Download - Hershey CAGNY 2015
CAGNYCONFERENCE
J.P. BILBREY PRESIDENT & CEO
MICHELE BUCK PRESIDENT, NORTH AMERICA
BERT ALFONSO PRESIDENT, INTERNATIONAL
FORWARD-LOOKING STATEMENTS
This presentation and the related prepared remarks contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Other than statements of historical fact, information regarding activities, events and developments that we expect or anticipate will or may occur in the future, including, but not limited to, information relating to our future growth and profitability targets and strategies designed to increase total shareholder value, are forward-looking statements based on management’s estimates, assumptions and projections. Forward-looking statements also include, but are not limited to, statements regarding our future economic and financial condition and results of operations, the plans and objectives of management and our assumptions regarding our performance and such plans and objectives. Many of the forward-looking statements contained in this presentation and the related prepared remarks may be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “projected,” “estimated” and “potential,” among others. Forward-looking statements contained in this presentation and the related prepared remarks are predictions only and actual results could differ materially from management’s expectations due to a variety of factors, including those described below. 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; increases in raw material and other costs; selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; disruption to our 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; the impact of future developments related to civil antitrust lawsuits and the possible investigation by government regulators of alleged pricing practices by members of the confectionery industry; and such other matters as discussed in our Annual Report on Form 10-K for 2013. All forward-looking statements contained in this presentation and the related prepared remarks are expressly qualified in their entirety by such risk factors. All information in this presentation and the related prepared remarks is as of February 18, 2015, and the Company assumes no obligation to update developments of the risk factors or to announce publicly any revisions to any of the forward-looking statements we make, or to make corrections to reflect future events or developments, except as required by the federal securities laws.
AGENDA
North America, a growth market with a continued solid future
Continuing on the path of “Predictable, Profitable, Sustainable Results”
International expansion on track
J.P. Bilbrey
Michele Buck
Bert Alfonso
5 STRATEGIES DRIVEPREDICTABLE, PROFITABLE, SUSTAINABLE RESULTS
Expand our geographical footprint in focus markets
Gro
wth
pla
nk
s(o
rgan
ic &
via
M&
A)
En
able
rsF
uel
Create & expand a consumer centric portfolio across key geographies
Deliver predictable, profitable & sustainable N.A. business
Win with knowledge, technology and capabilities (people, process and tools)
Drive industry-leading growth through innovation (product & beyond)
BEST-IN-CLASS
SHAREHOLDER RETURN
GLOBALLY, CONFECTION CATEGORY IS LARGE AND GROWING
Source: Euromonitor 2014, Current Value Sales, Fixed Exchange Rate
$198.4B
+4.9% 2009-2014
CAGR
NET SALES TRACKING TOWARD ASPIRATIONAL GOAL
Source : The Hershey Company estimates
M&A
2010 2011 2012 2013 2014 2017e
$10.0
$7.4
$5.3
NET SALES ($B)
5-YR2010-2014CAGR 7%
