Hershey Reports Third-Quarter 2024 Financial Results; Updates 2024 Net Sales and Earnings Outlook
"We believe in the resiliency of our snacking categories and the strength of our brands," said
Third -Quarter 2024 Financial Results Summary 1
- Consolidated net sales of
$2,987.5 million , a decrease of 1.4%. - Organic, constant currency net sales decreased 1.0%.
- Reported net income of
$446.3 million , or$2.20 per share-diluted, a decrease of 12.7%. - Adjusted earnings per share-diluted of
$2.34 , a decrease of 10.0%.
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1
All comparisons for the third quarter of 2024 are with respect to the third quarter ended |
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2024 Full-Year Financial Outlook
The Company is reducing its net sales growth, reported earnings per share and adjusted earnings per share outlook for the year.
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2024 Full-Year Outlook |
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Prior Guidance |
Current Guidance |
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Net sales growth |
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~2% |
Flat |
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Reported earnings per share growth |
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(3)% to (1)% |
(9)% to (6)% |
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Adjusted earnings per share growth |
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Down slightly |
Down mid-single-digits |
The Company also expects:
- An overall economic tax outlook that is relatively unchanged but reflects higher investment in tax credits and a lower tax rate versus the previous outlook:
- A reported and adjusted effective tax rate of approximately 11%;
- Other expense, which primarily reflects the write-down of equity investments that qualify for a tax credit, of approximately
$260 million to$270 million ;
- Interest expense of approximately
$170 million , reflecting a higher interest rate environment; - Capital expenditures of approximately
$575 million to$600 million , driven by core confection capacity expansion and continued investments in a digital infrastructure; and - Advancing Agility & Automation Initiative savings of approximately
$100 million .
Below is a reconciliation of current projected 2024 and full-year 2023 earnings per share-diluted calculated in accordance with
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2024 (Projected) |
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2023 |
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Reported EPS – Diluted |
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Derivative mark-to-market losses |
— |
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0.29 |
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Business realignment activities |
0.65 - 0.69 |
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0.01 |
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Acquisition and integration-related activities |
0.20 - 0.25 |
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0.37 |
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Tax effect of all adjustments reflected above |
(0.21) |
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(0.14) |
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Adjusted EPS – Diluted |
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2024 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 are reflected within corporate unallocated expense in segment results until the related inventory is sold since we are not able to forecast the impact of the market changes.
Third -Quarter 2024 Components of Net Sales Growth
A reconciliation between reported net sales growth rates and constant currency net sales growth rates, along with the contribution from net price realization and volume, is provided below:
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Three Months Ended |
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Percentage |
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Impact of |
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Percentage |
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Organic Price (Rounded)* |
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Organic (Rounded)* |
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North America Confectionery |
0.8 % |
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(0.1) % |
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0.9 % |
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2 % |
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(2) % |
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North America Salty Snacks |
(15.5) % |
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— % |
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(15.5) % |
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2 % |
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(17) % |
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International |
(3.9) % |
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(4.1) % |
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0.2 % |
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1 % |
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(1) % |
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(1.4) % |
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(0.4) % |
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(1.0) % |
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2 % |
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(3) % |
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*Percentage changes may not compute directly as shown due to rounding of amounts presented above. |
The Company presents certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange. To present this information for historical periods, current period net sales for entities reporting in currencies other than the
Third -Quarter 2024 Consolidated Results
Consolidated net sales decreased 1.4% to
Reported gross margin was 41.3% in the third quarter of 2024, compared to 44.9% in the third quarter of 2023, a decrease of 360 basis points driven by higher commodity costs, unfavorable input cost timing, fixed cost deleverage, and unfavorable mix that more than offset net price realization, productivity gains, and derivative mark-to-market gains. Adjusted gross margin was 40.3% in the third quarter of 2024, a decrease of 460 basis points compared to the third quarter of 2023, as higher commodity costs, unfavorable input cost timing, fixed cost deleverage, and unfavorable mix more than offset price realization and productivity gains.
Selling, marketing and administrative expenses decreased 5.2% in the third quarter of 2024 versus the third quarter of 2023, driven by reduced advertising and related consumer marketing expenses, lower compensation and benefit costs and fewer capability and technology investments versus the prior year. Advertising and related consumer marketing expenses decreased 0.6% in the third quarter of 2024 versus the same period last year, as efficiencies in consumer marketing related expenses in North America Confectionery were partially offset by increases in North America Salty Snacks and International. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, decreased 7.5% versus the third quarter of 2023 driven by reduced compensation and benefit costs and fewer capability and technology investments versus the prior year.
