The Hershey Co. announced sales and earnings for the fourth quarter ended Dec. 31, 2010.
Fourth quarter and full-year 2010 net sales increase 5.4 percent and 7.0 percent, respectively.
Fourth quarter earnings per share-diluted of $0.59 as reported and $0.61 adjusted.
Full-year 2010 earnings per share-diluted of $2.21 as reported and $2.55 adjusted.
Full-year 2011 net sales and adjusted earnings per share-diluted growth to be around the top of the company's 3 percent to 5 percent and 6 percent to 8 percent long-term targets.
Quarterly dividend declared on common stock and increased 8 percent.
Consolidated net sales were $1,482,809,000 compared with $1,407,336,000 for the fourth quarter of 2009. Reported net income for the fourth quarter of 2010 was $135,513,000 or $0.59 per share-diluted, compared with $126,779,000 or $0.55 per share-diluted for the comparable period of 2009.
For the fourth quarter of 2010, these results, prepared in accordance with generally accepted accounting principles (GAAP), included net pre-tax charges of $7.9 million, or $0.02 per share-diluted, which were related to the Project Next Century program announced in June 2010. For the fourth quarter of 2009, GAAP results included net pre-tax charges of $26.5 million, or $0.08 per share-diluted. These charges related to the global supply chain transformation (GSCT) program completed in December 2009. Adjusted net income, which excludes these net charges, was $140,375,000 or $0.61 per share-diluted in the fourth quarter of 2010, compared with $144,352,000, or $0.63 per share-diluted in the fourth quarter of 2009, a decrease of 3.2 percent in adjusted earnings per share-diluted.
For the full year 2010, consolidated net sales were $5,671,009,000 compared with $5,298,668,000 in 2009, an increase of 7.0 percent. Reported net income for 2010 was $509,799,000 or $2.21 per share-diluted, compared with $435,994,000, or $1.90 per share-diluted for 2009.
As described in the Note, for the full years 2010 and 2009, these results, prepared in accordance with GAAP, included net pre-tax charges of $98.6 million and $99.1 million, or $0.34 and $0.27 per share-diluted, respectively. The 2010 charges were associated with the Project Next Century program and a non-cash goodwill impairment charge recorded in the second quarter, while the 2009 charges were related to the GSCT program completed in December 2009. As described in the Note, adjusted net income for each year, which excludes these net charges, was $587,734,000, or $2.55 per share-diluted in 2010, compared with $496,817,000 or $2.17 per share-diluted in 2009, an increase of 17.5 percent in adjusted earnings per share-diluted.
In 2011, reported gross margin, reported income before interest and income taxes (EBIT) margin and reported earnings per share-diluted will be impacted by charges associated with Project Next Century. As a result, reported earnings per share-diluted, including business realignment and impairment charges of $0.13 to $0.16 per share-diluted, is expected to be in the $2.54 to $2.63 range. The forecast for total pre-tax GAAP charges and non-recurring project implementation costs related to the Project Next Century program remains at $140 million to $170 million. The updated expected timing of events and estimated costs and savings is included in Appendix I attached to this press release.
On Jan. 31, 2011, the board of directors of The Hershey Co. declared a quarterly dividend of $0.345 on the common stock, an increase of $0.025 per share. In addition, the board declared a dividend of $0.3125 on the Class B common stock, an increase of $0.0225 per share. The dividends are payable on March 15, 2011, to stockholders of record as of Feb. 25, 2011.
"Hershey ended 2010 strongly, with high-quality net sales and earnings growth for the full year, and strong marketplace performance in the fourth quarter," said David J. West, president and chief executive officer in a prepared statement. "During 2010, macroeconomic uncertainty persisted, however, confectionery category growth was relatively consistent throughout the year. Our financial performance allowed us to be flexible in our approach to category and brand-building investment throughout 2010 and especially in the fourth quarter. This disciplined approach resulted in solid financial performance and increased market share.