GLOBAL FOOTPRINT INCREASING, DRIVEN BY CHINAINTERNATIONAL NET SALES ~15% OF TOTAL HSY IN 2015
Mexico
China*
Export/ROW
BrazilIndia
*China includes Golden Monkey
INTERNATIONAL MARKET SHARE INCREASED
Source: Nielson and Euromonitor
IN TOUGH OPERATING ENVIRONMENT
• Hershey chocolate retail takeaway +7.6% in 2014
• Chocolate market share 14.3%, up 0.2 pts
• Reached a ~11% share of the chocolate category in Q4
• Reese’s launch and distribution on target
• Driven by tablet bars, Hershey 2014 retail takeaway increased +4.7%
• Market share of 5.1% was up 0.2 pts
U.S. CMG SHARE LEADERSHIP
* Nielsen, FDMxC ** Nielsen, xAOC+C; CMG = Candy, Mint & Gum
U.S. MARKET SHARE (%)
2008* 2014**
27.5%
5.5%
32.7%
PEER
A
PEER
B
PEER
A
PEER
B
31.4%
5.4%
29.2%
CHANNEL ADVANTAGES
Source: The Hershey Company estimates
HERSHEY % OF U.S. NET SALES BY CHANNEL
31%
15%
6%26%
10%
8%
4%Mass Merchandisers (all)
C-stores
Dollar Stores
Food
Drug Stores
Wholesale Clubs
Specialty Channels
1H14 2H14 FY14
HERSHEY U.S. CMG RETAIL TAKEAWAY ACCELERATED IN 2H14& WAS WITHIN LONG-TERM CATEGORY GROWTH RATE OF 3-4%
Source: Nielsen, xAOC+C; CMG = Candy, Mint & Gum, 52 weeks ended 12/27/14
xAOC+C CHANNELS
+2.0%
+3.6%
+2.7%
+1.8% +1.9% +1.8%
HERSHEY
CATEGORY
1H14 2H14 FY14
+0.9%
+1.9%+1.4%
Source: Nielsen, xAOC+C; CMG = Candy, Mint & Gum, 52 weeks ended 12/27/14
HERSHEY RETAIL TAKEAWAY
HERSHEY U.S. CMG TAKEAWAY BY CHANNELCOMBINED C-STORE, WALMART & DOLLAR CHANNELS EXCEEDED HISTORICAL CATEGORY GROWTH RATE OF 3-4%
1H14 2H14 FY14
+3.7%
+5.2%+4.4%
HERSHEY RETAIL TAKEAWAY C-STORE + WMT + DOLLARFDMx + ALL OTHER CHANNELS
2015 IMPERATIVES
New sales force hires drive incremental in store merchandising and programming
Focus on core brands and leverage new product launches
Int’l investment continues to build brand equity—driving trial and market share gains
Continue to integrate Shanghai Golden Monkey and Krave
CONSUMERS’ RELATIONSHIP WITH FOOD IS CHANGING
68%of global consumers want to recognize all of the ingredients on the label
40% want food made with as few ingredients as possible
Snack food is among the
TOP 3 CATEGORIES globally to support clean labels
• Simple, easy to understand ingredients• Ingredient transparency• Minimally processed• Sustainably sourced
People want to know what’s in their food, where ingredients come from and how it’s made…and Hershey will share that openly and candidly
Source: Food 2020, The Consumer as CEO; Ketchum Global Survey 2014
HERSHEY IS COMMITTED TO TRANSPARENCY AND SIMPLE INGREDIENTS
THOUGHTFUL & RESPONSIBLE SOURCING
SIMPLE & EASY TO UNDERSTAND
SHARING WHAT’S INSIDE
INSIGHTS AND KNOWLEDGE…A CORE COMPETENCYWILL CONTINUE TO BUILD ON THIS TO IDENTIFY CHANGING CONSUMER & RETAIL TRENDS AND PATTERNS
Driving Insights Driving Demand Creation Driving Productivity
17.7%
2010 2015 Est.
EBIT MARGIN
FOCUS ON MARGINS ALLOWS INVESTMENT IN BRANDS
Adjusted Gross and EBIT Margin results; please refer to the non-GAAP reconciliations in the appendix
42.8%
2010 2015 Est.
46.3%+135 to +145
bps YoY
+++vs. 2014
19.6%
GROSS MARGIN
INTERNATIONAL INVESTMENTS
GROWTH INITIATIVES • Portfolio expansion• Distribution gains• Greater levels of advertising
and marketing reach• Increasing capacity
International investments over the last 5 years have resulted in
MARKET SHARE GAINS & CONSTANTCURRENCY NET SALES CAGR OF ~15%in 4 focus markets…will continue to invest in growth initiatives on a path to 10% EBIT margin
SEGMENT REPORTING ($M) 2013 2014
Net Sales:
North America $6,200.1 $6,352.7