Third quarter 2024 reported operating profit was
The reported effective tax rate in the third quarter of 2024 was 14.0%, a decrease of 660 basis points versus the third quarter of 2023. The adjusted effective tax rate was 15.2%, a decrease of 520 basis points versus the third quarter of 2023. Both the reported and adjusted effective tax rate decreases were driven by an increase in renewable energy tax credits versus the year-ago period.
The Company's third-quarter 2024 results, as prepared in accordance with GAAP, included items positively impacting comparability of
The following table presents a summary of items impacting comparability in each period (see Appendix I for additional information):
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Pre-Tax (millions) |
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Earnings Per Share-Diluted |
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Three Months Ended |
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Three Months Ended |
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Derivative mark-to-market (gains) losses |
$ (31.1) |
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$ 1.8 |
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$ (0.15) |
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$ 0.01 |
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Business realignment activities |
49.1 |
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(0.4) |
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0.24 |
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— |
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Acquisition and integration-related activities |
22.8 |
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16.1 |
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0.11 |
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0.08 |
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Tax effect of all adjustments reflected above |
— |
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— |
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(0.06) |
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(0.01) |
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$ 40.8 |
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$ 17.5 |
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$ 0.14 |
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$ 0.08 |
Segment performance for the third quarter of 2024 versus the prior year period is detailed below. See the table on components of net sales growth and the schedule of supplementary information within this press release for additional information on segment net sales and profit.
North America Confectionery
The North America Confectionery segment reported segment income of
North America Salty Snacks
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2 MULO+ w/Convenience expanded in the second quarter of 2024 to include club, drug, and e-commerce customers previously classified as unmeasured |
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North America Salty Snacks segment income was
International
Third quarter 2024 net sales for
The International segment reported a
Unallocated Corporate Expense
Live Webcast
At approximately
Note: In this release, for the third quarter of 2024,
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Reconciliation of Certain Non-GAAP Financial Measures |
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Consolidated results |
Three Months Ended |
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In thousands except per share data |
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Reported gross profit |
$ 1,232,719 |
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$ 1,360,253 |
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Derivative mark-to-market (gains) losses |
(31,083) |
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1,752 |
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Business realignment activities |
1,457 |
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(506) |
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Acquisition and integration-related activities |
1,720 |
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15 |
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Non-GAAP gross profit |
$ 1,204,813 |
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$ 1,361,514 |
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Reported operating profit |
$ 613,164 |
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$ 735,949 |
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Derivative mark-to-market (gains) losses |
(31,083) |
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1,752 |
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Business realignment activities |
49,129 |
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(426) |
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Acquisition and integration-related activities |
22,777 |
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16,125 |
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Non-GAAP operating profit |
$ 653,987 |
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$ 753,400 |
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Reported provision for income taxes |
$ 72,446 |
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$ 134,836 |
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Derivative mark-to-market (gains) losses* |
(4,499) |
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(1,853) |
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Business realignment activities* |
11,867 |
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(133) |
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Acquisition and integration-related activities* |
5,518 |
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3,879 |
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Non-GAAP provision for income taxes |
$ 85,332 |
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$ 136,729 |
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Reported net income |
$ 446,301 |
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$ 518,577 |
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Derivative mark-to-market (gains) losses |
(26,584) |
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3,605 |
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Business realignment activities |
37,262 |
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(293) |
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Acquisition and integration-related activities |
17,259 |
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12,246 |
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Non-GAAP net income |
$ 474,238 |
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$ 534,135 |
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Reported EPS - Diluted |
$ 2.20 |
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$ 2.52 |
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Derivative mark-to-market (gains) losses |
(0.15) |
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0.01 |
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Business realignment activities |
0.24 |
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— |
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Acquisition and integration-related activities |
0.11 |
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0.08 |
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Tax effect of all adjustments reflected above** |
(0.06) |
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(0.01) |
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Non-GAAP EPS - Diluted |
$ 2.34 |
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$ 2.60 |
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* The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the Company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. |
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:
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Three Months Ended |
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As reported gross margin |
41.3 % |
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44.9 % |
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Non-GAAP gross margin (1) |
40.3 % |
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44.9 % |
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As reported operating profit margin |
20.5 % |
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24.3 % |
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Non-GAAP operating profit margin (2) |
21.9 % |
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24.9 % |
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As reported effective tax rate |
14.0 % |
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20.6 % |
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Non-GAAP effective tax rate (3) |
15.2 % |
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20.4 % |
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(1) |
Calculated as non-GAAP gross profit as a percentage of net sales for each period presented. |
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(2) |
Calculated as non-GAAP operating profit as a percentage of net sales for each period presented. |
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(3) |
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). |
Appendix I
Details of the charges included in GAAP results, as summarized in the press release (above), are as follows:
Derivative mark-to-market (gains) losses: The mark-to-market (gains) losses on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding (gains) losses are reclassified from unallocated to segment income. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period.
