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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
22,
2009
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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 22, 2009, The Hershey Company (“the Company”) announced sales and
earnings for the third quarter of 2009. 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 22, 2009
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October
22, 2009
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THE
HERSHEY COMPANY
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By:
/s/
Humberto P. Alfonso
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Humberto
P. Alfonso
Senior
Vice President, Chief Financial
Officer
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EXHIBIT
INDEX
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Exhibit No.
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Description
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99.1
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The
Hershey Company Press Release dated October 22,
2009
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Exhibit
99.1
HERSHEY
ANNOUNCES THIRD QUARTER RESULTS
AND
INCREASES 2009 FULL-YEAR EPS OUTLOOK
|
•
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Earnings
per share-diluted of $0.71 as reported and $0.73
adjusted
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|
•
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Retail
takeaway up 4.8% in channels that account for over 80% of the Company’s
U.S. business
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•
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Full-year
net sales growth of 3-5% expected
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•
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Outlook
for 2009 adjusted earnings per share-diluted increased; to be in the $2.12
to $2.14 range
|
HERSHEY, Pa., October 22, 2009
— The Hershey Company (NYSE: HSY) today announced sales and earnings for
the third quarter ended October 4, 2009. Consolidated net sales were
$1,484,118,000 compared with $1,489,609,000 for the third quarter of 2008.
Reported net income for the third quarter of 2009 was $162,023,000 or $0.71 per
share-diluted, compared with $124,538,000 or $0.54 per share-diluted, for the
comparable period of 2008.
For the
third quarters of 2009 and 2008, these results, prepared in accordance with
generally accepted accounting principles (GAAP), include net pre-tax charges of
$11.0 million and $31.0 million, or $0.02 and $0.10 per share-diluted,
respectively. These charges were associated with the Global Supply Chain
Transformation (GSCT) program. Adjusted net income, which excludes
these net charges, was $168,508,000 or $0.73 per share-diluted in the third
quarter of 2009, compared with $145,813,000, or $0.64 per share-diluted in the
third quarter of 2008, an increase of 14.1 percent in adjusted earnings per
share-diluted.
For the
first nine months of 2009, consolidated net sales were $3,891,332,000 compared
with $3,755,388,000 for the first nine months of 2008. Reported net income for
the first nine months of 2009 was $309,215,000 or $1.35 per share-diluted,
compared with $229,250,000 or $1.00 per share-diluted, for the first nine months
of 2008.
For the
first nine months of 2009 and 2008, these results, prepared in accordance with
GAAP, include net pre-tax charges of $72.7 million and $101.0 million, or
$0.19 and $0.30 per share, respectively. These charges were associated with the
GSCT program.
Adjusted
net income for the first nine months of 2009, which excludes these net charges,
was $352,465,000, or $1.54 per share-diluted, compared with $296,680,000 or
$1.30 per share-diluted in 2008, an increase of 18.5 percent in adjusted
earnings per share-diluted.
Total
GSCT program costs to date are $602.7 million. The forecast for total charges
related to the program remains $640 million to $665 million and includes the
non-cash pension settlement charges discussed in prior quarters and described in
Appendix A. In 2009, the Company expects to record total GAAP charges,
including possible non-cash pension settlement charges, of about $0.26 to $0.32
per share-diluted, generating expected GAAP earnings of $1.80 to $1.88 per
share-diluted (see “Note” for GAAP to adjusted earnings per share-diluted
reconciliation).
Third Quarter Performance
and Outlook
“I’m
pleased with Hershey’s third quarter results, which were driven by core brand
growth, solid performance within key retail channels and strong productivity
gains,” said David J. West, President and Chief Executive Officer. “Net sales,
down slightly in the quarter versus the prior year, were in-line with our
expectations as we’re lapping the buy-in related to the August 2008 price
increase. Importantly, U.S. retail takeaway for the 12-weeks ended
October 3, 2009, in channels that account for over 80 percent of our U.S. retail
business, was up 4.8 percent. In the channels measured by syndicated data, U.S.
market share was flat for the 12-weeks ended October 3, 2009, and up 0.3 points
year-to-date. These results were driven by the investments we have made
behind our core brands, including advertising, up about 50 percent in the
third quarter.