International and Other 946.0 1,069.1
TOTAL $7,146.1 $7,421.8
Segment Income:
North America $1,862.6 $1,916.2
International and Other 44.6 40.0
Total Segment Income $1,907.2 $1,956.2
Corporate and Global Administration $533.5 $503.4
Income Before Interest and Income Taxes $1,373.7 $1,452.8
Segment Margin:
North America 30.0% 30.2%
International and Other 4.7% 3.7%
Adjusted Income Before Interest and Income Taxes; please refer to the non-GAAP reconciliations in the appendix
2011 2012 2013 2014 2015e
STRONG EPS GROWTH
$4.30 TO $4.38
$3.98$3.72$3.24
$2.83
+8
% T
O +
10%
(IN
CLU
DIN
G M
&A
DIL
UTI
ON
)
ADJUSTED EPS-DILUTED*
Adjusted EPS-Diluted; please refer to the non-GAAP reconciliations in the appendix
SOLID OPERATING CASH FLOW
2011 2012 2013 2014 2015e
$0.8
$0.6
$1.1$1.2
OPERATING CASH FLOW ($B)
$1.1 TO $1.3
M&A AND CAP-EX
• M&A that accelerates top-line growth
• Cap-ex about 4% of net sales
CASH FLOW PRIORITIES
FINANCIALFLEXIBILITYSHARE BUYBACKS
• Stock option replenishment normal business practice
• $250m share buyback authorized Feb. 2014…
• …$170m outstanding on authorization
DIVIDENDS
• Target payout ratio of about 50%
DEBT REDUCTION
• LT debt at fixed rates, avg. about 4.5%
• Target range 1.5x to 2.0x debt/Adj. EBITDA
#1
#3
#2
#4
Prefer to be EPS accretive by year 2 For “right” strategic acquisition would accept EPS accretion by year 3
Preference is CMG or broader snacking adjacency
Experienced and disciplined
M&A FOCUSED ON BUSINESSESWITH ACCELERATING TOP-LINE GROWTH AND/OR PROPRIETARY CAPABILITY
• N. America or international markets
• Leverage Hershey’s infrastructure and consumer insights
• Advantaged distribution / route-to-market capability
• Lotte manufacturing JV (2007)
• Brookside (2012)
• Shanghai Golden Monkey (2014)
M&A AND CAP-EX
• M&A that accelerates top-line growth
• Cap-ex about 4% of net sales
CASH FLOW PRIORITIES
FINANCIALFLEXIBILITYSHARE BUYBACKS
• Stock option replenishment normal business practice
• $250m share buyback authorized Feb. 2014…
• …$170m outstanding on authorization
DIVIDENDS
• Target payout ratio of about 50%
DEBT REDUCTION
• LT debt at fixed rates, avg. about 4.5%
• Target range 1.5x to 2.0x debt/Adj. EBITDA
#1
#3
#2
#4
2011 2012 2013 2014
$385M
$511M
$306M
2011 2012 2013 2014
1.3X
CAPITAL STRUCTUREDEBT TO ADJ. EBITDA
• Target range 1.5x to 2.0x debt/Adj. EBITDA
• LT debt at fixed rates, average about 4.5%
1.5X1.3X
SHARE BUYBACK & OPTION REPLENISHMENT
• Stock option replenishment normal business practice
• $170m outstanding on current authorization
1.2X $577M
ROI focused organization
• Realigning resources
• Simplify reporting structure
• Increase speed and decision making
• Enterprise-wide connectivity
OPPORTUNITIES EXIST TO DRIVE GROWTH INITIATIVES & EARNINGSEnables investments that continue to drive sales & earnings growth
Top-lineGrowth
+Margin
Enhancement
$$$
Net Sales Adj. EPS-diluted
LONG-TERM GROWTH RATESLONG-TERM OBJECTIVES
+5-7%
+9-11%
N. America CMG &Snacks/Adjacencies
+3-4%
Innovation +1%
International +1-2%
Gross Margin Improvements
SG&A Leverage
International OI Improvement
REAFFIRMING 2015 OUTLOOK
Net Sales +5.5% to +7.5%
Adj. Gross Margin* +135 bps to +145 bps
Adj. EPS-diluted* +8% to +10%
Adjusted Gross Margin and EPS-Diluted; please refer to the non-GAAP reconciliation in the 4Q 2014 press release dated January 29, 2015
FDMx C-store xAOC+C
JANUARY OFF TO A GOOD START
+1.5%
+5.7% +5.6%
+4.5%
+5.6%4-weeks ended 1/24/15
4-weeks ended 12/27/14
+3.5%