Business realignment activities: We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. During the first quarter of 2024, we commenced the Advancing Agility & Automation Initiative to improve supply chain and manufacturing-related spend, optimize selling, general and administrative expenses, leverage new technology and business models to further simplify and automate processes, and generate long-term savings. During the third quarter of 2024, business realignment charges related primarily to third-party costs supporting the design and implementation of the new organizational structure, as well as severance and employee benefit costs. During the fourth quarter of 2020, we commenced the International Optimization Program to streamline resources and investments in select international markets, including the optimization of our
Acquisition and integration-related activities: During the third quarter of 2024, we incurred integration-related costs for the acquisition of two manufacturing plants from
Tax effect of all adjustments: This line item reflects the aggregate tax effect of all pre-tax adjustments reflected in the preceding line items of the applicable table. The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the Company's quarterly effective tax rate, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.
Safe Harbor Statement
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to our 2024 Full-year Financial Outlook and other statements regarding our business outlook and financial performance. Many of these forward-looking statements can be identified by the use of words such as "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would," among others. 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: disruptions or inefficiencies in our supply chain due to the loss or disruption of essential manufacturing or supply elements or other factors; issues or concerns related to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters; changes in raw material and other costs, along with the availability of adequate supplies of raw materials and the Company's ability to successfully hedge against volatility in raw material pricing; the Company's ability to successfully execute business continuity plans to address changes in consumer preferences and the broader economic and operating environment; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; failure to successfully execute and integrate acquisitions, divestitures and joint ventures; changes in governmental laws and regulations, including taxes; political, economic, and/or financial market conditions, including with respect to inflation, rising interest rates, slower growth or recession, and other events beyond our control such as the impacts on the business arising from the conflict between
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Consolidated Statements of Income |
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for the periods ended |
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(unaudited) (in thousands except percentages and per share amounts) |
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Three Months Ended |
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Nine Months Ended |
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Net sales |
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$ 2,987,494 |
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$ 3,029,987 |
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$ 8,314,723 |
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$ 8,507,881 |
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Cost of sales |
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1,754,775 |
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1,669,734 |
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4,572,178 |
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4,633,207 |
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Gross profit |
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1,232,719 |
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1,360,253 |
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3,742,545 |
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3,874,674 |
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Selling, marketing and administrative expense |
591,920 |
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624,304 |
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1,750,888 |
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1,777,695 |
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Business realignment costs |
27,635 |
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— |
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32,572 |
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441 |
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Operating profit |
613,164 |
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735,949 |
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1,959,085 |
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2,096,538 |
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Interest expense, net |
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44,316 |
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39,755 |
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125,511 |
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114,101 |
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Other (income) expense, net |
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50,101 |
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42,781 |
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82,695 |
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130,248 |
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Income before income taxes |
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518,747 |
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653,413 |
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1,750,879 |
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1,852,189 |
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Provision for income taxes |
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72,446 |
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134,836 |
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326,231 |
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339,444 |
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Net income |
$ 446,301 |
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$ 518,577 |
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$ 1,424,648 |
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$ 1,512,745 |
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Net income per share |
- Basic |
- Common |
$ 2.26 |
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$ 2.60 |
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$ 7.19 |
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$ 7.56 |
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- Diluted |
- Common |
$ 2.20 |
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$ 2.52 |
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$ 7.00 |
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$ 7.36 |
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- Basic |
- Class B |
$ 2.05 |
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$ 2.36 |
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$ 6.53 |
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$ 6.93 |
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Shares outstanding |
- Basic |
- Common |
147,938 |
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150,116 |
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148,474 |
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149,307 |
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- Diluted |
- Common |
203,030 |
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205,488 |
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203,631 |
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205,613 |
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- Basic |
- Class B |
54,614 |
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54,614 |
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54,614 |
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55,447 |
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Key margins: |
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Gross margin |
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41.3 % |
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44.9 % |
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45.0 % |
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45.5 % |
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Operating profit margin |
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20.5 % |
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24.3 % |
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23.6 % |
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24.6 % |
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Net margin |
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14.9 % |
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17.1 % |
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17.1 % |
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17.8 % |
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Supplementary Information – Segment Results |
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for the periods ended |
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(unaudited) (in thousands except percentages) |
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Three Months Ended |
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Nine Months Ended |
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% Change |
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% Change |
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Net sales: |
