The purpose of this analysis is to analyze the Hershey Inc, 10-K report with ratios, comparisons in the sector, growth and structure, differentials on the statements and other factors that show the company’s current financial health in the world.
The Hershey Company engages in the manufacture, marketing, distribution, and sale of various types of chocolate and confectionery, refreshment and snack products, and food and beverage enhancers in the United States and internationally. The Hershey Company sells its products through sales representatives and food brokers, primarily to wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, department stores, and natural food stores. The company was founded in 1894 and is based in Hershey, Pennsylvania. The Hershey Company went public on the New York Stock Exchange (NYSE) in 1922. The call letters are HSY.
Raw materials have a significant impact on Hershey Inc and the prices that the firm pays in order to produce chocolate and other merchandise. The 10-K shows that during 2011, average cocoa futures contract prices traded in a range between $0.99 and $1.55 per pound, based on the Intercontinental Exchange futures contract. During the first half of 2011, cocoa
Need essay sample on "Hershey Inc"? We will write a custom essay sample specifically for you for only $ 13.90/page
The essence of manufacturing is to provide quality goods while reaching efficiency. Hershey sells these products in 70 countries and consumer loyalty is essential to the company’s growth. The raw materials that Hershey uses are commodities and are built upon futures. The fluctuations of these prices hold a significant value to the firm expenses and profitability margins overall. The reliance on crops is not necessarily the best way to plan, however contracts with certain crop holders can be the efficiency goal that Hershey continually attempts to attain. Through a weakened macro economy Hershey must be sensitive to the needs of the consumer with pricing because of the large competitive factors that remain in the sector.
The net sales shows the key comparisons between 2011 and 2010 as well as and 2010 and 2009. The growth in 2011 in consumer takeaway increase is significantly increased from 2010. However if the take away is closely analyzed 2009 had a relatively close takeaway as 2011. 2010’s report showed a severe drop in sale s and 2011 strategies has made the needed recovery. When studying this, the cost of sales increase of 9.0% in 2011 compared with 2010 was primarily associated with higher sales volume and significantly higher commodity costs which together increased cost of sales by approximately 8%, each contributing about half of the increase. When supply chain increases in costs this must be analyzed in order to determine the reasoning. This was caused by productivity improvements. These costs are included in the Cost of sales and in 2011 these costs were 45.1 million. This is significantly lower than the prior year that included costs of 13.7 million dollars.
The commodities of the business are a factor that increase or decrease the net sales of Hershey. Through this comparison, the gross margin decreased by 1.0 percentage point in 2011 compared with 2010. Higher commodity and other supply chain costs reduced gross margin by about 3.2 percentage points, substantially offset by productivity improvements and price realization of approximately 2.8 percentage points. Supply chain productivity and net price realization each contributed approximately half of this gross margin improvement. The impact of higher business realignment and impairment charges recorded in 2011 compared with 2010 reduced gross margin by 0.6 percentage points. In essence the gross margin improved because of the substantial improvements that were done with the supply chain.
Selling, Marketing and Administrative
The expenses in this area increased 51.3 million in over the year however it is important to realize why this occurred. The marketing expenses rose in response to the need in the competitive markets results verses Hershey’s results in the year prior to. The advertising expense alone increased 5.9 percent. Business realignment charges of $5.0 million were included in selling, marketing and administrative expenses in 2011 compared with $1.5 million in 2010.
The substitutes in the market are a large component to these decisions and with this, licensure and administrative expenses are built into this portion of the 10-K. When looking at the years prior it is established that the advertising expenses were exceedingly high and this was due to the marketing and advertising needs combined. There was acquisitions that took part in these expenses as well and this gives the understanding on why the profits and sales are significantly different throughout the periods of 2009-2012. Other factor that cannot be dismissed is the exchange rates that were poor during this time period. This affects a company significantly because of imports and exports and the hedging strategy of this firm must be adjusted in order to be certain that the capital and other investments are protected.
Income before Interest and Income Taxes and EBIT Margin
EBIT increased in 2011 compared with 2010 as a result of higher gross profit and lower business realignment and impairment charges. This is easily understood because as the accounting cycle went on throughout the year, the expenses lessened and the income stayed moderately increased. Because the expenses lessened and the improvements gave growth to the manufacturing processes, the ability to produce in greater speed was accomplished. This helped fulfill the supply and demand factors. The offsets included the marketing and advertisements expense.
Mergers and Acquisitions
Mergers and acquisitions are a common occurrence with Hershey. The dominance of power within a highly competitive market is important to hold, not only for share value but in order to decrease the competitive market and create newer and better ideas and products within the Hershey Company.
The latest merger and acquisition occurred on January 19, 2012. Hershey completed the acquisition of Brookside Foods, LTD, a privately held confectionery company based in Abbotsford, British Columbia. Brookside is a chocolate confectionery company with great-tasting products based on a unique formula for making chocolate-covered fruit juice pieces. Brookside holds patents that enable it to make the centers of these distinctive products from real fruit juice. Brookside also makes traditional chocolate-covered nuts and dried fruit.
The 10-K shows the past performance of the company in every light and this assists the concerned parties with due diligence and investment strategies. The social responsibility, corporate governance and the Sox Act is applied to each company that is traded in within the United States stock market and this gives the concerned parties assurance that these reports are in fact true. The growth of Hershey Company remains profitable throughout the instability of the economy and this shows that the strategic balance is in place.