01—Abstract
Summary
Summary of the 10-K filed February 20, 2015. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2014 Form 10-K, filed February 20, 2015, reports net sales of $7.42 billiona, up 3.9% from $7.15 billion in 2013, with net income of $846.9 million (up 3.2%) and diluted EPS of $3.77 (up 4.4%).
Volume growth of 4.4% drove the sales increase, partly offset by a 0.7% currency headwind, while gross margin declined 90 basis points to 45.0% due to higher commodity and input costs, unfavorable sales mix, and dairy costs that cannot be effectively hedged. North America generated $6.35 billionb of net sales and $1.92 billion of segment income, while International and Other contributed $1.07 billion of sales (up 13.0%) but only $40.0 million of segment income, reflecting higher trade promotions and advertising investment. The company made significant acquisitions in 2014, including an 80% stake in Shanghai Golden Monkey for $394.5 million in cash, and consolidated Lotte Shanghai Food Company.
Operating cash flow fell to $838.2 millionc from $1,188.4 million, and total debt rose to $2.2 billion. Management expects 2015 net sales growth of 5.5% to 7.5%, diluted EPS growth of 10% to 13%, and adjusted diluted EPS of $4.30 to $4.38. The company also raised its July 2014 North American price increase, approximately 8%, whose benefit is expected mainly in 2015 earnings.
Hershey Trust Company, as trustee for Milton Hershey School, retains voting control through its Class B holdings, which carry 10 votes per share, and this structure may delay or prevent a change in control. The company disclosed ongoing civil antitrust litigation in the United States and a pending Third Circuit appeal, and it reported a $1.0 billiond undrawn revolving credit facility at year-end.
02—Key points
Key Highlights
- Net sales rose 3.9% to $7.42 billion, driven by 4.4% volume growth, with a 0.7% unfavorable currency impact.
- Gross margin declined 90 basis points to 45.0% as higher commodity and input costs and unfavorable sales mix outweighed productivity gains.
- North America net sales were $6.35 billion with segment income of $1.92 billion; International and Other net sales grew 13.0% to $1.07 billion but segment income fell 10.3% to $40.0 million.
- Diluted EPS increased to $3.77 from $3.61, while adjusted diluted EPS was $3.98 for 2014, excluding items such as the India impairment and the Mauna Loa sale loss.
- Operating cash flow decreased to $838.2 million from $1,188.4 million, largely from working capital investment and hedging-related cash outflows.
- The company acquired 80% of Shanghai Golden Monkey for $394.5 million and consolidated Lotte Shanghai Food Company, and it expects 2015 diluted EPS growth of 10% to 13%.
- Hershey Trust Company, as trustee for Milton Hershey School, maintains voting control through Class B stock, which carries 10 votes per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Hershey kept $0.11.
- Revenue$7.42B100.0%
- Cost of revenue−$4.09B55.0%
- Gross profit$3.34B45.0%
- Operating costs−$1.94B26.2%
- Operating income$1.39B18.8%
- Interest, other & tax−$545.3M7.3%
- Net income$846.9M11.4%
Where FY2014 revenue went
$7.42B- Cost of revenue: $4.09B, 55% of revenue
- SG&A: $1.90B, 26% of revenue
- Net income: $846.9M, 11% of revenue
- R&D: $47.6M, 0.6% of revenue
- Interest, other & tax: $545.3M, 7.3% of revenue
Kept 11% as net incomeR&D $47.6M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 20, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $7.42B$7.15B | +3.9% |
| Cost of Revenue | $4.09B$3.87B | +5.7% |
| Gross Profit | $3.34B$3.28B | +1.7% |
| R&D Expenses | $47.55M$47.64M | −0.2% |
| SG&A Expenses | $1.90B$1.92B | −1.3% |
| Operating Expenses | $6.03B$5.81B | +3.8% |
| Operating Income | $1.39B$1.34B | +4.1% |
| Interest Expense | $93.78M$93.26M | +0.6% |
| Net Income | $846.91M$820.47M | +3.2% |
| Shares Outstanding (Basic) | 222.56M224.18M | −0.7% |
| Shares Outstanding (Diluted) | 224.84M227.20M | −1.0% |
05—Questions
Frequently Asked Questions
How did Hershey perform in 2014 and what drove the results?
Net sales grew 3.9% to $7.42 billion on 4.4% volume growth from new products and the SGM acquisition, while net income rose 3.2% to $846.9 million. Gross margin fell 90 basis points because of higher commodity and input costs and a greater share of lower-margin seasonal sales.
What is the outlook for 2015?
Management estimates 2015 net sales growth of 5.5% to 7.5%, including about 2.5% from acquisitions and divestitures, and expects gross margin to rise approximately 135 to 145 basis points. Diluted EPS growth is projected at 10% to 13%, and adjusted diluted EPS growth at 8% to 10%.
Why did International and Other segment profitability decline despite sales growth?
Segment income fell 10.3% to $40.0 million as higher trade promotions and a 5.9% increase in advertising investment outweighed the benefit of higher volume. The company said most of the spending focused on China and Mexico.
Does the controlling shareholder structure affect investors?
Hershey Trust Company, as trustee for Milton Hershey School, holds voting control, and Class B holders get 10 votes per share. Pennsylvania law requires advance notice to the Attorney General of any transaction that would end this control, which makes a third-party takeover more difficult.
What legal risks does Hershey disclose?
Hershey faces civil antitrust lawsuits in the United States tied to alleged chocolate price-fixing from 2002 to 2007. The District Court granted summary judgment to the company in February 2014, and the direct purchaser plaintiffs' appeal is pending before the Third Circuit. The company does not expect a material effect on its financial position or liquidity, though results could be affected when any fines, settlements or judgments are accrued or paid.
06—Continue