Hershey Foods (HSY) to Cut Workforce by 15%

At a company-sponsored investor conference in New York on March 1, 2017, The Hershey Company (NYSE: HSY) will discuss plans to deliver on its vision of being an innovative snacking leader and announce initiatives designed to drive continued net sales, operating profit and earnings per share-diluted growth. The company’s “Margin for Growth” program is intended to provide the flexibility and fuel to continue brand and capability investments that will help enable achievement of its vision. Confectionery and broader snacks growth, combined with the implementation of “Margin for Growth” related initiatives focused on improving global efficiency and effectiveness, will further help position the company to deliver on its financial objectives.

"Hershey has tremendous assets – its iconic brands, remarkable people and a history of executional excellence – that position the company well to deliver top- and bottom-line growth,” said Michele Buck, incoming President and Chief Executive Officer, The Hershey Company. “We’re making progress against the 'Margin for Growth' related initiatives that should give us the flexibility to invest in certain parts of our business. Our objective is to ensure that we always have the right level of innovation, marketing plans and consumer and customer expertise to drive net sales growth, especially in our North America confectionery and snacks business. In addition, we’re working to return our international businesses to profitability as soon as possible. Combined, these efforts should enable the company to achieve its adjusted operating profit margin target of about 22% to 23% by year end 2019.”

Hershey plans to continue to make investments to grow its core confectionery business and expand its breadth across the snackwheel by capturing new usage occasions and participating in on-trend categories. The “Margin for Growth” multiyear program is designed to improve overall operating profit margin through supply chain optimization, a streamlined operating model and reduced administrative expenses, with savings primarily being achieved in 2018 and 2019. These actions are intended to increase efficiency, leverage global shared services and common processes and increase capacity utilization.

The company anticipates that the program will result in total cumulative pre-tax charges of $375 million to $425 million, including one-time employee separation benefits of $80 million to $100 million. The company estimates that implementation of the program will reduce its global workforce by approximately 15% driven primarily by its hourly headcount outside of the United States. The portion of non-cash program costs, included in the aforementioned total, are expected to be between $200 million to $225 million. Cash savings are expected to reach an annual run-rate of between $150 million to $175 million by year end 2019.

Over the long term, the company expects annual constant currency net sales growth of 2% to 4%, driven primarily by its North America business. This update, versus the previous outlook, reflects changes in U.S. shopping habits and continued macroeconomic challenges impacting growth in international markets. Given the scale advantages of the company’s North America business and the “Margin for Growth” related initiatives, the company expects to generate long-term adjusted earnings per share-diluted growth of 6% to 8%.

In 2017, the company expects reported earnings per share-diluted of $3.19 to $3.45, including items impacting comparability of approximately $1.36 to $1.53 per share-diluted. This projection, prepared in accordance with U.S. generally accepted accounting principles (GAAP), assumes business realignment costs of $0.10 to $0.12 per share-diluted, non-service related pension expense (NSRPE) of $0.06 per share-diluted and estimated costs related to the “Margin for Growth” program of $1.20 to $1.35 per share-diluted.

The company reaffirms its outlook for full-year 2017 net sales growth of about 2% to 3% percent, including a net benefit from acquisitions of about 0.5 points and unfavorable foreign currency exchange rates of about 0.25 points, and full-year adjusted earnings per share-diluted growth of 7% to 9%. See the Note at the end of this press release for a reconciliation of projected 2017 and full-year 2016 earnings per share-diluted calculated in accordance with GAAP to non-GAAP adjusted earnings per share-diluted.

Live Webcast

At 9:00 a.m. ET on March 1, 2017, Hershey will host a webcast to elaborate on its “Margin for Growth” program and its strategy for continued growth. To access this webcast, please go to Hershey’s web site at http://www.thehersheycompany.com.

Note: In this release, Hershey references income measures that are not in accordance with GAAP because they exclude business realignment activities, goodwill and other intangible asset impairment charges, acquisition integration costs, settlement of the Shanghai Golden Monkey (SGM) liability, NSRPE, costs related to the “Margin for Growth” program and gains and losses associated with mark-to-market commodity derivatives. 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. Below is a reconciliation of projected 2017 and full-year 2016 earnings per share-diluted calculated in accordance with GAAP to non-GAAP adjusted earnings per share-diluted:

Our 2017 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 accounting policy for commodity derivatives. Adjusted operating profit margin for 2017 to 2019 is a non-GAAP financial measure that excludes or has otherwise been adjusted for items impacting comparability, including the impact of changes in foreign currency exchange rates, business realignment costs, NSRPE and restructure charges. We are not able to reconcile this forward-looking non-GAAP financial measure to its most directly comparable forward-looking GAAP financial measure without unreasonable efforts because we are unable to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates, business realignment costs, NSRPE and restructure charges. The unavailable information could have a significant impact on our full year 2017 to 2019 GAAP financial results.

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