01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2017 Form 10-K reports net sales of $7,515.4 milliona, up 1.0% from $7,440.2 million in 2016, with favorable price realization of 0.7% and a 0.3% benefit from acquisitions offsetting a 0.2% volume decrease.
Reported gross margin rose to 45.8% from 42.4%, and operating profit grew 5.7% to $1,274.6 millionb. Net income attributable to The Hershey Company was $783.0 million, or $3.66 per diluted Common Stock share, versus $720.0 million and $3.34 in 2016. Non-GAAP adjusted EPS-diluted was $4.76, up 7.9% from $4.41.
The filing attributes the results partly to lower trade promotional spending, while the company recorded $208.7 millionc of long-lived asset impairment charges, mainly tied to its China business, under the Margin for Growth Program. The company's North America segment generated approximately 88% of consolidated revenue and reported segment income of $2,045.6 million, up 0.2%. International and Other posted segment income of $11.5 million, compared with a loss of $29.1 million in 2016, but its net sales declined 1.4% amid a 4.7% volume decline, primarily in China.
Operating cash flow was $1,249.5 milliond, and cash and cash equivalents ended the year at $380.2 million. Total debt was $2.9 billion, and the company completed the January 2018 acquisition of Amplify Snack Brands, Inc., which owns SkinnyPop, for approximately $908 million in purchase consideration. Management's Margin for Growth Program is expected to generate total pre-tax charges of $375 million to $425 million from 2017 to 2019, with ongoing annual savings of approximately $150 million to $175 million at program conclusion.
The company also reported a $32.5 million net charge from U.S. tax reform and an effective tax rate of 31.9%, down from 34.5%. Cocoa futures averaged $0.91 per pound in 2017, down from $1.29 in 2016, and the Milton Hershey School Trust, which holds voting control, remains the controlling stockholder.
02—Key points
Key Highlights
- Net sales rose 1.0% to $7,515.4 million, with favorable price realization of 0.7% and a 0.3% contribution from acquisitions.
- Reported gross margin increased to 45.8% from 42.4%, and operating profit rose 5.7% to $1,274.6 million.
- Diluted EPS was $3.66 versus $3.34 in 2016; adjusted (non-GAAP) diluted EPS was $4.76, up from $4.41.
- Long-lived asset impairment charges of $208.7 million, primarily related to the China business, weighed on reported results.
- Operating cash flow was $1,249.5 million, and the company used $843.8 million in financing activities, including $526.3 million in dividends.
- North America generated approximately 88% of consolidated revenue and segment income of $2,045.6 million; International and Other returned to a small profit of $11.5 million.
- The Margin for Growth Program is expected to cost $375 million to $425 million in pre-tax charges from 2017 to 2019, with ongoing annual savings of $150 million to $175 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Hershey kept $0.10.
- Revenue$7.52B100.0%
- Cost of revenue−$4.06B54.0%
- Gross profit$3.46B46.0%
- Operating costs−$2.14B28.5%
- Operating income$1.31B17.5%
- Interest, other & tax−$530.4M7.1%
- Net income$783.0M10.4%
Where FY2017 revenue went
$7.52B- Cost of revenue: $4.06B, 54% of revenue
- SG&A: $1.89B, 25% of revenue
- Net income: $783.0M, 10% of revenue
- R&D: $45.9M, 0.6% of revenue
- Other operating costs: $210.6M, 2.8% of revenue
- Interest, other & tax: $530.4M, 7.1% of revenue
Kept 10% as net incomeR&D $45.9M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.52B$7.44B | +1.0% |
| Cost of Revenue | $4.06B$4.28B | −5.2% |
| Gross Profit | $3.46B$3.17B | +9.0% |
| R&D Expenses | $45.85M$47.27M | −3.0% |
| SG&A Expenses | $1.89B$1.89B | −0.3% |
| Operating Income | $1.31B$1.26B | +4.6% |
| Interest Expense | $104.23M$97.85M | +6.5% |
| Net Income | $782.98M$720.04M | +8.7% |
05—Questions
Frequently Asked Questions
How did Hershey perform financially in 2017?
Net sales increased 1.0% to $7,515.4 million, and net income attributable to The Hershey Company rose to $783.0 million, or $3.66 per diluted Common Stock share, from $720.0 million and $3.34 in 2016. Reported gross margin improved to 45.8%, while the non-GAAP adjusted EPS-diluted was $4.76.
What drove the impairment charges and restructuring costs?
The company recorded $208.7 million of long-lived asset impairment charges in the first quarter of 2017 tied to optimizing its China manufacturing operations under the Margin for Growth Program. Business realignment costs were $47.8 million in the operating expense line, and total realignment activity cost $69.4 million.
How is the Amplify Snack Brands acquisition expected to affect the business?
Hershey completed the acquisition of Amplify Snack Brands, Inc. on January 31, 2018, for approximately $908 million in purchase consideration, plus about $607 million to repay Amplify's debt. Amplify is expected to generate 2018 post-acquisition net sales of approximately $375 million to $385 million, and the company is funding the deal through its new revolving credit facility.
What is the outlook for capital spending and the Margin for Growth Program?
The company expects 2018 capital expenditures of approximately $330 million to $350 million. The Margin for Growth Program is estimated to reduce the global workforce by approximately 15%, and it targets ongoing annual savings of approximately $150 million to $175 million at its conclusion in 2019.
Who controls Hershey, and how does that affect shareholders?
Hershey Trust Company, as trustee for the Milton Hershey School Trust, holds voting control of the company through Class B Stock with 10 votes per share. Pennsylvania law requires advance notice to the Attorney General of any transaction that would remove this voting control, which makes a third-party takeover more difficult.
06—Continue