The Hershey Company NYSE: HSY today announced sales and earnings for the fourth quarter ended December 31, Bilbrey, Chairman, President and Chief Executive Officer, The Hershey Company. We are listening to consumers and their changing preferences with respect to simple ingredients and transparency.

These are some of the first products from Hershey to transition to simpler ingredients, a commitment announced last year. As described in the Note below, for the fourth quarter of , these results, prepared in accordance with U. Reported gross margin of The following table presents a summary of the charges in each period see Appendix I for additional information:.

Effective January 1, , we are no longer electing to qualify commodity derivatives for hedge accounting treatment. Additionally, we have revised our definition of segment income and redefined non-GAAP income and earnings per share measures to exclude gains and losses on commodity derivatives until the related inventory is sold. We believe this change to our definition of segment income and non-GAAP income and non-GAAP earnings per share will continue to reflect the derivative gains and losses with the underlying exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income as well as non-GAAP income and non-GAAP earnings per share.

Excluding the effect of foreign currency translation, which was slightly greater than estimates and a 1. Price realization, primarily in the U.

Volume was off 4. Net acquisitions and divestitures were a 0. Adjusted gross margin was The 80 basis point increase was driven by net price realization, supply chain productivity and costs savings initiatives, partially offset by obsolescence, other supply chain costs and slightly higher commodity costs.

North America on-air and digital media was higher in the fourth quarter, although advertising and related consumer marketing expense was in line with the year ago period as production costs were less than anticipated.

For the full year North America advertising and related consumer marketing expense increased 3.

In the fourth quarter, savings from these initiatives were greater than expectations. As a result, consolidated adjusted operating profit increased 1.

We remain focused on growth and will continue to invest in our core brands in the U. We will also make incremental investments in our existing snacks platform as it will provide us with another lever of growth. Over time, these initiatives should enable us to achieve consistent sales and earnings growth. In , the company estimates full-year reported net sales will increase around 2. Excluding unfavorable foreign currency exchange rates, full-year constant currency net sales growth is expected to be around 3.

North America net sales are expected to be driven by confectionery and snacks growth, including Krave meat snacks distribution gains. The company expects gross margin to be about the same as last year. Additionally, the company will continue to invest in advertising and related consumer marketing, including a greater shift to digital and mobile communication. As a result, the company expects adjusted earnings per share-diluted for to increase about 6.

The following are comments about segment performance for the fourth quarter of versus the same period last year. See the attached schedule of supplementary information for additional information on segment net sales and profit.

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Net price realization was a 2. On a net basis, the Allan Candy and Krave acquisitions, as well as the Mauna Loa divestiture, were a 0. Fourth quarter spreads and baking chips sales declined versus the fourth quarter of due to increased competitive activity.

North America segment income increased 6. Segment income growth was driven by basis points of gross margin expansion, primarily due to pricing and supply chain productivity and costs savings initiatives, as well as the productivity program announced in June. Unfavorable foreign currency exchange rates were a 5. Combined fourth-quarter constant currency net sales in Mexico and Brazil declined slightly versus the same period last year due to the challenging macroeconomic environment and competitive activity.

Constant currency net sales in India declined, in line with estimates, due to the planned discontinuance of edible oil products. This was greater than our expectation and impacted sell-in related to product for the Chinese New Year season. Performance in China, due to lower sales, more than offset combined income in other geographies and export markets. ET today, Hershey will host a conference call to elaborate on fourth-quarter results.

In this release, Hershey references income measures that are not in accordance with GAAP because they exclude business realignment charges, goodwill and intangible asset impairment charges, acquisition and integration costs, charges related to the productivity initiative, losses incurred upon dispositions, the gain realized on the sale of a trademark, costs associated with the early extinguishment of debt, and non-service related pension expense NSRPE or income NSRPI.

These non-GAAP financial measures are used in evaluating results of operations for internal purposes. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations.

A reconciliation of the non-GAAP financial measures referenced in this release to their nearest comparable GAAP financial measure as presented in the Consolidated Statement of Income is provided below. In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:.