“Increased
levels of in-store programming and merchandising, as well as outstanding
execution at the retail level, continue to drive our positive marketplace
results in the food, convenience and mass classes of trade. We’ll continue to
invest in our brands and business capabilities and anticipate a solid finish to
the year.
“As
anticipated, in the third quarter, net sales gains from the U.S. pricing action
were offset by volume declines associated with pricing elasticity, the impact of
unfavorable foreign currency exchange rates and previously communicated 2009
mid-year actions to discontinue certain premium chocolate products. Overall, the
investments we made in selling capabilities were successful in the quarter and
contributed to consumer acceptance of the new higher everyday, promoted and
seasonal price points.
“Adjusted
income before interest and income taxes increased 15.8 percent in the third
quarter, slightly greater than our expectations, and resulted in a 280 basis
point margin improvement. The increase was driven by net price realization,
supply chain efficiencies and productivity gains. Offsetting a
portion of these gains were higher commodity and employee-related costs,
including pension expense. Additionally, our earnings growth, as well as our
focus on improving net trading capital, generated strong operating cash flow in
the quarter.
“We are
working closely with retail customers and are monitoring category and Hershey
brand performance given the higher promoted price points of seasonal
candy. We’ll make the necessary consumer investments in the coming
weeks and months to ensure a healthy category and Halloween and Holiday sell
through at the retail level. Halloween-specific seasonal promotions,
merchandising and advertising are currently being executed in the
marketplace. We are also planning an additional increase in
advertising in the fourth quarter and expect full-year 2009 advertising expense
to increase about 50 percent versus 2008. This investment will benefit our
everyday and seasonal business in the near term and into next year, as well as
the December launches of
Hershey’s Bliss white chocolate and the introduction of Hershey’s Special Dark, Almond Joy and York Pieces. These Hershey
favorites, in a crunchy candy shell, are an expansion of the popular Reese’s Pieces format and
will be available in take-home, resealable, standup pouches. These two launches
represent the type of close-in innovation on our iconic brands that we believe
resonate with consumers in this challenging environment.
“In the
fourth quarter, gains from pricing will not be as significant as the Holiday
season is smaller than Halloween. Additionally, due to timing, we
expect shipments of Valentine’s and Easter seasonal product to be lower in the
fourth quarter of 2009 versus 2008. Based on the year-to-date price/volume
elasticity trends and brand-building and marketplace initiatives for the
remainder of the year, we expect 2009 net sales growth to be within our 3 to 5
percent long-term objective. Over the balance of the year, we’re
accelerating domestic and international investments in consumer capabilities,
customer insights and category management techniques that will benefit the
Company over the long term. Therefore, we anticipate adjusted earnings per
share-diluted for the full-year to be in the $2.12 to $2.14 range.
“As we
look to 2010, we assume the economic environment for consumers in the U.S. and
international markets will continue to be challenging. We’ll continue to focus
on and make appropriate investments in our core brands and expect 2010 net sales
growth to be within our 3 to 5 percent long-term objective. The sell through at
retail for Halloween will be greatly affected by the remaining days in the
season and will determine our approach to the upcoming Holiday, Valentine’s and
Easter seasons, all of which we expect will be at the higher seasonal promoted
price points. While still early, for 2010, given our current views of our
investments, marketplace performance and cost structure, we expect growth in
adjusted earnings per share-diluted to be within our long-term objective of 6 to
8 percent,” West concluded.
Note:
In this 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.
In 2008,
the Company recorded GAAP charges of $130.0 million, or $0.38 per share-diluted,
attributable to the GSCT program and $45.7 million, or $0.13 per share-diluted,
related to the impairment of intangible trademark values, primarily Mauna Loa, recorded in the
fourth quarter of 2008. Additionally, the Company recorded business realignment
and impairment charges of $4.9 million, or $0.01 per share-diluted, related to
the business realignment in Brazil.
In 2009,
the Company expects to record total GAAP charges, including possible non-cash
pension settlement charges (see Appendix A), of about $100 million to $120
million, or $0.26 to $0.32 per share-diluted.
