Hershey Announces First Quarter Results and Reaffirms 2009 Outlook

Outlook reaffirmed for 2009, growth in net sales 2-3%, with earnings per share-diluted from operations to increase, but less than long-term objective of 6-8%.

23/04/09 The Hershey Company announced sales and earnings for the first quarter ended April 5, 2009. Consolidated net sales were $1,236,031,000 compared with $1,160,342,000 for the first quarter of 2008. Reported net income for the first quarter of 2009 was $75,894,000, or $0.33 per share-diluted, compared with $63,245,000, or $0.28 per share-diluted, for the comparable period of 2008.

For the first quarters of 2009 and 2008, these results, prepared in accordance with generally accepted accounting principles (GAAP), include net pre-tax charges of $19.0 million and $30.7 million, or $0.05 and $0.09 per share-diluted, respectively. These charges were associated with the Global Supply Chain Transformation (GSCT) program. Adjusted net income, which excludes these net charges, also referred to in this release as “net income from operations,” was $85,992,000 or $0.38 per share-diluted in the first quarter of 2009, compared with $83,915,000, or $0.37 per share-diluted in the first quarter of 2008, an increase of 2.7 percent in earnings per share-diluted.

Total GSCT program costs to date are $549.0 million. The forecast for total charges related to the program is now $615 million to $665 million and includes $40 million to $65 million of non-cash pension settlement charges, discussed in prior quarters and described in Appendix A. For 2009, total GAAP charges related to the GSCT program are expected to be $85 million to $120 million, including non-cash pension settlement charges of $40 million to $50 million.

First Quarter Performance and Outlook

“Hershey’s first quarter results represent a good start to 2009,” said David J. West, President and Chief Executive Officer. “Performance was solid with gains in net sales, profitability and U.S. market share. Net sales increased by 6.5 percent driven by the pricing action announced in August 2008 and a longer Easter season, partially offset by unfavorable foreign currency exchange rates and volume declines driven by pricing elasticity.

“U.S. retail takeaway for the 12-weeks ended March 22, 2009, excluding the impact of Easter seasonal activity in the year ago and current period was up 7.4 percent, in channels that account for over 80 percent of our retail business. In the channels measured by syndicated data, U.S. market share, including Easter seasonal activity in the year ago and current period, increased 0.5 points. This performance reflects solid market share gains within our core chocolate and sugar confectionery businesses as we gained market share in all classes of trade on both an everyday and seasonal basis. Convenience store results were particularly strong with retail takeaway up high single digits driven by pricing and a comparison to soft performance in the year ago period. Hershey seasonal performance was also strong as we gained market share in the Valentine’s period. Preliminary data indicate an Easter season market share gain as well. Driving the successful core brand performance in the quarter was our balanced commitment to brand-building initiatives, including advertising, up about 40 percent versus the year ago period, seasonal programs and retail coverage.

“First quarter profitability benefited from net price realization, better volume trends than we had initially expected and supply chain efficiencies and productivity. A portion of these gains was offset by higher commodity and pension costs as well as increased levels of brand-building investment spending.

“We have good U.S. marketplace momentum as we enter the second quarter. Incremental year-over-year advertising, in-store programming and focused retail execution will continue throughout the remainder of 2009. However, as we previously reported, we expect that consumers will now begin to see higher promoted retail price points on our seasonal and everyday take-home packaged candy through the balance of the year. We still expect full year net sales growth of 2-3 percent. We continue to estimate that our year-over-year annual pension and commodity cost increases will be significant. To date, dairy costs are favorable versus our initial estimates. If dairy spot market prices remain at current levels for the balance of the year, we would expect the year-over-year annual commodity cost impact to be somewhat less than our initial estimate of $175 million. Therefore, despite the uncertainty related to volume declines due to pricing elasticity, we have confidence that earnings per share-diluted from operations will increase, but less than the long-term objective of 6-8 percent,” West concluded.