Exhibit 99.1
HERSHEY FOODS ANNOUNCES RECORD THIRD QUARTER RESULTS
HERSHEY, Pa., October 16, 2003 —Hershey Foods Corporation (NYSE:HSY) today announced record sales and earnings for the third quarter ended September 28, 2003. Consolidated net sales were $1,191,019,000 compared with $1,152,321,000 for the third quarter of 2002. Net income for the third quarter of 2003 was $143,604,000, or $1.09 per share-diluted, compared with $123,065,000, or $.89 per share-diluted, for the comparable period of 2002. This strong performance reflected increased sales, improved margins, and higher returns for the business.
Net income for the third quarter of 2003 includes an after-tax charge of $7.4 million, or $.06 per share-diluted, associated with the cumulative effect of a change in accounting for the Company’s leases of certain warehouse and distribution facilities. The GAAP results also include pre-tax charges related to business rationalization and realignment initiatives of $9.7 million, or $.04 per share-diluted, and a gain on the sale of several gum brands of $8.3 million, or $.04 per share-diluted, in the third quarter of 2003.
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Results for the third quarter of 2002 included pre-tax charges of $9.1 million, or $.04 per share-diluted, associated with the Company’s business realignment initiatives and pre-tax expenses of $17.3 million, or $.08 per share-diluted, related to the exploration of the sale of the Company last year. Excluding these charges and the gain on the sale of the gum brands, income for the third quarter of 2003 was $151,047,000, or $1.15 per share-diluted, compared with $139,809,000, or $1.01 per share-diluted, for the third quarter of 2002, an increase of 13.9 percent.
Nine-Months Results
Consolidated net sales for the first nine months of 2003 were $2,993,296,000 compared with $2,964,289,000 for the first nine months of 2002. Net income for the first nine months of 2003 was $312,646,000, or $2.36 per share-diluted, compared with $273,258,000, or $1.98 per share-diluted, for the comparable period of 2002.
Net income for the first nine months of 2003 includes the after-tax charge of $7.4 million, or $.06 per share-diluted, associated with the cumulative effect of the change in accounting. The GAAP results also include pre-tax charges related to business rationalization and realignment initiatives of $13.7 million, or $.06 per share-diluted, and a gain on the sale of certain gum brands of $8.3 million, or $.04 per share-diluted, in the third quarter of 2003.
Results for the first nine months of 2002 included pre-tax charges of $20.7 million, or $.09 per share-diluted, associated with the Company’s business realignment initiatives and pre-tax expenses of $17.3 million, or $.08 per share-diluted, related to the exploration of the sale of the Company last year. Excluding these charges and the gain on the sale of the gum brands, income for the first nine months of 2003 was $322,603,000, or $2.43 per share-diluted, compared with $297,304,000, or $2.15 per share-diluted, for the first nine months of 2002, an increase of 13.0 percent.
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The Company uses income before accounting changes, excluding charges related to business rationalization and realignment initiatives, the gain or loss on the sale of brands, and incremental, one-time charges such as those incurred to explore the sale of the Company, as shown in the attached pro forma income statements, as key performance measures of results of operations for purposes of evaluating performance internally. This non-GAAP measurement is not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes the presentation of earnings excluding such charges and gains or losses provides additional information to investors to facilitate the comparison of past and present operations, excluding items which the Company does not believe are indicative of its ongoing operations.
The 2002 business realignment initiatives are described in Management’s Discussion and Analysis and Note 3 of the Company’s 2002 Annual report on Form 10-K. The components of the 2003 brand and product rationalization initiatives and realignment of the sales organization are described in the Company’s Form 10-Q for the quarterly period ended June 29, 2003.
Third Quarter Performance
Hershey’s third quarter sales increased by 3.4 percent, reflecting sales of instant consumables spurred by the Limited Edition Reese’s products, as well as the impact of the price increase announced in December 2002, partially offset by brand and product rationalization. Gross margin expanded as a result of pricing and mix, and supply chain savings, especially lower logistics costs. Selling, Marketing, and Administrative costs increased primarily as a result of higher marketing spending.
“I’m particularly pleased with Hershey’s third quarter results,” said Richard H. Lenny, Chairman, President, and Chief Executive Officer. “This performance underscores the momentum that we’re gaining behind our value-enhancing strategy. During the quarter, we delivered solid sales and market share growth as we continue to reshape our product and brand portfolio. Equally as important, on-going productivity gains are providing the appropriate level of investment in both consumer and customer initiatives.
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“We intend to maintain this level of brand-building focus while further enhancing our retail selling capabilities. As a result, we expect diluted earnings per share for the full year to be slightly higher than our earlier projections,” Lenny concluded.
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: changes in the confectionery and grocery business environment, including actions of competitors and changes in confectionery preferences; customer and consumer response to selling price increases; changes in governmental laws and regulations, including taxes; market demand for new and existing products; changes in raw material and other costs; pension cost factors such as actuarial assumptions and market performance; adequacy of the Company’s bad debt reserve; the Company’s ability to implement improvements to reduce costs associated with its supply chain; and the Company’s ability to successfully implement its 2003 rationalization and realignment initiatives, as discussed in the Company’s 10-Q for the quarter ended June 29, 2003, and the Company’s Annual Report on Form 10-K for 2002.
Live Webcast
As previously, announced, the Company will hold a conference call with analysts today at 10 a.m. Eastern Time. The conference call will be webcast live via Hershey’s corporate Web site www.hersheys.com. Please go to the Investor Relations Section of the Web site for further details.
