Exhibit 99.1
HERSHEY ANNOUNCES SECOND QUARTER RESULTS
| · | Net Sales increase 5.1% |
| · | Earnings per share-diluted from operations $0.29 |
| · | Outlook reaffirmed for 2008, growth in net sales 3-4%, with earnings per share-diluted from operations expected to be in the $1.85 to $1.90 range |
HERSHEY, Pa., July 23, 2008 — The Hershey Company (NYSE: HSY) today announced sales and earnings for the second quarter ended June 29, 2008. Consolidated net sales were $1,105,437,000 compared with $1,051,916,000 for the second quarter of 2007. Net income for the second quarter of 2008 was $41,467,000 or $0.18 per share-diluted, compared with $3,554,000 or $0.01 per share-diluted, for the comparable period of 2007.
For the second quarters of 2008 and 2007, these results, prepared in accordance with generally accepted accounting principles (“GAAP”), include net pre-tax charges of $39.3 million and $124.4 million, or $0.11 and $0.34 per share, respectively. The majority of these charges were associated with the Global Supply Chain Transformation program announced in February 2007. Net income from operations, which excludes the net charges for the second quarters of 2008 and 2007, was $66,952,000 or $0.29 per share-diluted in 2008, compared with $81,671,000 or $0.35 per share-diluted in 2007.
Second Quarter Performance
“Hershey’s second quarter results reflect the progress the Company continues to make in the marketplace,” said David J. West, President and Chief Executive Officer. “Sales increased by 5.1 percent, driven by organic sales gains of 3.5 percent from pricing and overall growth in core brands and new products, offset by softness in snacks and refreshment. The Godrej Hershey Ltd. venture in India accounted for the remaining growth. Gross margin expanded slightly as pricing and supply chain savings offset higher commodity costs and the impact of integrating our business in India. Second quarter profitability, which was in line with our expectations, was curtailed by increased brand support, including costs associated with new product introductions, greater levels of retail coverage and investments within key international markets.
“U.S. retail takeaway in the second quarter, excluding the effect of Easter timing, increased 5.0 percent in channels that account for over 80 percent of our retail business. As a result, non-seasonal everyday market share was about equal to the prior year's second quarter in the channels measured by syndicated data. The results have been positive where we have focused our resources. In the U.S., advertising and consumer brand-building investment increased by about 30 percent in the second quarter. Activity was primarily concentrated in the Reese’s and Hershey’s franchises, including Hershey’s Bliss, and Starbucks Chocolates.
“We’re pleased with our U.S. marketplace performance in the second quarter as we improved in all classes of trade. The category has and will continue to grow. We expect Hershey’s year-over-year core brand marketplace performance improvement to continue, benefiting from the new approach of our consumer-driven demand model.”
First Half Results and Outlook
For the first six months of 2008, consolidated net sales were $2,265,779,000 compared with $2,205,025,000 for the first six months of 2007. Reported net income for the first six months of 2008 was $104,712,000 or $0.46 per share-diluted, compared with $97,027,000, or $0.42 per share-diluted, for the first six months of 2007.
For the first six months of 2008 and 2007, these results, prepared in accordance with GAAP, include net pre-tax charges of $69.9 million and $164.8 million, or $0.20 and $0.44 per share, respectively. The majority of these charges were associated with the Global Supply Chain Transformation program announced in February 2007.
Net income from operations, which excludes the net charges for the first six months of 2008 and 2007, was $150,867,000, or $0.66 per share-diluted, compared with $200,457,000 or $0.86 per share-diluted in 2007, a decrease of 23 percent in earnings per share-diluted.
“Hershey’s first half results were in line with our expectations,” West stated. “Net sales and marketplace performance improved, validating our strategy of increasing advertising and consumer investment behind core U.S. brands. The consumer-driven model unveiled last month is focusing the Company on brands and innovation that offer the greatest potential for sustainable sales and earnings growth.
“Marketplace momentum has continued as we enter the third quarter and we’re encouraged about our prospects in the second half of the year. The Global Supply Chain Transformation program will deliver productivity savings during the remainder of the year. These savings, combined with price realization and good visibility into our cost structure in the second half of the year, will enable us to expand consumer investment, support solid seasonal programming and continue to build our international business. Therefore, for the full-year 2008, we continue to expect net sales growth of 3-4 percent and earnings per share-diluted from operations of $1.85 to $1.90.”
Note: In this 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 summary of consolidated statements of income, 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 aforementioned items relate to the Global Supply Chain Transformation program announced in February 2007 and the business realignment in Brazil announced in December 2007. The Global Supply Chain Transformation program is expected to result in pre-tax charges and non-recurring project implementation costs of $550 million - $575 million. Total charges include project management and start-up costs of approximately $60 million. In 2007, the Company recorded GAAP charges related to the Global Supply Chain Transformation program of $400.0 million, or $1.10 per share-diluted. Additionally, in the fourth quarter of 2007 the Company recorded business realignment and impairment charges of $12.6 million, or $0.05 per share-diluted, related to its business in Brazil. In 2008, the Company expects to record total GAAP charges of about $135 million - $145 million, or $0.39 - $0.42 per share-diluted. Below is a reconciliation of GAAP and non-GAAP items to the Company’s earnings per share-diluted outlook:
| | 2007 | 2008 |
| | | |
| Reported / Expected EPS-Diluted | $0.93 | $1.43 - $1.51 |
| | | |
| Total Business Realignment and Impairment Charges | $1.15 | $0.39 - $0.42 |
| | | |
| EPS-Diluted from Operations* | $2.08 | -- |
| | | |
| Expected EPS-Diluted from Operations* | | $1.85 - $1.90 |
| | | |
*From operations, excluding business realignment and impairment charges. |
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: our ability to implement and generate expected ongoing annual savings from the initiatives to transform our supply chain and advance our value-enhancing strategy; changes in raw material and other costs and selling price increases; our ability to execute our supply chain transformation within the anticipated timeframe in accordance with our cost estimates; the impact of future developments related to the product recall and temporary plant closure in Canada in the fourth quarter of 2006, including our ability to recover costs we incurred for the recall and plant closure from responsible third-parties; the impact of future developments related to the investigation by government regulators of alleged pricing practices by members of the confectionery industry, including risks of subsequent litigation or further government action; pension cost factors, such as actuarial assumptions, market performance and employee retirement decisions; changes in our stock price, and resulting impacts on our expenses for incentive compensation, stock options and certain employee benefits; market demand for our new and existing products; changes in our business environment, including actions of competitors and changes in consumer preferences; changes in governmental laws and regulations, including taxes; risks and uncertainties related to our international operations; and such other matters as discussed in our Annual Report on Form 10-K for 2007. All information in this press release is as of July 23, 2008. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
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| Financial Contact: | Mark Pogharian | 717-534-7556 |
| Media Contact: | Kirk Saville | 717-534-7641 |
