The Hershey Company (HSY) reported results for the fourth quarter and full year with quarterly earnings of 55 cents per share. Earnings were 9 cents above the Zacks Consensus Estimate and up 52.8% year over year. Profits were primarily driven by price increases and supply chain efficiencies.
Behind the Headline
Net sales for the quarter increased 2.2% year-over-year to $1.4 billion, driven by favorable pricing and improvement in the international business, which includes a 1% favorable impact from foreign currency translation. Furthermore, management stated that core brands such as Hershey's Kisses are responding to the investments in advertising (which was up approximately 50%), in-store programming and merchandising. In the channels measured by syndicated data, U.S. market share during the fourth quarter declined 0.4 points while up 0.1 points for the full year.
During the fourth quarter, Hershey’s completed its Global Supply Chain Transformation initiative. The company recognized total business costs of $629.1 million. Total savings from the program were $160 million. Total ongoing annual savings from the program of approximately $175 million to $185 million are expected to be achieved by the end of fiscal 2010. Management intends to deploy these savings for brand-building purposes.
Gross margin for the quarter expanded 442 basis points (bps) to 40.5% versus 36.1% in the prior-year quarter. The increase was primarily driven by favorable pricing, Global Supply Chain Transformation program savings and productivity gains, which more than offset the impact of higher input costs. The operating margin for the quarter also expanded 395 bps to 15.1% from 11.1% in the comparable prior-year quarter.
The company had cash and cash equivalents of $253 million and a debt-to-capitalization ratio of 66%.
Company Guidance
Based on the results, management provided its outlook for fiscal 2010. During the first half of 2010, the company intends to continue distribution and rollout of its Hershey's Bliss white chocolate and expansion of the Pieces format to include Hershey's Special Dark, Almond Joy and York. Furthermore, management expects to increase advertising by 25% to 30% during the year to support new product launches and core brands -- primarily Hershey's, Reese's, Hershey's Kisses, Bliss, Twizzlers and Kit Kat.
Through increased levels of consumer investment and brand support, Hershey’s intends to deliver improvement in net sales within its long-term range of 3% to 5%. Annual earnings are expected to be in the long-term range of 6% to 8%.
On February 1, 2010, the Board of Directors declared a quarterly dividend of $0.32 on HSY Common Stock, representing an increase of $0.0225 per share. Additionally, the Board also declared a dividend of $0.29 on the Class B Common Stock, an increase of $0.0222 per share. The dividends are payable on March 15, 2010 to shareholders of record as of February 25, 2010.
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