Hershey Profits Drop in Fourth Quarter

24/01/08 The Hershey Company has announced sales and earnings for the fourth quarter ended December 31, 2007. Consolidated net sales were $1,342,222,000 compared with $1,336,609,000 for the fourth quarter of 2006. Reported net income for the fourth quarter of 2007 was $54,343,000 or $0.24 per share-diluted, compared with $153,572,000 or $0.65 per share-diluted, for the comparable period of 2006.

For the fourth quarters of 2007 and 2006, these results, include net pre-tax charges of $95.9 million and $5.6 million, or $0.30 and $0.02 per share-diluted, respectively. The majority of the 2007 charges, $83.3 million, are associated with the Global Supply Chain Transformation program announced in February, while $12.6 million was the result of business realignment and impairment charges in Brazil. The 2006 charges primarily related to the completed business realignment initiatives announced in July 2005. Net income from operations, which excludes the net charges for the fourth quarters of 2007 and 2006, was $124,120,000 or $0.54 per share-diluted in 2007, compared with $157,007,000 or $0.67 per share-diluted in 2006, a decrease of 19.4 percent in earnings per share-diluted.

For the full year 2007, consolidated net sales were $4,946,716,000 compared with $4,944,230,000, an increase of 0.1 percent. Reported net income for 2007 was $214,154,000 or $0.93 per share-diluted, compared with $559,061,000 or $2.34 per share-diluted, for 2006. For 2007 and 2006, these results, prepared in accordance with GAAP, included net pre-tax charges of $412.6 million and $11.6 million, or $1.15 and $0.03 per share-diluted, respectively. The majority of the 2007 charges, $400.0 million, are associated with the Global Supply Chain Transformation program announced in February, while $12.6 million was the result of business realignment and impairment charges in Brazil. The 2006 charges primarily related to the completed business realignment initiatives announced in July 2005. Net income from operations, which excludes the net charges for 2007 and 2006, was $481,807,000 or $2.08 per share-diluted in 2007, compared with $566,634,000 or $2.37 per share-diluted in 2006, a decrease of 12.2 percent in earnings per share- diluted.

"Hershey's results for the fourth quarter were in line with our expectations," said David J. West, President and Chief Executive Officer. "As previously communicated, the U.S. business is operating in a challenging environment that includes higher input and operating costs, as well as heightened levels of competitive activity. These factors did not subside in the fourth quarter. U.S. retail takeaway in the fourth quarter and full year, in channels that account for over 80 percent of our retail business, was up 0.9 percent and 1.3 percent, respectively. Retail takeaway was not as strong in the channels measured by syndicated data, thus market share declined by about 1.3 points in both the fourth quarter and full year in these channels. As anticipated, inventory levels at key distributors declined in the fourth quarter. This should lead to shipments and retail takeaway patterns that are more closely aligned in 2008.

"Our primary goal in 2008 is to stabilize U.S. business marketplace performance. Markedly higher brand-building support, including advertising, quality merchandising, enhanced retail coverage and new chocolate products within the premium and trade-up segments will enable us to achieve this goal. Hershey will launch the Starbucks and Hershey's Bliss product lines in March. These additions enhance our premium and trade-up portfolio and will broaden Hershey's participation in faster-growing segments of the category.

"In high-potential emerging markets, we continue to follow a disciplined approach in pursuing appropriate growth opportunities that will increase our scale. The integration of our joint venture in China and Godrej business in India continues with both businesses operating effectively. To improve our position in Brazil we have restructured the business and entered into a joint venture agreement with Bauducco, a leading baked goods manufacturer, and will leverage their strong sales and distribution capabilities throughout the country.

"During 2007 many of our input costs increased and have remained at significantly higher levels than historical averages. We expect overall commodity and energy costs to increase at similar levels in 2008. A portion of these costs, as well as planned increases in consumer investment spending, will be offset by the aggressive pursuit of operating productivity and savings from the Global Supply Chain Transformation program. Despite the challenges of the overall cost environment, we'll continue to invest in our U.S. and international businesses to strengthen our core brands in key markets. For 2008, we anticipate net sales growth to be in the 3-4 percent range. Given the increased spending against key growth initiatives and the difficult cost environment, we anticipate 2008 earnings per share-diluted from operations of $1.85 to $1.90.

"As we look to the long term, Hershey has many opportunities to leverage its global brands and U.S. scale. We are currently evaluating these, especially as they relate to consumer insights and innovation. Additionally, we are assessing our margin structure given the continued escalation of operating costs. We'll complete this work in the coming months and in the second quarter of 2008 provide greater details of our assessment, including innovation plans, core brand-building initiatives, international growth objectives, portfolio strategy and long-term net sales and earnings per share goals," West concluded.