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Hershey Announces Fourth Quarter and Full-Year 2012 Results; Updates Outlook for 2013



  Hershey Announces Fourth Quarter and Full-Year 2012 Results; Updates Outlook
  for 2013

Business Wire

HERSHEY, Pa. -- January 31, 2013

The Hershey Company (NYSE: HSY):

  * Fourth quarter and full-year 2012 net sales increase 11.7% and 9.3%,
    respectively
  * Fourth quarter earnings per share-diluted of $0.66 as reported and $0.74
    adjusted
  * Full-year 2012 earnings per share-diluted of $2.89 as reported and $3.24
    adjusted
  * Outlook for 2013 net sales reaffirmed, earnings per share-diluted
    increased:

       * Full-year net sales expected to increase 5-7%, driven primarily by
         volume
       * Reported earnings per share-diluted expected to be $3.47 to $3.56
       * Adjusted earnings per share-diluted expected to increase 10-12% and
         be in the $3.56 to $3.63 range, greater than the previous estimate of
         an 8-10% increase

The Hershey Company (NYSE: HSY) today announced sales and earnings for the
fourth quarter ended December 31, 2012. Consolidated net sales were
$1,751,035,000 compared with $1,567,145,000 for the fourth quarter of 2011.
Reported net income for the fourth quarter of 2012 was $149,879,000 or $0.66
per share-diluted, compared with $142,133,000 or $0.62 per share-diluted for
the comparable period of 2011.

“Hershey’s fourth quarter financial and marketplace results represent a strong
finish to 2012 and validate our strategy of focusing investments in the U.S.
and key international geographies,” said John P. Bilbrey, President and Chief
Executive Officer, The Hershey Company. “As expected, fourth quarter
marketplace performance was solid and we gained market share in every category
– chocolate, non-chocolate, mint and gum. We had solid seasonal growth in
2012, with retail sell-through in measured channels in line with our
estimates. Additionally, for the combined four seasons, and the important
Halloween period, our market share gain was identical, 0.8 points. Our solid
financial performance gave us flexibility in our approach to investments in
global go-to-market capabilities that will benefit Hershey over the near and
long-term. We’ll build on our success in 2013 and are confident that our plans
will drive core brand volume growth in U.S. and international markets.”

As described in the Note, for the fourth quarter of 2012, these results,
prepared in accordance with U.S. generally accepted accounting principles
(GAAP), 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,
non-service-related pension expense (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, 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.
As a result, reported gross margin of 43.1 percent increased 280 basis points
versus last year while reported income before interest and income taxes (EBIT)
margin of 14.4 percent declined 20 basis points versus 2011. For the fourth
quarter of 2011, results included pre-tax charges for Project Next Century and
the Global Supply Chain Transformation Program of $27.7 million, or $0.08 per
share-diluted, and $1.0 million of NSRPE. Adjusted net income, which excludes
these net charges, was $169,186,000, or $0.74 per share-diluted, in the fourth
quarter of 2012, compared with $160,325,000, or $0.70 per share-diluted, in
the fourth quarter of 2011, an increase of 5.7 percent in adjusted earnings
per share-diluted.

For the full-year 2012, consolidated net sales were $6,644,252,000, compared
with $6,080,788,000 in 2011, an increase of 9.3 percent. Reported net income
for 2012 was $660,931,000, or $2.89 per share-diluted, compared with
$628,962,000 or $2.74 per share-diluted, for 2011. As described in the Note,
for the full-years 2012 and 2011, these results, prepared in accordance with
GAAP, included net pre-tax charges of $117.7 million and $35.0 million, or
$0.35 and $0.09 per share-diluted, respectively. Charges associated with the
Project Next Century program for 2012 and 2011 were $76.3 million and $43.4
million, or $0.22 and $0.11 per share-diluted, respectively. NSRPE for 2012
and 2011 was $20.6 million and $2.8 million, or $0.06 and $0.01 per
share-diluted, respectively.

Additionally, 2012 results were impacted by acquisition and integration costs
related to the Brookside acquisition of $13.4 million, or $0.04 per
share-diluted and the aforementioned non-cash goodwill impairment charge of
$7.5 million, or $0.03 per share-diluted. Net charges in 2011 also included a
pre-tax gain on the sale of non-core trademark licensing rights of $17.0
million, or $0.05 per share-diluted and a $5.8 million, or $0.02 per
share-diluted, charge related to the Global Supply Chain Transformation
Program. As described in the Note, adjusted net income for each year, which
excludes these net charges, was $740,040,000, or $3.24 per share-diluted in
2012, compared with $650,706,000, or $2.83 per share-diluted in 2011, an
increase of 14.5 percent in adjusted earnings per share-diluted.

