Hershey Co. Reports Improved Sales And Earnings In Second Quarter

The Hershey Co. announced sales and earnings for the second quarter ended July 1, 2012. Consolidated net sales were $1,414,444,000 compared with $1,325,171,000 for the second quarter of 2011. Reported net income for the second quarter of 2012 was $135,685,000 or $0.59 per share-diluted, compared with $130,019,000 or $0.56 per share-diluted for the comparable period of 2011.

These results, prepared in accordance with U.S. generally accepted accounting principles (GAAP), included net pre-tax charges, as well as non-service-related pension expense (NSRPE) of $24.9 million, or $0.07 per share-diluted. The majority of these charges, $19.0 million, or $0.05 per share-diluted, were related to the Project Next Century program. Additionally, acquisition and integration costs related to the Brookside Foods Ltd. (Brookside) acquisition were $1.3 million, or $0.01 per share-diluted, and NSRPE was $4.5 million, or $0.01 per share-diluted.

For the second quarter of 2011, results included Project Next Century 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. Pre-tax charges for NSRPE were $0.4 million for the second quarter of 2011. Adjusted net income, which excludes these net charges, was $151,493,000 or $0.66 per share-diluted in the second quarter of 2012, compared with $129,288,000 or $0.56 per share-diluted in the second quarter of 2011, an increase of 17.9 percent in adjusted earnings per share-diluted. See the Note for a reconciliation of GAAP and non-GAAP items.

For the first six months of 2012, consolidated net sales were $3,146,508,000, compared with $2,889,394,000 for the first six months of 2011. Reported net income for the first six months of 2012 was $334,336,000 or $1.46 per share-diluted, compared with $290,134,000 or $1.26 per share-diluted, for the first six months of 2011.

For the first six months of 2012 and 2011, these results, prepared in accordance with GAAP, included net pre-tax charges of $58.5 million and $9.6 million, or $0.16 and $0.03 per share-diluted, respectively. Charges associated with the Project Next Century program for the first six months in 2012 and 2011 were $42.6 million and $7.9 million, or $0.12 and $0.02 per share-diluted, respectively. NSRPE for the first six months in 2012 and 2011 were $8.7 million and $1.7 million, or $0.02 and $0.01 per share-diluted, respectively. Additionally, for the first six months in 2012, acquisition and integration costs related to the Brookside acquisition were $7.2 million, or $0.02 per share-diluted. Adjusted net income for the first six months of 2012, which excludes these net charges, was $371,403,000, or $1.62 per share-diluted, compared with $296,422,000, or $1.29 per share-diluted in 2011, an increase of 25.6 percent in adjusted earnings per share-diluted.

In 2012, the company expects reported earnings per share-diluted of $2.88 to $2.98. These results, prepared in accordance with GAAP, include business realignment charges, NSRPE and acquisition and integration costs of $0.25 to $0.29 per share-diluted. The majority of these charges, $0.16 to $0.19 per share-diluted, are related to the Project Next Century program. NSRPE and acquisition and integration costs related to the Brookside acquisition are expected to be $0.05 per share-diluted and $0.04 to $0.05 per share-diluted, respectively.

Despite the impact of these charges in 2012, reported gross margin is expected to increase 120 to 130 basis points. The forecast for total pre-tax GAAP charges and non-recurring project implementation costs related to the Project Next Century program has been increased from a range of $150 million to $160 million to a range of $160 million to $180 million, due to revised estimates of possible higher disposition costs for the Company's century-old facility at 19 East Chocolate Ave. in Hershey, Pa.