The GSCT
program is expected to result in total pre-tax charges and non-recurring project
implementation costs of $640 million to $665 million, including possible
non-cash pension settlement charges (see Appendix A) in 2009 and 2010. Total
charges include project management and start-up costs of approximately $60
million.
Below is
a reconciliation of GAAP and non-GAAP items to the Company’s adjusted earnings
per share-diluted outlook:
|
2008
|
2009
|
|
|
Reported
/ Expected EPS-Diluted
|
$1.36
|
$1.80
- $1.88
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Total
Business Realignment
and
Impairment Charges
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$0.52
|
$0.26
- $0.32
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|
Adjusted
EPS-Diluted *
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$1.88
|
--
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Expected
Adjusted EPS-Diluted*
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$2.12
- $2.14
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*Excludes business realignment
and impairment charges.
Appendix
A
Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 88,
Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits (as amended) (now FASB Accounting Standards
Codification 715-30-35) (“SFAS No. 88”) requires pension settlement charges to
be recorded if withdrawals from pension plans in a calendar year exceed a
certain level.
Pension
settlement charges are non-cash charges for the Company. Such charges accelerate
the recognition of pension expenses related to actuarial gains and losses
resulting from interest rate changes and differences in actual versus assumed
returns on pension assets. The Company normally amortizes actuarial gains and
losses over a period of about 13 years.
The GSCT
program charges recorded in 2007 and 2008 included pension settlement charges of
approximately $25 million as employees leaving the Company under the program
have withdrawn lump sums from the defined benefit pension
plans. Pension settlement charges recorded during the first nine
months of 2009 totaled approximately $36.7 million.
In
addition to the settlement charges reflected above, incremental SFAS No. 88
pension settlement charges of $30 million to $40 million are included in the
total GSCT program estimates based upon the current trends of employee
withdrawals, with approximately $30 million of this amount projected for
2009.
The GSCT
program is expected to result in total pre-tax charges and non-recurring project
implementation costs of $640 million to $665 million, including estimated
pension settlement charges in 2009 and 2010.
Safe Harbor
Statement
This
release contains statements that are forward-looking. These statements are made
based upon current expectations that are subject to risk and uncertainty. Actual
results may differ materially from those contained in the forward-looking
statements. 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 and
selling price increases, including volume declines associated with pricing
elasticity; market demand for our new and existing products; increased
marketplace competition; political, economic, and/or financial market
conditions; changes in governmental laws and regulations, including taxes; risks
and uncertainties related to our international operations; the impact of future
developments related to the investigation by government regulators of alleged
pricing practices by members of the confectionery industry, including risks of
subsequent litigation or further government action; pension cost factors, such
as actuarial assumptions, market performance and employee retirement decisions;
our ability to achieve expected ongoing annual savings from our supply chain
transformation and the implementation of our supply chain transformation within
the anticipated timeframe in accordance with our cost estimates; and such other
matters as discussed in our Annual Report on Form 10-K for 2008. All
information in this press release is as of October 22, 2009. 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.
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.
# #
#
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FINANCIAL
CONTACT:
|
Mark
Pogharian
|
717-534-7556
|
|
MEDIA
CONTACT:
|
Kirk
Saville
|
717-534-7641
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|
Summary
of Consolidated Statements of Income
|
||||||||||||||||
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for
the periods ended October 4, 2009 and September 28, 2008
|
||||||||||||||||
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(in
thousands except per share amounts)
|
||||||||||||||||