Below is a reconciliation of full-year earnings per share-diluted calculated in accordance with GAAP to non-GAAP adjusted earnings per share-diluted:. Our projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that will be reflected within corporate unallocated expenses in our segment results until the related inventory is sold, under our revised accounting policy for commodity derivatives.

Details of the charges included in GAAP results, as summarized in the press release above , are as follows:. In June , we announced a new productivity initiative, which is intended to move decision making closer to the customer and the consumer, to enable a more enterprise-wide approach to innovation, to more swiftly advance our knowledge agenda, and to provide for a more efficient cost structure, while ensuring that we effectively allocate resources to future growth areas.

The project is intended to simplify the organizational structure to enhance the company's ability to rapidly anticipate and respond to the changing demands of the global consumer.

Other Business Realignment Activities: We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. Also included in is the demolition of a former manufacturing facility, representing the final phase of the Project Next Century program.

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Acquisition and Integration Costs: We have incurred costs to acquire as well as costs related to the integration of the acquisitions of Shanghai Golden Monkey SGM and Allan Candy and the acquisition of Krave as we incorporate these businesses into our operating practices and information systems.

Non-Service Related Pension Expense Income: Non-service related pension expense NSRPE and income NSRPI includes interest costs, the expected return on pension plan assets, the amortization of actuarial gains and losses, and certain curtailment and settlement losses or credits.

The NSRPE or NSRPI can fluctuate from year-to-year as a result of changes in market interest rates and market returns on pension plan assets. We believe that the service cost component of our total pension benefit costs closely reflects the operating costs of our business and provides for a better comparison of our operating results from year-to-year.

Therefore, we exclude the NSRPE or NSRPI from our internal performance measures. Our most significant defined benefit pension plans were closed to most new participants in , resulting in ongoing service costs that are stable and predictable.

As disclosed in the second quarter of , we recorded a non-cash goodwill impairment charge representing a preliminary write-down of all of the goodwill relating to the SGM reporting unit at that time.

In the third quarter of , we finalized the assessment of the goodwill generated by the SGM acquisition, resulting in additional goodwill impairment charges. In the fourth quarter of , we incurred charges to write-down goodwill and a trademark associated with our India business. Loss on Early Extinguishment of Debt: During the third quarter of , we recorded within interest expense a pre-tax loss on early extinguishment of debt relating to a cash tender offer.

Loss on Mauna Loa Divestiture: In December , we entered into an agreement to sell Mauna Loa, at which time the entity was recorded as held for sale requiring a write-down to its estimated sales value. The transaction closed in the first quarter of , resulting in the recording of an additional loss based on updates to the selling expenses and tax benefits.

Gain on Sale of Trademark: During the first quarter of , we recorded a gain related to the sale of a non-core trademark.

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These statements are made based upon current expectations that are subject to risk and uncertainty. Because actual results may differ materially from those contained in the forward-looking statements, you should not place undue reliance on the forward-looking statements when deciding whether to buy, sell or hold the company's securities.

Factors that could cause results to differ materially include, but are not limited to: All information in this press release is as of January 28, The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

Liabilities and Stockholders' Equity. The Hershey Company FINANCIAL CONTACT: Mark Pogharian, or MEDIA CONTACT: Download Full Size Small Preview Thumbnail.

January 28, Fourth-quarter and full-year net sales declined 5. The following table presents a summary of the charges in each period see Appendix I for additional information: NM - not meaningful. Contacts The Hershey Company FINANCIAL CONTACT: Log In Sign Up. Enhanced Online News Tradeshownews. Reconciliation of Certain Non-GAAP Financial Measures. In thousands except per share data. Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.

Calculated as non-GAAP operating profit as a percentage of net sales for each period presented. Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other income expense, net.

Consolidated Statements of Income. Selling, marketing and administrative.

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Net income per share. Supplementary Information — Segment Results. Charges associated with business realignment initiatives. Includes centrally-managed a corporate functional costs relating to legal, treasury, finance, and human resources, b expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, c non-cash stock-based compensation expense, and d other gains or losses that are not integral to segment performance.

Segment income as a percent of net sales:. Total liabilities and stockholders' equity.