01—Abstract
Summary
Summary of the 10-K filed February 21, 2017. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2016 annual report (filed February 21, 2017) shows net sales of $7.44 billiona, up 0.7% from $7.39 billion in 2015, with volume up 0.8% and foreign currency reducing sales by 0.7%.
Reported net income rose to $720.0 millionb from $513.0 million, and diluted EPS rose to $3.34 from $2.32. The 2015 results were depressed by $280.8 million in goodwill impairment charges, so the comparison is distorted. On a non-GAAP basis, the company reports adjusted diluted EPS of $4.41 in 2016 versus $4.12 in 2015, an increase of 7.0%, and adjusted net income grew 4.3%.
North America, the only reportable segment and about 88% of consolidated revenue, grew net sales 1.0% to $6.53 billionc, while segment income fell 1.6% to $2.04 billion, pressured by higher trade promotional spending and supply chain costs. The International and Other segment still posted a segment loss of $29.1 million, though it improved from a $98.1 million loss in 2015. Gross margin declined to 42.4% from 45.8%, largely due to $163.2 million of unallocated mark-to-market losses on commodity derivatives and business realignment costs.
Operating cash flow was $983.5 milliond, down from $1.21 billion, and total debt rose to about $3.0 billion as the company issued $800 million of notes to fund the Ripple Brand Collective (barkTHINS) acquisition. For 2017, management expects net sales growth of approximately 2% to 3% and GAAP diluted EPS of $4.54 to $4.65, or adjusted EPS of $4.72 to $4.81. The company also announced that John P.
Bilbrey will retire as President and CEO effective March 1, 2017, and Michele G. Buck will succeed him in that role on the same date.
02—Key points
Key Highlights
- Net sales rose 0.7% to $7,440.2 million in 2016, with volume up 0.8% and foreign currency reducing sales by 0.7%.
- Reported diluted EPS increased to $3.34 from $2.32, while non-GAAP diluted EPS increased 7.0% to $4.41, excluding items such as mark-to-market losses and business realignment costs.
- Gross margin declined to 42.4% from 45.8%, reflecting $163.2 million of unallocated mark-to-market losses on commodity derivatives.
- North America, about 88% of consolidated revenue, grew net sales 1.0% to $6,533.0 million, but segment income fell 1.6% to $2,041.0 million.
- Operating cash flow was $983.5 million, down from $1,214.5 million in 2015, and total debt was about $3.0 billion at year-end.
- Management guides 2017 net sales growth of approximately 2% to 3% and adjusted diluted EPS of $4.72 to $4.81.
- Chief Executive John P. Bilbrey retires effective March 1, 2017, and Michele G. Buck becomes President and CEO on that date.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Hershey kept $0.10.
- Revenue$7.44B100.0%
- Cost of revenue−$4.27B57.4%
- Gross profit$3.17B42.6%
- Operating costs−$1.91B25.7%
- Operating income$1.26B16.9%
- Interest, other & tax−$535.1M7.2%
- Net income$720.0M9.7%
Where FY2016 revenue went
$7.44B- Cost of revenue: $4.28B, 58% of revenue
- SG&A: $1.89B, 25% of revenue
- Net income: $720.0M, 9.7% of revenue
- R&D: $47.3M, 0.6% of revenue
- Interest, other & tax: $535.1M, 7.2% of revenue
Kept 9.7% as net incomeR&D $47.3M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 21, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.44B$7.39B | +0.7% |
| Cost of Revenue | $4.28B$4.00B | +7.0% |
| Gross Profit | $3.17B$3.38B | −6.3% |
| R&D Expenses | $47.27M$49.28M | −4.1% |
| SG&A Expenses | $1.89B$1.97B | −4.0% |
| Operating Expenses | $4.49B$4.78B | −6.0% |
| Operating Income | $1.26B$1.04B | +21.0% |
| Interest Expense | $97.85M$109.31M | −10.5% |
| Net Income | $720.04M$512.95M | +40.4% |
05—Questions
Frequently Asked Questions
How did Hershey perform in 2016 compared with 2015?
Net sales increased 0.7% to $7,440.2 million, and net income rose 40.4% to $720.0 million. Much of the net income increase reflects the absence of the 2015 goodwill impairment charges of $280.8 million. On a non-GAAP basis, net income increased 4.3% and diluted EPS increased 7.0% to $4.41.
What drove the decline in gross margin?
Gross margin fell 340 basis points to 42.4%. Mark-to-market losses on commodity derivatives and incremental depreciation from business realignment activities drove a 300 basis point decline, while higher trade promotional spending and supply chain costs also contributed.
What is the company's 2017 outlook?
Management expects net sales growth of approximately 2% to 3% and reported diluted EPS of $4.54 to $4.65. Adjusted diluted EPS is expected to be $4.72 to $4.81, an increase of approximately 7% to 9%, and capital expenditures are expected to be $270 million to $290 million.
Is there any leadership change?
Yes. John P. Bilbrey will retire as President and Chief Executive Officer effective March 1, 2017, and will continue as Non-Executive Chairman of the Board. Michele G. Buck, currently Executive Vice President and Chief Operating Officer, will become President and Chief Executive Officer on that date.
How concentrated is the customer base?
Approximately 25% of consolidated net sales in 2016 were made to McLane Company, Inc., a wholesale distributor that is also the primary distributor of the company's products to Wal-Mart Stores, Inc. McLane accounted for about 19% of year-end trade accounts receivable, and Wal-Mart about 14%.
06—Continue