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This excerpt taken from the HSY 8-K filed Feb 2, 2010. HERSHEY, Pa., February 2, 2010
— The Hershey Company (NYSE: HSY) today announced sales and earnings for
the fourth quarter ended December 31, 2009. Consolidated net sales were
$1,407,336,000 compared with $1,377,380,000 for the fourth quarter of 2008.
Reported net income for the fourth quarter of 2009 was $126,779,000 or $0.55 per
share-diluted, compared with $82,155,000 or $0.36 per share-diluted for the
comparable period of 2008.
For the
fourth quarters of 2009 and 2008, these results, prepared in accordance with
U.S. generally accepted accounting principles (GAAP), include net pre-tax
charges of $26.5 million and $79.7 million, or $0.08 and $0.23 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 $144,352,000 or $0.63 per
share-diluted in the
fourth quarter of 2009, compared with $133,842,000, or $0.59 per share-diluted
in the fourth quarter of 2008, an increase of 6.8 percent in adjusted earnings
per share-diluted.
For the
full year 2009, consolidated net sales were $5,298,668,000 compared with
$5,132,768,000 in 2008, an increase of 3.2 percent. Reported net
income for 2009 was $435,994,000 or $1.90 per share-diluted, compared with
$311,405,000, or $1.36 per share-diluted for 2008.
For the
full years 2009 and 2008, these results, prepared in accordance with GAAP,
include net pre-tax charges of $99.1 million and $180.7 million, or $0.27 and
$0.52 per share-diluted, respectively. These charges were associated with the
GSCT program. Adjusted net income for the full year 2009, which
excludes these net charges, was $496,817,000, or $2.17 per share-diluted,
compared with $430,522,000 or $1.88 per share-diluted in 2008, an increase of
15.4 percent in adjusted earnings per share-diluted.
During
the fourth quarter of 2009, the GSCT program concluded. Total charges were
$629.1 million, including $85.0 million in non-cash pension settlement charges
discussed in prior quarters. Excluding pension settlement charges, project
implementation, management and start-up costs of $544.1 million were less than
the estimate of $575 million to $600 million. Except for possible non-cash
pension settlement charges, the Company does not expect any significant charges
related to the GSCT program in 2010. Total GSCT program savings through 2009 are
approximately $160 million. Total ongoing annual savings from the GSCT program
of approximately $175 million to $185 million will be achieved by the end of
2010. Savings from the program fueled the investment in Hershey’s brand-building
and selling capabilities, enabling our marketplace success.
On
February 1, 2010, the Board of Directors of The Hershey Company declared a
quarterly dividend of $0.32 on the Common Stock, an increase of $0.0225 per
share. In addition, the Board declared a dividend of $0.29 on the Class B Common
Stock, an increase of $0.0222 per share. The dividends are payable March 15,
2010, to stockholders of record February 25, 2010.
Fourth Quarter Performance
and Outlook
“During
2009, Hershey made excellent progress in its consumer-driven approach to core
brand investment while implementing significant, but necessary, price
increases,” said David J. West, President and Chief Executive Officer. “Our
fourth quarter results represent a solid finish to a year marked by good
progress against our key strategic initiatives despite the backdrop of the
macroeconomic issues affecting consumers. Net sales increased 2.2
percent in the quarter, driven primarily by pricing and improvements in our
international business, including an approximate one point benefit from foreign
currency exchange rates. Importantly, base business volume trends,
while down due to volume elasticity associated with the U.S. pricing action,
sequentially improved in the fourth quarter, net of the previously communicated
decisions to close our on-line gifts business and discontinue certain premium
chocolate products. Additionally, as communicated in October, due to timing,
shipments of Valentine’s and Easter seasonal products were lower in the fourth
quarter of 2009 versus 2008.
“Strong
performance at key retail customers continues and overall marketplace
performance was in line with our expectations. Where we have focused resources,
particularly in the food, convenience and certain non-measured channels, results
continue to be solid. Specifically, U.S. retail takeaway for the
12-weeks and 52-weeks ended January 2, 2010, in channels that account for over
80 percent of our U.S. retail business, was up 6.0 percent and 7.2 percent,
respectively. In the channels measured by syndicated data, U.S. market share
increased 0.1 points for the full year and, as expected, declined 0.4 points for
the 12-weeks ended January 2, 2010. These results were driven by the investments
we have made behind our core brands, including advertising, up about 50 percent
in both the fourth quarter and full year.
“Fourth
quarter profitability was driven by net price realization and supply chain
efficiencies and productivity, partially offset by higher input costs, marketing
expenses and employee-related costs, including incentive compensation and
pension expense. Adjusted income before interest and income taxes
includes a non-recurring benefit resulting from the impact of last-in, first-out
(LIFO) inventory accounting for targeted inventory reductions. The effective
income tax rate in the fourth quarter of 33.6 percent, excluding the impact of
charges associated with the GSCT program, was lower than our initial
expectations. This resulted in a $0.02 benefit in adjusted earnings per
share-diluted in both the fourth quarter and full year 2009. The LIFO gain and
tax benefit essentially offset the costs related to our consideration of a
transaction with Cadbury plc.
“The
earnings growth, as well as the Company’s continued focus on improving working
capital throughout the year and in the fourth quarter, generated a significant
increase in operating cash flow in 2009. Therefore, we are pleased to announce
an increase to our quarterly dividend. This increase is a result of the
Company’s strong balance sheet and the continued ability of our business to
generate consistent and predictable free cash flow.
“Entering
2010 we feel good about our prospects as we continue to execute our
consumer-driven strategy. Our brand-building initiatives continue to resonate
with consumers as evidenced by our core brand market share gains. We’ll continue
with this disciplined approach to investment. During the first half of 2010, the
distribution and rollout of our new Hershey’s Bliss white
chocolate and expansion of the
Pieces format to include Hershey’s Special Dark, Almond Joy and York will continue. We expect
to increase advertising by 25 to 30 percent during the year, supporting new
product launches and core brands - particularly Hershey’s, Reese’s, Hershey’s
Kisses, Bliss, Twizzlers and Kit Kat. We will also launch
new core brand advertising campaigns behind the Almond Joy, Mounds and York brands. Increased levels of
consumer investment and brand support, as well as collaborative efforts with
retail customers in all classes of trade will continue and should deliver
improvement in net sales within our 3 to 5 percent long-term objective.
Additionally, we have good visibility into our full-year cost structure and
expect our ongoing growth in adjusted earnings per share-diluted to be within
our long-term objective of 6 to 8 percent,” West concluded.
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