• Hershey Reports Fourth-Quarter and Full-Year 2019 Financial Results; Provides 2020 Outlook

    Источник: Nasdaq GlobeNewswire / 30 янв 2020 07:00:11   America/New_York

    HERSHEY, Pa., Jan. 30, 2020 (GLOBE NEWSWIRE) -- The Hershey Company (NYSE: HSY) today announced net sales and earnings for the fourth quarter and full year ended December 31, 2019. The company also provided its 2020 reported net sales and earnings outlook.

    “We had a strong year in 2019 with accelerated business performance and differentiated financial results,” said Michele Buck, The Hershey Company President and Chief Executive Officer.  "This was driven by momentum in our core U.S. confection portfolio in both retail takeaway and margin expansion, incremental and profitable international growth, and further expansion of our snacking portfolio.  We continued investing in our brands, capabilities, and people and have confidence we will deliver another year of high-quality financial results in 2020.”

    Fourth-Quarter 2019 Financial Results Summary1

    • Consolidated net sales of $2,068.1 million, an increase of 4.0%.
    • Organic, constant currency net sales increased 1.9%.
    • The net impact of acquisitions and divestitures on net sales was a 2.2 point benefit, while foreign currency exchange was a 0.1 point headwind.
    • Reported net income of $207.2 million, or $0.98 per share-diluted, a decrease of 38.8%.
    • Adjusted earnings per share-diluted of $1.28, an increase of 1.6%.

    1 All comparisons for the fourth quarter of 2019 are with respect to the fourth quarter ended December 31, 2018

    2019 Full-Year Financial Results Summary2

    • Consolidated net sales of $7,986.3 million, an increase of 2.5%.
    • Organic, constant currency net sales increased 1.8%.
    • The net impact of acquisitions and divestitures on net sales was a 1.0 point benefit, while foreign currency exchange was a 0.3 point headwind.
    • Reported net income of $1,149.7 million, or $5.46 per share-diluted, a decrease of 2.2%.
    • Adjusted earnings per share-diluted of $5.78, an increase of 7.8%.

    2 All comparisons for full-year 2019 are with respect to the full year ended December 31, 2018

    2020 Full-Year Financial Outlook Summary3

    • Full-year reported net sales are expected to increase in the range of 2% to 4%.
      • Acquisitions are estimated to be a 1.0 point benefit to net sales growth4.
      • The impact of foreign currency exchange is anticipated to be a slight headwind based on current exchange rates.
    • Full-year reported earnings per share-diluted are expected to be in the range of $6.04 to $6.20, an increase of 11% to 14% versus 2019.
    • Full-year adjusted earnings per share-diluted are expected to be in the range of $6.13 to $6.24, an increase of 6% to 8% versus 2019.

    3 All comparisons for full-year 2020 are with respect to the full year ended December 31, 2019
    4 Reflects the impact from the acquisition of ONE Brands, LLC

    Fourth-Quarter 2019 Results
    Consolidated net sales were $2,068.1 million in the fourth quarter of 2019 versus $1,987.9 million in the year ago period, an increase of 4.0%.  Price realization was a 3.6 point benefit and the net impact of acquisitions and divestitures was a 2.2 point benefit driven by the acquisition of ONE Brands. Volume and foreign currency exchange were a 1.7 point and a 0.1 point headwind, respectively.  These results were in line with expectations.

    As outlined in the table below, the company’s fourth-quarter 2019 results, as prepared in accordance with U.S. generally accepted accounting principles (GAAP), included items positively impacting comparability of $81.6 million, or $0.30 per share-diluted.  For the fourth quarter of 2018, items negatively impacting comparability totaled $56.1 million, or $0.34 per share-diluted.

    Reported gross margin was 44.1% in the fourth quarter of 2019, compared to 47.5% in the fourth quarter of 2018, a decrease of 340 basis points.  This decrease was driven by lower derivative mark to market gains.  Adjusted gross margin was 43.4% in the fourth quarter of 2019, compared to 42.5% in the fourth quarter of 2018, an increase of 90 basis points, driven by net price realization and favorable commodities.  

