Wednesday before the bell, Hershey Co. (HSY), a confectionary company, announced a sharp surge in profit for the second quarter. Both the periods were impacted by pre-tax charges in connection with global supply chain transformation program, with more charges recorded in the year-ago period. But net income from operations slipped 18% despite a 5.1% top line growth hurt by a fall in adjusted net margin. Meanwhile, the company reaffirmed its 2008 earnings forecast.
Second Quarter Results
The Hershey, Pennsylvania-based Hershey Co. reported net income of $41.4 million or $0.18 per share, significantly higher than $3.5 million or $0.01 per share in the same quarter last year. While the latest quarter results were impacted by $39.3 million or $0.11 per share, the prior year results were impacted by $124.4 million or $0.34 per share for global supply chain transformation program revealed in February 2007.
Excluding charges, net income from operations was $66.9 million or $0.29 per share, down from $81.67 million or $0.35 per share in the year ago period. On average, 12 analysts polled by Thomson Financial/First Call expected the company to report earnings of $0.28 per share.
Net sales grew 5.1% to $1.1 billion from $1.05 billion in the previous year quarter. Eight Wall Street analysts' consensus revenue estimate was $1.08 billion.
The company disclosed that its organic sales rose 3.5% due to price hike and overall upside in core brands and newer products though offset by softness in snacks and refreshment. The remaining sales rise was attributed to the Godrej Hershey venture in India.
Hershey said that gross margin advanced slightly due to price hike and supply chain savings, partly offset by increased commodity costs and the impact of integrating its business in India.
The company said that its U.S. retail takeaway after the Easter effect witnessed a 5.0% rise in channels accounting for over 80% of its retail business and that there was no change in non-seasonal everyday market share.
Commenting on the results, the company's chief executive officer David West said, "In the U.S., advertising and consumer brand-building investment increased by about 30 percent in the second quarter. Activity was primarily concentrated in the Reese's and Hershey's franchises, including Hershey's Bliss, and Starbucks Chocolates." He added, "The category has and will continue to grow. We expect Hershey's year-over-year core brand marketplace performance improvement to continue, benefiting from the new approach of our consumer-driven demand model."
Total costs and expenses were $1.01 billion versus $1.02 billion in the comparable 2007 period. Of this, selling, marketing and administrative costs accounted for $266.61 million, up from $216.87 million in the year earlier quarter. Adjusted net margin slipped to 6.1% from 7.8% as higher adjusted gross margin more than offset the fall in adjusted EBIT margin of 12.1% compared to 14.9%. The company closed the quarter with cash and cash equivalents of $45.43 million.
Six-Months Results
For the first half, Hershey reported net income of $150.87 million or $0.66 per share, down from $200.46 million or $0.86 per share in the previous year six-month period. Net sales rose to $2.27 billion from $2.21 billion in the corresponding period last year.
Expectations
Moving ahead, Hershey said that it continues to expect 2008 earnings from operations in range of $1.85 - $1.90 per share and GAAP earnings per share between $1.43 and $1.51 on net sales growth of 3% - 4%. Wall Street analysts are looking for earnings of $1.83 per share on revenues of $5.08 billion, representing a revenue growth of 2.7%.
Stock Movement
Shares of Hershey closed Tuesday's regular trading session at $34.95. During the 52-week period, the stock hit a high of $48.77 and a low of $32.31.
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