"We are very pleased with our fourth quarter marketplace performance. Our business has responded to the investments we have made, which has enabled us to continue our marketplace momentum. In the quarter, Hershey's net sales increased 5.4 percent, driven primarily by volume, including continued faster-paced growth in emerging markets. Net price realization, primarily in the U.S., Canada and Mexico, and foreign currency exchange rates were an approximate 1.6 point and 0.6 point benefit, respectively. Strong results at key retail customers continued and overall marketplace performance was in line with our expectations. Specifically, Hershey's U.S. retail takeaway for the 12 weeks and 52 weeks ended Jan. 1, 2011, in channels that account for over 80 percent of our U.S. retail business, was up 6.2 percent and 5.3 percent, respectively. In the channels measured by syndicated data, U.S. market share for the 12 weeks and 52 weeks ended Jan. 1, 2011, increased 0.5 points and 0.3 points, respectively.
"Fourth quarter adjusted gross margin increased due to favorable net supply chain efficiencies, including productivity and a favorable sales mix, as well as lower levels of obsolescence driven by solid seasonal performance and sell through at retail. Input costs were slightly higher in the quarter, in line with our estimates. The improvements in adjusted gross margin were offset by higher advertising and marketing costs, selling expenses in key markets, spending on the insights driven performance initiative, and other employee-related expenses. As planned, during the fourth quarter, significant investments in advertising and go-to-market capabilities were made in both the U.S. and select emerging markets. We believe these investments will benefit the business in 2011. In the fourth quarter, advertising expense increased 85 percent versus the same period last year, supporting core U.S. brands, including new advertising campaigns for the PayDay and Hershey's Syrup brands, as well as incremental investment in global markets. For the full year 2010, advertising expense increased 62 percent.
"In December, the company announced that it had commenced a cash tender offer to purchase any and all of its $150 million outstanding 6.95 percent notes due in 2012. Subsequently, we issued $350 million of 4.125 percent Notes due 2020. The company used a portion of the proceeds to redeem about $58 million of bonds related to the tender offer with the remaining funds to be used for general corporate purposes, including increased levels of capital expenditures related to Project Next Century. As a result of these transactions, for the fourth quarter and full year 2010, interest expense was about $6 million greater than our previous estimate.
"The company continues to generate strong cash flow. Our focus on improving working capital resulted in full year operating cash flow of about $900 million in 2010. We are pleased to announce an eight percent increase to our quarterly dividend. This declaration reflects our confidence in Hershey's marketplace position and long-term growth potential. As we focus on geographic expansion, the recently-created global strategic business units (SBU) - the Chocolate SBU and Sugar Confection SBU - will enable us to build and leverage Hershey's brands, creating confectionery marketplace innovation and disseminating best demonstrated practices around the world. Hershey's solid financial position allows us to continue our approach to disciplined global expansion, including organic investments and the opportunity to explore other strategic opportunities.
"We exited 2010 with momentum and expect to build on our success in 2011 as we have many exciting initiatives planned to drive growth across our markets, including the U.S. launch of Hershey's Drops, Reese's Minis and other yet to be announced new products. We'll also begin to leverage the learnings from our insights driven performance project and continue the disciplined roll-out and distribution of the Hershey's and Hershey's Kisses brands in select key emerging markets, where we are gaining consumer awareness, trial and most importantly, repeat purchases. In 2011, we expect advertising to increase mid-single digits, on a percentage basis versus last year, supporting new product launches and core brands in both the U.S. and international markets. Commodity markets remain volatile, however, we have visibility into our cost structure. While we anticipate meaningfully higher input costs in 2011, productivity and cost savings initiatives are in place and we estimate that full-year 2011 adjusted gross margin will be about the same as last year, while we continue to leverage the global go-to-market capabilities we have built over the past few years. As a result, we expect full-year 2011 net sales and adjusted earnings per share-diluted growth to be around the top of the company's long-term 3 percent to 5 percent and 6 to 8 percent objectives, respectively," West concluded.