    Selling, marketing and administrative expenses increased 6.4% in the fourth quarter of 2019 versus the fourth quarter of 2018, driven by increased advertising spending, higher incentive compensation related to strong 2019 performance and a structural, market-based increase in variable compensation linked to company performance for our managers and individual contributors.  Advertising and related consumer marketing expenses increased 2.1% in the fourth quarter of 2019 versus the same period last year driven by advertising increases in North America.  Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 8.9% versus the fourth quarter of 2018.  This increase was driven by the aforementioned higher incentive compensation and increased variable compensation.

    Fourth-quarter 2019 reported operating profit of $286.2 million decreased 32.0% versus the fourth quarter of 2019, resulting in an operating profit margin of 13.8%, a decrease of 740 basis points driven by the recognition of impairment charges to write down long-lived and intangible assets associated with the 2015 KRAVE Pure Foods, Inc. (Krave) acquisition.  Adjusted operating profit of $370.5 million increased 0.4% versus the fourth quarter of 2018.  This resulted in an adjusted operating profit margin of 17.9%, a decrease of 70 basis points versus the fourth quarter of 2018 as gross margin gains were more than offset by higher incentive compensation.

    The effective tax rate in the fourth quarter of 2019 was 4.6%, an increase of 100 basis points versus the fourth quarter of 2018.  The adjusted tax rate in the fourth quarter of 2019 was 9.8%, an increase of 30 basis points versus the fourth quarter of 2018.  Both the effective and adjusted tax rate increases were driven primarily by lower tax credits versus the year ago period.

    The following table presents a summary of items impacting comparability in each period (see Appendix I for additional information):

     Pre-Tax (millions) Earnings Per Share-Diluted
     Three Months Ended Three Months Ended
     December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
            
    Derivative Mark-to-Market Gains$(15.2)  $(98.8)  $(0.08)  $(0.47) 
    Business Realignment Activities0.8   9.2      0.05  
    Acquisition-Related Costs2.2   8.4   0.01   0.04  
    Pension Settlement Charges Relating to Company-Directed Initiatives0.1   1.4      0.01  
    Long-Lived and Intangible Asset Impairment Charges107.7   28.9   0.51   0.13  
    Noncontrolling Interest Share of Business Realignment and Impairment Charges(2.7)  (5.2)  (0.01)  (0.02) 
    Gain on Sale of Other Assets(11.3)     (0.05)    
    Tax effect of all adjustments reflected above      (0.08)  (0.08) 
     $81.6   $(56.1)  $0.30   $(0.34) 


     Pre-Tax (millions) Earnings Per Share-Diluted
     Twelve Months Ended Twelve Months Ended
     December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
            
    Derivative Mark-to-Market Gains$(28.7)  $(168.2)  $(0.14)  $(0.80) 
    Business Realignment Activities9.2   51.8   0.04   0.25  
    Acquisition-Related Costs10.2   44.8   0.05   0.21  
    Pension Settlement Charges Relating to Company-Directed Initiatives2.4   5.5   0.01   0.03  
    Long-Lived and Intangible Asset Impairment Charges112.5   57.7   0.53   0.27  
    Noncontrolling Interest Share of Business Realignment and Impairment Charges(2.8)  (6.3)  (0.01)  (0.03) 
    Gain on Sale of Other Assets(11.3)  (2.7)  (0.05)  (0.01) 
    Tax effect of all adjustments reflected above      (0.11)  (0.14) 
     $91.5   $(17.4)  $0.32   $(0.22) 

    The following are comments about segment performance for the fourth quarter of 2019 versus the year-ago period. See the schedule of supplementary information within this press release for additional information on segment net sales and profit.

    North America (U.S. and Canada)
    Hershey’s North America net sales were $1,812.7 million in the fourth quarter of 2019, an increase of 3.8% versus the same period last year.  Price realization was a 4.0 point benefit and the net impact of acquisitions and divestitures was a 2.5 point benefit.  Volume was a 2.7 point headwind and foreign currency exchange was negligible.

    Total Hershey U.S. retail takeaway for the 12 weeks ended December 29, 20195 in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores) increased 2.5% versus the prior-year period. Hershey’s U.S. candy, mint and gum retail takeaway increased 2.8%, resulting in a 17 basis point market share gain versus the prior-year period.  Hershey’s salty snack retail takeaway increased 11.3% during the latest 12 weeks led by strong Skinny Pop performance. 