In 2013, the Company expects reported earnings per share-diluted of $3.47 to
$3.56. 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 250 to 270 basis points.

Fourth Quarter Performance

Hershey's fourth quarter net sales increased 11.7 percent. As expected,
organic core brand volume trends sequentially improved driven by the U.S.
business. Specifically, volume, excluding the Brookside acquisition, was a 7.0
point benefit as everyday and seasonal product volume was more than double the
contribution from new products. Net price realization and foreign currency
exchange rates were a 2.3 point and 0.3 point benefit, respectively. For the
fourth quarter and full year, the Brookside acquisition was a 2.1 point and
1.9 point benefit, respectively.

Hershey’s U.S. candy, mint and gum (CMG) retail takeaway for the 12 weeks and
year ended December 29, 2012, 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, was up 7.0 percent and 5.7
percent, resulting in market share gains of 1.2 points and 0.6 points,
respectively. U.S. CMG volume and unit trends at retail continued to progress
in the fourth quarter and that is the expectation for 2013.

Fourth quarter adjusted gross margin increased 140 basis points driven by net
price realization and supply chain productivity and cost savings initiatives,
partially offset by higher input costs. Selling, marketing and administrative
(SM&A) expenses, excluding advertising, increased about 19 percent in the
fourth quarter, slightly greater than initial estimates, driven by planned
investments in global go-to-market capabilities, selling and marketing costs
and other employee-related expenses. As a result, adjusted EBIT increased 7.4
percent generating adjusted EBIT margin of 15.8 percent, a 60 basis point
decline versus last year. For the fourth quarter and full year, advertising
increased 27 percent and 16 percent, respectively, supporting new product
launches as well as core U.S. and international brands.

Outlook

The Company expects 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
mini’s, Twizzlers Bites, Jolly Rancher Bites and yet to be announced products.
In key international markets such as China, the Company will extend the
portfolio with the introduction of Hershey’s Kisses Deluxe and build on the
fourth quarter launch of Hershey’s solid chocolate products in instant
consumable and take home pack types. In Brazil, new capacity was installed to
support geographic expansion of Hershey’s Mais chocolate.

As stated in October, gross margin is expected to increase in 2013, driven by
productivity, cost savings initiatives and overall input cost deflation.
Therefore, the Company expects 2013 adjusted gross margin expansion of 180 to
200 basis points. Given this financial flexibility, in 2013 the Company will
accelerate some SM&A investments. Advertising is expected to increase
approximately 20 percent versus last year resulting in an advertising-to-sales
ratio of about 8 percent. Advertising spending on core U.S. brands is expected
to be about in line with last year’s increase. Incremental advertising in 2013
will support the Brookside launch and innovation in both the U.S. and
international markets, including a broader advertising campaign of the
Hershey’s brand in China. SM&A expenses, excluding advertising, are expected
to increase at a rate greater than net sales. These investments will build on
the go-to-market capabilities established over the last few years, as well as
the consumer insights work underway in key international markets for the five
global brands - Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice
Breakers – that the Company believes can transcend borders around the world.
Additionally, the Company will continue to support its Insights Driven
Performance initiative, invest in international selling and marketing
functions and support new products with increased levels of consumer promotion
and sampling to drive trial and repeat. As a result, the Company anticipates
adjusted earnings per share-diluted growth for the full year to be  in the 10
to 12 percent range. This is greater than the previous estimate of an 8 to 10
percent increase.

“Hershey had a solid 2012 and we expect to build on our success in 2013,”
continued Bilbrey. “In 2012 we opened one of the most technologically advanced
chocolate manufacturing facilities in our hometown of Hershey, Pa, initiated
and completed construction of a new innovation center in Shanghai,
successfully integrated the Brookside business and increased market share in
key geographies as well as across all channels in our U.S. business. While the
macroeconomic environment remains challenging, we are well positioned to
succeed in the marketplace and deliver on our commitments in 2013,” Bilbrey
concluded.

