Hershey Co. Reports Fourth Quarter And Full Year Net Sales Gains

"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.