Source: Nielsen; CMG = Candy, Mint & Gum, 4 weeks ended 12/27/14 and 1/24/15
SUMMARY
2015 initiatives reflect learnings from 2014
Hershey’s business fundamentally advantaged
Well positioned to capture opportunities ahead
Focused on continuing to create shareholder value
2015 plans leverage core strengths and execution against fundamentals
2014 a share leading yet challenging year
KEY MESSAGES
Maniacal focus on Core Chocolate
Address evolving retail landscape
North America a profitable growth market
Satisfy incremental consumer snacking needs
Fuel investment and Expand gross margins
2014 GROWTH OUTPACED CMG CATEGORY
+0.3SHARE PTS
Source: US only ; Nielsen—Hershey custom database—xAOC+C – 52 W/E 12/27/14
5 STRAIGHT YEARS OF SHARE GAINS
Source: Nielsen—Hershey custom database—xAOC+C; HSY +3.5 Pts vs. 2009
HSY +3.5pts
US CMG SHARE LEADERSHIP
#1
2014 WINS
ADJACENCY
89% of chocolate spreads category growth in ‘14
BROOKSIDE
+52% YoY
50% Repeat
REESE’S
+3.7% YoY
SEASONS
+6.7% YoY
+1.1 Shr Pts
Source: All figures are US retail takeaway for 2014; figures are vs. 2013 where changes are shown; Nielsen—Hershey custom database–xAOC+C, Nielsen X-category database
CHALLENGES IN 20142014 CHALLENGES 2015 SOLUTIONS
Share of Voice Advertising
Competitive Merchandising Retail Coverage Core Chocolate Focus & Innovation
Trips Space Acquisition Precision eCommerce
Snacking Competition Sourcing from Snacking
Commodities Pricing
OPPORTUNITY TO ADDRESS GROWING CONSUMER INTERESTS
Premium Across the Store
Growing Appeal of Fresh & Less Processed
Health & Wellness Brands
HIGH INCOME / MILLENNIALS
30% of some categories and fast growing
60% of growth in H&W* categories in 2014 from brands launched in last four years
Source: Hartman Group Analysis of Euromonitor data; Long term market performance calculated by comparing differential growth rates between 2004-2013 193
legacy branded product lines. Hartman Health and Wellness 2013 Syndicated Study.; Nielsen Whitepaper; *Nielsen X-Category Db – Yogurt, Breakfast
Bars, Granola/Yogurt Bars, Trail Mixes, Meat Snacks, Nuts, Canned Fruit, Dried Fruit, etc.
More consumers looking for shortest ingredient list (25% in ’13 vs. 11% in ‘07)
2015 PRIORITIES LEVERAGE CORE STRENGTHS
CATEGORY ADVANTAGES HERSHEY COMPETITIVE ADVANTAGES
Advertising Responsiveness
Channel & Seasonal Ubiquity
Impulsivity & Usage
Iconic Brands
Dedicated Retail Sales Force
Knowledge & Insights
EXPANDABLE CONSUMPTION
INCREMENTAL REACH TO DIGITAL VIEWERS
HERSHEY’S DIGITAL INVESTMENT
17%Digital now accounts for of video consumption among US adults
3Xvs. PY
~20% of total media
Source: eMarketer
CREATE EXCITEMENT WITH CONSUMERSFOOTBALL
Reese’s over indexes with the millionsof fans that watch College Football
PRINTED CUPS
BASKETBALL
Merchandising Execution Seasonal Sell-through +5-7% HRS
Right Place Right Programming
INCREASE RETAIL COVERAGE
+10%C-STORES
SPECIAL TREAT MASS PREMIUMSNACKING PLATFORM
NEW TECHNOLOGY
SIMPLE INGREDIENTS
STRATEGIC INNOVATION TO DRIVE >1 PT GROWTH
Enabling supply chain for:• Non-GM Sugar
• rBST-free Milk
• Sustainable Cocoa
Fewer ingredients
Easier to understand
SATISFY CONSUMER DESIRE FOR SIMPLER INGREDIENTS
CURRENTMILK CHOCOLATE (SUGAR; MILK; CHOCOLATE; COCOA BUTTER; LACTOSE;MILK FAT; SOY LECITHIN; PGPR, EMULSIFIER; VANILLIN, ARTIFICIAL FLAVOR)
PROPOSEDMILK CHOCOLATE (SUGAR; MILK; CHOCOLATE; COCOA BUTTER; MILK FAT;SOY LECITHIN; NATURAL FLAVOR)
HERSHEY’S CARAMELS
DELIVER ON CONSUMER DESIRE FOR “SPECIAL TREAT”
A gourmet chocolate shop experience!
