01—Abstract
Summary
Summary of the 10-K filed February 21, 2014. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company reported strong 2013 results, with net sales of $7.15 billiona, up 7.6% from $6.64 billion in 2012, driven mainly by sales volume increases in the United States and key international markets.
Net income rose to $820.5 millionb, and diluted earnings per share increased to $3.61 from $2.89, a 24.9% increase. EBIT was $1,339.7 million, with an EBIT margin of 18.7% compared with 16.7% in 2012. Gross margin improved to 45.9% from 43.0%, though selling, marketing and administrative expenses grew 12.8% to $1.92 billion, including advertising expense of $582.4 million, up 21.3%.
Cash provided from operating activities was $1.19 billionc, and the company paid $393.8 million in cash dividends. Looking ahead, management expects 2014 net sales growth of 5% to 7% and GAAP diluted EPS growth of 11% to 14%, with projected adjusted EPS of $4.05 to $4.13. The company agreed in December 2013 to acquire Shanghai Golden Monkey Food Joint Stock Co., Ltd. for a purchase price of approximately $584 million, comprising about $498 million in cash and about $86 million of net debt, subject to government approvals.
Major ongoing risks include concentrated customer exposure, since McLane Company accounted for approximately 25.5%d of 2013 net sales, and U.S. and Canadian civil antitrust lawsuits, which management does not expect to materially affect its financial position or liquidity. The Milton Hershey School Trust continues to hold voting control of the company.
02—Key points
Key Highlights
- Net sales rose 7.6% to $7,146.1 million in 2013, primarily from sales volume increases in the U.S. and key international markets, with net sales outside the U.S. and Canada up approximately 15.7% in U.S. dollars.
- Diluted EPS increased 24.9% to $3.61; adjusted diluted EPS, which excludes business realignment, pension and acquisition costs, rose 14.8% to $3.72.
- Gross margin expanded to 45.9% from 43.0%, supported by lower input costs, supply chain productivity improvements and a favorable sales mix.
- Advertising expense increased 21.3% to $582.4 million to support core brands and new product launches.
- The company agreed to acquire Shanghai Golden Monkey for approximately $584 million, with 80% of shares to be acquired in mid-2014 and the remainder one year later.
- The 2014 outlook calls for net sales growth of 5% to 7%, a 60 basis point increase in reported gross margin, and projected diluted EPS of $4.02 to $4.11 on a GAAP basis.
- Cash flow from operations was $1,188.4 million, funding $323.6 million of capital additions, $393.8 million of dividends and $305.6 million of share repurchases.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Hershey kept $0.11.
- Revenue$7.15B100.0%
- Cost of revenue−$3.87B54.1%
- Gross profit$3.28B45.9%
- Operating costs−$1.94B27.2%
- Operating income$1.34B18.7%
- Interest, other & tax−$517.6M7.2%
- Net income$820.5M11.5%
Where FY2013 revenue went
$7.15B- Cost of revenue: $3.87B, 54% of revenue
- SG&A: $1.92B, 27% of revenue
- Net income: $820.5M, 11% of revenue
- R&D: $47.6M, 0.7% of revenue
- Interest, other & tax: $517.6M, 7.2% of revenue
Kept 11% as net incomeR&D $47.6M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 21, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $7.15B$6.64B | +7.6% |
| Cost of Revenue | $3.87B$3.78B | +2.1% |
| Gross Profit | $3.28B$2.86B | +14.7% |
| R&D Expenses | $47.64M$38.96M | +22.3% |
| SG&A Expenses | $1.92B$1.70B | +12.9% |
| Operating Expenses | $5.81B$5.53B | +5.0% |
| Operating Income | $1.34B$1.71B | −21.6% |
| Interest Expense | $93.26M$98.51M | −5.3% |
| Net Income | $820.47M$660.93M | +24.1% |
| Shares Outstanding (Basic) | 224.18M225.04M | −0.4% |
| Shares Outstanding (Diluted) | 227.20M228.34M | −0.5% |
05—Questions
Frequently Asked Questions
How did Hershey perform financially in 2013?
Net sales grew 7.6% to $7.15 billion, net income rose to $820.5 million, and diluted EPS increased 24.9% to $3.61. EBIT margin improved to 18.7% from 16.7%, reflecting higher gross margin and lower business realignment charges, partly offset by higher marketing and administrative spending.
What is the company's outlook for 2014?
Management expects net sales growth of 5% to 7%, including currency effects, and an increase of about 60 basis points in reported gross margin. GAAP diluted EPS is expected to increase 11% to 14%, and adjusted diluted EPS is projected at $4.05 to $4.13, with growth in the 9% to 11% range.
What is the Shanghai Golden Monkey acquisition?
In December 2013, Hershey agreed to acquire all outstanding shares of Shanghai Golden Monkey Food Joint Stock Co., Ltd., a Chinese confectionery company. The purchase price is approximately $584 million, including about $498 million in cash and about $86 million of net debt. The deal is subject to government and regulatory approvals and customary closing conditions.
What are the main risks to the business disclosed in the filing?
Key risks include commodity cost volatility, especially for cocoa, and the ability to pass costs to customers without losing volume. Customer concentration is significant, as McLane Company accounted for approximately 25.5% of 2013 net sales. The company also faces U.S. and Canadian civil antitrust lawsuits related to alleged confectionery pricing practices, along with international operating risks.
Who controls the company and how are shareholders compensated?
The Milton Hershey School Trust, as trustee for Milton Hershey School, maintains voting control of the company and held approximately 80% of the votes on matters requiring a vote of both classes of common stock. Shareholders received cash dividends of $1.81 per Common Stock share in 2013, and the Board declared a quarterly dividend of $0.485 per share in January 2014.
06—Continue