Hershey Sales Increase 7.6 Percent Full-Year 2013

The Hershey Co. announced sales and earnings for the fourth quarter and full-year ended Dec. 31, 2013. Fourth quarter and full-year 2013 net sales increase 11.7 percent and 7.6 percent, respectively.

For the fourth quarter of 2013, consolidated net sales were $1,956,253,000 compared with $1,751,035,000 for the fourth quarter of 2012. Reported net income for the fourth quarter of 2013 was $186,075,000 or $0.82 per share-diluted, compared with $149,879,000 or $0.66 per share-diluted for the comparable period of 2012.

“The Hershey Co. ended 2013 strongly with high-quality net sales and adjusted earnings per share-diluted growth slightly exceeding our expectations,” said John P. Bilbrey, president and CEO, The Hershey Co., in a prepared statement. “Net sales increased 11.7 percent in the fourth quarter, driven by solid volume growth in North America and in international markets. Our results are also reflected in our marketplace data. Specifically, in the U.S., we gained candy, mint and gum (CMG) market share in every measured channel for the third consecutive year. As a result, Hershey reclaimed its CMG category leadership position in the U.S. with a 31.1 percent share of the market. Additionally, our China business reached a milestone 10.2 percent share of the chocolate market and, in Canada, our combined candy and mint segments became the category leader in that marketplace. The progress we’ve made across our business gives us confidence that our strategies are working well and meeting consumer wants and needs. In 2014, our plans are focused on targeted growth initiatives in key global markets, new product launches in both the U.S. and international geographies and continued support of our core brands. I’m also pleased with the agreement we entered into last month with Shanghai Golden Monkey. This will build on Hershey’s continuing commitment to the China market and will further accelerate the company’s scale and geographic footprint in that market. We continue to anticipate that the acquisition will close by the end of the second quarter.”

For the fourth quarter of 2013, these results, prepared in accordance with U.S. generally accepted accounting principles (GAAP), included pre-tax charges of $10.9 million or $0.04 per share-diluted. These charges included $5.5 million, or $0.02 per share-diluted, primarily related to the Project Next Century program, $3.0 million, or $0.02 per share-diluted, of acquisition and integration costs and non-service-related pension expense (NSRPE) of $2.4 million. Reported gross margin of 43.8 percent increased 70 basis points versus last year, while reported income before interest and income taxes (EBIT) increased 22.0 percent, generating EBIT margin of 15.8 percent, an increase of 140 basis points versus 2012. For the fourth quarter of 2012, results included net pre-tax charges of $24.3 million or $0.08 per share-diluted. These charges included $7.9 million, or $0.03 per share-diluted, related to the Project Next Century program, NSRPE of $7.6 million, or $0.02 per share-diluted, and acquisition and integration costs related to Brookside Foods Ltd. (Brookside) of $1.3 million. Additionally, in the fourth quarter of 2012, the Company recorded a non-cash impairment charge of $7.5 million, or $0.03 per share-diluted, related to its 69 percent investment in Tri-US, Inc. of Boulder, Colorado, a company that manufactured nutritional beverages under the Mix1 brand name.

For the full year 2013, consolidated net sales were $7,146,079,000, compared with $6,644,252,000 in 2012, an increase of 7.6 percent. Reported net income for 2013 was $820,470,000, or $3.61 per share-diluted, compared with $660,931,000 or $2.89 per share-diluted, for 2012. As described in the Note, for the full years 2013 and 2012, these results, prepared in accordance with GAAP, included net pre-tax charges of $34.0 million and $117.7 million, or $0.11 and $0.35 per share-diluted, respectively. Charges associated with the Project Next Century program for 2013 and 2012 were $19.1 million and $76.3 million, or $0.05 and $0.22 per share-diluted. NSRPE for 2013 and 2012 was $10.9 million and $20.6 million, or $0.03 and $0.06 per share-diluted, respectively.

Acquisition and integration costs, primarily related to Shanghai Golden Monkey in 2013 and Brookside in 2012, were $4.1 million and $13.4 million, or $0.03 and $0.04 per share-diluted. Additionally, 2012 results were impacted by the aforementioned non-cash goodwill impairment charge of $7.5 million, or $0.03 per share-diluted. As described in the Note, adjusted net income for each year, which excludes these net charges, was $844,320,000, or $3.72 per share-diluted in 2013, compared with $740,040,000, or $3.24 per share-diluted in 2012, an increase of 14.8 percent in adjusted earnings per share-diluted.

In 2014, the company expects reported earnings per share-diluted of $4.02 to $4.11, including net GAAP charges of about $7 million to $9 million, or $0.02 to $0.03 per share-diluted. This projection, prepared in accordance with GAAP, assumes net business realignment charges related to Project Next Century of $0.01 to $0.02 per share-diluted, non-service-related pension income (NSRPI) of $0.01 to $0.02 per share-diluted as well as acquisition and transaction costs associated with Shanghai Golden Monkey of $0.02 to $0.03 per share-diluted. Despite the impact of these charges, in 2014, reported gross margin is expected to increase around 50 basis points.

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