Pre & post trial in top quintile for BASES “Purchase Intent”
KISSES DELUXE
BROADEN PARTICIPATION IN GIFTING
Gifting a large,$1.3B segment
Source: Nielsen—Hershey custom database—xAOC+C; Gifting defined as the following every day and seasonal packtypes: Pres Box / Bag, Prem Pouch, S/H/F)
CRUNCHY CLUSTERS
BRING NEW USERS TO BROOKSIDE
Expands Brookside into Nibbling need state
(+27% new consumers)
Delivers on multi-textural eating experience
Source: Brookside Fruit Crunch BASES II; January 2013
SNACK MIX
SOURCE SNACKING OCCASIONS
The perfect balance of creamy,
crunchy, sweet, and salty
Personally portioned snacking
to tide you overto the next meal
SNACK BITES
COOL BLASTS CAN TRANSFORM BREATH FRESHENING
Chews like a gum……dissolves like a mint
ICE BREAKERS COOL BLASTS
Already at retail in CanadaProprietary Technology
CAPABILITIES ACCELERATE LEADERSHIP WITH RETAILERSAdvantage ReportTM – FMCG
RankManufacturer $ Sales
2009 2011 2013 2014CPG 1 $15-20BHershey $7.4BCPG 2 $30-35BCPG 3 $65-70BCPG 4 $45-50BCPG 5 $10-15BCPG 6 $15-20BCPG 7 $60-65BCPG 8 SubsidiaryCPG 9 $5-10BCPG 10 $35-40BCPG 12 $10-15BCPG 13 Subsidiary
12345678910111213
#2 Hershey $7.4B
INSIGHTS DRIVEN PERFORMANCE
#8
#13
CATEGORY MANAGEMENT
KNOWLEDGE AGENDA
#4
In-storeCoverage
INTEGRATED KNOWLEDGE AND RETAIL CAPABILITIES
PRECISION CAPABILITIES
Retailer Relationships
Analytics
Consumer Insights
LEVERAGE PRECISION TO WORK SMARTER
GEOSPACIALThe isolation
of critical geographic-drivendata differences
in demand
CONSUMERIZATIONThe isolation
of critical consumer-drivendata differences
in demand
MICROCLUSTER
A STEP CHANGE IN PRODUCTIVITY & GROWTH
DISTRIBUTIONOptimizeon-shelf
assortments
PROMOTIONOptimize
merchandised assortments
ADVERTISINGInvest where
it counts most
INNOVATIONGeographically
targeted launches
PRECISION PROVEN RESULTS
IC EVERYDAY - $ % CHGNATIONAL RETAILER
PLANOGRAM PROMOTIONP
LA
NO
GR
AM
RE
SE
T
+20% Hershey(average lift
by week)
+10% Category
Source: Nielsen—Hershey Custom Database – xAOC+C
2X+productivity of national
displays
PORTFOLIO
APPROACH AND PORTFOLIO TO WIN IN ECOMMERCEDELIVERY SOLUTIONS
Curbside Pickup Stock-up & Refill Gifting & Occasions
BROADEN PARTICIPATION ACROSS SNACKING
TREATS WHOLESOMESWEET SNACKS
PROTEIN-BASEDPORTABLE NUTRITION
TASTE NUTRITION
TastePresence of Positives
Accompanies Real FoodBalanced Nutrition
Clean Labels
LEVERAGE CAPABILITIES TO SOURCE SNACKING OCCASIONS
Procurement
Supply Chain&
ManufacturingExpertise
FoodScience
Ubiquitous Distribution
BrandBuilding
SOURCE MAKE TASTE ACTIVATE
EXPAND IN HIGH GROWTH AREASGROWTH OF LEADING SNACKS
xAOC+C, 10-14 CAGR
Source: Health Bars, Meat Snacks, Snack Wheel: Nielsen X-Category Database – Latest 52 W/E 1/24/15; Chocolate Spreads:
Nielsen FBE Database – Latest 52 W/E 1/14/15
LEVERAGE BRAND STRENGTHS TO EXPAND SPREADS
•Unique Reese’s flavor•Leveraging $2B* brand
REESE’S SPREADS JAR REESE’S SPREADS IC
* Retail $
EXPAND BROOKSIDE ACROSS SNACKING CONTINUUM
No artificial flavors
Good source of fiber
Good source of antioxidant vitamins A, C, E
Gluten free
DELIVERING ON SIMPLE INGREDIENTS
ACCELERATE SNACKING PORTFOLIO WITH KRAVE
• Highest awarenessamong Millennials
• Contributing to meat snacks HH penetrationof +2pts to 31% in 2014
Source: Nielsen HH Panel
ON TREND
KRAVE STRADDLES MEAT SNACKS, BETTER FOR YOU
Source: Nielsen Global Survey of Snacking September 2014; IRIWorldwide; *Represents average across all Culinary flavors
MEAT SNACKS
U.S. Size: $3.0B U.S. Size: $4.0B
“BETTER FOR YOU” &FUNCTIONAL SNACKS
NUTRITIONAL PROFILE*