Note: In this release, Hershey references income measures that are not in
accordance with U.S. generally accepted accounting principles (GAAP) because
they exclude business realignment and impairment charges, business acquisition
closing and integration costs, certain gains and losses, and
non-service-related pension costs. These non-GAAP financial measures are used
in evaluating results of operations for internal purposes. These non-GAAP
measures are not intended to replace the presentation of financial results in
accordance with GAAP. Rather, the Company believes exclusion of such items
provides additional information to investors to facilitate the comparison of
past and present operations. A reconciliation is provided below of earnings
per share-diluted in accordance with GAAP as presented in the Consolidated
Statements of Income to non-GAAP financial measures, which exclude business
realignment and impairment charges as well as non-service-related pension
expense in 2012 and 2011, closing and integration costs primarily related to
the Brookside acquisition in 2012 and a gain on the sale of trademark
licensing rights recorded in the third quarter of 2011.

                                
                                 Fourth Quarter Ended
                                 December 31, 2012       December 31, 2011
                                               Percent                 Percent
                                               of Net                  of Net
In thousands except per share    Dollars       Sales     Dollars       Sales
amounts
                                                                        
Gross Profit/Gross Margin        $ 755,208     43.1  %   $ 631,206     40.3  %
GSCT charges included in cost      —                       5,816
of sales
Project Next Century
(credits)/charges included in      (1,658  )               15,934
cost of sales
NSRPE included in cost of          1,680                   —
sales
Acquisition (credits) included     (57     )               —        
in cost of sales
Adjusted non-GAAP Gross          $ 755,173     43.1  %   $ 652,956     41.7  %
Profit/Gross Margin
                                                                        
EBIT/EBIT Margin                 $ 252,617     14.4  %   $ 229,009     14.6  %
(Credits)/charges included in      (35     )               21,750
cost of sales
Project Next Century charges       308                     941
included in SM&A
NSRPE included in SM&A             5,873                   993
Acquisition costs included in      1,400                   —
SM&A
Business Realignment &             16,734                  5,041    
Impairment charges, net
Adjusted non-GAAP EBIT/EBIT      $ 276,897     15.8  %   $ 257,734     16.4  %
Margin
                                                                        
Net Income/Net Margin            $ 149,879     8.6   %   $ 142,133     9.1   %
(Credits)/charges included in      (35     )               21,750
cost of sales
Charges included in SM&A           7,581                   1,934
Business Realignment &             16,734                  5,041
Impairment charges, net
Tax impact of net                  (4,973  )               (10,533 )
charges/(credits)
Adjusted non-GAAP Net            $ 169,186     9.7   %   $ 160,325     10.2  %
Income/Net Margin
                                                                        
EPS - Diluted                    $ 0.66                  $ 0.62
Charges included in cost of        —                       0.06
sales
Charges included in SM&A           0.02                    —
Business Realignment &             0.06                    0.02     
Impairment charges, net
Adjusted non-GAAP EPS -          $ 0.74                  $ 0.70     
Diluted

                            
                             Twelve Months Ended
                             December 31, 2012         December 31, 2011
                                             Percent                   Percent
                                             of Net                    of Net
In thousands except per      Dollars         Sales     Dollars         Sales
share amounts
                                                                        
Gross Profit/Gross Margin    $ 2,859,882     43.0  %   $ 2,531,892     41.6  %
GSCT charges included in       —                         5,816
cost of sales
Project Next Century
charges included in cost       36,383                    39,280
of sales
NSRPE included in cost of      8,607                     —
sales
Acquisition costs included     4,080                     —          
in cost of sales
Adjusted non-GAAP Gross      $ 2,908,952     43.8  %   $ 2,576,988     42.4  %
Profit/Gross Margin
                                                                        
EBIT/EBIT Margin             $ 1,111,148     16.7  %   $ 1,055,028     17.4  %
Charges included in cost       49,070                    45,096
of sales
Project Next Century           2,446                     4,961
charges included in SM&A
NSRPE included in SM&A         11,965                    2,849
Gain on sale of trademark      —                         (17,034   )
rights included in SM&A
Acquisition costs included     9,294                     —
in SM&A
Business Realignment &
Impairment                     44,938                    (886      )
charges/(credits), net
Adjusted non-GAAP            $ 1,228,861     18.5  %   $ 1,090,014     17.9  %
EBIT/EBIT Margin
                                                                        
Net Income/Net Margin        $ 660,931       9.9   %   $ 628,962       10.3  %
Charges included in cost       49,070                    45,096
of sales
Charges/(credits) included     23,705                    (9,224    )
in SM&A
Business Realignment &
Impairment                     44,938                    (886      )
charges/(credits), net
Tax impact of net              (38,604   )               (13,242   )
charges/(credits)
Adjusted non-GAAP Net        $ 740,040       11.1  %   $ 650,706       10.7  %
Income/Net Margin
                                                                        
