Hershey continues strong progress on strategic plan

The Hershey Company has announced sales and earnings for the third quarter ended September 28, 2008. Consolidated net sales were $1.489bn compared with $1.399bn for the third quarter of 2007. Reported net income for the third quarter of 2008 was $124.5m or $0.54 per share-diluted, compared with $62.8m or $0.27 per share-diluted, for the comparable period of 2007.


For the third quarters of 2008 and 2007, these results, prepared in accordance with generally accepted accounting principles ("GAAP"), include net pre-tax charges of $31m and $151.9m, or $0.10 and $0.41 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 is adjusted to exclude the net charges for the third quarters of 2008 and 2007, was $145.8m or $0.64 per share-diluted in 2008, compared with $157.23m or $0.68 per share-diluted in 2007, a decrease of 6% in earnings per share-diluted.
For the first nine months of 2008, consolidated net sales were $3.755bn compared with $3.6bn for the first nine months of 2007. Reported net income for the first nine months of 2008 was $229.25m or $1.00 per share-diluted, compared with $159.8m or $0.69 per share-diluted, for the first nine months of 2007.
For the first nine months of 2008 and 2007, these results, prepared in accordance with GAAP, include net pre-tax charges of $101m and $316.7m, or $0.30 and $0.85 per share, respectively. The majority of these charges were associated with the Global Supply Chain Transformation program.


Net income from operations, which is adjusted to exclude the net charges for the first nine months of 2008 and 2007, was $296.68m or $1.30 per share-diluted, compared with $357.68m $1.54 per share-diluted in 2007, a decrease of 16% in earnings per share-diluted.
Total Global Supply Chain Transformation program costs to date are $496m, and the forecast for total charges related to the program remains at $550m to $575m. This forecast includes a projection for pension settlement costs required in accordance with applicable accounting standards. As described in Appendix A, this projection of non-cash charges could increase by up to $75m. For the full-year 2008, total GAAP charges related to the program, excluding possible increases in pension settlement charges, are expected to be $135m to $145 m.


"Hershey s third quarter results reflect the progress we continue to make implementing our consumer-driven demand model," said David J. West, President and Chief Executive Officer. "As anticipated, net sales were solid, increasing 6.4%. Excluding the impact of the timing of shipments stemming from the buy-in related to the August price increase, sales growth was approximately 4 percent. This growth was driven by price realization, overall growth in core brands and new products, partially offset by softness in snacks and refreshment. Halloween is off to a good start with solid programming and merchandising in place.
"Third quarter results were in line with our expectations and reflect higher commodity costs resulting from the execution of hedging strategies announced in August and implemented within the quarter. These added costs offset the benefit of higher revenue generated by the buy-in related to the August price increase. Additionally, we continued to increase core brand support in the U.S. and within key international markets. In the U.S., advertising and consumer brand-building investment increased by about 25% in the third quarter.


"We have seen positive results where we have focused our resources. U.S. retail takeaway in the third quarter increased 4.0 % in channels that account for over 80 percent of our retail business. U.S. market share was about equal to the prior year s third quarter in the channels measured by syndicated data.
"We re making good progress against our major strategic initiatives. We ll continue to make the necessary consumer investments to strengthen Hershey s leadership position and build upon our latest marketplace results. Therefore, for the full-year 2008, we expect net sales growth of 3-4% and earnings per share-diluted from operations towards the lower end of the $1.85 to $1.90 range. In 2009, we expect net sales growth of 2-3% as the pricing action previously announced will be partially offset by lower volumes. We expect 2009 earnings per share-diluted from operations to increase, however, it will be at a rate below our long-term objective of 6-8 percent growth due to higher commodity prices, which remain at levels well above a year ago despite recent declines, as well as greater levels of consumer investment," West concluded.