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North America Confectionery |
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$ 2,477,303 |
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$ 2,457,647 |
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0.8 % |
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$ 6,764,439 |
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$ 6,902,891 |
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(2.0) % |
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North America Salty Snacks |
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291,835 |
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345,182 |
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(15.5) % |
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856,835 |
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887,532 |
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(3.5) % |
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International |
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218,356 |
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227,158 |
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(3.9) % |
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693,449 |
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717,458 |
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(3.3) % |
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Total |
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$ 2,987,494 |
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$ 3,029,987 |
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(1.4) % |
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$ 8,314,723 |
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$ 8,507,881 |
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(2.3) % |
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Segment income: |
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North America Confectionery |
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$ 724,822 |
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$ 847,469 |
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(14.5) % |
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$ 2,137,514 |
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$ 2,392,397 |
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(10.7) % |
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North America Salty Snacks |
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53,977 |
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57,389 |
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(5.9) % |
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144,887 |
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147,934 |
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(2.0) % |
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International |
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14,207 |
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31,688 |
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(55.2) % |
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81,967 |
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127,838 |
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(35.8) % |
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Total segment income |
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793,006 |
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936,546 |
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(15.3) % |
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2,364,368 |
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2,668,169 |
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(11.4) % |
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Unallocated corporate expense (1) |
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139,018 |
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183,146 |
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(24.1) % |
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465,935 |
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513,284 |
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(9.2) % |
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Unallocated mark-to-market (gains) |
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(31,083) |
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1,753 |
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NM |
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(195,727) |
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5,217 |
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NM |
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Costs associated with business |
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49,129 |
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(426) |
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NM |
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104,795 |
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3,440 |
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NM |
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Acquisition and integration-related |
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22,778 |
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16,124 |
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41.3 % |
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30,280 |
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49,690 |
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(39.1) % |
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Operating profit |
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613,164 |
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735,949 |
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(16.7) % |
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1,959,085 |
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2,096,538 |
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(6.6) % |
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Interest expense, net |
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44,316 |
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39,755 |
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11.5 % |
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125,511 |
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114,101 |
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10.0 % |
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Other (income) expense, net |
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50,101 |
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42,781 |
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17.1 % |
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82,695 |
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130,248 |
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(36.5) % |
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Income before income taxes |
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$ 518,747 |
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$ 653,413 |
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(20.6) % |
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$ 1,750,879 |
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$ 1,852,189 |
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(5.5) % |
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(1) |
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. |
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(2) |
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). |
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NM - not meaningful |
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Three Months Ended |
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Nine Months Ended |
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Segment income as a percent of net sales: |
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North America Confectionery |
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29.3 % |
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34.5 % |
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31.6 % |
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34.7 % |
|
|
North America Salty Snacks |
|
18.5 % |
|
16.6 % |
|
16.9 % |
|
16.7 % |
|
|
International |
|
6.5 % |
|
13.9 % |
|
11.8 % |
|
17.8 % |
|
|
|
|||
|
Consolidated Balance Sheets |
|||
|
as of |
|||
|
(in thousands of dollars) |
|||
|
|
|
|
|
|
Assets |
|
|
|
|
|
(unaudited) |
|
|
|
Cash and cash equivalents |
$ 614,951 |
|
$ 401,902 |
|
Accounts receivable - trade, net |
1,142,514 |
|
823,617 |
|
Inventories |
1,301,956 |
|
1,340,996 |
|
Prepaid expenses and other |
492,383 |
|
345,588 |
|
|
|
|
|
|
Total current assets |
3,551,804 |
|
2,912,103 |
|
|
|
|
|
|
Property, plant and equipment, net |
3,389,034 |
|
3,309,678 |
|
|
2,692,195 |
|
2,696,050 |
|
Other intangibles |
1,818,980 |
|
1,879,229 |
|
Other non-current assets |
1,129,029 |
|
1,061,427 |
|
Deferred income taxes |
40,368 |
|
44,454 |
|
|
|
|
|
|
Total assets |
$ 12,621,410 |
|
$ 11,902,941 |
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
Accounts payable |
$ 1,214,564 |
|
$ 1,086,183 |
|
Accrued liabilities |
807,392 |
|
867,815 |
|
Accrued income taxes |
71,836 |
|
29,457 |
|
Short-term debt |
1,196,403 |
|
719,839 |
|
Current portion of long-term debt |
904,819 |
|
305,058 |
|
|
|
|
|
|
Total current liabilities |
4,195,014 |
|
3,008,352 |
|
|
|
|
|
|
Long-term debt |
3,189,079 |
|
3,789,132 |
|
Other long-term liabilities |
709,359 |
|
660,673 |
|
Deferred income taxes |
322,989 |
|
345,698 |
|
|
|
|
|
|
Total liabilities |
8,416,441 |
|
7,803,855 |
|
|
|
|
|
|
Total stockholders' equity |
4,204,969 |
|
4,099,086 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
$ 12,621,410 |
|
$ 11,902,941 |
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