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Hershey's EPS In Line, Ups Dividend

Zacks Equity Research

The Hershey Company (NYSE:HSY - News) posted fourth quarter 2011 adjusted earnings of 70 cents a share, in line with the Zacks Consensus Estimate. However, it surpassed the prior-year adjusted earnings by 14.75%.

The company posted adjusted fiscal 2011 earnings of $2.82 per share, up 10.6% from the previous year. The full-year earnings per share was also in line with the Zacks Consensus estimates.

On a reported basis, earnings for the quarter came in at 62 cents, up from 59 cents per share delivered in the year-ago quarter. For the fiscal year, the reported earnings came at $2.74 per share, compared with $2.21 per share reported a year ago.

The adjusted earnings in the fourth quarter of 2011 exclude net pre-tax charges of $27.7 million or 8 cents per share, primarily related to the Project Next Century program announced in June 2010.

Management narrowed its outlook for total pre-tax GAAP charges and non-recurring project implementation costs related to the Project Next Century to the range of $150 million to $160 million, instead of $140 million to $160 million announced previously.

Thus, the company expects its reported EPS to be in the range of $2.79 to $2.89, which includes business realignment and impairment charges of 16-19 cents per share related to Project Next Century and acquisition closing and integration costs related to the Brookside acquisition of 4-5 cents per share.

Quarter in Detail

Hershey’s net sales of $1.567 billion rose 5.7% from the prior-year quarter, buoyed by new product introductions in the U.S. and international markets, along with seasonal volume gains. Net price realization, primarily in the U.S., added 5.9 pointsto the sales, partially offset by 0.6 points by unfavorable foreign currency.

For the full year 2011, consolidated net sales were $6.080 billion,up by 7.2% compared with $5.671 billion in 2010.

Quarterly sales surpassed the Zacks Consensus Revenue Estimate of $1.556 billion, fiscal sales were in line with analysts’ estimates.

Advertising spending declined in the fourth quarter ascompared to the significant step-up investment in the fourth quarter of 2010. For full year 2011, management ramped up its advertising spending by 6%, on the back of a shift in focus toward market research thatprimarily support additional investments related to Insights Driven Performance initiative.

Hershey’s adjusted gross margin for the quarter contracted 50 basis points (bps), as productivity and cost savings goals and the net price realization were more than offset by higher input and supply chain costs.

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 2012 net sales, to grow 5%-7%, including the impact of foreign currency exchange rates.

Other Financial Details

Hershey ended the quarter with cash and cash equivalents of $693.7 million, long-term debt of $1.7 billion, and shareholders’ equity of $872.6 million. The company announced a 10% increase in quarterly dividend to reflect the confidence in continually generatingsolid cash flows.

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. (NYSE:KFT - News) which will report its fourth quarter 2011 earnings on February 21.

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