hsy 2010 cagny
DESCRIPTION
Hershey Presentation at 2010 Consumer Goods Analyst ConferenceTRANSCRIPT
2/16/2010 9:39 AM CAGNY - 2010 1
February 16, 2010February 16, 2010
David J. WestDavid J. WestPresident & CEOPresident & CEO
The Hershey CompanyThe Hershey Company
2/16/2010 9:39 AM CAGNY - 2010 2
Forward Looking StatementsForward Looking StatementsThis presentation contains statements that are forwardThis presentation contains statements that are forward--looking. These looking. These statements are made based upon current expectations that are substatements are made based upon current expectations that are subject to risk ject to risk and uncertainty. Actual results may differ materially from thoseand uncertainty. Actual results may differ materially from those contained in contained in the forwardthe forward--looking statements. Factors that could cause results to differ looking statements. Factors that could cause results to differ materially include, but are not limited to: issues or concerns rmaterially include, but are not limited to: issues or concerns related to the elated to the quality and safety of our products, ingredients or packaging; chquality and safety of our products, ingredients or packaging; changes in raw anges in raw material and other costs and selling price increases, including material and other costs and selling price increases, including volume declines volume declines associated with pricing elasticity; market demand for our new anassociated with pricing elasticity; market demand for our new and existing d existing products; increased marketplace competition; political, economicproducts; increased marketplace competition; political, economic, and/or , and/or financial market conditions; changes in governmental laws and refinancial market conditions; changes in governmental laws and regulations, gulations, including taxes; risks and uncertainties related to our internatincluding taxes; risks and uncertainties related to our international operations; ional operations; the impact of future developments related to the investigation bthe impact of future developments related to the investigation by government y government regulators of alleged pricing practices by members of the confecregulators of alleged pricing practices by members of the confectionery tionery industry, including risks of subsequent litigation or further goindustry, including risks of subsequent litigation or further government action; vernment action; pension cost factors, such as actuarial assumptions, market perfpension cost factors, such as actuarial assumptions, market performance and ormance and employee retirement decisions; and such other matters as discussemployee retirement decisions; and such other matters as discussed in our ed in our Annual Report on Form 10Annual Report on Form 10--K for 2008. All information in this presentation is as K for 2008. All information in this presentation is as of February 16, 2010. The Company undertakes no duty to update aof February 16, 2010. The Company undertakes no duty to update any ny forwardforward--looking statement to conform the statements in this presentationlooking statement to conform the statements in this presentation to to actual results or changes in the Companyactual results or changes in the Company’’s expectations.s expectations.
2/16/2010 9:39 AM CAGNY - 2010 3
Key messagesKey messages Delivered strong 2009* resultsDelivered strong 2009* results
–– Net Sales +3%, +4% constant currencyNet Sales +3%, +4% constant currency
–– EPS +15%EPS +15%
–– Gross Margin 38.9%, +310 bpsGross Margin 38.9%, +310 bps
–– EBIT Margin 16.2%, +120 bpsEBIT Margin 16.2%, +120 bps
*Adjusted, excludes business realignment and *Adjusted, excludes business realignment and impairment chargesimpairment charges
2/16/2010 9:39 AM CAGNY - 2010 4
Key messagesKey messages Delivered strong 2009 resultsDelivered strong 2009 results
Reshaped our core businessReshaped our core business–– New supply chain post Global Supply Chain New supply chain post Global Supply Chain
TransformationTransformation
