01—Abstract
Summary
Summary of the 10-K filed February 18, 2011. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2010 results were strong.
Net sales rose 7.0% to $5.67 billiona, driven mainly by sales volume gains of approximately 4% and favorable price realization of over 2%. Gross margin improved to 42.6% from 38.7%, and EBIT margin rose to 16.0% from 14.4%. GAAP net income increased to $509.8 million, or $2.21 per diluted Common Stock share, from $1.90 in 2009.
Excluding business realignment and impairment charges, diluted EPS was $2.55b, up 17.5%. Advertising expense rose to $391.1 million from $241.2 million, and management attributes the strong performance to its investments in core brands and cost-savings initiatives. Management expects the economic environment to remain challenging in 2011 and anticipates significantly higher input costs, particularly for dairy products, which it cannot effectively hedge.
It expects to substantially offset these costs through productivity and cost savings, with 2011 adjusted gross margin about the same as 2010. Management projects 2011 net sales growth around the top of its 3% to 5% long-term objective and adjusted diluted EPS of $2.70 to $2.76c. The company is executing Project Next Century, which carries pre-tax charges of $140 million to $170 million over three years and is expected to deliver annual savings of $60 million to $80 million once fully implemented.
The filing also highlights concentration and legal exposure. McLane Company, Inc. accounted for approximately 22.1%d of 2010 net sales.
The company is the subject of a Canadian Competition Bureau antitrust investigation, faces approximately 90 related civil antitrust suits in the United States and 14 in Canada, and states that these matters should not have a material adverse effect. The Milton Hershey School Trust retains voting control of the company, holding about 80% of total votes.
02—Key points
Key Highlights
- Net sales increased 7.0% to $5.67 billion in 2010, driven by volume gains of approximately 4% and favorable price realization of over 2%.
- GAAP diluted EPS rose to $2.21 from $1.90; adjusted non-GAAP diluted EPS was $2.55, up 17.5%, excluding business realignment and impairment charges.
- Gross margin improved to 42.6% from 38.7%, and EBIT margin increased to 16.0% from 14.4%.
- Advertising expense increased to $391.1 million from $241.2 million in 2009.
- Project Next Century is expected to cost $140 million to $170 million and generate annual savings of $60 million to $80 million once fully implemented.
- 2011 outlook: significantly higher input costs expected, offset through productivity initiatives; projected adjusted diluted EPS of $2.70 to $2.76.
- McLane Company, Inc. accounted for approximately 22.1% of 2010 net sales, and the company faces antitrust investigations and about 104 related civil suits in the U.S. and Canada.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 18, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $5.67B$5.30B | +7.0% |
| Cost of Revenue | $3.26B$3.25B | +0.3% |
| Gross Profit | $2.42B$2.05B | +17.6% |
| R&D Expenses | $31.10M$28.10M | +10.7% |
| SG&A Expenses | $1.43B$1.21B | +18.0% |
| Operating Expenses | $4.77B$4.54B | +5.0% |
| Interest Expense | $70.96M$71.69M | −1.0% |
| Net Income | $509.80M$435.99M | +16.9% |
| Shares Outstanding (Basic) | 228K228K | 0.0% |
| Shares Outstanding (Diluted) | 230.31M229K | +100475.6% |
05—Questions
Frequently Asked Questions
What drove Hershey's 2010 sales growth?
Net sales grew 7.0% to $5.67 billion, primarily from sales volume increases of approximately 4%, mainly for core brands in the U.S. and new products, plus favorable price realization of over 2%. The favorable impact of foreign currency exchange rates added about 1%.
How did profitability change in 2010?
Gross margin rose to 42.6% from 38.7%, and EBIT rose to $905.3 million from $761.6 million. Net income increased to $509.8 million from $436.0 million, and diluted EPS was $2.21 versus $1.90. Business realignment and impairment charges of $98.6 million reduced results in 2010.
What is the outlook for 2011?
Management expects net sales growth around the top of its 3% to 5% long-term objective and adjusted diluted EPS growth around the top of its 6% to 8% objective, with projected adjusted diluted EPS of $2.70 to $2.76. It expects significantly higher input costs, which it plans to substantially offset through productivity and cost savings, keeping adjusted gross margin about the same as in 2010.
What are the main risks and legal exposures?
Key risks include commodity price volatility for cocoa, sugar, dairy and other inputs, and customer concentration, with McLane Company, Inc. at approximately 22.1% of net sales. The company is under a Canadian Competition Bureau antitrust investigation, faces about 90 civil antitrust suits in the U.S. and 14 in Canada, and states these should not have a material adverse effect on its financial position.
Who controls the company?
Hershey Trust Company, as trustee for the Milton Hershey School Trust, maintains voting control. The Trust held 60,612,012 Class B shares and was entitled to cast approximately 80% of the total votes of both classes of common stock. Three of its representatives sit on the Board, including the Chairman.
06—Continue