CALORIES 85FAT (g) 1CARBS (g) 10PROTEIN (g) 9
CONFECTIONERY AND SNACKING LEADER
CONFECTIONERY SPREADS, SYRUP,BAKING, MIXES, BITES
SNACKS BARS, MIXES MEAT SNACKS
Taste Presence of Positives | Accompanies Real Food Balanced Nutrition | Clean Labels
TASTE NUTRITION
COMMITMENT TO WIN
• Consumer-centric
• BASES testing
• Research & analytics
• Dedicated sales force
• Supporting structure
• Committed sustained marketing support
DISCIPLINEDINSIGHTS ACTIVATION
2015 plans leverage core strengths and execution against fundamentals
2014 a share leading yet challenging year
KEY MESSAGES
Maniacal focus on Core Chocolate
Address evolving retail landscape
North America a profitable growth market
Satisfy incremental consumer snacking needs
Fuel investment and Expand gross margins
KEY MESSAGES
China driving growth with continued strong performance
Achieving solid growth in key international markets
Chocolate market share increased in all key markets in 2014
Portfolio expansion and distribution gains are growth levers
STILL TRACKING TOWARDS INTERNATIONAL NET SALES TARGET …
$257 M
$923 M
$1.2 B
$1.5 B
$2.0 B
2005 2014 2015e 2017e 2019e
Source: The Hershey Company estimates
…AND GAINING SHARE
Source: Nielsen & IRI for Total chocolate, all international markets Hershey tracks (China, Korea, Thailand, Philippines, Malaysia, Singapore, UAE, Kuwait, KSA,
Mexico, Brazil, Central America, Puerto Rico)
5.8% 6.1%6.7%
7.2%
2011 2012 2013 2014
CHOCOLATE MARKET SHARE
OUR BIG BETS ARE STILL IN THE RIGHT AREAS
Source: OECD-”An Emerging Middle Class”; from Kharas, Homi (2010) “The Emerging Middle Class in Developing Countries” OECD Publishing; UNPD Report
“AN OVERVIEW OF URBANIZATION, INTERNAL MIGRATION, POPULATION DISTRIBUTION AND DEVELOPMENT IN THE WORLD”
MIDDLE CLASS CONSUMPTION(% OF GLOBAL TOTAL)
China will add 400M city dwellers by 2025
>50% of emerging market populationwill live in urban areas
Chocolate category in emerging marketstracks with GDP growth
OUR CATEGORIES ARE GROWING IN EMERGING MARKETS
Source: Euromonitor, Latin America-all Latin America countries including Mexico
$3.5
$9.5
$0.9$2.1
$6.6
$2.7$1.6 $1.2
Brazil China India Mexico
Non-Chocolate Candy Chocolate
CHOCOLATE & NON-CHOCOLATE CANDY 2014 ESTIMATED RETAIL SALES ($B)
CAGR 2009-2014 6% 12% 8% 12% 18% 30% 5% 10%
AND GROWTH PROJECTED TO CONTINUE
Source: Euromonitor, Latin America-all Latin America countries including Mexico
$5.0
$13.0
$1.8 $2.7
$9.5
$4.3 $3.9$1.7
Brazil China India Mexico
Non-Chocolate Candy Chocolate
CHOCOLATE & NON-CHOCOLATE CANDY 2019 EXPECTED CATEGORY SIZE ($B)
CAGR 2015-2019 7% 12% 7% 10% 15% 19% 5% 7%
70%50%
30%50%
Today 2018 GoalUS/Canada RoW
INTERNATIONAL EXPANSION WILL BE KEY TO GROWTH
Source: The Hershey Company estimates
GROWTH CONTRIBUTION
INTERNATIONAL LANDSCAPE
Brazil
Mexico
Export / ROW
China*
India
* Includes Shanghai Golden Monkey
MAJORITY OF NET SALES FROM FOCUS MARKETS
5.1%
14.3%
WE GAINED SHARE IN OUR KEY MARKETS THROUGH 2014
China Chocolate: Nielsen Total China, 12 months through Nov 2014
Mexico Chocolate: Nielsen MT Chocolate through Nov 2014
Brazil Chocolate: Nielsen Brazil Scantrak Chocolate 2014
CHOCOLATE
9.6%
+0.2
+0.2
+1.7
INCREASED DME INVESTMENT TO DRIVE GROWTH
2013 2015
Short-term profit impact for increased growth
Advertising core brands and new launches
Investing behind innovation
MEXICO CORE CHOCOLATE BUSINESSGROWING AHEAD OF CATEGORY
CHOCOLATE CATEGORY & HERSHEYRETAIL TAKEAWAY GROWTH
HersheyCategory
5.8%7.6%
Source: Nielsen; YTD 2014
NEW DISTRIBUTION PARTNERSHIP