–– New approach to brand building focused on New approach to brand building focused on consumer first, activated with retail excellenceconsumer first, activated with retail excellence
2/16/2010 9:39 AM CAGNY - 2010 5
Key messagesKey messages Delivered strong 2009 resultsDelivered strong 2009 results
Reshaped our core businessReshaped our core business
WellWell--positioned to build on core strengths positioned to build on core strengths –– BrandsBrands
–– Consumer/shopper insightsConsumer/shopper insights
–– InnovationInnovation
–– International expansionInternational expansion
2/16/2010 9:39 AM CAGNY - 2010 6
Key messagesKey messages Delivered strong 2009 resultsDelivered strong 2009 results
Reshaped our core businessReshaped our core business
WellWell--positioned to build on core strengths positioned to build on core strengths
Poised with strong financial position and good Poised with strong financial position and good visibility to our longvisibility to our long--term modelterm model
2/16/2010 9:39 AM CAGNY - 2010 7
AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
2/16/2010 9:39 AM CAGNY - 2010 8
2009 EPS exceeded long2009 EPS exceeded long--term target term target ……
Consumer uncertaintyConsumer uncertainty
~11% price increase Aug 08~11% price increase Aug 08
Increased commodity costs Increased commodity costs
Pension headwindPension headwind
2008 2009
$1.88$1.88
$2.17$2.17
+15% YoY
+15%+15% YoYYoY
Against a challenging backdropAgainst a challenging backdrop
*Adjusted, excludes business realignment *Adjusted, excludes business realignment and impairment chargesand impairment charges
2/16/2010 9:39 AM CAGNY - 2010 9
2007 2008 2009
…… with improvements in gross margin with improvements in gross margin ……
38.9%38.9%
Gross Margin (%)*Gross Margin (%)*
Pricing actionsPricing actions
Global Supply Chain Global Supply Chain TransformationTransformation
*Adjusted, excludes business realignment *Adjusted, excludes business realignment and impairment chargesand impairment charges
35.5%35.5%35.8%35.8%
+310 bps YoY
+310 +310 bpsbps YoYYoY
2/16/2010 9:39 AM CAGNY - 2010 10
2007 2008 2009
…… and EBIT margin and EBIT margin ……
15.0% 16.2%17.6%
EBIT Margin (%)*EBIT Margin (%)*
Absorbed 50% Absorbed 50% advertising increaseadvertising increase
Invested in emerging Invested in emerging marketsmarkets
Focused on adding Focused on adding new capabilitiesnew capabilities
*Adjusted, excludes business realignment *Adjusted, excludes business realignment and impairment chargesand impairment charges
2/16/2010 9:39 AM CAGNY - 2010 11
…… and generating record cash flowand generating record cash flow
2004 2005 2006 2007 2008 2009
$520
$1,066
*Includes $277m pension contribution*Includes $277m pension contribution **Includes GSCT charges**Includes GSCT charges
Record Operating Cash Flow in 2009 ($m)Record Operating Cash Flow in 2009 ($m)
$779$723
$462
$788
** ****
2/16/2010 9:39 AM CAGNY - 2010 12
AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
2/16/2010 9:39 AM CAGNY - 2010 13
Confectionery an advantaged categoryConfectionery an advantaged category
Source: IRI BuildersSource: IRI Builders
High impulse purchasesHigh impulse purchasesHigh impulse purchases
High household penetrationHigh household penetrationHigh household penetration
Low private label presenceLow private label presenceLow private label presence
Responsive to merchandisingResponsive to merchandisingResponsive to merchandising
Recession resistant … as we’ve seenRecession resistant Recession resistant …… as weas we’’ve seenve seen
Seasonal destinationSeasonal destinationSeasonal destination
High purchase frequencyHigh purchase frequencyHigh purchase frequency
2/16/2010 9:39 AM CAGNY - 2010 14
Confectionery is ubiquitous Confectionery is ubiquitous ……
CC-- StoresStores
Dollar StoresDollar Stores
Special ChannelsSpecial Channels
Drug StoresDrug Stores
42%42%42%
SupermarketsSupermarkets
MassMass MerchandisersMerchandisers
Wholesale Wholesale ClubsClubs8%8%
13%13%
31%
27%27%
9%9%
8%8%
% of Sales% of Sales
Source: Hershey salesSource: Hershey sales
4%4%
2/16/2010 9:39 AM CAGNY - 2010 15
Salty Snacks
Bakery Snacks
Snack/Nutrition Bars