    North America advertising and related consumer marketing expenses increased 5.1% in the fourth quarter of 2019 versus the same period last year driven by advertising.  Gross margin gains driven by net price realization and favorable commodities resulted in a segment income increase of 7.0% to $519.8 million in the fourth quarter of 2019, compared to $485.7 million in the fourth quarter of 2018.

    5 Includes candy, mint, gum, salty snacks, meat snacks and grocery items

    International and Other
    Fourth-quarter 2019 net sales for Hershey’s International and Other segment increased 5.8% versus the same period last year, to $255.4 million.  Constant currency net sales grew 6.3%, offset by a 0.5 point headwind from foreign currency exchange.  Volume was a 5.7 point benefit and net price realization contributed an additional 0.6 points.  Combined net sales in our strategic focus markets (Mexico, Brazil, India and China) increased approximately 5.3%.  Excluding a 0.7 point headwind from foreign currency exchange rates, combined organic constant currency net sales in Mexico, Brazil, India and China grew approximately 6.0%.

    International and Other segment income increased 67.9% to $14.1 million in the fourth quarter of 2019 driven by gains from volume growth and gross margin expansion along with increasingly efficient advertising and related consumer marketing expenses.

    A reconciliation between reported net sales growth rates and (i) constant currency net sales growth rates and (ii) organic constant currency net sales growth rates is provided below:

     Three Months Ended December 31, 2019
     Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis Impact of Acquisitions and Divestitures Percentage Change on Organic Constant Currency Basis
    Mexico8.4% 2.7 % 5.7% % 5.7%
    Brazil2.7% (9.1)% 11.8% % 11.8%
    India16.0% 1.4 % 14.6% % 14.6%
    China9.2% (2.3)% 11.5% % 11.5%
    Total Strategic Focus Markets5.3% (0.7)% 6.0% % 6.0%


     Twelve Months Ended December 31, 2019
     Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis Impact of Acquisitions and Divestitures Percentage Change on Organic Constant Currency Basis
    Mexico6.7 % (0.3)% 7.0 %  % 7.0%
    Brazil(5.9)% (8.2)% 2.3 %  % 2.3%
    India4.9 % (3.3)% 8.2 %  % 8.2%
    China(13.4)% (3.4)% (10.0)% (17.7)% 7.7%
    Total Strategic Focus Markets(1.5)% (2.7)% 1.2 % (2.2)% 3.5%

    Unallocated Corporate Expense
    Hershey's unallocated corporate expense in the fourth quarter of 2019 was $163.4 million, an increase of $38.2 million, or 30.5% versus the same period of 2018.  This increase was driven by higher incentive compensation related to strong 2019 performance and a structural, market-based increase of variable compensation linked to company performance for our managers and individual contributors.  

    2020 Full-Year Financial Outlook
    Full-year reported net sales are expected to increase 2% to 4%.  Acquisitions are expected to be a 1.0 point benefit to net sales growth, and the impact of foreign currency exchange is expected to be slightly negative based on current exchange rates.

    Full-year reported earnings per share-diluted are expected to be in the range of $6.04 to $6.20, an increase of 11% to 14% versus 2019.  Full-year adjusted earnings per share-diluted are expected to be in the range of $6.13 to $6.24, an increase 6% to 8% versus 2019.

    Below is a reconciliation of projected 2020, full-year 2019 and full-year 2018 earnings per share-diluted calculated in accordance with GAAP to non-GAAP adjusted earnings per share-diluted:

     2020 (Projected)  2019  2018
    Reported EPS – Diluted$6.04 - $6.20 $5.46 $5.58
    Derivative mark-to-market gains  (0.14)  (0.80)
    Business realignment activities0.01 - 0.02  0.04  0.25
    Acquisition-related costs0.02 - 0.04  0.05  0.21
    Gain on sale of other assets  (0.05)  (0.01)
    Pension settlement charges relating to company-directed initiatives0.01 - 0.03  0.01  0.03
    Long-lived and intangible asset impairment charges  0.53  0.27
    Noncontrolling interest share of business realignment and impairment charges  (0.01)  (0.03)
    Tax effect of all adjustments reflected above  (0.11)  (0.14)
    Adjusted EPS – Diluted$6.13 - $6.24 $5.78 $5.36

    2020 projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that will be reflected within corporate unallocated expense in segment results until the related inventory is sold, since we are not able to forecast the impact of the market changes.