• Access to extensive refrigerated distribution network
• Incremental distribution, potential reach 400K+ outlets
• Drives profitable growth
• Reduces operational complexity in our business
TRANSFORMING TRADITIONAL TRADE BUSINESS
FOCUSED ON TOTAL PORTFOLIO GROWTH
• Flawless execution ofHershey’s anchor events
• Continue Reese’s expansion• Kisses seasonal growth
• Solidify leadership with insights-led innovation
• Expand equities with revised brand architecture
• Build viable Food Service channel• Activate “taste, nutrition & fun”
with consumer promotions
S&RCHOCOLATE GROCERY
MACROECONOMIC HEADWINDS IN BRAZILGROWING AHEAD OF CATEGORY
Source: Nielsen Scantrak; 52 weeks November 2014
CATEGORY & HERSHEY2014 RETAIL TAKEAWAY
HersheyCategory
1.1%
4.7%
Challenging consumer environment; category slowed
Hershey grew share
Building on fundamentals in 2015
BUILDING ON FUNDAMENTALS IN 2015
ICONIC BRANDS, ADAPTED LOCALLY
BRAND ACTIVATION CAPABILITY BUILDING
CHINA CHOCOLATE CATEGORY CONTINUES TO BE ROBUST
$2.7B
$4.3B
2014 2019e
CHINA CHOCOLATE RETAIL SALES
Source: Euromonitor
2014 Growth: 12%
2014-2019e CAGR: 10%
OUR BUSINESS CONTINUES TO GROW AND EVOLVEFASTEST GROWING CONFECTIONERY COMPANY IN CHINA
Source: The Hershey Company estimates
HERSHEY CHINA SALES
2015e20112008 2014
Leveraging technologyto drive execution
Dedicated team, below market voluntary turnover
$450 M
FOCUSED ON EXECUTING FUNDAMENTALS
• Differentiated portfolio
• Effective brand building model anchored on distribution densification
• Disciplined media with highly effective communication
• In-country R&D enables local flavor profile, innovative packtypes and forms
Localize international
brands
Disciplined learning & expansion
Geographic and portfolio
expansion
Proprietary sales force activationat retail
2014 2018e
PURSUING DISCIPLINED DISTRIBUTION EXPANSION
The Hershey Company estimates
Significant penetration in Tier 1 & 2 cities
Expanded direct sales call coverage
Focused media city coverage2014 2018e
CITY PENETRATION OUTLET COVERAGE
2.5X 1.8X
TIER 3 & 4
TIER 1 & 2
HERSHEY CHINA E-COMMERCE FOCUS YIELDING EARLY WINSFOCUSING ON KEY PLATFORMS... …WITH TAILORED OFFERINGS
Wedding Invitations Special Packs
28% OF SINGLES DAY SALES FROM NON-MEDIA COVERED CITIES
24% SHARE*
*24% share of Tmall.com
Expansion on track
2015 launch
OUR CORE BRANDS ARE RESONATING WITH CONSUMERS
1st $100M brandoutside North America
#2 growth driver
EXPANDING KISSES DELUXE HAS ACCELERATED TOPLINE
Seasons activations expand Kisses brand tothe profitable premium gifting segment
SHANGHAI GOLDEN MONKEY INTEGRATION UNDERWAY
•Achieving cross-company synergies on track:
• SGM products directly sold to MT
• HSY chocolate innovation for TT channels underway
• Expanded snacking platforms
•Strong leadership team
•Slightly accretive in 2015Completed September 2014
WELL-BALANCED PORTFOLIO UNDER TWO LEADING BRANDS
On-trend Munching Monkey nutritional snack
• Bean curd (tofu) • Other snacks
+“Traditional” Golden Monkey brandas cornerstone
• Candy (e.g. milk candy, brown sugar plum)
• Compound chocolate products
S&R
CHOCOLATE
2 leading brands built through strong innovation pipeline and channel access vs. marketing
EAST PENETRATION, STRONG MTHERSHEY CHINA FOOTPRINT
Geographic positions approximate
POS # ~50K
COVERAGE
HIGH PENETRATION
IN TIER 1 & 2 CITIES
COMPLEMENTS HERSHEY CHINA NETWORKSHANGHAI GOLDEN MONKEY FOOTPRINT
140 SALES OFFICES
5 MANUFACTURING PLANTS
DISTRIBUTION CENTERS
Geographic positions approximate
POS #
DISTR.
