As discussed last quarter, the forecasted amount for Project Next Century non-cash pension settlement charges could increase as a result of impacted employee pension fund withdrawals during the fourth quarter. Non-cash pension settlement costs are required in accordance with applicable accounting standards. As a result, the forecast for total pre-tax GAAP charges and non-recurring project implementation costs, including non-cash pension settlement costs related to the Project Next Century program, has been increased from a range of $160 million to $180 million to a range of $190 million to $200 million. The expected timing of events and estimated costs and savings is included in Appendix I, which is attached to this press release.
On Oct. 24, 2012, the board of directors of The Hershey Co. declared a quarterly dividend of $0.42 on the common stock, an increase of $0.04 per share. In addition, the board declared a dividend of $0.38 on the class B common stock, an increase of $0.036 per share. The dividends are payable Dec. 14, 2012, to stockholders of record Nov. 23, 2012.
Third Quarter Performance And Outlook
“The Hershey Co. delivered another good quarter of core brand growth driven by solid performance within key retail channels,” said John P. Bilbrey, president and chief executive officer, The Hershey Co., in a prepared statement. “Importantly, Hershey U.S. candy, mint and gum (CMG) retail takeaway for the 12 weeks ended October 6, 2012, in the expanded all outlet combined plus convenience store channels (xAOC+C-store), which accounts for approximately 90 percent of our U.S. retail business, was up 5.9 percent, resulting in a market share gain of 1.1 points. Our performance was solid in the convenience and dollar store channels with volume and unit trends positive. Overall, Hershey’s results were balanced as we gained xAOC+C-store market share within all segments of CMG. I’m particularly pleased with our chocolate marketplace performance where we gained 0.4 market share points driven by core brands and new products. Our CMG volume and unit trends at retail continue to progress and we expect sequential improvement in the fourth quarter. Additionally, Halloween sales are off to a good start with solid programming, merchandising and promotions being executed in the marketplace.
“In the third quarter, Hershey's net sales increased 7.5 percent. Net price realization was a 3.9 point benefit and volume, excluding the Brookside acquisition, was up 2.1 points. The organic volume gain was primarily driven by new products. Core brand volume trends have improved sequentially throughout the year and were slightly up in the third quarter. The Brookside acquisition was a 2.3 point benefit in the third quarter, slightly better than our initial estimates, and foreign currency exchange rates a 0.8 point headwind. For the full year, we expect the Brookside acquisition to be about a 1.75 to 2.0 point benefit to net sales as our initial supply chain analysis resulted in initiatives that enabled us to optimize product sales mix.
“Gross margin increased in the quarter, in line with our estimates, as net price realization, supply chain efficiencies and productivity gains more than offset higher input costs. Selling, marketing and administrative (SM&A) expenses, excluding advertising, increased 12 percent in the third quarter, less than our estimate of a 15 to 20 percent increase, and is up about 9 percent year-to-date. We would expect another meaningful increase, in the fourth quarter, resulting in a low double-digit percentage increase for the full year, in line with our initial estimates. These investments in go-to-market capabilities in both the U.S. and international markets will benefit the company over the near and long term. In both the third quarter and year-to-date periods advertising is up about 12 percent versus 2011. Additionally, as communicated last quarter, the third quarter tax rate was greater than the year ago period due to the timing of certain discrete tax items. We continue to expect the full-year tax rate to be about 35 percent.
“We're growing sales and profitability despite macroeconomic challenges and have delivered on our financial commitments. The company continues to generate substantial free cash flow and has a strong balance sheet. Therefore, we are pleased to announce an increase to our quarterly dividend. This action reflects our confidence in Hershey's marketplace position and long-term growth potential.