    Live Webcast
    At 8:30 a.m. ET today, Hershey will host a conference call to elaborate on fourth-quarter and full-year 2019 results.  To access this call as a webcast, please go to Hershey’s web site at http://www.thehersheycompany.com.

    Note:  In this release, Hershey references income measures that are not in accordance with GAAP because they exclude certain items impacting comparability, including business realignment activities, acquisition-related costs, gains realized on the sale of other assets, pension settlement charges relating to company-directed initiatives, long-lived and intangible asset impairment charges, and gains and losses associated with mark-to-market commodity derivatives.  These non-GAAP financial measures are used in evaluating results of operations for internal purposes and 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 of the non-GAAP financial measures referenced in this release to their nearest comparable GAAP financial measures as presented in the Consolidated Statements of Income is provided below.

    Reconciliation of Certain Non-GAAP Financial Measures
    Consolidated resultsThree Months Ended Twelve Months Ended
    In thousands except per share dataDecember 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
    Reported gross profit$911,912   $944,352   $3,622,478   $3,575,325  
    Derivative mark-to-market gains(15,204)  (98,799)  (28,651)  (168,263) 
    Business realignment activities   (2,778)     11,323  
    Acquisition-related costs1,248   1,207   1,978   6,194  
    Non-GAAP gross profit897,956   843,982   3,595,805   3,424,579  
            
    Reported operating profit286,198   421,165   1,595,952   1,623,664  
    Derivative mark-to-market gains(15,204)  (98,799)  (28,651)  (168,263) 
    Business realignment activities770   9,157   9,238   51,827  
    Acquisition-related costs2,245   8,416   10,196   44,829  
    Long-lived and intangible asset impairment charges107,744   28,912   112,485   57,729  
    Gain on sale of other assets(11,289)     (11,289)  (2,658) 
    Non-GAAP operating profit370,464   368,851   1,687,931   1,607,128  
            
    Reported provision for income taxes9,903   12,370   234,032   239,010  
    Derivative mark-to-market gains*(2,173)  (7,377)  (3,423)  (15,778) 
    Business realignment activities*(189)  (806)  1,950   12,961  
    Acquisition-related costs*636   1,846   2,533   9,105  
    Pension settlement charges relating to Company-directed initiatives*21   355   584   1,347  
    Long-lived and intangible asset impairment charges*23,972   13,732   23,972   15,875  
    Impact of U.S. tax reform   7,754      7,754  
    Gain on sale of other assets*(2,755)     (2,755)  (1,203) 
    Non-GAAP provision for income taxes29,415   27,874   256,893   269,071  
            
    Reported net income207,187   336,791   1,149,692   1,177,562  
    Derivative mark-to-market gains(13,031)  (91,422)  (25,228)  (152,485) 
    Business realignment activities959   9,963   7,288   38,866  
    Acquisition-related costs1,609   6,570   7,663   35,724  
    Pension settlement charges relating to Company-directed initiatives83   1,082   1,808   4,108  
    Long-lived and intangible asset impairment charges83,772   15,180   88,513   41,854  
    Impact of U.S. tax reform   (7,754)     (7,754) 
    Noncontrolling interest share of business realignment and impairment charges(2,725)  (5,191)  (2,849)  (6,348) 
    Gain on sale of other assets(8,534)     (8,534)  (1,455) 
    Non-GAAP net income269,320   265,219   1,218,353   1,130,072  
            
    Reported EPS - Diluted0.98   1.60   5.46   5.58  
    Derivative mark-to-market gains(0.08)  (0.47)  (0.14)  (0.80) 
    Business realignment activities   0.05   0.04   0.25  
    Acquisition-related costs0.01   0.04   0.05   0.21  
    Pension settlement charges relating to Company-directed initiatives   0.01   0.01   0.03  
    Long-lived and intangible asset impairment charges0.51   0.13   0.53   0.27  
    Noncontrolling interest share of business realignment and impairment charges(0.01)  (0.02)  (0.01)  (0.03) 
    Gain on sale of other assets(0.05)     (0.05)  (0.01) 
    Tax effect of all adjustments reflected above**(0.08)  (0.08)  (0.11)  (0.14) 
    Non-GAAP EPS - Diluted1.28   1.26   5.78   5.36  

    * The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.
    ** Adjustments reported above are reported on a pre-tax basis before the tax effect described in the reconciliation above for Non-GAAP provision for income taxes.

