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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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October
18,
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
October 18, 2007, The Hershey Company (“the Company”) announced sales and
earnings for the third 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 October 18, 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: October
18, 2007
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THE
HERSHEY COMPANY
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By: /s/
Bert
Alfonso
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|
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Humberto
(Bert) P. Alfonso
Senior
Vice President, Chief Financial
Officer
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EXHIBIT
INDEX
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Exhibit
No.
|
Description
|
|
99.1
|
The
Hershey Company Press Release dated October 18,
2007
|
Exhibit
99.1
HERSHEY
ANNOUNCES THIRD QUARTER RESULTS
|
•
|
Reported
earnings per share $0.27 diluted; $0.68 diluted from
operations
|
|
•
|
U.S.
retail takeaway up 3.5 percent, led by strong growth in
chocolate
|
|
•
|
Full
year 2007 organic net sales to decrease about 1 percent, with
diluted EPS
from operations expected to be in the $2.08 to $2.12
range
|
|
•
|
Participation
in premium chocolate to broaden in 2008 behind Hershey’s
Bliss
|
HERSHEY,
Pa., October 18, 2007 — The Hershey Company (NYSE: HSY) today announced
sales and earnings for the third quarter ended September 30, 2007. Consolidated
net sales were $1,399,469,000 compared with $1,416,202,000 for the third
quarter
of 2006. Net income for the third quarter of 2007 was $62,784,000 or $0.27
per share-diluted, compared with $185,121,000, or $0.78 per share-diluted,
for
the comparable period of 2006.
For
the
third quarters of 2007 and 2006, these results, prepared in accordance with
generally accepted accounting principles (“GAAP”), include net pre-tax charges
of $151.9 million, or $0.41 per share, and $1.7 million, 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 third quarters of
2007
and 2006, was $157,230,000 or $0.68 per share-diluted in 2007, compared with
$186,234,000 or $0.78 per share-diluted in 2006.
Third
Quarter Performance
“Throughout
2007, our top priority has been to restore momentum within the U.S.,” said
Richard H. Lenny, Chairman and Chief Executive Officer. “Against a
backdrop of severe commodity cost pressures and strong competitive activity,
we’re maintaining this focus. In the third quarter
we experienced improvements in key aspects of our
portfolio. Importantly, our seasonal programs got off to a solid
start, and increased consumer investment resulted in a 3.5 percent gain in
U.S.
retail takeaway with improvements occurring in all classes of trade. In our
core
chocolate business, retail takeaway was up almost 6 percent, roughly twice
that
of the year-to-date period. This above-trend gain was led by
Hershey’s top four chocolate brands, which had a combined gain of better than 8
percent, including strong growth within dark chocolate, and improved retail
execution. This performance resulted in a sequential improvement in chocolate
market share during the quarter. Total company market share, off 1.1
share points, was adversely impacted by increased category innovation,
particularly in premium chocolate and refreshment, and aggressive competitive
programs at select retailers.
“Reported
net sales for the quarter were down 1 percent, primarily driven by the timing
of
seasonal shipments and a significant reduction in inventory levels at
distributors. This reduction is the result of slower-than-anticipated
improvement in the convenience store class of trade and tighter credit
conditions for these distributors. Importantly, Hershey’s
international business continued to gain traction behind our joint ventures
in
emerging markets. Third quarter profitability was curtailed by lower
sales, including increased trade promotion, and the impact of higher dairy
costs.”
Nine-Months
Results and Outlook
For
the
first nine months of 2007, consolidated net sales were $3,604,494,000, compared
with $3,607,621,000 for the first nine months of 2006. Reported net income
for
the first nine months of 2007 was $159,811,000 or $0.69 per share-diluted,
compared with $405,489,000, or $1.69 per share-diluted, for the first nine
months of 2006. For the first nine months of 2007 and 2006, these results,
prepared in accordance with GAAP, include net pre-tax charges of $316.7 million
and $6.0 million, or $0.85 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 nine
months
of 2007 and 2006, was $357,687,000, or $1.54 per share-diluted, compared
with
$409,627,000 or $1.70 per share-diluted in 2006, a decrease of 9.4 percent
in earnings per share-diluted.
