
of $124.4 million and $2.6 million, or $0.34 and $0.01 per share, respectively.
The 2007 charges are associated with the Global Supply Chain Transformation
plan
announced in February, while the 2006 charges primarily relate to the completed
business realignment initiatives announced in July 2005. Net income
from operations, which excludes the net charges for the second quarters of
2007
and 2006, was $81,671,000 or $0.35 per share-diluted in 2007, compared with
$99,707,000 or $0.42 per share-diluted in 2006.
Second
Quarter Performance
"Results
for the second quarter were in-line with the expectations that were communicated
in May," said Richard H. Lenny, Chairman, President and Chief Executive Officer.
“Higher dairy prices and a slower than expected improvement in the U.S. business
adversely impacted results for the second quarter. Focused investment
behind Reese’s, Hershey’s, and Kisses delivered a 4 percent
gain in retail takeaway on these brands. In addition, retail sales of dark
and premium chocolate, behind stronger programming, achieved sequentially
higher
growth. However, this performance was more than offset by lower velocities
of
some previously introduced new items and heightened competitive activity
within
the refreshment segment. As a result, total retail takeaway was down
slightly, 0.4 percent, for the quarter.”
First
Half Results and Outlook
For
the
first six months of 2007, consolidated net sales were $2,205,025,000, compared
with $2,191,419,000 for the first six months of 2006. Reported net
income for the first six months of 2007 was $97,027,000 or $0.42 per
share-diluted, compared with $220,368,000, or $0.91 per share-diluted, for
the
first six months of 2006. For the first six months of 2007 and 2006,
these results, prepared in accordance with GAAP, include net pre-tax charges
of
$164.8 million and $4.4 million, or $0.44 and $0.01 per share,
respectively. The 2007 charges are associated with the Global Supply
Chain Transformation plan announced in February, while the 2006 charges
primarily relate to the completed business realignment initiatives announced
in
July 2005.
Net
income from operations, which excludes the net charges for the first six
months
of 2007 and 2006, was $200,457,000, or $0.86 per share-diluted, compared
with
$223,393,000 or $0.92 per share-diluted in 2006, a decrease of 7 percent in
earnings per share-diluted.
“Hershey’s
results during the first half did not meet expectations. Focused
investment behind our core brands has proven to be
beneficial. However, new product innovation must become more
sustainable. We fully intend to address this through accelerated
close-in core brand innovation and new product platforms, primarily within
dark
and premium chocolate,” Lenny stated.
“Solid
progress was made on Hershey’s strategic initiatives. The Global
Supply Chain Transformation is on track. Announcements regarding
facility rationalizations have been made while maintaining strong productivity
and service levels. Construction is well underway at the new manufacturing
facility in Monterrey, Mexico with phased-in production expected to begin
by
mid-2008. In emerging markets, the government of India approved our
joint venture proposal to establish the Godrej Hershey Foods and Beverages
Company. The business is now up and running and we expect this to be
a major contributor to Hershey’s growth over the long term. In China,
our manufacturing joint venture with Lotte is on schedule with production
having
begun.
“As
we
look to the second half of the year, our goal is to ensure the long-term
vitality of Hershey’s brand franchises and expand our global
footprint. As such, we’ll continue to invest
accordingly. To deliver this goal we’re significantly increasing
total consumer and customer investment. This spending will support
strong seasonal programming, new products such as Reese’s Whipps, and
higher levels of retail coverage. In key global markets we’re
developing the appropriate product portfolios and routes-to-market.
“For
the
second half, we expect sequential improvement in organic net sales that will
result in full year 2007 growth in the low-single digit range. Higher
dairy costs will continue to pressure margins for the balance of the year,
and
combined with our commitment to brand investment, will result in a mid-single
digit decline in earnings per share-diluted from operations for 2007. We
are
taking the appropriate steps to ensure that Hershey enters 2008 with a strong
foundation both in the U.S. and within key global markets that represent
attractive long-term potential,” Lenny concluded.
Note: In
this earnings release, Hershey has provided income measures excluding certain
items described above, in addition to net income determined in accordance
with
GAAP. These non-GAAP financial measures, as shown in the attached pro forma
summary of consolidated statements of income, 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-diluted outlook:
|
2006
|
2007
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|
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Reported
/ Expected EPS-Diluted
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$2.34
|
$1.41
- $1.50
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Total
Business Realignment Charges
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$0.03
|
$0.75
- $0.84
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EPS-Diluted
from Operations*
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$2.37
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Expected
EPS-Diluted from Operations*
|
$2.25
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|
|
*From
operations, excluding business realignment and one-time
costs.
