Hershey Co. Reports Second Quarter Sales And Earnings Gains

The Hershey Co. announced sales and earnings for the second quarter ended July 3, 2011. Consolidated net sales were $1,325,171,000 compared with $1,233,242,000 for the second quarter of 2010. Reported net income for the second quarter of 2011 was $130,019,000 or $0.56 per share-diluted, compared with $46,723,000 or $0.20 per share-diluted for the comparable period of 2010.

In the second quarter of 2011, results included pre-tax charges of $9.4 million, or $0.02 per share-diluted, which were more than offset by an adjustment of $11.2 million, or $0.02 per share-diluted, resulting in a net credit of $1.8 million due to a reduction of previous estimates.

For the first six months of 2011, consolidated net sales were $2,889,394,000 compared with $2,641,085,000 for the first six months of 2010. Reported net income for the first six months of 2011 was $290,134,000 or $1.26 per share-diluted, compared with $194,117,000 or $0.84 per share-diluted, for the first six months of 2010.

"I'm pleased with Hershey's second quarter results as solid marketplace momentum continued, resulting in strong overall financial performance," said John P. Bilbrey, president and chief executive officer in a prepared statement. "Our business model and strategy to invest in core brands, disciplined innovation, Insights Driven Performance (IDP) and consumer capabilities remains effective and is sustainable. We'll continue with this disciplined approach and build on these initiatives, in both domestic and international markets, as it will enable the Company to consistently meet its net sales and earnings objectives in the future.

"In the second quarter, Hershey's net sales increased 7.5 percent, somewhat greater than our initial expectations, driven by volume growth, primarily new products, in both U.S. and international markets, resulting in greater levels of in-store merchandising and programming versus our estimates, and earlier than expected shipments to customers due to a change in the timing of their promotional calendars. Net price realization, primarily in the U.S., was a 3 point benefit, while foreign currency exchange rates added about a half point.

"Through the first-half of the year, the U.S. CMG – candy, mint and gum – category and Hershey marketplace performance have outpaced the historical category growth rate of about 3 to 4 percent. Specifically, Hershey U.S. CMG retail takeaway for the 28 weeks ended July 9, 2011, which along with the comparable period in 2010 encompasses each year's entire Easter season results, in channels that account for over 80 percent of our retail business, was up 8.1 percent. In the channels measured by syndicated data, U.S. market share increased 0.9 points. Our marketplace performance reflects a longer Easter season and solid sell through that resulted in a 1.0 point market share gain in this season, successful new products launches, as well as continued momentum in many of our everyday core chocolate and sweets and refreshment businesses. Brand strength was attributable to increased advertising and retail effectiveness. In the second quarter, advertising expense increased about 8 percent versus the year ago period, in line with the mid-single digit percentage increase forecasted for the full year.

"Second quarter adjusted EBIT margin was in line with last year as adjusted selling, marketing and administrative (SM&A) costs – excluding advertising – declined as a percentage of sales versus last year. Adjusted gross margin declined in the second quarter as net price realization and supply chain efficiencies and productivity were more than offset by higher input costs. As we've previously stated, input costs will be higher in 2011, however, there is no change to our full-year inflation outlook. We continue to make good progress against our supply chain initiatives and Project Next Century is on track. We'll deliver meaningful cost savings over the remainder of the year and estimate that full-year adjusted gross margin will be about the same as last year.