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The Hershey Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 10, 2010 12:29PM
The Hershey Company (HSY) filed Quarterly Report for the period ended 2010-10-03.
Highlight of Business Operations:
Earnings per share-diluted in the third quarter of 2010 increased $0.07, or 9.9% as compared with the third quarter of 2009. Net income in the third quarter of 2010 was reduced by $2.7 million, or $0.01 per share-diluted, and was reduced by $6.5 million, or $0.02 per share-diluted, in the third quarter of 2009 as a result of business realignment and impairment charges. Excluding the impact of business realignment and impairment charges, earnings per share-diluted increased $0.06 or 8.2% due to lower supply chain costs, sales volume increases and net price realization, along with a lower effective income tax rate, partially offset by higher advertising and other selling, marketing and administrative expenses.
Earnings per share-diluted for the first nine months of 2010 increased $0.28, or 20.7% compared with the same period of the prior year. Net income in the first nine months of 2010 was reduced by $73.1 million, or $0.31 per share-diluted, and was reduced by $43.3 million, or $0.19 per share-diluted, in the first nine months of 2009 as a result of business realignment and impairment charges. Excluding the impact of business realignment and impairment charges in each period, earnings per share-diluted in the first nine months of 2010 increased $0.40 or 26.0% as compared with the first nine months of 2009.
Net cash provided from operating activities was $388.2 million in 2010 and $635.5 million in 2009. The decrease was attributable to the change in cash used by other assets and liabilities in 2010 as compared with cash provided in 2009 as well as an increase in cash used by working capital, partially offset by higher net income in 2010. Cash used by changes in other assets and liabilities was $33.4 million for the first nine months of 2010 as compared with cash provided of $153.1 million for the same period of 2009. The change in the amount of cash (used by) provided from other assets and liabilities from 2009 to 2010 reflected the effect of hedging transactions of $202.8 million. Cash used by working capital was $193.3 million in 2010 and $58.3 million in 2009. The increase was principally related to higher accounts receivable resulting from higher sales in 2010. Higher inventories resulting from seasonal sales patterns also contributed to the increase.
In 2009, the Company recorded GAAP charges, including non-cash pension settlement charges, of $99.1 million, or $0.27 per share-diluted, attributable to the GSCT program. The Company does not expect any significant charges related to the GSCT program in 2010. In 2010, the Company expects to record total GAAP charges of about $75 million to $85 million, or $0.20 to $0.23 per share-diluted, attributable to Project Next Century. Additionally, in the second quarter of 2010, the Company recorded a non-cash goodwill impairment charge of $44.7 million, or $0.20 per share-diluted, related to the Godrej Hershey Ltd. joint venture. For more information, see Note 6. Business Realignment and Impairment Charges.
In June 2010, we announced Project Next Century as part of our ongoing efforts to create an advantaged supply chain and competitive cost structure. We expect total pre-tax charges and non-recurring project implementation costs for the Project Next Century program of $140 million to $170 million. During 2010, we expect to record $75 million to $85 million in program charges. For the full year 2010, we expect capital expenditures for Project Next Century to be approximately $50 million, with accelerated depreciation and amortization estimated to be $10 million to $15 million.
The potential net loss in fair value of interest rate swap agreements resulting from a hypothetical near-term adverse change in market rates of ten percent was $9.1 million as of October 3, 2010 and was $4.9 million as of December 31, 2009. The potential net loss in fair value of foreign exchange forward contracts and options resulting from a hypothetical near-term adverse change in market rates of ten percent was $15.4 million as of October 3, 2010 and was $10.9 million as of December 31, 2009. The market risk resulting from a hypothetical adverse market price movement of ten percent associated with the estimated average fair value of net commodity positions increased from $36.3 million as of December 31, 2009, to $46.9 million as of October 3, 2010. Market risk represents ten percent of the estimated average fair value of net commodity positions at four dates prior to the end of each period.
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