Hershey Announces First Quarter Results

  Hershey Announces First Quarter Results

Business Wire

HERSHEY, Pa. -- April 25, 2013

The Hershey Company (NYSE: HSY):

  *Net Sales increase 5.5% driven by volume
  *Earnings per share-diluted of $1.06 as reported and $1.09 adjusted
  *Outlook for 2013 net sales reaffirmed, earnings per share-diluted updated:

       *Full year net sales expected to increase 5-7%, driven primarily by
         volume
       *Reported earnings per share-diluted expected to be $3.52 to $3.58
       *Adjusted earnings per share-diluted expected to increase about 12%
         and be in the $3.61 to $3.65 range

The Hershey Company (NYSE: HSY) today 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 Company. “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.”

As described in the Note below, 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’s, Hershey’s Kisses, Ice 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.

Outlook

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 the go-to-market capabilities established over the last few years,
consumer insights work in key international markets, our 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
the Hershey'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.

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 and non-service-related pension expense (NSRPE).
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, NSRPE and
acquisition closing and integration costs.

                         
                           First Quarter Ended
                           March 31, 2013            April 1, 2012
                                        Percent of                Percent of
In thousands except per    Dollars       Net Sales    Dollars       Net Sales
share amounts
Gross Profit/Gross         $ 849,337     46.5   %     $ 743,396     42.9   %
Margin
Project Next Century
charges included in cost   127                        19,454
of sales
NSRPE included in cost     1,357                      2,176
of sales
Acquisition costs
included in cost of        253                       588       
sales
Adjusted non-GAAP Gross    $ 851,074    46.6   %     $ 765,614    44.2   %
Profit/Gross Margin
                                                                    
EBIT/EBIT Margin           $ 391,817     21.4   %     $ 334,530     19.3   %
Charges included in cost   1,737                      22,218
of sales
Project Next Century       6                          813
charges included in SM&A
NSRPE included in SM&A     1,491                      1,975
Acquisition costs          493                        5,331
included in SM&A
Business Realignment &     6,851                     3,304     
Impairment charges, net
Adjusted non-GAAP          $ 402,395    22.0   %     $ 368,171    21.3   %
EBIT/EBIT Margin
                                                                    
Net Income/Net Margin      $ 241,906     13.2   %     $ 198,651     11.5   %
Charges included in cost   1,737                      22,218
of sales
Charges included in SM&A   1,990                      8,119
Business Realignment &     6,851                      3,304
Impairment charges, net
Tax impact of charges      (4,016    )                (12,382   )
Adjusted non-GAAP Net      $ 248,468    13.6   %     $ 219,910    12.7   %
Income/Net Margin
                                                                    
EPS - Diluted              $ 1.06                     $ 0.87
Charges included in cost   —                          0.06
of sales
Charges included in SM&A   0.01                       0.02
Business Realignment &     0.02                      0.01      
Impairment charges, net
Adjusted non-GAAP EPS -    $ 1.09                    $ 0.96    
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 closing and integration costs related to the Brookside
acquisition of $13.4 million, or $0.04 per share-diluted and non-cash
impairment charges of $7.5 million, or $0.03 per share-diluted, related to the
discontinuance of the Tri-US, Inc. nutritional beverages business. 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 NSRPE.

Below is a reconciliation of earnings per share-diluted in accordance with
GAAP to non-GAAP adjusted earnings per share-diluted and projected adjusted
earnings per share-diluted for 2013:

                                                         
                                                   2012     2013 (Projected)
Reported EPS-Diluted                                $2.89     $3.52 - $3.58
Acquisition closing & integration charges           0.04      —
Total Business Realignment and Impairment           0.25      0.03 - 0.05
Charges
NSRPE                                              0.06     0.04
Adjusted EPS-Diluted                               $3.24    $3.61 - $3.65
                                                              

                                                        
                                                             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    $ 10   to   $ 15   ~      $ 5
Charges & Costs
                                                                          
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 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; 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 and
civil antitrust lawsuits in the United States; pension costs or funding
requirements that could increase at a higher than anticipated rate; and such
other matters as discussed in our Annual Report on Form 10-K for 2012.

All information in this press release is as of April 25, 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 Webcast

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 webcast 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 three months ended March 31, 2013 and April 1, 2012
(in thousands except per share amounts)
                                             
                                                 First Quarter
                                                 2013           2012
                                                                 
Net Sales                                        $ 1,827,426    $ 1,732,064 
                                                                 
Costs and Expenses:
Cost of Sales                                    978,089         988,668
Selling, Marketing and Administrative            450,669         405,562
Business Realignment and Impairment Charges,     6,851          3,304       
net
                                                                 
Total Costs and Expenses                         1,435,609      1,397,534   
                                                                 
Income Before Interest and Income Taxes (EBIT)   391,817         334,530
Interest Expense,                                23,633         24,024      
net
                                                                 
Income Before Income Taxes                       368,184         310,506
Provision for Income Taxes                       126,278        111,855     
                                                                 
Net Income                                       $ 241,906      $ 198,651   
                                                                 
Net Income Per Share    - Basic      - Common    $ 1.11         $ 0.91      
                        - Basic      - Class B   $ 1.00         $ 0.82      
                        - Diluted    - Common    $ 1.06         $ 0.87      
                                                                 
Shares Outstanding      - Basic      - Common    163,776        164,603     
                        - Basic      - Class B   60,629         60,631      
                        - Diluted    - Common    227,706        228,655     
                                                                 
Key Margins:
Gross Margin                                     46.5        %   42.9        %
EBIT Margin                                      21.4        %   19.3        %
Net Margin                                       13.2        %   11.5        %


The Hershey Company
Consolidated Balance Sheets
as of March 31, 2013 and December 31, 2012
(in thousands of dollars)
                                                          
Assets                                       2013            2012
Cash and Cash Equivalents                    $ 730,096       $ 728,272
Accounts Receivable - Trade (Net)            516,593         461,383
Deferred Income Taxes                        119,812         122,224
Inventories                                  626,643         633,262
Prepaid Expenses and Other                   186,877        168,344
                                                             
Total Current Assets                         2,180,021       2,113,485
                                                             
Net Plant and Property                       1,705,387       1,674,071
Goodwill                                     585,735         588,003
Other Intangibles                            210,071         214,713
Deferred Income Taxes                        16,793          12,448
Other Assets                                 147,623        152,119
                                                             
Total Assets                                 $ 4,845,630    $ 4,754,839
                                                             
Liabilities and Stockholders' Equity
                                                             
Loans Payable                                $ 353,406       $ 375,898
Accounts Payable                             412,319         441,977
Accrued Liabilities                          620,420         650,906
Taxes Payable                                105,922        2,329
                                                             
Total Current Liabilities                    1,492,067       1,471,110
                                                             
Long-Term Debt                               1,539,800       1,530,967
Other Long-Term Liabilities                  666,175         668,732
Deferred Income Taxes                        35,024         35,657
                                                             
Total Liabilities                            3,733,066       3,706,466
                                                             
Total Stockholders' Equity                   1,112,564      1,048,373
                                                             
Total Liabilities and Stockholders' Equity   $ 4,845,630    $ 4,754,839

Contact:

The Hershey Company
FINANCIAL CONTACT:
Mark Pogharian, 717-534-7556
or
MEDIA CONTACT:
Leigh Horner, 717-508-1247