EX-99 2 exh991_pressrelease.htm PRESS RELEASE-3Q2005 RESULTS

Exhibit 99.1

HERSHEY ANNOUNCES RECORD THIRD QUARTER
AND NINE-MONTHS RESULTS FROM OPERATIONS

HERSHEY, Pa., October 20, 2005—The Hershey Company (NYSE:HSY) today announced record sales and record earnings from operations for the third quarter ended October 2, 2005. Consolidated net sales for the third quarter were $1,368,240,000 compared with $1,254,508,000 for the third quarter of 2004, an increase of 9.1 percent. Net income for the third quarter of 2005 was $119,475,000, or $.48 per share-diluted, compared with $166,229,000, or $.66 per share-diluted, for the comparable period of 2004.

For the third quarter of 2005, these results include pre-tax charges of $101.4 million, or $.27 per share-diluted, associated with the previously announced business realignment program to advance the Company’s value-enhancing strategy. Net income from operations, which excludes these charges, for the third quarter of 2005 was $185,283,000, or $.75 per share-diluted, compared with $166,229,000 or $.66 per share-diluted, an increase of 13.6%.

Record Nine-Months Results from Operations

For the first nine months of 2005, consolidated net sales were $3,483,101,000 compared with $3,161,285,000 for the first nine months of 2004. Net income for the first nine months of 2005 was $335,057,000, or $1.34 per share-diluted, compared with $420,593,000, or $1.62 per share-diluted, for the first nine months of 2004.

Net income for the first nine months of 2005 includes the charges mentioned above. Net income for the first nine months of 2004 includes the benefit of a $61.1 million, or $.23 per share-diluted, non-cash reduction of income tax expense resulting from second quarter adjustments to income tax contingency reserves following the completion of prior years’ tax audits. Net income from operations, which excludes these items, for the first nine months of 2005 was $400,865,000, or $1.61 per share-diluted, compared with $359,512,000, or $1.39 per share-diluted, an increase of 15.8%.

Third-Quarter Performance

“Our results for the third quarter continued the momentum from the first half behind new product innovation, strong seasonal sales, and net price realization,” said Richard H. Lenny, Chairman, President and Chief Executive Officer. “Sales growth, excluding the impact of business acquisitions, of 6.5 percent was broad-based with solid gains in both our core confectionery business and our new snack platforms. Acquisitions contributed 2.6 percent to the total top-line growth. The combination of strong top-line growth and tight expense control, despite higher input costs, resulted in record profitability. Excluding the one-time charges, diluted earnings per share from operations increased 13.6 percent.

“Performance for the first nine months has been excellent with strong gains in net sales, market share, and profitability. We’re anticipating a solid fourth quarter given the good start to the important seasonal period and the upcoming introduction of several new products, most notably Hershey’s Kissables and Hershey’s Kisses filled with peanut butter. In addition, we expect to maintain effective cost controls across the business system, thereby yielding a gain in operating margins.

“Therefore, for 2005 we expect net sales to increase at a rate above our long-term goal of 3-4 percent and diluted earnings per share from operations should increase at a rate greater than our long-term range of 9-11 percent.

“As we look to 2006, our goal is to build upon the marketplace momentum established over the past several quarters. The strategy of benefit-driven innovation continues to resonate with consumers. Our plans reflect a step-up in new product innovation while capitalizing on key growth opportunities with the more profitable classes of trade.

“Against this backdrop of strong performance are broadly higher input costs. We’re now developing plans to address these cost pressures. These plans will include both productivity initiatives as well as the benefit of our previously announced business realignment program. We’re confident in our ability to achieve organic sales growth in 2006 somewhat above our 3-4 percent long-term goal with an increase in diluted earnings per share, excluding business realignment charges, slightly above 9-11 percent.”

Based on current estimates, the cost to implement the business realignment program will result in total pre-tax charges of approximately $140 million to $150 million, or $.41 to $.44 per share-diluted on an after-tax basis. Approximately 90 percent of the charge will be recorded in the second half of 2005, with the remainder recorded in the first half of 2006.

Note: In this sales and earnings release, Hershey has provided income measures excluding certain items described above, in addition to net income determined in accordance with generally accepted accounting principals (GAAP). These non-GAAP financial measures, as shown in the attached pro forma income statements, 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.

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 Web site www.hersheys.com. Please go to the Investor Relations Section of the Web site for further details.

Safe Harbor Statement

This release contains statements which are forward-looking. These statements are made based upon current expectations which are subject to risk and uncertainty. Actual results may differ materially from those contained in the forward-looking statements. Factors which could cause results to differ materially include, but are not limited to: the Company’s ability to implement and generate expected ongoing annual savings from the program to advance its value-enhancing strategy; changes in the Company’s business environment, including actions of competitors and changes in consumer preferences; customer and consumer response to selling price increases; changes in governmental laws and regulations, including taxes; market demand for new and existing products; changes in raw material and other costs; pension cost factors such as actuarial assumptions, market performance, and employee retirement decisions; changes in the value of the Company’s Common Stock; and the Company’s ability to implement improvements to and reduce costs associated with its supply chain, as discussed in the Company’s Annual Report on Form 10-K for 2004.