“One
of
the key enablers of our long-term performance is the Global Supply Chain
Transformation initiative announced in February,” Lenny said. “This
effort remains on track and is scheduled to deliver savings of about $15
million
by the end of the year with a significant step-up in 2008. These
funds will provide the necessary means for investment in our brands and selling
capabilities.
“During
the fourth quarter, our investment in consumer and customer programming will
be
up markedly when compared to both the just-completed third quarter and the
fourth quarter of 2006. The focus will be on Hershey’s iconic brands,
new products, such as Cacao Reserve and Reese’s Whipps,
customer-specific events and expanded retail coverage.
“We
do
expect a sequential improvement in marketplace performance in the fourth
quarter. However, continued competitive activity as well as a tightening
of
inventory levels at select distributors will dampen sales performance in
the
fourth quarter. Therefore, organic net sales for 2007 are expected to
decrease about 1 percent. Profitability will be impacted by
higher dairy costs and increased business investment. As a result, we
anticipate full-year diluted earnings per share from operations to be in
the
$2.08 to $2.12 range,” Lenny concluded.
“In
2008,
we’ll build on recent marketplace momentum in core chocolate as we broaden our
participation in the premium segment,” said David J. West,
President. “Today we are pleased to announce the introduction of
Hershey’s Bliss. This product delivers a smooth, creamy and
rich-tasting chocolate experience, satisfying consumers’ desire for
indulgence. Hershey’s Bliss will complement our line-up of
premium and dark chocolate, including Cacao Reserve, Scharffen
Berger and Starbucks.
“We’ll
support our premium initiatives as well as continued investment behind core
brands, global expansion, and our retail sales force, with savings generated
from our Global Supply Chain Transformation. In addition, we are
evaluating alternatives to improve our consumer and customer value propositions
throughout the entire portfolio. This ongoing work, combined with
input cost volatility, makes for a challenging operating
environment. In January, we’ll provide details of the Company’s 2008
expectations,” West 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 $380 million - $400 million, or $1.03 - $1.08
per
share-diluted. Below is a reconciliation of GAAP and non-GAAP items to the
Company’s earnings per share-diluted outlook:
|
2006
|
2007
|
||
|
Reported
/ Expected EPS-Diluted
|
$2.34
|
$1.00
- $1.09
|
|
|
Total
Business Realignment Charges
|
$0.03
|
$1.03
- $1.08
|
|
|
EPS-Diluted
from Operations*
|
$2.37
|
||
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Expected
EPS-Diluted from Operations*
|
$2.08
- $2.12
|
||
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*From
operations, excluding business realignment and one-time
costs.