EPS - Diluted                $ 2.89                    $ 2.74
Charges included in cost       0.14                      0.12
of sales
Charges/(credits) included     0.07                      (0.03     )
in SM&A
Business Realignment &         0.14                      —          
Impairment charges, net
Adjusted non-GAAP EPS -      $ 3.24                    $ 2.83       
Diluted
                                                                        

In 2011, the Company recorded GAAP charges of $43.4 million, or $0.11 per
share-diluted, attributable to Project Next Century and $5.8 million, or $0.02
per share-diluted, related to the Global Supply Chain Transformation (GSCT)
program and $2.8 million, or $0.01 per share-diluted, of non-service-related
pension expense (NSRPE). Additionally, in the third quarter of 2011, the
Company recorded a pre-tax gain on the sale of certain trademark licensing
rights of $17.0 million, or $0.05 per share-diluted. In 2012, the Company
recorded GAAP charges of $76.3 million, or $0.22 per share-diluted,
attributable to the Project Next Century program and $20.6 million, or $0.06
per share-diluted, of NSRPE. Additionally, 2012 results were impacted by
acquisition and integration costs related to the Brookside acquisition of
$13.4 million, or $0.04 per share-diluted and the aforementioned non-cash
goodwill impairment of $7.5 million, or $0.03 per share-diluted. In 2013 the
Company expects to record total GAAP charges of about $10 million to $15
million, or $0.03 to $0.05 per share-diluted, attributable to Project Next
Century and $13.2 million, or $0.04 per share-diluted, of non-service related
pension expenses (NSRPE).

Below is a reconciliation of earnings per share-diluted in accordance with
GAAP to non-GAAP adjusted earnings per share-diluted:

                                                                
                                                                 2013
                                              2011     2012      (Projected)
Reported EPS - Diluted                        $2.74    $2.89     $3.47 - $3.56
Acquisition closing & integration charges     —        0.04      —
Gain on sale of trademark licensing rights    (0.05)   —         —
Total Business Realignment and Impairment     0.13     0.25      0.03 - 0.05
Charges
NSRPE                                         0.01     0.06      0.04
                                                                  
Adjusted EPS – Diluted                        $2.83    $3.24     $3.56 - $3.63
                                                                  

                                                                       
                                                             Appendix I
The Hershey Company
Project Next Century
Expected Timing of Costs and Savings ($m)
                                                                  
                                          2013               2014
                                                                         
Realignment Charges:
Cash                                      $10   to   $15     ~     $5
Non-Cash                                  -          -       -          -
                                                                         
Project Management and
Start-up Costs                            -          -       -          -
                                                                         
Total Project Next Century Realignment
Charges & Costs                           $10   to   $15     ~     $5
                                                                         
                                                                         
                                                                         
Project Next Century Cap-Ex               $15   to   $20     -          -
                                                                         
                                                                         
Project Next Century projected savings:
Annual                                    $25   to   $30     $5    to   $10
Cumulative                                $60   to   $70     $65   to   $80
                                                                         

Safe Harbor Statement

This release contains statements that are forward-looking. These statements
are made based upon current expectations that are subject to risk and
uncertainty. Because actual results may differ materially from those contained
in the forward-looking statements, you should not place undue reliance on the
forward-looking statements when deciding whether to buy, sell or hold the
Company’s securities. Factors that could cause results to differ materially
include, but are not limited to: issues or concerns related to the quality and
safety of our products, ingredients or packaging; changes in raw material and
other costs; selling price increases, including volume declines associated
with pricing elasticity; market demand for our new and existing products;
increased marketplace competition; disruption to our supply chain; failure to
successfully identify, execute and integrate acquisitions, divestitures and
joint ventures; changes in governmental laws and regulations, including taxes;
political, economic, and/or financial market conditions; risks and
uncertainties related to our international operations and related growth
targets; disruptions, failures or security breaches of our information
technology infrastructure; the impact of future developments related to the
investigation by government regulators of alleged pricing practices by members
of the confectionery industry, including risks from current or subsequent
litigation or further government action; pension cost factors, such as
actuarial assumptions, market performance and employee retirement decisions
and funding requirements; our ability to achieve ongoing annual savings from
supply chain realignment initiatives; and such other matters as discussed in
our Annual Report on Form 10-K for 2011. All information in this press release
is as of January 31, 2013. The Company undertakes no duty to update any
forward-looking statement to conform the statement to actual results or
changes in the Company’s expectations.