Confectionery
Cookies/Crackers
…… and onand on--trend with consumerstrend with consumers
26%26%
17%17%
41%41%
4%4%12%12%
U.S. Snack Market $71bnU.S. Snack Market $71bn Percent MixPercent Mix
Source: Data Monitor, IRI, Hershey EstimatesSource: Data Monitor, IRI, Hershey Estimates
2/16/2010 9:39 AM CAGNY - 2010 16
U.S. CMG Annual U.S. CMG Annual Category Growth RateCategory Growth Rate
2006 2007 2008 2009
CMG category grows consistentlyCMG category grows consistently
+2.8%+2.8% +4.0%+4.0%
Source: Nielsen/ IRI, Hershey custom databaseSource: Nielsen/ IRI, Hershey custom database FDMxCFDMxC 5252--Weeks 1/2/10Weeks 1/2/10
+3.1%+3.1%+4.4%+4.4%
$15 $15 bnbn+3.6%
’05-’09 CAGR
+3.6%+3.6% ’’0505--’’0909 CAGRCAGR
2/16/2010 9:39 AM CAGNY - 2010 17
Hershey has iconic brands Hershey has iconic brands ……
2/16/2010 9:39 AM CAGNY - 2010 18
#2#2#2
#4#4#4
#5#5#5
…… loved by consumers loved by consumers ……Harris InteractiveHarris Interactive
Brand Equity RankingBrand Equity Ranking
2/16/2010 9:39 AM CAGNY - 2010 19
…… with strong corporate reputation with strong corporate reputation ……
98105112115121
130131
147155 148
Top 10 Corporate Top 10 Corporate MillwardMillward Brown Reputation ScoreBrown Reputation Score
2/16/2010 9:39 AM CAGNY - 2010 20
…… built on unique heritage built on unique heritage ……100 Years of Corporate Social Responsibility 100 Years of Corporate Social Responsibility ……
2/16/2010 9:39 AM CAGNY - 2010 21
…… still at heart of the company todaystill at heart of the company today
CoCo--founder and member of World Cocoa Foundationfounder and member of World Cocoa Foundation
Partner with Bill and Melinda Gates FoundationPartner with Bill and Melinda Gates Foundation
Fund farmer education via Sustainable Tree Crops Fund farmer education via Sustainable Tree Crops Program & Farmer Field SchoolsProgram & Farmer Field Schools
Sustainable Supply ChainSustainable Supply Chain
Blank for MHS video / commercial
2/16/2010 9:39 AM CAGNY - 2010 23
Hershey Mars Nestle R.Stover Lindt P/L
Leadership in U.S. Chocolate Leadership in U.S. Chocolate ……
43%43%
7%7%
31%31%
5%5%4%4%
1%1%
Source: Nielsen/ IRI, Hershey custom databaseSource: Nielsen/ IRI, Hershey custom database FDMxCFDMxC 5252--Weeks 1/2/10Weeks 1/2/10
2/16/2010 9:39 AM CAGNY - 2010 24
Mars/Wrigley
Hershey Cadbury Nestle P/L R. Stover Lindt
…… strong overall category position strong overall category position ……
Source: Nielsen/ IRI, Hershey custom databaseSource: Nielsen/ IRI, Hershey custom database FDMxCFDMxC 5252--Weeks 1/2/10Weeks 1/2/10
8%8%
28%28%
6%6%
3%3%
MarsMars
WrigleyWrigley
2%2%
In the largest most profitable market in the
world
In the largest In the largest most profitable most profitable market in the market in the
worldworld
2%2%
33%33%
2/16/2010 9:39 AM CAGNY - 2010 25
…… with significant competitive advantageswith significant competitive advantages
Iconic brandsIconic brands
Category leadershipCategory leadership
Dedicated direct sales forceDedicated direct sales force
Proprietary goProprietary go--toto--market toolsmarket tools
2/16/2010 9:39 AM CAGNY - 2010 26
AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
2/16/2010 9:39 AM CAGNY - 2010 27
We are evolving our entire supply chainWe are evolving our entire supply chain
Buy Buy Buy MakeMakeMake MoveMoveMove Sell/ Market Sell/Sell/
MarketMarket
2/16/2010 9:39 AM CAGNY - 2010 28
We are evolving our entire supply chainWe are evolving our entire supply chain
Buy Buy Buy
GSCT
Working capital
MakeMakeMake
20082008--20092009
MoveMoveMove Sell/ Market Sell/Sell/
MarketMarket
2/16/2010 9:39 AM CAGNY - 2010 29
Optimizing manufacturing networkOptimizing manufacturing network
North AmericanNorth American Manufacturing Manufacturing
FacilitiesFacilities
Distribution Distribution CentersCenters
Capital Capital ExpendituresExpenditures$190m $190m --
$200m$200m$140m $140m -- $160m$160m
FromFrom ToTo
55 44
1717 1111
2/16/2010 9:39 AM CAGNY - 2010 30
2009 2010+
Improved cost profile and gross margin Improved cost profile and gross margin
Annualized Cumulative Savings ($m)Annualized Cumulative Savings ($m)
$160A$160A
$175$175--$185 Est.$185 Est.
