01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company reported 2018 net sales of $7,791.1 milliona, up 3.7% from $7,515.4 million in 2017, with growth driven mainly by the Amplify and Pirate Brands acquisitions, which contributed 3.6%.
Excluding a 0.2% unfavorable foreign exchange impact, net sales rose 3.9%. Reported operating profit was $1,623.7 millionb (20.8% margin) versus $1,313.4 million (17.5%) in 2017, while non-GAAP adjusted operating profit was $1,607.1 million (20.6% margin) versus $1,556.5 million (20.7%). Reported diluted EPS was $5.58 compared with $3.66, and non-GAAP diluted EPS was $5.36 compared with $4.69.
The company attributed the adjusted margin decline mainly to lower non-GAAP gross margin, which the filing put at 44.0%, down 160 basis points, due to higher freight and logistics costs, unfavorable mix and additional plant costs. North America, the only reportable segment, generated 88.6% of net sales and segment income of $2,020.1 millionc, down 1.2%, as higher trade promotional expense, logistics costs and acquisition-related SM&A offset lower advertising spend. International and Other segment income improved to $73.8 million from $11.5 million.
Cash from operations was $1,599.9 milliond, but investing outflows of $1,502.9 million reflected the Amplify and Pirate Brands acquisitions, and total debt rose to $4.5 billion from $2.9 billion. Total assets increased to $7,703.0 million from $5,553.7 million, and goodwill rose to $1,801.1 million. The filing also notes that Hershey Trust Company, as trustee for the Milton Hershey School Trust, maintains voting control of the company, and that CFO Patricia A.
Little plans to retire in spring 2019, with a search underway for her replacement. The Board declared a quarterly dividend of $0.722 per share of Common Stock payable March 15, 2019.
02—Key points
Key Highlights
- Net sales rose 3.7% to $7,791.1 million in 2018, with Amplify and Pirate Brands contributing 3.6 percentage points of growth and volume up 1.3%.
- Reported operating profit increased 23.6% to $1,623.7 million, with operating margin of 20.8% versus 17.5% in 2017, helped by lower impairment and business realignment charges.
- Non-GAAP adjusted EPS-diluted was $5.36, up 14.3% from $4.69, while reported EPS-diluted was $5.58 versus $3.66.
- Non-GAAP gross margin fell 160 basis points to 44.0% due to higher freight and logistics costs, unfavorable mix and new production line costs.
- North America segment income declined 1.2% to $2,020.1 million, while International and Other segment income improved to $73.8 million from $11.5 million.
- Total debt increased to $4.5 billion from $2.9 billion, after $1,199.8 million of long-term borrowings and $645.8 million of net short-term borrowings used largely to fund acquisitions.
- Cash flow from operations was $1,599.9 million, and the Board declared a quarterly dividend of $0.722 per share, the 357th consecutive quarterly Common Stock dividend.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Hershey kept $0.15.
- Revenue$7.79B100.0%
- Cost of revenue−$4.22B54.1%
- Gross profit$3.58B45.9%
- Operating costs−$1.95B25.0%
- Operating income$1.62B20.8%
- Interest, other & tax−$446.1M5.7%
- Net income$1.18B15.1%
Where FY2018 revenue went
$7.79B- Cost of revenue: $4.22B, 54% of revenue
- SG&A: $1.87B, 24% of revenue
- Net income: $1.18B, 15% of revenue
- R&D: $38.5M, 0.5% of revenue
- Interest, other & tax: $446.1M, 5.7% of revenue
Kept 15% as net incomeR&D $38.5M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.79B$7.52B | +3.7% |
| Cost of Revenue | $4.22B$4.06B | +3.8% |
| Gross Profit | $3.58B$3.46B | +3.5% |
| R&D Expenses | $38.52M$45.85M | −16.0% |
| SG&A Expenses | $1.87B$1.89B | −0.6% |
| Operating Income | $1.62B$1.31B | +23.6% |
| Interest Expense | $151.95M$104.23M | +45.8% |
| Net Income | $1.18B$782.98M | +50.4% |
05—Questions
Frequently Asked Questions
How did Hershey's core sales and profitability perform in 2018?
Net sales grew 3.7% to $7,791.1 million, but excluding the Amplify and Pirate Brands acquisitions, North America net sales decreased 0.4%. Reported operating profit rose 23.6%, while non-GAAP adjusted operating profit was $1,607.1 million, slightly above $1,556.5 million in 2017, with the adjusted margin falling to 20.6% from 20.7%.
What drove the change in reported earnings per share?
Reported diluted EPS rose to $5.58 from $3.66, driven by higher gross profit, lower impairment charges and business realignment costs, lower SM&A expense and lower income taxes, with the effective tax rate falling to 17.0% from 31.9%. Lower weighted-average shares from repurchases also helped.
What acquisitions did Hershey complete, and how were they funded?
Hershey acquired Amplify Snack Brands in January 2018 and Pirate Brands from B&G Foods in October 2018. The company spent $915 million on Amplify and $423 million on Pirate Brands, funded largely through commercial paper and new notes, and total long-term debt rose to $3,254.3 million.
Who controls Hershey, and what are the leadership changes?
Hershey Trust Company, as trustee for the Milton Hershey School Trust, maintains voting control of the company. CFO Patricia A. Little informed the company she intends to retire in spring 2019, and a search has begun for her replacement.
06—Continue