01—Abstract
Summary
Summary of the 10-K filed February 19, 2010. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2009 results showed net sales rising 3.2% to $5.30 billiona, driven primarily by price realization, while sales volumes declined at less than expected rates due to pricing elasticity.
Net income increased to $436.0 millionb from $311.4 million, and diluted EPS rose to $1.90 from $1.36. EBIT grew to $761.6 million, with EBIT margin improving to 14.4% from 11.5%, largely because business realignment charges fell to $99.1 million from $180.7 million. Management stated that the global supply chain transformation program was essentially complete as of December 31, 2009.
Cash generation strengthened, with net cash provided from operating activities of $1.07 billionc in 2009 versus $519.6 million in 2008. Cash and cash equivalents rose to $253.6 million, and short-term debt fell substantially, from $483.1 million to $24.1 million, as commercial paper was repaid. Total long-term debt was $1.52 billion.
The company paid $263.4 milliond in dividends, and the 2010 quarterly dividend was declared at $.32 per Common Stock share. For 2010, the company expects net sales growth within its 3% to 5% long-term objective, adjusted diluted EPS growth within 6% to 8%, and a 25% to 30% increase in advertising investment.
Key risks disclosed include concentration with McLane Company, Inc., which accounted for approximately 27% of 2009 net sales, and pending antitrust investigations and about 91 civil antitrust suits in the United States and 14 in Canada related to the company's pricing practices, which management does not expect to have a material adverse effect. The Milton Hershey School Trust retains voting control of the company.
02—Key points
Key Highlights
- Net sales increased 3.2% to $5,298.7 million in 2009, driven by price realization and reduced promotional allowances, partly offset by volume declines.
- Net income rose 40.0% to $436.0 million, and diluted EPS increased to $1.90 from $1.36.
- EBIT margin improved to 14.4% from 11.5%, reflecting higher gross margin (38.7% vs. 34.2%) and lower business realignment charges of $99.1 million versus $180.7 million.
- Net cash provided from operating activities was $1,065.7 million, up from $519.6 million in 2008.
- Short-term debt was reduced to $24.1 million from $483.1 million, reflecting commercial paper repayments funded by strong cash flow.
- McLane Company, Inc., the largest customer, accounted for approximately 27% of 2009 total net sales, and the company faces antitrust investigations and about 105 related civil suits in the U.S. and Canada.
- The company paid $263.4 million in cash dividends in 2009 and declared a $.32 quarterly dividend per Common Stock share for March 2010, its 321st consecutive dividend.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 19, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $5.30B$5.13B | +3.2% |
| Cost of Revenue | $3.25B$3.38B | −3.8% |
| Gross Profit | $2.05B$1.76B | +16.8% |
| R&D Expenses | $28.10M$28.10M | 0.0% |
| SG&A Expenses | $1.21B$1.07B | +12.6% |
| Operating Expenses | $4.54B$4.54B | −0.1% |
| Interest Expense | $71.69M— | — |
| Net Income | $435.99M$311.40M | +40.0% |
| EPS (Basic) | $1.39— | — |
| EPS (Diluted) | $1.35— | — |
| Shares Outstanding (Basic) | 228K227.49M | −99.9% |
| Shares Outstanding (Diluted) | 229K— | — |
05—Questions
Frequently Asked Questions
What drove the improvement in Hershey's profitability in 2009?
Profitability improved mainly because of favorable price realization and supply chain productivity, along with lower business realignment charges. Gross margin rose to 38.7% from 34.2%, and management attributed about 1.4 percentage points of that increase to lower realignment charges recorded in cost of sales. SM&A expense rose to 22.8% of sales from 20.9%, partly offsetting these gains.
How is the company's balance sheet and liquidity position?
Financial condition remained strong, with cash and cash equivalents of $253.6 million at year-end 2009, up from $37.1 million. Short-term debt fell to $24.1 million, and long-term debt was $1,502.7 million noncurrent. The company's unsecured revolving credit facility had $1.1 billion available at December 31, 2009, and it maintained an investment grade credit rating.
What are the main risks identified in the filing?
Key risks include commodity cost volatility for cocoa, sugar, dairy, peanuts and almonds, pricing elasticity that could reduce volume, dependence on McLane Company, Inc. for approximately 27% of net sales, and ongoing government investigations into confectionery pricing practices. The filing also cites pension funding pressures, supply chain disruptions, and international operations exposure, with approximately 14.3% of 2009 net sales from outside the United States.
What is the outlook for 2010?
The company expects net sales growth within its long-term objective of 3% to 5% and adjusted diluted EPS growth within 6% to 8%. It plans to increase advertising investment by 25% to 30% behind core brands and new products, and expects its cost structure to remain at elevated levels, with commodity markets still volatile.
Who controls the company's voting power?
The Milton Hershey School Trust, through Hershey Trust Company as trustee, maintains voting control of The Hershey Company. As of December 31, 2009, the trust held 60,612,012 Class B Stock shares and was entitled to cast approximately 80% of the total votes of both classes of common stock.
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