|
|||
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:
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Mark
Pogharian
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717-534-7556
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Media
Contact:
|
Kirk
Saville
|
717-534-7641
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|
Summary
of Consolidated Statements of Income
|
||||||||||||||||
|
for
the periods ended September 30, 2007 and October 1,
2006
|
||||||||||||||||
|
(in
thousands except per share amounts)
|
||||||||||||||||
|
Third
Quarter
|
Nine
Months
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Net
Sales
|
$ |
1,399,469
|
$ |
1,416,202
|
$ |
3,604,494
|
$ |
3,607,621
|
||||||||
|
Costs
and Expenses:
|
||||||||||||||||
|
Cost
of Sales
|
928,846
|
870,733
|
2,390,402
|
2,222,175
|
||||||||||||
|
Selling,
Marketing and Administrative
|
229,809
|
221,842
|
663,112
|
660,114
|
||||||||||||
|
Business
Realignment Charge, net
|
112,043
|
1,568
|
219,316
|
9,139
|
||||||||||||
|
Total
Costs and Expenses
|
1,270,698
|
1,094,143
|
3,272,830
|
2,891,428
|
||||||||||||
|
Income
Before Interest and Income Taxes (EBIT)
|
128,771
|
322,059
|
331,664
|
716,193
|
||||||||||||
|
Interest
Expense, net
|
33,055
|
31,835
|
90,523
|
84,528
|
||||||||||||
|
Income
Before Income Taxes
|
95,716
|
290,224
|
241,141
|
631,665
|
||||||||||||
|
Provision
for Income Taxes
|
32,932
|
105,103
|
81,330
|
226,176
|
||||||||||||
|
Net
Income
|
$ |
62,784
|
$ |
185,121
|
$ |
159,811
|
$ |
405,489
|
||||||||
|
Net
Income Per Share - Basic - Common
|
$ |
0.28
|
$ |
0.81
|
$ |
0.72
|
$ |
1.76
|
||||||||
|
-
Basic - Class B
|
$ |
0.26
|
$ |
0.73
|
$ |
0.65
|
$ |
1.58
|
||||||||
|
-
Diluted - Common
|
$ |
0.27
|
$ |
0.78
|
$ |
0.69
|
$ |
1.69
|
||||||||
|
Shares
Outstanding - Basic - Common
|
167,165
|
173,232
|
168,444
|
175,977
|
||||||||||||
|
-
Basic - Class B
|
60,812
|
60,816
|
60,814
|
60,817
|
||||||||||||
|
-
Diluted - Common
|
230,388
|
237,681
|
232,026
|
240,326
|
||||||||||||
|
Key
Margins:
|
||||||||||||||||
|
Gross
Margin
|
33.6 | % | 38.5 | % | 33.7 | % | 38.4 | % | ||||||||
|
EBIT
Margin
|
9.2 | % | 22.7 | % | 9.2 | % | 19.9 | % | ||||||||
|
Net
Margin
|
4.5 | % | 13.1 | % | 4.4 | % | 11.2 | % | ||||||||
|
The
Hershey Company
|
||||||||||||||||
|
Pro
Forma Summary of Consolidated Statements of
Income
|
||||||||||||||||
|
for
the periods ended September 30, 2007 and October 1,
2006
|
||||||||||||||||
|
(in
thousands except per share amounts)
|
||||||||||||||||
|
Third
Quarter
|
Nine
Months
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Net
Sales
|
$ |
1,399,469
|
$ |
1,416,202
|
$ |
3,604,494
|
$ |
3,607,621
|
||||||||
|
Costs
and Expenses:
|
||||||||||||||||
|
Cost
of Sales
|
891,394 | (a) | 870,733 | (d) | 2,301,784 | (a) | 2,225,374 | (d) | ||||||||
|
Selling,
Marketing and Administrative
|
227,414 | (b) | 221,734 | (e) | 654,384 | (b) | 660,006 | (e) | ||||||||
|
Business
Realignment Charge, net
|
--- | (c) | --- | (f) | --- | (c) | --- | (f) | ||||||||
|
Total
Costs and Expenses
|
1,118,808
|
1,092,467
|
2,956,168
|
2,885,380
|
||||||||||||
|
Income
Before Interest and Income Taxes (EBIT)
|
280,661
|
323,735
|
648,326
|
722,241
|
||||||||||||
|
Interest
Expense, net
|
33,055
|
31,835
|
90,523
|
84,528
|
||||||||||||
|
Income
Before Income Taxes
|
247,606
|
291,900
|
557,803
|
637,713
|
||||||||||||
|
Provision
for Income Taxes
|
90,376
|
105,666
|
200,116
|
228,086
|
||||||||||||
|
Net
Income
|
$ |
157,230
|
$ |
186,234
|
$ |
357,687
|
$ |
409,627
|
||||||||
|
Net
Income Per Share - Basic - Common
|
$ |
0.71
|
$ |
0.82
|
$ |
1.60
|
$ |
1.78
|
||||||||
|
-
Basic - Class B
|
$ |
0.64
|
$ |
0.74
|
$ |
1.44
|
$ |
1.60
|
||||||||
|
-
Diluted - Common
|
$ |
0.68
|
$ |
0.78
|
$ |
1.54
|
$ |
1.70
|
||||||||
|
Shares
Outstanding - Basic - Common
|
167,165
|
173,232
|
168,444
|
175,977
|
||||||||||||
|
-
Basic - Class B
|
60,812
|
60,816
|
60,814
|
60,817
|
||||||||||||
|
-
Diluted - Common
|
230,388
|
237,681
|
232,026
|
240,326
|
||||||||||||
|
Key
Margins:
|
||||||||||||||||
|
Adjusted
Gross Margin
|
36.3 | % | 38.5 | % | 36.1 | % | 38.3 | % | ||||||||
|
Adjusted
EBIT Margin
|
20.1 | % | 22.9 | % | 18.0 | % | 20.0 | % | ||||||||
|
Adjusted
Net Margin
|
11.2 | % | 13.2 | % | 9.9 | % | 11.4 | % | ||||||||
|
(a)
Excludes business realignment charge 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.
