01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
The Hershey Company's 2019 Form 10-K reports net sales of $7.99 billiona in 2019, up 2.5% from $7.79 billion in 2018, driven by 1.7% favorable price realization and a 1.0% benefit from net acquisitions and divestitures, with volume up 0.1%.
Operating profit declined 1.7% to $1.60 billionb, and operating profit margin fell to 20.0% from 20.8%, primarily due to $112.5 million in long-lived and intangible asset impairment charges (largely the Krave business) and higher selling, marketing and administrative expense. Net income attributable to The Hershey Company was $1.15 billion, down 2.4%, and diluted EPS was $5.46, down 2.2%. Cash from operating activities rose to $1.76 billion from $1.60 billion.
North America, which generated approximately 89% of consolidated revenue, grew net sales 2.6% to $7.08 billionc and segment income 5.2% to $2.13 billion. International and Other net sales rose 1.7% to $904.5 million, and segment income increased to $95.7 million from $73.8 million. The company acquired ONE Brands, LLC in September 2019 for $402.2 million, and returned capital through dividends of $610.3 million and share repurchases of $527.2 million.
Total debt was $4.3 billiond at year-end, and cash and equivalents were $493.3 million. The filing notes that the company is monitoring a novel coronavirus outbreak in China, where financial impacts are currently unknown but are expected to be limited to its China business. Hershey Trust Company, as trustee for the Milton Hershey School Trust, retains voting control of the company.
02—Key points
Key Highlights
- Net sales rose 2.5% to $7.99 billion in 2019, with price realization of 1.7% and a 1.0% benefit from net acquisitions and divestitures.
- Operating profit fell 1.7% to $1.60 billion, and operating profit margin declined to 20.0% from 20.8%, reflecting $112.5 million in impairment charges and higher SM&A expense.
- Diluted EPS was $5.46, down 2.2% from $5.58, while net income attributable to The Hershey Company decreased 2.4% to $1.15 billion.
- North America segment net sales grew 2.6% to $7.08 billion, with segment income up 5.2% to $2.13 billion; the segment accounts for approximately 89% of consolidated revenue.
- Operating cash flow increased to $1.76 billion from $1.60 billion, and the company returned $610.3 million in dividends and $527.2 million in share repurchases.
- A $100.1 million impairment was recorded on Krave Pure Foods intangible and trademark assets after sales and operating performance fell below expectations.
- Approximately 30% of 2019 consolidated net sales were made to McLane Company, Inc., the company's largest customer.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Hershey kept $0.14.
- Revenue$7.99B100.0%
- Cost of revenue−$4.36B54.6%
- Gross profit$3.62B45.4%
- Operating costs−$2.03B25.4%
- Operating income$1.60B20.0%
- Interest, other & tax−$446.3M5.6%
- Net income$1.15B14.4%
Where FY2019 revenue went
$7.99B- Cost of revenue: $4.36B, 55% of revenue
- SG&A: $1.91B, 24% of revenue
- Net income: $1.15B, 14% of revenue
- R&D: $37.1M, 0.5% of revenue
- Other operating costs: $83.5M, 1.0% of revenue
- Interest, other & tax: $446.3M, 5.6% of revenue
Kept 14% as net incomeR&D $37.1M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $7.99B$7.79B | +2.5% |
| Cost of Revenue | $4.36B$4.22B | +3.5% |
| Gross Profit | $3.62B$3.58B | +1.3% |
| R&D Expenses | $37.15M$38.52M | −3.6% |
| SG&A Expenses | $1.91B$1.87B | +1.7% |
| Operating Income | $1.60B$1.62B | −1.7% |
| Interest Expense | $157.71M$151.95M | +3.8% |
| Net Income | $1.15B$1.18B | −2.4% |
05—Questions
Frequently Asked Questions
How did Hershey's core profitability trend in 2019?
Gross profit rose to $3.62 billion, but gross margin declined to 45.4% from 45.9%, driven by higher freight and logistics costs, additional plant costs and an unfavorable commodity mark-to-market impact. Operating profit decreased 1.7% to $1.60 billion because of higher impairment charges and SM&A expense.
What drove the decline in net income and EPS?
Net income attributable to The Hershey Company decreased $27.9 million, or 2.4%, and diluted EPS fell $0.12, or 2.2%. The filing attributes the decrease primarily to higher impairment charges and SM&A in 2019, partially offset by higher gross profit, lower business realignment costs and lower income taxes.
What is the company's exposure to the China coronavirus outbreak?
The company stated that the financial and business impacts are currently unknown, but it believes they will be limited to its China business, which is part of the International and Other reportable segment. It is taking steps to protect employees, consumers and the business.
How is Hershey managing its capital and debt position?
Total debt was $4.3 billion at December 31, 2019, down from $4.5 billion, mainly from repaying commercial paper used for the ONE Brands acquisition. The company has a $1.5 billion unsecured revolving credit facility with $1.5 billion of available capacity, and it was in compliance with all covenants.
What are the 2020 capital expenditure expectations?
The company expects 2020 capital expenditures, including capitalized software, to be approximately $475 million to $525 million, driven by a multi-year supply chain project focused on capacity for its largest and fastest-growing brands and on digital and technology investments within the supply chain.
06—Continue