Hershey Reports Increase In Net Sales For First Quarter 2013

April 26, 2013

The Hershey Co. announced sales and earnings for the first quarter ended March 31, 2013. Consolidated net sales were $1,827,426,000 compared with $1,732,064,000 for the first quarter of 2012. Reported net income for the first quarter of 2013 was $241,906,000 or $1.06 per share-diluted, compared with $198,651,000 or $0.87 per share-diluted for the comparable period of 2012.

“Hershey’s first quarter results, driven by solid volume growth across core brands, represent a good start to the year,” said John P. Bilbrey, president and chief executive officer, the Hershey Co., in a prepared statement. “We maintained our retail momentum in the U.S. and key international markets. Specifically, first quarter U.S. marketplace performance was strong, driven by solid volume and unit trends across most major pack types resulting in market share gains in every channel where we compete. The broader launch of Brookside Foods Ltd. (Brookside) products in the U.S. is off to a good start and we’re excited about the potential of the brand. Despite the Easter season being shorter versus last year, most customers had a higher percentage dollar sell through versus last year with preliminary seasonal market share results in line with expectations. We’re focused on executing against our plans and are confident that in 2013 we’ll continue to drive core brand volume growth in U.S. and international markets.”

For the first quarter of 2013, these results, prepared in accordance with U.S. generally accepted accounting principles (GAAP), included net pre-tax charges of $10.6 million or $0.03 per share-diluted. These charges included $7.0 million, or $0.02 per share-diluted, related to the Project Next Century program, non-service-related pension expense (NSRPE) of $2.8 million, or $0.01 per share-diluted, and acquisition and integration costs of $0.8 million. Reported gross margin of 46.5 percent increased 360 basis points versus last year while reported income before interest and income taxes (EBIT) increased 17.1 percent, generating EBIT margin of 21.4 percent, an increase of 210 basis points versus 2012. For the first quarter of 2012, results included pre-tax charges for Project Next Century of $23.6 million, or $0.07 per share-diluted, NSRPE of $4.1 million, or $0.01 per share-diluted, and acquisition and integration costs related to Brookside of $5.9 million, or $0.01 per share-diluted. Adjusted net income, which excludes these net charges, was $248,468,000, or $1.09 per share-diluted, in the first quarter of 2013, compared with $219,910,000, or $0.96 per share-diluted, in the first quarter of 2012, an increase of 13.5 percent in adjusted earnings per share-diluted.

For the full year 2013, the company expects reported earnings per share-diluted of $3.52 to $3.58. This projection, prepared in accordance with GAAP, assumes business realignment charges and NSRPE costs of $0.07 to $0.09 per share-diluted. Charges associated with the Project Next Century program are expected to be $0.03 to $0.05 per share-diluted while NSRPE is expected to be $0.04 per share-diluted. Despite the impact of these charges in 2013, reported gross margin is expected to increase 260 to 280 basis points.

First Quarter Performance

Hershey's first quarter net sales increased 5.5 percent, relatively in line with the forecast. Volume was a 5.3 point benefit in the quarter, including about 2 points from the broader launch of Brookside products in the U.S. Food, Drug and Mass channels. Net price realization was a 0.5 point benefit and foreign currency exchange rates a 0.3 point headwind.

Hershey’s U.S. candy, mint and gum (CMG) retail takeaway for the 12 weeks ended March 23, 2013, excluding the impact of Easter seasonal activity in the year ago and current period was up 8.6 percent, in the expanded all outlet combined plus convenience store channels (xAOC+C-store) which accounts for approximately 90 percent of the Company’s U.S. retail business. U.S. market share, including Easter seasonal activity in the year ago and current period, was up in every channel resulting in a market share gain of 1.4 points. This performance reflects solid market share gains across most core brands including Hershey’s, Reese’sHershey’s KissesIce Breakers as well as Brookside.

First quarter adjusted gross margin increased 240 basis points driven by lower commodity costs, supply chain productivity and cost savings initiatives and net price realization. Selling, marketing and administrative (SM&A) expenses, excluding advertising, increased about 9 percent in the first quarter, less than initial estimates. Advertising expense increased 22 percent versus the year ago period, in line with the forecast, supporting core brands and new product launches in both the U.S. and international markets. As a result, adjusted EBIT increased 9.3 percent generating adjusted EBIT margin of 22.0 percent, a 70 basis point increase versus last year.


The company continues to expect 2013 net sales growth of 5 to 7 percent, including the impact of foreign currency exchange rates. Net sales will be driven primarily by core brand volume growth, the U.S. launch of the Brookside product line in the food, drug and mass channels, as well as innovation such as Kit Kat Minis, Twizzlers Bites and Jolly Rancher Bites in the U.S. and the expansion of the five core global brands – Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice Breakers – in key international markets.

Given the strong start to the year, the company now expects 2013 full year adjusted gross margin expansion of 190 to 210 basis points. The annual increase in advertising expense remains the same and is expected to be up about 20 percent versus last year supporting the Brookside launch and innovation in both the U.S. and international markets. For the full year, SM&A expenses, excluding advertising, is expected to increase at a rate slightly greater than the first quarter percentage increase. These investments will build on Hershey’s go-to-market capabilities established over the last few years, consumer insights work in key international markets, Insights Driven Performance initiative and increased levels of consumer promotion and sampling to drive new product trial and repeat. As a result, the company anticipates 2013 adjusted earnings per share-diluted growth of about 12 percent versus a previous estimate of a 10 to 12 percent increase.

“We're very pleased with the start to 2013 and expect to build on our momentum,” continued Bilbrey. “In the first quarter we achieved Brookside distribution and consumer trial objectives. In the second quarter we'll track repeat purchases in assessing our current outlook and will then have an indication if there is upside potential to the brand’s full year net sales target. I'm also excited about the new products launching over the remainder of the year in U.S. and international markets, including, Kit Kat Minis, Hershey's Kisses Deluxe and Hershey's solid chocolate products in China and theHershey's Mais wafer product in Brazil. The investments we're making in our business in the form of capabilities and innovation, position us to succeed in the marketplace and should benefit the Company in the near and long term,” Bilbrey concluded.

top-auo?E??~?ottom: 6.25pt;mso-line-height-alt:11.25pt;mso-list:l0 level1 lfo1;tab-stops:list .5in; background:white'>D. Michael Wege, currently chief commercial officer, will become senior vice president, chief growth and marketing officer. Wege will lead Hershey’s strategic planning, research and development, innovation, and global Hershey Experience. He will continue to drive the company’s knowledge capabilities as well as Hershey’s marketing initiatives and corporate brand reputation.

In addition, the company announced that Waheed Zaman will join the company as senior vice president, chief administrative officer on April 29. Zaman will be responsible for optimizing Hershey’s information technology and global shared services functions as the company expands internationally. Zaman is an industry leader for transformational global productivity in large consumer packaged goods companies working previously for Chiquita Brands International and Procter & Gamble.

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Product Guide

Hershey Co., The

May 30, 2007
CORE Brands include REESE'S Peanut Butter Cups, HERSHEY's Milk Chocolate with Almonds Bar, KIT KAT, TWIZZLERS Candy and PAYDAY Peanut Caramel Bar. Vend Size, Large Size...

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