(b)
Excludes business realignment charge 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.
(c)
Excludes business realignment charge 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.
(d)
Includes no business realignment charges (credits) for the third
quarter
and excludes business realignment credit of $(3.2) million pre-tax
or
$(2.0) million after-tax for the nine months.
(e)
Excludes business realignment charge of $0.1 million pre-tax or $0.1
million after-tax for the third quarter and the nine months.
(f)
Excludes business realignment charge of $1.6 million pre-tax or $1.0
million after-tax for the third quarter and $9.1 million pre-tax
or $6.0
million after-tax for the nine months.
|
||||||||||||||||
|
The
Hershey Company
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
as
of September 30, 2007 and December 31, 2006
|
||||||||
|
(in
thousands of dollars)
|
||||||||
|
Assets
|
2007
|
2006
|
||||||
|
Cash
and Cash Equivalents
|
$ |
41,573
|
$ |
97,141
|
||||
|
Accounts
Receivable - Trade (Net)
|
638,312
|
522,673
|
||||||
|
Deferred
Income Taxes
|
58,067
|
61,360
|
||||||
|
Inventories
|
775,380
|
648,820
|
||||||
|
Prepaid
Expenses and Other
|
145,433
|
87,818
|
||||||
|
Total
Current Assets
|
1,658,765
|
1,417,812
|
||||||
|
Net
Plant and Property
|
1,550,352
|
1,651,300
|
||||||
|
Goodwill
|
601,017
|
501,955
|
||||||
|
Other
Intangibles
|
150,136
|
140,314
|
||||||
|
Other
Assets
|
495,307
|
446,184
|
||||||
|
Total
Assets
|
$ |
4,455,577
|
$ |
4,157,565
|
||||
|
Liabilities,
Minority Interest and Stockholders' Equity
|
||||||||
|
Loans
Payable
|
$ |
1,101,106
|
$ |
843,998
|
||||
|
Accounts
Payable
|
252,276
|
155,517
|
||||||
|
Accrued
Liabilities
|
482,215
|
454,023
|
||||||
|
Taxes
Payable
|
5,041
|
---
|
||||||
|
Total
Current Liabilities
|
1,840,638
|
1,453,538
|
||||||
|
Long-Term
Debt
|
1,271,658
|
1,248,128
|
||||||
|
Other
Long-Term Liabilities
|
616,103
|
486,473
|
||||||
|
Deferred
Income Taxes
|
171,545
|
286,003
|
||||||
|
Total
Liabilities
|
3,899,944
|
3,474,142
|
||||||
|
Minority
Interest
|
16,284
|
---
|
||||||
|
Total
Stockholders' Equity
|
539,349
|
683,423
|
||||||
|
Total
Liabilities, Minority Interest and Stockholders' Equity
|
$ |
4,455,577
|
$ |
4,157,565
|
||||