2/16/2010 9:39 AM CAGNY - 2010 31
Improving service, lowering inventoryImproving service, lowering inventory
2008 2009
Inventory ($m)Inventory ($m)U.S. Case FillU.S. Case Fill
2008 2009
~99%~99%
~97%~97% $520$520
$593$593
2/16/2010 9:39 AM CAGNY - 2010 32
2006 2010
Still room for improvementStill room for improvement
42%42%
~58%~58%
Capacity Utilization %Capacity Utilization % 7 Days / 3 Shift Basis7 Days / 3 Shift Basis
2/16/2010 9:39 AM CAGNY - 2010 33
We are evolving our entire supply chainWe are evolving our entire supply chain
Buy Buy Buy
Procurement and sourcing initiative
MakeMakeMake MoveMoveMove Sell/ Market Sell/Sell/
MarketMarket
GSCT
Working capital
Freight, warehousing, distribution realignment
20102010--20112011 20082008--20092009 20102010--20112011
2/16/2010 9:39 AM CAGNY - 2010 34
Commodities & Packaging
Manufacturing Overhead
Distribution
Productivity visibility Productivity visibility ……
Productivity/continuous improvement, historically, Productivity/continuous improvement, historically, about 3% of variable manufacturing overheadabout 3% of variable manufacturing overhead
Total COGS spend ~$3 billionTotal COGS spend ~$3 billion
Expanding to include indirect spending, G&AExpanding to include indirect spending, G&A
2/16/2010 9:39 AM CAGNY - 2010 35
Significant opportunity in new footprintSignificant opportunity in new footprintContinuous improvement mindsetContinuous improvement mindset
++Freight/warehousing/logistics in new footprintFreight/warehousing/logistics in new footprint
++Procurement/sourcing now can be revisited first time Procurement/sourcing now can be revisited first time
since 2006since 2006
++Global shared services projectGlobal shared services project
==Focus will approach 2x the current cost savings Focus will approach 2x the current cost savings Focus will approach 2x the current cost savings
2/16/2010 9:39 AM CAGNY - 2010 36
We are evolving our entire supply chainWe are evolving our entire supply chain
Buy Buy Buy
Procurement and sourcing initiative
MakeMakeMake MoveMoveMove Sell/ Market Sell/Sell/
MarketMarket
GSCT
Working capital
Freight, warehousing, distribution realignment
Enhanced customer integration
20102010--20112011 20082008--20092009 20102010--20112011 20112011--20142014
2/16/2010 9:39 AM CAGNY - 2010 37
AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
2/16/2010 9:39 AM CAGNY - 2010 38
Fundamental reFundamental re--grounding in the consumergrounding in the consumer
Source: IRI BuildersSource: IRI Builders
DemographicsDemographicsDemographics
Need StatesNeed StatesNeed States
Shoppers and Channel Dynamics
Shoppers and Channel Shoppers and Channel DynamicsDynamics
Usage OccasionsUsage OccasionsUsage OccasionsWhen They ConsumeWhen They ConsumeWhen They Consume
Brands, Packs, Tastes, Textures
Brands, Packs, Tastes, Brands, Packs, Tastes, TexturesTextures
Where/How They BuyWhere/How They BuyWhere/How They Buy
What They BuyWhat They BuyWhat They Buy
Why They BuyWhy They BuyWhy They Buy
Who They AreWho They AreWho They Are
2/16/2010 9:39 AM CAGNY - 2010 39
Spoke with countless consumersSpoke with countless consumers
Shopper insightsShopper insights
Shopper segmentationShopper segmentation
Seasonal ethnographySeasonal ethnography
Chocolate segmentationChocolate segmentation
Controlled store testsControlled store tests
Purchase driversPurchase drivers
Consumer Demand LandscapeConsumer Demand LandscapeConsumer Demand Landscape
2/16/2010 9:39 AM CAGNY - 2010 40
Loyal IndulgersLoyal IndulgersPractical Value SeekersPractical Value Seekers
The Who: grounded in the consumerThe Who: grounded in the consumer
Engaged Exploring Engaged Exploring MunchersMunchers
ControllersControllers Detached OccasionalistsDetached OccasionalistsConfection Loving Confection Loving Moderators Moderators
6 Identified Segments6 Identified Segments
2/16/2010 9:39 AM CAGNY - 2010 41
…… confectionery need states the why/how confectionery need states the why/how ……