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Third Quarter
|
Nine Months
|
|||||||||||||||
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2009
|
2008
|
2009
|
2008
|
|||||||||||||
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Net
Sales
|
$ | 1,484,118 | $ | 1,489,609 | $ | 3,891,332 | $ | 3,755,388 | ||||||||
|
Costs
and Expenses:
|
||||||||||||||||
|
Cost
of Sales
|
895,020 | 988,380 | 2,408,716 | 2,495,196 | ||||||||||||
|
Selling,
Marketing and Administrative
|
301,466 | 272,401 | 874,632 | 788,962 | ||||||||||||
|
Business
Realignment and Impairment
Charges,
net
|
8,008 | 8,877 | 58,750 | 34,748 | ||||||||||||
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Total
Costs and Expenses
|
1,204,494 | 1,269,658 | 3,342,098 | 3,318,906 | ||||||||||||
|
Income
Before Interest and Income Taxes (EBIT)
|
279,624 | 219,951 | 549,234 | 436,482 | ||||||||||||
|
Interest
Expense, net
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22,302 | 24,915 | 68,932 | 72,911 | ||||||||||||
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Income
Before Income Taxes
|
257,322 | 195,036 | 480,302 | 363,571 | ||||||||||||
|
Provision
for Income Taxes
|
95,299 | 70,498 | 171,087 | 134,321 | ||||||||||||
|
Net
Income
|
$ | 162,023 | $ | 124,538 | $ | 309,215 | $ | 229,250 | ||||||||
|
Net
Income Per Share - Basic - Common
|
$ | 0.73 | $ | 0.56 | $ | 1.39 | $ | 1.03 | ||||||||
|
-
Basic - Class B
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$ | 0.66 | $ | 0.51 | $ | 1.26 | $ | 0.93 | ||||||||
|
-
Diluted - Common
|
$ | 0.71 | $ | 0.54 | $ | 1.35 | $ | 1.00 | ||||||||
|
Shares
Outstanding - Basic - Common
|
167,299 | 166,682 | 166,980 | 166,696 | ||||||||||||
|
-
Basic - Class B
|
60,709 | 60,784 | 60,710 | 60,798 | ||||||||||||
|
-
Diluted - Common
|
229,553 | 228,670 | 228,784 | 228,757 | ||||||||||||
|
Key
Margins:
|
||||||||||||||||
|
Gross
Margin
|
39.7% | 33.6% | 38.1% | 33.6% | ||||||||||||
|
EBIT
Margin
|
18.8% | 14.8% | 14.1% | 11.6% | ||||||||||||
|
Net
Margin
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10.9% | 8.4% | 7.9% | 6.1% | ||||||||||||
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The
Hershey Company
|
||||||||||||||||
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Pro
Forma Summary of Consolidated Statements of Income
|
||||||||||||||||
|
for
the periods ended October 4, 2009 and September 28, 2008
|
||||||||||||||||
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(in
thousands except per share amounts)
|
||||||||||||||||
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Third Quarter
|
Nine Months
|
|||||||||||||||
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2009
|
2008
|
2009
|
2008
|
|||||||||||||
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Net
Sales
|
$ | 1,484,118 | $ | 1,489,609 | $ | 3,891,332 | $ | 3,755,388 | ||||||||
|
Costs
and Expenses:
|
||||||||||||||||
|
Cost
of Sales
|
893,695 | (a) | 968,415 | (d) | 2,400,224 | (a) | 2,435,050 | (d) | ||||||||
|
Selling,
Marketing and Administrative
|
299,783 | (b) | 270,213 | (e) | 869,195 | (b) | 782,897 | (e) | ||||||||
|
Business
Realignment and Impairment
Charges, net
|
— | (c) | — | (f) | — | (c) | — | (f) | ||||||||
|
Total
Costs and Expenses
|
1,193,478 | 1,238,628 | 3,269,419 | 3,217,947 | ||||||||||||
|
Income
Before Interest and Income Taxes (EBIT)
|
290,640 | 250,981 | 621,913 | 537,441 | ||||||||||||
|
Interest
Expense, net
|
22,302 | 24,915 | 68,932 | 72,911 | ||||||||||||
|
Income
Before Income Taxes
|
268,338 | 226,066 | 552,981 | 464,530 | ||||||||||||
|
Provision
for Income Taxes
|
99,830 | 80,253 | 200,516 | 167,850 | ||||||||||||
|
Adjusted
Net Income
|
$ | 168,508 | $ | 145,813 | $ | 352,465 | $ | 296,680 | ||||||||
|
Adjusted
Net Income Per Share -
Basic - Common
|
$ | 0.76 | $ | 0.66 | $ | 1.59 | $ | 1.34 | ||||||||
|
- Basic - Class B
|
$ | 0.68 | $ | 0.59 | $ | 1.43 | $ | 1.21 | ||||||||
|
- Diluted - Common
|
$ | 0.73 | $ | 0.64 | $ | 1.54 | $ | 1.30 | ||||||||
|
Shares
Outstanding - Basic - Common
|
167,299 | 166,682 | 166,980 | 166,696 | ||||||||||||
|
- Basic - Class B
|
60,709 | 60,784 | 60,710 | 60,798 | ||||||||||||
|
- Diluted - Common
|
229,553 | 228,670 | 228,784 | 228,757 | ||||||||||||
|
Key
Margins:
|
||||||||||||||||
|
Adjusted
Gross Margin
|
39.8% | 35.0% | 38.3% | 35.2% | ||||||||||||
|
Adjusted
EBIT Margin
|
19.6% | 16.8% | 16.0% | 14.3% | ||||||||||||
|
Adjusted
Net Margin
|
11.4% | 9.8% | 9.1% | 7.9% | ||||||||||||
|
(a)
Excludes business realignment and impairment charges of $1.3 million
pre-tax or $.8 million after-tax for the third quarter and $8.5 million
pre-tax or $5.0 million after-tax for the nine months.