Live Web Cast

As previously announced, the Company will hold a conference call with analysts
today at 8:30 a.m. Eastern Time. The conference call will be web cast live via
Hershey’s corporate website www.thehersheycompany.com. Please go to the
Investor Relations section of the website for further details.

                                                              
The Hershey Company
Summary of Consolidated Statements of Income
for the periods ended December 31, 2012 and December 31, 2011
(in thousands except per share amounts)
                                                                              
                               Fourth Quarter                  Twelve Months
                               2012            2011            2012            2011
                                                                                  
Net Sales                      $ 1,751,035     $ 1,567,145     $ 6,644,252     $ 6,080,788  
                                                                                  
Costs and
Expenses:
Cost of                          995,827         935,939         3,784,370       3,548,896
Sales
Selling, Marketing and           485,857         397,156         1,703,796       1,477,750
Administrative
Business Realignment and
Impairment                       16,734          5,041           44,938          (886      )
Charges/(Credits), net
                                                                                  
Total Costs and Expenses         1,498,418       1,338,136       5,533,104       5,025,760  
                                                                                  
Income Before Interest and       252,617         229,009         1,111,148       1,055,028
Income Taxes (EBIT)
Interest Expense, net            22,666          21,314          95,569          92,183     
                                                                                  
Income Before Income Taxes       229,951         207,695         1,015,579       962,845
Provision for Income Taxes       80,072          65,562          354,648         333,883    
                                                                                  
Net Income                     $ 149,879       $ 142,133       $ 660,931       $ 628,962    
                                                                                  
Net Income  - Basic   -        $ 0.69          $ 0.65          $ 3.01          $ 2.85       
Per Share             Common
                      -
            - Basic   Class    $ 0.62          $ 0.59          $ 2.73          $ 2.58       
                      B
            -         -        $ 0.66          $ 0.62          $ 2.89          $ 2.74       
            Diluted   Common
                                                                                  
Shares      - Basic   -          163,349         165,023         164,406         165,929    
Outstanding           Common
                      -
            - Basic   Class      60,630          60,632          60,630          60,645     
                      B
            -         -          227,264         229,117         228,337         229,919    
            Diluted   Common
                                                                                  
Key
Margins:
Gross                          43.1        %   40.3        %     43.0      %     41.6      %
Margin
EBIT Margin                    14.4        %   14.6        %     16.7      %     17.4      %
Net Margin                     8.6         %   9.1         %     9.9       %     10.3      %

                                                                          
The Hershey Company
Consolidated Balance Sheets
as of December 31, 2012 and December 31, 2011
(in thousands of dollars)
Assets                                       2012            2011
                                                                          
Cash and Cash Equivalents                    $ 728,272       $ 693,686
Accounts Receivable - Trade (Net)            461,383         399,499
Deferred Income Taxes                        122,224         136,861
Inventories                                  633,262         648,953
Prepaid Expenses and Other                     168,344         167,559    
                                                                          
Total Current Assets                         2,113,485       2,046,558
                                                                          
Net Plant and Property                       1,674,071       1,559,717
Goodwill                                     588,003         516,745
Other Intangibles                            214,713         111,913
Deferred Income Taxes                        12,448          33,439
Other Assets                                   152,119         138,722    
                                                                          
Total Assets                                 $ 4,754,839     $ 4,407,094  
                                                                          
Liabilities and Stockholders' Equity
                                                                          
Loans Payable                                $ 375,898       $ 139,673
Accounts Payable                             441,977         420,017
Accrued Liabilities                          650,906         612,186
Taxes Payable                                  2,329           1,899      
                                                                          
Total Current Liabilities                    1,471,110       1,173,775
                                                                          
Long-Term Debt                               1,530,967       1,748,500
Other Long-Term Liabilities                  668,732         603,876
Deferred Income Taxes                          35,657          —          
                                                                          
Total Liabilities                            3,706,466       3,526,151
                                                                          
Total Stockholders' Equity                     1,048,373       880,943    
                                                                          
Total Liabilities and Stockholders' Equity   $ 4,754,839     $ 4,407,094  

Contact:

The Hershey Company
FINANCIAL CONTACT:
Mark Pogharian, 717-534-7556
or
MEDIA CONTACT:
Jeff Beckman, 717-534-8090
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