    In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:

     Three Months Ended Twelve Months Ended
     December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
    As reported gross margin44.1% 47.5% 45.4% 45.9%
    Non-GAAP gross margin (1)43.4% 42.5% 45.0% 44.0%
            
    As reported operating profit margin13.8% 21.2% 20.0% 20.8%
    Non-GAAP operating profit margin (2)17.9% 18.6% 21.1% 20.6%
            
    As reported effective tax rate4.6% 3.6% 16.9% 17.0%
    Non-GAAP effective tax rate (3)9.8% 9.5% 17.4% 19.2%

    (1)  Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.
    (2)  Calculated as non-GAAP operating profit as a percentage of net sales for each period presented.
    (3) Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net).

    We present certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange.  To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year.  As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

    A reconciliation between reported net sales growth rates and (i) constant currency net sales growth rates and (ii) organic constant currency net sales growth rates is provided below:

     Three Months Ended December 31, 2019
     Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis Impact of Acquisitions and Divestitures Percentage Change on Organic Constant Currency Basis
    North America segment         
    Canada1.9% (0.3)% 2.2% % 2.2%
    Total North America segment3.8%  % 3.8% 2.5% 1.3%
              
    International and Other segment         
    Mexico8.4% 2.7 % 5.7% % 5.7%
    Brazil2.7% (9.1)% 11.8% % 11.8%
    India16.0% 1.4 % 14.6% % 14.6%
    China9.2% (2.3)% 11.5% % 11.5%
    Total International and Other segment5.8% (0.5)% 6.3% % 6.3%
              
    Total Company4.0% (0.1)% 4.1% 2.2% 1.9%


     Twelve Months Ended December 31, 2019
     Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis Impact of Acquisitions and Divestitures Percentage Change on Organic Constant Currency Basis
    North America segment         
    Canada(1.9)% (2.3)% 0.4 %  % 0.4%
    Total North America segment2.6 % (0.1)% 2.7 % 1.4 % 1.3%
              
    International and Other segment         
    Mexico6.7 % (0.3)% 7.0 %  % 7.0%
    Brazil(5.9)% (8.2)% 2.3 %  % 2.3%
    India4.9 % (3.3)% 8.2 %  % 8.2%
    China(13.4)% (3.4)% (10.0)% (17.7)% 7.7%
    Total International and Other segment1.7 % (1.5)% 3.2 % (2.2)% 5.4%
              
    Total Company2.5 % (0.3)% 2.8 % 1.0 % 1.8%

    Appendix I
    Details of the charges included in GAAP results, as summarized in the press release (above), are as follows:

    Derivative Mark-to-Market Gains:  The mark-to-market losses (gains) on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding losses (gains) are reclassified from unallocated to segment income.  Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period.

    Business Realignment Activities:  We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability.  During the first quarter of 2017, we commenced the Margin for Growth Program to drive continued net sales, operating profit and earnings per share-diluted growth over the next several years.  This program is focused on improving global efficiency and effectiveness, optimizing the company’s supply chain, streamlining the company’s operating model and reducing administrative expenses to generate long-term savings.  During the three- and twelve-month periods of 2019, business realignment charges related primarily to severance expenses and other third-party costs related to this program.  During the three- and twelve-month periods of 2018, business realignment charges related primarily to severance expenses, accelerated depreciation and other third-party costs related to this program.

    Acquisition-Related Costs:  Costs incurred during the three- and twelve-month periods of 2019 related to the integration of the 2019 acquisition of ONE Brands, LLC, as well as the 2018 acquisitions of Amplify Snack Brands, Inc. and Pirate Brands.  Costs incurred during the three- and twelve-month periods of 2018 included consultant fees incurred to effectuate the Amplify and Pirate Brands acquisitions, as well as other costs relating to the integration of the businesses.

