Fourth-Quarter 2019 Results
Consolidated net sales were $2,068.1 million in the fourth quarter of 2019 versus $1,987.9 million in the year ago period, an increase of 4.0%.  Price realization was a 3.6 point benefit and the net impact of acquisitions and divestitures was a 2.2 point benefit driven by the acquisition of ONE Brands. Volume and foreign currency exchange were a 1.7 point and a 0.1 point headwind, respectively.  These results were in line with expectations.

Selling, marketing and administrative expenses increased 6.4% in the fourth quarter of 2019 versus the fourth quarter of 2018, driven by increased advertising spending, higher incentive compensation related to strong 2019 performance and a structural, market-based increase in variable compensation linked to company performance for our managers and individual contributors.  Advertising and related consumer marketing expenses increased 2.1% in the fourth quarter of 2019 versus the same period last year driven by advertising increases in North America.  Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 8.9% versus the fourth quarter of 2018.  This increase was driven by the aforementioned higher incentive compensation and increased variable compensation.

Fourth-quarter 2019 reported operating profit of $286.2 million decreased 32.0% versus the fourth quarter of 2019, resulting in an operating profit margin of 13.8%, a decrease of 740 basis points driven by the recognition of impairment charges to write down long-lived and intangible assets associated with the 2015 KRAVE Pure Foods, Inc. (Krave) acquisition.  Adjusted operating profit of $370.5 million increased 0.4% versus the fourth quarter of 2018.  This resulted in an adjusted operating profit margin of 17.9%, a decrease of 70 basis points versus the fourth quarter of 2018 as gross margin gains were more than offset by higher incentive compensation.

Total Hershey U.S. retail takeaway for the 12 weeks ended December 29, 2019⁵ in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores) increased 2.5% versus the prior-year period. Hershey's U.S. candy, mint and gum retail takeaway increased 2.8%, resulting in a 17 basis point market share gain versus the prior-year period.  Hershey's salty snack retail takeaway increased 11.3% during the latest 12 weeks led by strong Skinny Pop performance. 

International and Other
Fourth-quarter 2019 net sales for Hershey's International and Other segment increased 5.8% versus the same period last year, to $255.4 million.  Constant currency net sales grew 6.3%, offset by a 0.5 point headwind from foreign currency exchange.  Volume was a 5.7 point benefit and net price realization contributed an additional 0.6 points.  Combined net sales in our strategic focus markets (Mexico, Brazil, India and China) increased approximately 5.3%.  Excluding a 0.7 point headwind from foreign currency exchange rates, combined organic constant currency net sales in Mexico, Brazil, India and China grew approximately 6.0%.

Note:  In this release, Hershey references income measures that are not in accordance with GAAP because they exclude certain items impacting comparability, including business realignment activities, acquisition-related costs, gains realized on the sale of other assets, pension settlement charges relating to company-directed initiatives, long-lived and intangible asset impairment charges, 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 and 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 measures as presented in the Consolidated Statements of Income is provided below.

* 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.
** Adjustments reported above are reported on a pre-tax basis before the tax effect described in the reconciliation above for Non-GAAP provision for income taxes.

We present 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 U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year.  As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

Derivative Mark-to-Market Gains:  The mark-to-market losses (gains) 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 losses (gains) 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 2017, we commenced the Margin for Growth Program to drive continued net sales, operating profit and earnings per share-diluted growth over the next several years.  This program is focused on improving global efficiency and effectiveness, optimizing the company's supply chain, streamlining the company's operating model and reducing administrative expenses to generate long-term savings.  During the three- and twelve-month periods of 2019, business realignment charges related primarily to severance expenses and other third-party costs related to this program.  During the three- and twelve-month periods of 2018, business realignment charges related primarily to severance expenses, accelerated depreciation and other third-party costs related to this program.

Acquisition-Related Costs:  Costs incurred during the three- and twelve-month periods of 2019 related to the integration of the 2019 acquisition of ONE Brands, LLC, as well as the 2018 acquisitions of Amplify Snack Brands, Inc. and Pirate Brands.  Costs incurred during the three- and twelve-month periods of 2018 included consultant fees incurred to effectuate the Amplify and Pirate Brands acquisitions, as well as other costs relating to the integration of the businesses.

Pension Settlement Charges Relating to Company-Directed Initiatives:  During the three- and twelve-month periods of 2019 and 2018, settlement charges in our hourly defined benefit plan were triggered as a result of lump sum withdrawals by employees retiring or leaving the Company under a voluntary separation plan included within our Margin for Growth and Operational Optimization Programs, which were designed to optimize our production and supply chain network.

Long-Lived and Intangible Asset Impairment Charges:  During the three- and twelve-month periods of 2019, we recorded impairment charges to write down long-lived and intangible assets that had been recognized in connection with the 2015 acquisition of Krave, as well as other select long-lived assets that had not yet met the held for sale criteria and impairment charges within our Lotte Shanghai Foods Co., Ltd. disposal group.  During the three- and twelve-month periods of 2018, we recorded impairment charges within the Shanghai Golden Monkey (SGM) and Tyrrells disposal groups.  These charges represent the excess of the disposal groups' carrying values, including the related currency translation adjustment amounts realized upon completion of the sales, over the sales values less costs to sell for the SGM and Tyrrells businesses.

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. Many of these forward-looking statements can be identified by the use of words such as "intend," "believe," "expect," "anticipate," "should," "planned," "projected," "estimated," and "potential," 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: issues or concerns related to the quality and safety of our products, ingredients or packaging; changes in raw material and other costs, along with the availability of adequate supplies of raw materials; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; disruption to our manufacturing operations or supply chain; 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; risks and uncertainties related to our international operations; disruptions, failures or security breaches of our information technology infrastructure; our ability to hire, engage and retain a talented global workforce; our ability to realize expected cost savings and operating efficiencies associated with strategic initiatives or restructuring programs; complications with the design or implementation of our new enterprise resource planning system; and such other matters as discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.  All information in this press release is as of December 31, 2019. 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.

(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.
(2)   Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains).
NM - not meaningful