01—Abstract
Summary
Summary of the 10-K filed February 17, 2012. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2011 results were strong, with net sales of $6.08 billiona, up 7.2% from $5.67 billion in 2010, driven by net price realization (approximately 3.5%) and sales volume increases (approximately 3.4%).
Net income rose to $628.9 millionb from $509.8 million, and diluted EPS increased to $2.74 from $2.21. Results were affected by business realignment and impairment charges, primarily related to the Project Next Century program, which reduced gross margin and EBIT margin, while a $17.0 million pre-tax gain on the sale of trademark licensing rights partially offset these costs. Adjusted non-GAAP diluted EPS was $2.82, up 10.6%.
Cash flow from operations declined to $580.9 millionc from $901.4 million in 2010, reflecting higher working capital requirements, share repurchases of $384.5 million and capital additions of $324.0 million, largely tied to the Next Century program. Cash and cash equivalents ended the year at $693.7 million, and long-term debt rose to $1.75 billion from $1.54 billion after issuing $250 million of 1.5% Notes due 2016. The company also paid $304.1 million in dividends and declared a quarterly dividend of $0.38 per share.
For 2012, the company expects reported diluted EPS of $2.79 to $2.89d and projects net sales growth of about 5% to 7%, excluding the January 2012 acquisition of Brookside Foods Ltd. for C$175 million, which has annual net sales of approximately $90 million. Key risks disclosed include customer concentration (McLane Company accounted for approximately 22.3% of 2011 net sales), commodity cost volatility, an ongoing Canadian and U.S. antitrust investigation and lawsuits involving pricing practices, and the controlling influence of the Milton Hershey School Trust over voting control of the company.
02—Key points
Key Highlights
- Net sales rose 7.2% to $6,080.8 million in 2011, driven by net price realization of approximately 3.5% and sales volume gains of approximately 3.4%.
- Net income increased to $628.9 million from $509.8 million, and diluted EPS rose to $2.74 from $2.21; adjusted non-GAAP diluted EPS was $2.82.
- Gross margin declined to 41.6% from 42.6%, as higher commodity and supply chain costs were partially offset by productivity and price realization.
- Project Next Century charges and non-recurring costs are estimated at $150 million to $160 million, with expected annual savings of $65 million to $80 million once fully implemented.
- Cash provided from operating activities fell to $580.9 million from $901.4 million, while $384.5 million was spent repurchasing Common Stock and capital additions reached $324.0 million.
- 2012 guidance projects reported diluted EPS of $2.79 to $2.89 and net sales growth of about 5% to 7% excluding the Brookside acquisition.
- McLane Company, Inc. accounted for approximately 22.3% of 2011 net sales, and international operations represented 15.6% of net sales.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 17, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $6.08B$5.67B | +7.2% |
| Cost of Revenue | $3.55B$3.26B | +9.0% |
| Gross Profit | $2.53B$2.42B | +4.8% |
| R&D Expenses | $33.20M$31.10M | +6.8% |
| SG&A Expenses | $1.48B$1.43B | +3.6% |
| Operating Expenses | $5.03B$4.77B | +5.5% |
| Interest Expense | $78.19M$70.96M | +10.2% |
| Net Income | $628.96M$509.80M | +23.4% |
| Shares Outstanding (Basic) | 227K228K | −0.5% |
| Shares Outstanding (Diluted) | 229.92M230.31M | −0.2% |
05—Questions
Frequently Asked Questions
How did Hershey perform financially in 2011?
Net sales increased 7.2% to $6.08 billion, and net income rose 23.4% to $628.9 million, or $2.74 diluted EPS, compared with $2.21 in 2010. Results benefited from higher net price realization and sales volume, and from lower business realignment charges.
What is driving the Project Next Century program and what savings does it target?
Project Next Century transitions production from the 19 East Chocolate Avenue facility in Hershey, Pennsylvania, to the expanded West Hershey facility, primarily by the second quarter of 2012. The company expects pre-tax charges and implementation costs of $150 million to $160 million and annual efficiency savings of $65 million to $80 million when fully implemented.
What are the main risks investors should consider?
Key risks include commodity price volatility for cocoa, sugar, dairy and peanuts, customer concentration with McLane Company (approximately 22.3% of 2011 net sales), competitive pricing pressure, and ongoing government investigations and civil antitrust suits in the United States and Canada related to pricing practices. The Milton Hershey School Trust also maintains voting control of the company.
What is the company's outlook for 2012?
The company expects reported diluted EPS of $2.79 to $2.89 and adjusted diluted EPS of $3.03 to $3.09 including non-service pension expenses, and expects advertising to increase low double digits on a percentage basis. Excluding Brookside, it expects volume to be slightly up and net sales growth of about 5% to 7%.
How did the company return cash to shareholders in 2011?
Hershey paid $304.1 million in cash dividends in 2011, with an annual rate of $1.38 per Common Stock share, and repurchased $384.5 million of Common Stock. In January 2012 the Board declared a quarterly dividend of $0.38 per share, its 329th consecutive Common Stock dividend.
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