    Pension Settlement Charges Relating to Company-Directed Initiatives:  During the three- and twelve-month periods of 2019 and 2018, settlement charges in our hourly defined benefit plan were triggered as a result of lump sum withdrawals by employees retiring or leaving the Company under a voluntary separation plan included within our Margin for Growth and Operational Optimization Programs, which were designed to optimize our production and supply chain network.

    Long-Lived and Intangible Asset Impairment Charges:  During the three- and twelve-month periods of 2019, we recorded impairment charges to write down long-lived and intangible assets that had been recognized in connection with the 2015 acquisition of Krave, as well as other select long-lived assets that had not yet met the held for sale criteria and impairment charges within our Lotte Shanghai Foods Co., Ltd. disposal group.  During the three- and twelve-month periods of 2018, we recorded impairment charges within the Shanghai Golden Monkey (SGM) and Tyrrells disposal groups.  These charges represent the excess of the disposal groups' carrying values, including the related currency translation adjustment amounts realized upon completion of the sales, over the sales values less costs to sell for the SGM and Tyrrells businesses.

    Noncontrolling Interest Share of Business Realignment and Impairment Charges:  Certain of the business realignment and impairment charges recorded in connection with the Margin for Growth Program related to a joint venture in which we own a 50% controlling interest.  Therefore, we have also adjusted for the portion of these charges included within the income (loss) attributed to the noncontrolling interest.

    Gain on Sale of Other Assets:  In 2019, we recorded a gain on the sale of certain Pennsylvania facilities and land.  In 2018, we recorded a gain on the sale of licensing rights for a non-core trademark relating to a brand marketed outside of the United States.

    Tax Effect of All Adjustments:  This line item reflects the aggregate tax effect of all pre-tax adjustments reflected in the preceding line items of the applicable table.  The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the company’s quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.

    Safe Harbor Statement
    This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements can be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “projected,” “estimated,” and “potential,” among others.  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, along with the availability of adequate supplies of raw materials; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; disruption to our manufacturing operations or 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; our ability to hire, engage and retain a talented global workforce; our ability to realize expected cost savings and operating efficiencies associated with strategic initiatives or restructuring programs; complications with the design or implementation of our new enterprise resource planning system; and such other matters as discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.  All information in this press release is as of December 31, 2019. 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.



    The Hershey Company
    Consolidated Statements of Income
    for the periods ended December 31, 2019 and December 31, 2018
    (unaudited) (in thousands except per share amounts)
               
        Fourth Quarter Twelve Months
        2019 2018 2019 2018
              
    Net sales  $2,068,125   $1,987,902   $7,986,252   $7,791,069  
    Cost of sales 1,156,213   1,043,550   4,363,774   4,215,744  
    Gross profit  911,912   944,352   3,622,478   3,575,325  
            
    Selling, marketing and administrative expense517,200   486,036   1,905,929   1,874,829  
    Long-lived and intangible asset impairment charges107,744   28,912   112,485   57,729  
    Business realignment costs770   8,239   8,112   19,103  
             
    Operating profit286,198   421,165   1,595,952   1,623,664  
    Interest expense, net 37,435   37,630   144,125   138,837  
    Other (income) expense, net 34,442   39,565   71,043   74,766  
             
    Income before income taxes 214,321   343,970   1,380,784   1,410,061  
    Provision for income taxes 9,903   12,370   234,032   239,010  
              
    Net income including noncontrolling interest204,418   331,600   1,146,752   1,171,051  
              
    Less: Net loss attributable to noncontrolling interest(2,769)  (5,191)  (2,940)  (6,511) 
    Net income attributable to The Hershey Company$207,187   $336,791   $1,149,692   $1,177,562  
              
    Net income per share- Basic- Common$1.02   $1.65   $5.64   $5.76  
     - Diluted- Common$0.98   $1.60   $5.46   $5.58  
     - Basic- Class B$0.93   $1.50   $5.12   $5.24  
              
    Shares outstanding- Basic- Common148,521   149,402   148,841   149,379  
     - Diluted- Common210,491   211,060   210,702   210,989  
     - Basic- Class B60,614   60,614   60,614   60,614  
            
