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October 27, 2011
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On a reported basis, earnings for the quarter came in at 86 cents, up from 78 cents per share delivered in the year-ago quarter.
The adjusted earnings in the third quarter of 2011 exclude net pre-tax charges of $13.5 million or 3 cents per share related to the Project Next Century program announced in June 2010. The results also exclude a pre-tax gain of $17.0 million, or 5 cents per share on the sale of a non-core trademark license. In the third quarter of 2010, the adjusted earnings exclude net pre-tax charges of $4.5 million, or 1 cent per share related to the Project Next Century program.
Management expects its total pre-tax GAAP charges and non-recurring project implementation costs related to the Project Next Century program to be $140 million to $160 million for 2011.
The company thus expects its reported earnings per share to increase approximately 25%, including business realignment and impairment charges of 11-12 cents per share and the gain on sale of a non-core trademark license of 5 cents, to be in the $2.72 to $2.76 range in 2011. The company also expects 2011 adjusted earnings per share to increase around 10% for the full year.
Further, Hershey’s expects its 2012 adjusted earnings per share to be within the company’s long-term 6%-8% objective.
Quarter in Detail
Exceeding the initial expectations, Hershey’s net sales of $1.624 billion rose 5% from the prior-year quarter, buoyed by volume gains from Halloween and strong response from its new products of Reese's Minis and Hershey's Drops. Net price realization, primarily in the U.S., added 5.4 point to the sales, while foreign currency exchange rates contributed about 0.6 point.
Quarterly sales were slightly ahead of the Zacks Consensus Revenue Estimate of $1.620 billion and the prior-year sales of $1.547 billion.
Management ramped up its advertising spending by 7% in the third quarter of 2011, and expects them to increase in the high-single digit percentage for 2011.
Hershey’s adjusted gross margin for the quarter contracted 20 basis points (bps) to 42.5% as net price realization and supply chain efficiencies and productivity were more than offset by higher input and supply chain costs. Adjusted operating margin declined 10 bps to 19.6% in the third quarter of 2011.
Management continues to deliver its cost savings and productivity goals for 2011 and expects to continue to increase U.S. market share for 2011.
Consequently, the company expects 2011 net sales, including the impact of foreign currency exchange rates, to increase about 7%. For 2012, Hershey’s expects its net sales, including the impact of foreign currency exchange rates, to be within the company’s long-term 3% - 5% objective.
Other Financial Details
Hershey ended the quarter with cash and cash equivalents of $292.3 million, long-term debt of $1.5 billion, and shareholders’ equity of $954.7 million.
Based in Pennsylvania, Hershey engages in manufacturing, marketing, selling and distributing various chocolate and confectionery products, pantry items and gum and mint refreshment products worldwide. It competes with Kraft Foods Inc. (KFT) which will report its third quarter 2011 earnings on November 2.
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