#  #  #

Media Contact:   Stephanie L. Moritz   717-534-7641
Financial Contact:   James A. Edris   717-534-7556

The Hershey Company
Summary of Consolidated Statements of Income
for the periods ended October 2, 2005 and October 3, 2004
(in thousands except per share amounts)

Third Quarter
 Nine Months
2005
 2004
 2005
 2004
Net Sales     $ 1,368,240     $ 1,254,508     $ 3,483,101     $ 3,161,285  
Costs and Expenses:  
   Cost of Sales    849,486    756,408    2,139,316    1,915,244  
   Selling, Marketing and Administrative    220,252    216,696    666,288    630,390  
   Business Realignment Charge    84,843    --  84,843    --  
    Total Costs and Expenses    1,154,581    973,104    2,890,447    2,545,634  
Income Before Interest and Income Taxes (EBIT)     213,659     281,404     592,654     615,651  
Interest Expense, net       23,701     18,252     63,730     48,594  
Income Before Income Taxes    189,958    263,152    528,924    567,057  
Provision for Income Taxes    70,483    96,923    193,867    146,464  
Net Income   $ 119,475   $ 166,229   $ 335,057   $ 420,593  
Net Income Per Share - Basic - Common   $ 0.50   $ 0.68   $ 1.39   $ 1.68  
                                       - Basic - Class B     $ 0.45   $ 0.62   $ 1.27   $ 1.53  
                                        - Diluted     $ 0.48   $ 0.66   $ 1.34   $ 1.62  
Shares Outstanding - Basic - Common    183,853    188,726    184,648    195,288  
                                    - Basic - Class B       60,818     60,843     60,822     60,844  
                                    - Diluted    248,117    252,683    249,122    258,866  
Key Margins:   
   Gross Margin       37.9%   39.7%   38.6%   39.4%
   EBIT Margin       15.6%   22.4%   17.0%   19.5%
   Net Margin       8.7%   13.3%   9.6%   13.3%

The Hershey Company
Pro Forma Summary of Consolidated Statements of Income
for the periods ended October 2, 2005 and October 3, 2004
(in thousands except per share amounts)

Third Quarter
 Nine Months
2005
 2004
 2005
 2004
Net Sales     $ 1,368,240     $ 1,254,508     $ 3,483,101     $ 3,161,285  
Costs and Expenses:    
   Cost of Sales       832,965 (a)   756,408     2,122,795 (a)   1,915,244  
   Selling, Marketing and Administrative       220,252     216,696     666,288     630,390  
   Business Realignment Charge        --- (b)   --     --- (b)   --  
   Total Costs and Expenses       1,053,217     973,104     2,789,083     2,545,634  
Income Before Interest and Income Taxes (EBIT)       315,023      281,404      694,018      615,651  
Interest Expense, net       23,701     18,252     63,730     48,594  
Income Before Income Taxes       291,322     263,152     630,288     567,057  
Provision for Income Taxes       106,039     96,923     229,423     207,545 (c)
Net Income     $ 185,283   $ 166,229   $ 400,865   $ 359,512  
Net Income Per Share - Basic - Common     $ 0.77   $ 0.68   $ 1.67   $ 1.44  
                                        - Basic - Class B     $ 0.70   $ 0.62   $ 1.52   $ 1.31  
                                         - Diluted     $ 0.75   $ 0.66   $ 1.61   $ 1.39  
Shares Outstanding - Basic - Common     183,853     188,726     184,648     195,288  
                                    - Basic - Class B     60,818     60,843     60,822     60,844  
                                    - Diluted     248,117     252,683     249,122     258,866  
Key Margins:    
   Adjusted Gross Margin       39.1%   39.7%   39.1%   39.4%
   Adjusted EBIT Margin     23.0%   22.4%   19.9%   19.5%
   Adjusted Net Margin     13.5%   13.3%   11.5%   11.4%
 

(a)     Excludes business realignment charge of $16.6 million pre-tax or $14.0 million after-tax for the third quarter and the nine months

(b)     Excludes business realignment charge of $84.8 million pre-tax or $51.8 million after-tax for the third quarter and the nine months

(c)     Excludes adjustment to income tax contingency reserves of ($61.1) million for the nine months

The Hershey Company
Consolidated Balance Sheets
as of October 2, 2005 and December 31, 2004
(in thousands of dollars)

 

Assets 2005 2004
 
Cash and Cash Equivalents     $ 37,898   $ 54,837  
Accounts Receivable - Trade (Net)    642,701    408,930  
Deferred Income Taxes    42,728    46,503  
Inventories    752,340    557,180  
Prepaid Expenses and Other    130,536    114,991  
Total Current Assets    1,606,203    1,182,441  
 
Net Plant and Property    1,679,688    1,682,698  
Goodwill    496,392    463,947  
Other Intangibles    143,213    125,233  
Other Assets    584,947    343,212  
Total Assets   $ 4,510,443   $ 3,797,531  
Liabilities and Stockholders' Equity    
 
Loans Payable   $ 1,052,521   $ 622,320  
Accounts Payable    203,151    148,686  
Accrued Liabilities    494,901    472,096  
Taxes Payable    206    42,280  
Total Current Liabilities    1,750,779    1,285,382  
 
Long-Term Debt    943,104    690,602  
Other Long-Term Liabilities    451,192    403,356  
Deferred Income Taxes    409,435    328,889  
Total Liabilities    3,554,510    2,708,229  
 
Total Stockholders' Equity    955,933    1,089,302  
Total Liabilities and Stockholders' Equity   $ 4,510,443   $ 3,797,531