    Key margins:         
    Gross margin 44.1 % 47.5 % 45.4 % 45.9 %
    Operating profit margin 13.8 % 21.2 % 20.0 % 20.8 %
    Net margin 10.0 % 16.9 % 14.4 % 15.1 %


    The Hershey Company
    Supplementary Information – Segment Results
    for the periods ended December 31, 2019 and December 31, 2018
    (unaudited) (in thousands of dollars)
                  
       Fourth Quarter Twelve Months
       2019 2018 % Change 2019 2018 % Change
    Net sales:            
      North America $1,812,733   $1,746,456   3.8 % $7,081,764   $6,901,607   2.6 %
      International and Other 255,392   241,446   5.8 % 904,488   889,462   1.7 %
    Total $2,068,125   $1,987,902   4.0 % $7,986,252   $7,791,069   2.5 %
                 
    Segment income:            
      North America $519,814   $485,737   7.0 % $2,125,861   $2,020,082   5.2 %
      International and Other 14,071   8,383   67.9 % 95,702   73,762   29.7 %
    Total segment income 533,885   494,120   8.0 % 2,221,563   2,093,844   6.1 %
    Unallocated corporate expense (1) 163,421   125,269   30.5 % 533,632   486,716   9.6 %
    Mark-to-market adjustment for commodity derivatives (2) (15,204)  (98,799)  (84.6)% (28,651)  (168,263)  (83.0)%
    Long-lived and intangible asset impairment charges 107,744   28,912   272.7 % 112,485   57,729   94.9 %
    Costs associated with business realignment initiatives 770   9,157   (91.6)% 9,238   51,827   (82.2)%
    Acquisition-related costs 2,245   8,416   (73.3)% 10,196   44,829   (77.3)%
    Gain on sale of other assets (11,289)     NM (11,289)  (2,658)  324.7 %
    Operating profit 286,198   421,165   (32.0)% 1,595,952   1,623,664   (1.7)%
    Interest expense, net 37,435   37,630   (0.5)% 144,125   138,837   3.8 %
    Other (income) expense, net 34,442   39,565   (12.9)% 71,043   74,766   (5.0)%
    Income before income taxes $214,321   $343,970   (37.7)% $1,380,784   $1,410,061   (2.1)%
                  

    (1)   Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, and (d) other gains or losses that are not integral to segment performance.
    (2)   Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains).
    NM - not meaningful

       Fourth Quarter Twelve Months
       2019 2018 2019 2018
    Segment income as a percent of net sales:        
    North America 28.7% 27.8% 30.0% 29.3%
    International and Other 5.5% 3.5% 10.6% 8.3%


    The Hershey Company
    Consolidated Balance Sheets
    as of December 31, 2019 and December 31, 2018
    (in thousands of dollars)
        
    Assets2019 2018
     (unaudited)  
    Cash and cash equivalents$493,262  $587,998 
    Accounts receivable - trade, net568,509  594,145 
    Inventories815,251  784,879 
    Prepaid expenses and other240,080  272,159 
        
    Total current assets2,117,102  2,239,181 
        
    Property, plant and equipment, net2,153,139  2,130,294 
    Goodwill1,985,955  1,801,103 
    Other intangibles1,341,166  1,278,292 
    Other assets512,000  252,984 
    Deferred income taxes31,033  1,166 
        
    Total assets$8,140,395  $7,703,020 
        
    Liabilities and Stockholders' Equity   
        
    Accounts payable$550,828  $502,314 
    Accrued liabilities702,372  679,163 
    Accrued income taxes19,921  33,773 
    Short-term debt32,282  1,197,929 
    Current portion of long-term debt703,390  5,387 
        
    Total current liabilities2,008,793  2,418,566 
        
    Long-term debt3,530,813  3,254,280 
    Other long-term liabilities655,777  446,048 
    Deferred income taxes200,018  176,860 
        
    Total liabilities6,395,401  6,295,754 
        
    Total stockholders' equity1,744,994  1,407,266 
        
    Total liabilities and stockholders' equity$8,140,395  $7,703,020 


    FINANCIAL CONTACT: MEDIA CONTACT:
    Melissa PooleJeff Beckman
    717-534-7556717-534-8090

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