COVERAGE
~950K
~1.7K
NATIONAL
SALES TEAM ~1.5K
SUMMARY
China driving growth with continued strong performance
Achieving solid growth in key international markets
Chocolate market share increased in all key markets in 2014
Portfolio expansion and distribution gains are growth levers
APPENDIXReconciliation of GAAP and Non-GAAP Information
For the year ended December 31,
Income
Gross Interest Net Per Share-
In millions of dollars except per share amounts Profit EBIT Expense, net Income Diluted
GAAP results $ 3,336.2 $ 1,389.6 $ (83.5) $ 846.9 $ 3.77
Adjustments:
Acquisition and integration costs -- 14.9 (1.6) 10.3 0.05
Business realignment, including PNC 1.6 12.0 -- 8.3 0.03
NSRPE(I) (2.7) (1.8) -- (1.3) (0.01)
India impairment -- 15.9 -- 14.3 0.06
Loss on anticipated Mauna Loa divestiture -- 22.2 -- 17.4 0.08
Non-GAAP results $ 3,335.1 $ 1,452.8 $ (85.1) $ 895.9 $ 3.98
GAAP Depreciation & Amortization 211.5
Accelerated Depreciation -
Adjusted Non-GAAP EBITDA $1,664.3
2014
APPENDIXReconciliation of GAAP and Non-GAAP Information
For the year ended December 31,
Income
Gross Net Per Share-
In millions of dollars except per share amounts Profit EBIT Income Diluted
GAAP results $ 3,280.8 $ 1,339.7 $ 820.5 $ 3.61
Adjustments:
Acquisition and integration costs 0.3 4.0 5.4 0.03
Business realignment, including PNC 0.4 19.1 11.8 0.05
NSRPE(I) 5.4 10.9 6.6 0.03
Non-GAAP results $ 3,286.9 $ 1,373.7 $ 844.3 $ 3.72
GAAP Depreciation & Amortization 201.0
Accelerated Depreciation -
Adjusted Non-GAAP EBITDA $1,574.7
2013
APPENDIXReconciliation of GAAP and Non-GAAP Information
For the year ended December 31,
Income
Gross Net Per Share-
In millions of dollars except per share amounts Profit EBIT Income Diluted
GAAP results $ 2,859.9 $ 1,111.1 $ 660.9 $ 2.89
Adjustments:
Acquisition and integration costs 4.1 13.4 9.2 0.04
Business realignment, including PNC 36.4 83.8 57.2 0.25
NSRPE(I) 8.6 20.6 12.7 0.06
Non-GAAP results $ 2,909.0 $ 1,228.9 $ 740.0 $ 3.24
GAAP Depreciation & Amortization 210.0
Accelerated Depreciation* (15.3)
Adjusted Non-GAAP EBITDA $1,423.6
* Primarily accelerated depreciation related to the Project Next Century (PNC) program, included in business realignment adjustment
above.
2012
APPENDIXReconciliation of GAAP and Non-GAAP Information
For the year ended December 31,
Income
Gross Net Per Share-
In millions of dollars except per share amounts Profit EBIT Income Diluted
GAAP results $ 2,531.9 $ 1,055.0 $ 628.9 $ 2.74
Adjustments:
Business realignment, including PNC 45.1 49.2 30.9 0.13
NSRPE(I) -- 2.8 2.0 0.01
Gain on sale of trademark rights -- (17.0) (11.1) (0.05)
Non-GAAP results $ 2,577.0 $ 1,090.0 $ 650.7 $ 2.83
GAAP Depreciation & Amortization 215.8
Accelerated Depreciation* (33.0)
Adjusted Non-GAAP EBITDA $1,272.8
* Primarily accelerated depreciation related to the Project Next Century (PNC) program, included in business realignment
adjustment above
2011
APPENDIXReconciliation of GAAP and Non-GAAP Information
For the year ended December 31,
Income
Gross Net Per Share-
In millions of dollars except per share amounts Profit EBIT Income Diluted
GAAP results $ 2,415.2 $ 905.3 $ 509.8 $ 2.21
Adjustments:
Business realignment, including PNC 13.7 98.6 77.9 0.34
NSRPE(I) 0.9 5.9 3.8 0.02
Non-GAAP results $ 2,429.8 $ 1,009.8 $ 591.5 $ 2.57
GAAP Depreciation & Amortization 197.1
Accelerated Depreciation* (12.4)
Adjusted Non-GAAP EBITDA $1,194.5
* Primarily accelerated depreciation and amortization related to the Project Next Century (PNC) program, included in business
realignment adjustment above
2010