(b)
Excludes business realignment and impairment charges of $1.7 million
pre-tax or $.9 million after-tax for the third quarter and $5.4 million
pre-tax or $3.2 million after-tax for the nine months.
(c)
Excludes business realignment and impairment charges of $8.0 million
pre-tax or $4.8 million after-tax for the third quarter and $58.8 million
pre-tax or $35.1 million after-tax for the nine months.
(d)
Excludes business realignment and impairment charges of $20.0 million
pre-tax or $13.9 million after-tax for the third quarter and $60.1 million
pre-tax or $41.3 million after-tax for the nine months.
(e)
Excludes business realignment and impairment charges of $2.2 million
pre-tax or $1.4 million after-tax for the third quarter and $6.1 million
pre-tax or $3.7 million after-tax for the nine months.
(f)
Excludes business realignment and impairment charges of $8.9 million
pre-tax or $6.0 million after-tax for the third quarter and $34.7 million
pre-tax or $22.4 million after-tax for the nine months.
|
||||||||||||||||
|
The
Hershey Company
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
as
of October 4, 2009 and December 31, 2008
|
||||||||
|
(in
thousands of dollars)
|
||||||||
|
Assets
|
2009
|
2008
|
||||||
|
Cash
and Cash Equivalents
|
$ | 119,253 | $ | 37,103 | ||||
|
Accounts
Receivable - Trade (Net)
|
567,609 | 455,153 | ||||||
|
Deferred
Income Taxes
|
31,164 | 70,903 | ||||||
|
Inventories
|
559,318 | 592,530 | ||||||
|
Prepaid
Expenses and Other
|
185,293 | 189,256 | ||||||
|
Total
Current Assets
|
1,462,637 | 1,344,945 | ||||||
|
Net
Plant and Property
|
1,412,818 | 1,458,949 | ||||||
|
Goodwill
|
567,163 | 554,677 | ||||||
|
Other
Intangibles
|
125,345 | 110,772 | ||||||
|
Deferred
Income Taxes
|
24,776 | 13,815 | ||||||
|
Other
Assets
|
180,368 | 151,561 | ||||||
|
Total
Assets
|
$ | 3,773,107 | $ | 3,634,719 | ||||
|
Liabilities and Stockholders'
Equity
|
||||||||
|
Loans
Payable
|
$ | 243,021 | $ | 501,504 | ||||
|
Accounts
Payable
|
285,231 | 249,454 | ||||||
|
Accrued
Liabilities
|
546,425 | 504,065 | ||||||
|
Taxes
Payable
|
33,652 | 15,189 | ||||||
|
Total
Current Liabilities
|
1,108,329 | 1,270,212 | ||||||
|
Long-Term
Debt
|
1,503,435 | 1,505,954 | ||||||
|
Other
Long-Term Liabilities
|
481,105 | 504,963 | ||||||
|
Deferred
Income Taxes
|
42,721 | 3,646 | ||||||
|
Total
Liabilities
|
3,135,590 | 3,284,775 | ||||||
|
Total
Stockholders' Equity
|
637,517 | 349,944 | ||||||
|
Total
Liabilities and Stockholders' Equity
|
$ | 3,773,107 | $ | 3,634,719 | ||||