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Hershey Foods Corporation
Summary of Consolidated Statements of Income
for the periods ended September 28, 2003 and September 29, 2002
(in thousands of dollars except per share amounts)
Third Quarter Nine Months
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2003 2002 2003 2002
---- ---- ---- ----
Net Sales $1,191,019 $1,152,321 $2,993,296 $2,964,289
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Costs and Expenses:
Cost of Sales 724,185 717,197 1,836,434 1,851,212
Selling, Marketing and Administrative 212,107 218,052 601,047 616,668
Business Realignment Charge, net 8,564 8,536 12,449 19,274
Gain on Sale of Business (8,330) --- (8,330) ---
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Total Costs and Expenses 936,526 943,785 2,441,600 2,487,154
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Income Before Interest and Income Taxes (EBIT) 254,493 208,536 551,696 477,135
Interest Expense, net 17,258 14,120 47,413 45,448
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Income Before Income Taxes 237,235 194,416 504,283 431,687
Provision for Income Taxes 86,263 71,351 184,269 158,429
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Income Before Accounting Change 150,972 123,065 320,014 273,258
Cumulative Effect of Accounting Change,
net of tax 7,368 --- 7,368 ---
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Net Income $143,604 $123,065 $312,646 $273,258
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Net Income Per Share Before Cumulative
Effect of Accounting Change - Basic $1.16 $0.90 $2.43 $2.00
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- Diluted $1.15 $0.89 $2.41 $1.98
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Net Income Per Share - Basic $1.10 $0.90 $2.37 $2.00
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- Diluted $1.09 $0.89 $2.36 $1.98
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Shares Outstanding - Basic 130,652 137,179 131,703 136,923
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- Diluted 131,649 138,346 132,615 138,165
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Key Margins:
Gross Margin 39.2% 37.8% 38.6% 37.5%
EBIT Margin 21.4% 18.1% 18.4% 16.1%
Net Margin 12.1% 10.7% 10.4% 9.2%
Hershey Foods Corporation
Pro Forma Summary of Consolidated Statements of Income
for the periods ended September 28, 2003 and September 29, 2002
(in thousands of dollars except per share amounts)
Third Quarter Nine Months
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2003 2002 2003 2002
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Net Sales $1,191,019 $1,152,321 $2,993,296 $2,964,289
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Costs and Expenses:
Cost of Sales 723,067 (a) 716,587 (c) 1,835,195 (a) 1,849,804 (c)
Selling, Marketing and Administrative 212,107 200,746 (d) 601,047 599,362 (d)
Business Realignment Charge, net --- (b) --- (e) --- (b) --- (e)
Gain on Sale of Business --- (f) --- --- (f) ---
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Total Costs and Expenses 935,174 917,333 2,436,242 2,449,166
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Income Before Interest and Income Taxes(EBIT) 255,845 234,988 557,054 515,123
Interest Expense, net 17,258 14,120 47,413 45,448
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Income Before Income Taxes 238,587 220,868 509,641 469,675
Provision for Income Taxes 87,540 81,059 187,038 172,371
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Net Income $151,047 $139,809 $322,603 $297,304
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Net Income Per Share - Basic $1.16 $1.02 $2.45 $2.17
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- Diluted $1.15 $1.01 $2.43 $2.15
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Shares Outstanding - Basic 130,652 137,179 131,703 136,923
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- Diluted 131,649 138,346 132,615 138,165
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Key Margins:
Adjusted Gross Margin 39.3% 37.8% 38.7% 37.6%
Adjusted EBIT Margin 21.5% 20.4% 18.6% 17.4%
Adjusted Net Margin 12.7% 12.1% 10.8% 10.0%
(a) Excludes business realignment charge of $1.1 million pre-tax or $.7 million after-tax for the third quarter
and $1.2 million pre-tax or $.8 million after-tax for the nine months.
(b) Excludes business realignment charge of $8.6 million pre-tax or $5.2 million after-tax for the third
quarter and $12.4 million pre-tax or $7.5 million after-tax for the nine months.
(c) Excludes business realignment charge of $.6 million pre-tax or $.4 million after-tax for the third quarter
and $1.4 million pre-tax or $.9 million after-tax for the nine months.
(d) Excludes expenses of $17.3 million pre-tax or $11.0 million after-tax related to the exploration of the
sale of the company for the third quarter and the nine months.
(e) Excludes business realignment charge of $8.5 million pre-tax or $5.4 million after-tax for the third
quarter and $19.3 million pre-tax or $12.2 million after-tax for the nine months.
(f) Excludes gain on sale of business of $8.3 million pre-tax or $5.7 million after-tax for the third quarter
and the nine months.
Hershey Foods Corporation
Consolidated Balance Sheets
as of September 28, 2003 and December 31, 2002
(in thousands of dollars)
Assets 2003 2002
- ------ ---- ----
Cash and Cash Equivalents $29,845 $297,743
Accounts Receivable - Trade (Net) 537,670 370,976
Deferred Income Taxes 6,326 ---
Inventories 585,619 503,291
Prepaid Expenses and Other 84,990 91,608
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Total Current Assets 1,244,450 1,263,618
Net Plant and Property 1,610,129 1,486,055
Goodwill 386,702 378,453
Other Intangibles 38,627 39,898
Other Assets 377,871 312,527
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Total Assets $3,657,779 $3,480,551
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Liabilities and Stockholders' Equity
- ------------------------------------
Loans Payable $241,495 $28,124
Accounts Payable 117,467 124,507
Accrued Liabilities 356,110 356,716
Taxes Payable 39,859 12,731
Deferred Income Taxes --- 24,768
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Total Current Liabilities 754,931 546,846
Long-Term Debt 966,289 851,800
Other Long-Term Liabilities 374,855 362,162
Deferred Income Taxes 332,804 348,040
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Total Liabilities 2,428,879 2,108,848
Total Stockholders' Equity 1,228,900 1,371,703
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Total Liabilities and Stockholders' Equity $3,657,779 $3,480,551
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