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||
Live
Web Cast
As
previously announced, the Company will hold a conference call with analysts
today at 8:30 a.m. Eastern Time. The conference call will be web cast live
via
Hershey’s corporate website www.hersheys.com. Please go to the Investor
Relations section of the website for further details.
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.
#
#
#
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Financial
Contact:
|
Mark
Pogharian
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717-534-7556
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Media
Contact:
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Kirk
Saville
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717-534-7641
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Summary
of Consolidated Statements of Income
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||||||||||||||||
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for
the periods ended July 1, 2007 and July 2, 2006
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||||||||||||||||
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(in
thousands except per share amounts)
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||||||||||||||||
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Second
Quarter
|
Six
Months
|
|||||||||||||||
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2007
|
2006
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2007
|
2006
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|||||||||||||
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Net
Sales
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$ |
1,051,916
|
$ |
1,051,912
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$ |
2,205,025
|
$ |
2,191,419
|
||||||||
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Costs
and Expenses:
|
||||||||||||||||
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Cost
of Sales
|
722,478
|
644,077
|
1,461,556
|
1,351,442
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||||||||||||
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Selling,
Marketing and Administrative
|
216,870
|
221,478
|
433,303
|
438,272
|
||||||||||||
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Business
Realignment Charge, net
|
79,728
|
4,240
|
107,273
|
7,571
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||||||||||||
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Total
Costs and Expenses
|
1,019,076
|
869,795
|
2,002,132
|
1,797,285
|
||||||||||||
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Income
Before Interest and Income Taxes (EBIT)
|
32,840
|
182,117
|
202,893
|
394,134
|
||||||||||||
|
Interest
Expense, net
|
29,213
|
27,490
|
57,468
|
52,693
|
||||||||||||
|
Income
Before Income Taxes
|
3,627
|
154,627
|
145,425
|
341,441
|
||||||||||||
|
Provision
for Income Taxes
|
73
|
56,730
|
48,398
|
121,073
|
||||||||||||
|
Net
Income
|
$ |
3,554
|
$ |
97,897
|
$ |
97,027
|
$ |
220,368
|
||||||||
|
Net
Income Per Share - Basic - Common
|
$ |
0.02
|
$ |
0.42
|
$ |
0.43
|
$ |
0.95
|
||||||||
|
-
Basic - Class B
|
$ |
0.01
|
$ |
0.38
|
$ |
0.39
|
$ |
0.86
|
||||||||
|
-
Diluted - Common
|
$ |
0.01
|
$ |
0.41
|
$ |
0.42
|
$ |
0.91
|
||||||||
|
Shares
Outstanding - Basic - Common
|
168,309
|
175,779
|
169,078
|
177,344
|
||||||||||||
|
- Basic - Class B
|
60,815
|
60,817
|
60,815
|
60,818
|
||||||||||||
|
- Diluted
|
231,963
|
240,124
|
232,841
|
241,644
|
||||||||||||
|
Key
Margins:
|
||||||||||||||||
|
Gross
Margin
|
31.3 | % | 38.8 | % | 33.7 | % | 38.3 | % | ||||||||
|
EBIT
Margin
|
3.1 | % | 17.3 | % | 9.2 | % | 18.0 | % | ||||||||
|
Net
Margin
|
0.3 | % | 9.3 | % | 4.4 | % | 10.1 | % | ||||||||
|
The
Hershey Company
|
||||||||||||||||
|
Pro
Forma Summary of Consolidated Statements of
Income
|
||||||||||||||||
|
for
the periods ended July 1, 2007 and July 2, 2006
|
||||||||||||||||
|
(in
thousands except per share amounts)
|
||||||||||||||||
|
Second
Quarter
|
Six
Months
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Net
Sales
|
$ |
1,051,916
|
$ |
1,051,912
