Exhibit 99.1
HERSHEY ANNOUNCES RECORD FOURTH QUARTER
AND FULL-YEAR RESULTS FROM OPERATIONS;
CONFIRMS EXPECTATIONS FOR 2006
HERSHEY, Pa., January 25, 2006 — The Hershey Company (NYSE:HSY) today announced record sales and earnings from operations for the fourth quarter ended December 31, 2005. Consolidated net sales were $1,352,873,000 compared with $1,267,963,000 for the fourth quarter of 2004, an increase of 6.7 percent. Net income for the fourth quarter of 2005 was $172,847,000, or $.70 per share-diluted, compared with $167,116,000, or $.67 per share-diluted, for the comparable period of 2004.
These results, prepared in accordance with generally accepted accounting principles (“GAAP”), include total pre-tax charges of $17.6 million, or $.04 per share-diluted, associated with the previously announced business realignment initiatives to advance the Company’s value-enhancing strategy. Net income from operations, which excludes the business realignment charges for the fourth quarter of 2005, was $181,060,000, or $.74 per share-diluted, compared with $167,116,000, or $.67 per share-diluted for 2004, an increase of 10.4 percent.
The results also reflect the expensing of employee stock options and other share-based compensation in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (Revised 2004) Share-Based Payment (“SFAS No. 123R”). Excluding the impact of SFAS No. 123R from both periods, net income from operations for the fourth quarter of 2005, was $185,676,000, or $.76 per share-diluted, compared with $170,286,000, or $.68 per share-diluted in 2004, an increase in earnings per share-diluted of 11.8 percent.
The Company adopted SFAS No. 123R under the modified retrospective method. Under this method, results for periods prior to 2005 have been adjusted to reflect expensing of share-based compensation in accordance with SFAS No. 123R and the full-year results for 2005 are reported as though stock options and other share-based compensation had been expensed beginning January 1, 2005. The additional expense recorded in the fourth quarter of 2005 totaled $7.0 million after tax, or $.03 per share-diluted, of which $2.4 million or $.01 per share-diluted is included in the business realignment charge. The additional expense recorded in the fourth quarter of 2004 was $3.2 million after tax, or $.01 per share-diluted.
Full-Year Results
For the full year 2005, consolidated net sales were $4,835,974,000 compared with $4,429,248,000, an increase of 9.2 percent. Net income for 2005 was $493,244,000, or $1.99 per share-diluted, compared with $577,901,000, or $2.25 per share-diluted, for 2004.
Net income for 2005 includes total pre-tax charges of $119.0 million, or $.29 per share-diluted, related to the business realignment initiatives mentioned above. Net income for 2004 includes the benefit of a $61.1 million, or $.24 per share-diluted, non-cash reduction of income tax expense resulting from the second quarter adjustment to tax contingency reserves following the completion of prior years’ tax audits. Net income from operations, which excludes these items, for the full-year 2005 was $567,265,000, or $2.28 per share-diluted, compared with $516,820,000, or $2.01 per share-diluted, an increase of 13.4 percent.
Both years also reflect the impact of the adoption of SFAS No. 123R. The additional expense for the full year recorded as a result of SFAS No. 123R totaled $21.7 million after tax, or $.09 per share-diluted in 2005, of which $2.4 million or $.01 per share-diluted is included in the business realignment charge. The additional expense recorded in 2004 was $13.0 million after tax, or $.05 per share-diluted. Excluding this impact, net income from operations in 2005 was $586,541,000, or $2.36 per share-diluted, compared with $529,798,000, or $2.06 per share-diluted in 2004, an increase of 14.6 percent.
Fourth-Quarter Performance
“Fourth-quarter results were solid with balanced performance in sales, operating margin, and profitability,” said Richard H. Lenny, Chairman, President and Chief Executive Officer. “Sales growth for the quarter of 6.7 percent was driven by organic sales growth of nearly four percent from new products and strong seasonal shipments. Business acquisitions accounted for the additional growth. Hershey’s marketplace performance strengthened during the quarter as our takeaway within the U.S. confectionery category increased by seven percent, resulting in a 1.4 point gain in market share.
“EBIT margin from operations expanded as productivity programs more than offset higher costs. Sales growth and margin improvement, excluding the share-based compensation expense, delivered diluted earnings per share from operations of $.76, an increase of 11.8 percent versus 2004.”
Full-Year Performance
In commenting on the full year, Lenny said, “2005 was a very strong year for Hershey. We delivered record sales growth, expanded our category leadership, and achieved record profitability and returns from operations. Sales growth for the year of nine percent included organic sales growth of six percent, with the remainder from business acquisitions. The organic sales growth was well-balanced between benefit-driven innovation, price realization, and solid seasonal performance.
“Our ability to deliver a superior value proposition to both consumers and customers is evident in Hershey’s marketplace performance. In both the U.S. confectionery market and the broader U.S. snack market, Hershey was the fastest growing company in terms of market share gains.
“The combination of strong sales growth and improved operating margin resulted in diluted earnings per share from operations of $2.36, an increase of 14.6 percent versus 2004, excluding the impact of SFAS No. 123R. This marks the fifth consecutive year of double-digit increases in earnings per share-diluted from operations.
“As we enter 2006, Hershey’s value-enhancing strategy remains relevant and sustainable. Product news across the portfolio including limited editions, new platforms, and benefit upgrades to existing brands will be the key driver of our sales growth. At retail, we intend to further leverage Hershey’s leadership position in all major classes of trade and in the very important single-serve packaging format.
“While input costs will be broadly higher in 2006, the combination of net price realization and productivity initiatives across the business system is expected to yield an improvement in operating margins. Therefore, for 2006, we expect net sales to increase at a rate somewhat above our 3-4 percent long-term goal, and expect diluted earnings per share from operations, which excludes business realignment charges, to increase at a rate slightly above our 9-11 percent long-term goal,” Lenny concluded.
Based on current estimates, the cost to implement the business realignment program will result in total pre-tax charges of approximately $140 million to $150 million, or $.35 to $.38 per share-diluted on an after-tax basis. Total pre-tax charges of $119.0 million, or $.29 per share-diluted, were recorded in the second half of 2005, with the remainder to be substantially recorded in the first half of 2006.
Note: In this sales and earnings 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 income statements, 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.
The release also references income measures excluding the impact of SFAS No. 123R. These measures provide information to investors which is consistent with the manner in which the Company evaluated its performance during 2005. The Company believes that providing these non-GAAP measures in the period of the adoption of this new accounting standard provides additional information to investors to facilitate the comparison of past and present operations.
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.
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: the Company’s ability to implement and generate expected ongoing annual savings from the program to advance its value-enhancing strategy; changes in the Company’s business environment, including actions of competitors and changes in consumer 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, market performance, and employee retirement decisions; changes in the value of the Company’s Common Stock; the Company’s ability to implement improvements to and reduce costs associated with its supply chain; and such other matters as discussed in the Company’s Annual Report on Form 10-K for 2004.
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Media Contact: Stephanie L. Moritz (717) 534-7641
Financial Contact: James A. Edris (717) 534-7556