|
$ |
2,205,025
|
$ |
2,191,419
|
||||||||
|
Costs
and Expenses:
|
||||||||||||||||
|
Cost
of Sales
|
681,171 | (a) | 645,677 | (d) | 1,410,390 | (a) | 1,354,641 | (d) | ||||||||
|
Selling,
Marketing and Administrative
|
213,523 | (b) |
221,478
|
426,970 | (b) |
438,272
|
||||||||||
|
Business
Realignment Charge, net
|
--- | (c) | --- | (e) | --- | (c) | --- | (e) | ||||||||
|
Total
Costs and Expenses
|
894,694
|
867,155
|
1,837,360
|
1,792,913
|
||||||||||||
|
Income
Before Interest and Income Taxes (EBIT)
|
157,222
|
184,757
|
367,665
|
398,506
|
||||||||||||
|
Interest
Expense, net
|
29,213
|
27,490
|
57,468
|
52,693
|
||||||||||||
|
Income
Before Income Taxes
|
128,009
|
157,267
|
310,197
|
345,813
|
||||||||||||
|
Provision
for Income Taxes
|
46,338
|
57,560
|
109,740
|
122,420
|
||||||||||||
|
Net
Income
|
$ |
81,671
|
$ |
99,707
|
$ |
200,457
|
$ |
223,393
|
||||||||
|
Net
Income Per Share - Basic - Common
|
$ |
0.37
|
$ |
0.43
|
$ |
0.90
|
$ |
0.96
|
||||||||
|
-
Basic - Class B
|
$ |
0.33
|
$ |
0.39
|
$ |
0.80
|
$ |
0.87
|
||||||||
|
-
Diluted - Common
|
$ |
0.35
|
$ |
0.42
|
$ |
0.86
|
$ |
0.92
|
||||||||
|
Shares
Outstanding - Basic - Common
|
168,309
|
175,779
|
169,078
|
177,344
|
||||||||||||
|
- Basic - Class B
|
60,815
|
60,817
|
60,815
|
60,818
|
||||||||||||
|
- Diluted
|
231,963
|
240,124
|
232,841
|
241,644
|
||||||||||||
|
Key
Margins:
|
||||||||||||||||
|
Adjusted
Gross Margin
|
35.2 | % | 38.6 | % | 36.0 | % | 38.2 | % | ||||||||
|
Adjusted
EBIT Margin
|
14.9 | % | 17.6 | % | 16.7 | % | 18.2 | % | ||||||||
|
Adjusted
Net Margin
|
7.8 | % | 9.5 | % | 9.1 | % | 10.2 | % | ||||||||
|
(a)
Excludes business realignment charge of $41.3 million pre-tax or
$26.3
million after-tax for the second quarter and $51.2 million pre-tax
or
$32.5 million after-tax for the six months.
(b)
Excludes business realignment charge of $3.4 million pre-tax or $2.1
million after-tax for the second quarter and $6.3 million pre-tax
or $3.9
million after-tax for the six months.
(c)
Excludes business realignment charge of $79.7 million pre-tax or
$49.7
million after-tax for the second quarter and $107.3 million pre-tax
or
$67.0 million after-tax for the six months.
(d)
Excludes business realignment credit of $(1.6) million pre-tax or
$(1.0)
million after-tax for the second quarter and $(3.2) million pre-tax
or
$(2.0) million after-tax for the six months.
(e)
Excludes business realignment charge of $4.2 million pre-tax or $2.8
million after-tax for the second quarter and $7.6 million pre-tax
or $5.0
million after-tax for the six months.
|
||||||||||||||||
|
The
Hershey Company
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
as
of July 1, 2007 and December 31, 2006
|
||||||||
|
(in
thousands of dollars)
|
||||||||
|
Assets
|
2007
|
2006
|
||||||
|
Cash
and Cash Equivalents
|
$ |
38,822
|
$ |
97,141
|
||||
|
Accounts
Receivable - Trade (Net)
|
378,178
|
522,673
|
||||||
|
Deferred
Income Taxes
|
55,976
|
61,360
|
||||||
|
Inventories
|
813,836
|
648,820
|
||||||
|
Prepaid
Expenses and Other
|
138,828
|
87,818
|
||||||
|
Total
Current Assets
|
1,425,640
|
1,417,812
|
||||||
|
Net
Plant and Property
|
1,588,163
|
1,651,300
|
||||||
|
Goodwill
|
508,849
|
501,955
|
||||||
|
Other
Intangibles
|
234,549
|
140,314
|
||||||
|
Other
Assets
|
510,035
|
446,184
|
||||||
|
Total
Assets
|
$ |
4,267,236
|
$ |
4,157,565
|
||||
|
Liabilities,
Minority Interest and Stockholders' Equity
|
||||||||
|
Loans
Payable
|
$ |
926,189
|
$ |
843,998
|
||||
|
Accounts
Payable
|
248,099
|
155,517
|
||||||
|
Accrued
Liabilities
|
426,873
|
454,023
|
||||||
|
Taxes
Payable
|
56
|
---
|
||||||
|
Total
Current Liabilities
|
1,601,217
|
1,453,538
|
||||||
|
Long-Term
Debt
|
1,287,246
|
1,248,128
|
||||||
|
Other
Long-Term Liabilities
|
590,144
|
486,473
|
||||||
|
Deferred
Income Taxes
|
200,950
|
286,003
|
||||||
|
Total
Liabilities
|
3,679,557
|
3,474,142
|
||||||
|
Minority
Interest
|
16,378
|
---
|
||||||
|
Total
Stockholders' Equity
|
571,301
|
683,423
|
||||||
|
Total
Liabilities, Minority Interest and Stockholders' Equity
|
$ |
4,267,236
|
$ |
4,157,565
|
||||