More EmotionalMore Emotional More Physical/Functional More Physical/Functional
2/16/2010 9:39 AM CAGNY - 2010 42
…… confectionery need states the why/how confectionery need states the why/how ……
More EmotionalMore Emotional More Physical/Functional More Physical/Functional
Reward Reward MeMe
22 33 44 55 66 77 88 Oral Oral CareCare
2/16/2010 9:39 AM CAGNY - 2010 43
The intersection of The intersection of ““whowho”” and and ““whywhy””
Segments
Nee
d St
ates
Total Confection Demand LandscapeTotal Confection Demand Landscape
Engaged Exploring Munchers
Loyal Indulgers
Practical Value Seekers
Confection Loving
Moderators ControllersDetached
Occasionalists
Reward Me
2
3
4
5
6
7
8
Oral Care
2/16/2010 9:39 AM CAGNY - 2010 44
Hershey Demand Landscape drives decisionsHershey Demand Landscape drives decisions
$$ Brand ABrand A
$$$$$$ Brand BBrand B
((RelaunchRelaunch))
$ Brand D$ Brand D
White SpaceWhite Space
White SpaceWhite Space
$$ Brand C
$$$$ Brand EBrand E
2/16/2010 9:39 AM CAGNY - 2010 45
Changes the game for growthChanges the game for growth
Identifies biggest opportunitiesIdentifies biggest opportunities
Optimizes portfolio rolesOptimizes portfolio roles
Brand positioningBrand positioning
Market mix modelingMarket mix modeling
Price realization analysisPrice realization analysis
2/16/2010 9:39 AM CAGNY - 2010 46
Demand Value Propositions
Demand Value Demand Value PropositionsPropositions
Brand propositions strengthenedBrand propositions strengthened……
DL SegmentDL SegmentDL Segment
DemographicsDemographicsDemographics
Benefits/AttributesBenefits/AttributesBenefits/Attributes
Usage OccasionsUsage OccasionsUsage Occasions
Need StatesNeed StatesNeed States
2/16/2010 9:39 AM CAGNY - 2010 47
“Perfect Combination”
““Perfect Perfect CombinationCombination””
EEM + LIEEM + LIEEM + LI
Younger, M/FYounger, M/FYounger, M/F
Indulgence/CupIndulgence/CupIndulgence/Cup
E-day + SeasonalEE--day + Seasonalday + Seasonal
EmotionalEmotionalEmotional
Blank for Reese’s commercials
2/16/2010 9:39 AM CAGNY - 2010 49
Drives powerful marketing mixDrives powerful marketing mix
2/16/2010 9:39 AM CAGNY - 2010 50
Positive, sustainable resultsPositive, sustainable results
52W 5-19-07 May-Dec 07 Yr 2008 Yr 2009
Source: Nielsen/IRI Source: Nielsen/IRI FDMxCFDMxC (Reese(Reese’’s Peanut Butter Cups, all s Peanut Butter Cups, all packtypespacktypes))
FDMxCFDMxC Retail TakeawayRetail Takeaway
+1.1%+1.1%
+5.7%+5.7%
+12.5%+12.5%
--0.3%0.3%
2/16/2010 9:39 AM CAGNY - 2010 51
DL SegmentDL SegmentDL Segment
DemographicsDemographicsDemographics
Benefits/AttributesBenefits/AttributesBenefits/Attributes
Usage OccasionsUsage OccasionsUsage Occasions
Need StatesNeed StatesNeed States
“Pure”ChocolateHappiness
““PurePure””ChocolateChocolateHappinessHappiness
2/16/2010 9:39 AM CAGNY - 2010 52
Positioning strengthens SPositioning strengthens S’’mores activationmores activation
Blank for Hershey’s S’mores (Rascal Flatts) & Pure commercials
2/16/2010 9:39 AM CAGNY - 2010 54
52 wk 4-19-08 May - Dec 08 Yr 2009
Solid resultsSolid results
Source: Nielsen/IRI Source: Nielsen/IRI FDMxCFDMxC (Hershey, Hershey with Almonds,(Hershey, Hershey with Almonds, Special Dark and Cookie & Cream bar productsSpecial Dark and Cookie & Cream bar products all all packtypespacktypes))
FDMxCFDMxC Retail TakeawayRetail Takeaway
+3.3%+3.3%
+12.0%+12.0%
+7.1%+7.1%
2/16/2010 9:39 AM CAGNY - 2010 55
DL SegmentDL SegmentDL Segment
DemographicsDemographicsDemographics
Benefits/AttributesBenefits/AttributesBenefits/Attributes
Usage OccasionsUsage OccasionsUsage Occasions
Need StatesNeed StatesNeed States
“Break time.Anytime.”
““Break time.Break time.Anytime.Anytime.””
2/16/2010 9:39 AM CAGNY - 2010 56
Kit Kat and coffee, break time in actionKit Kat and coffee, break time in action
2/16/2010 9:39 AM CAGNY - 2010 57
52 wk 8-8-09 Sept - Dec 09
Good results Good results ……
FDMxCFDMxC Retail TakeawayRetail Takeaway
Advertising Begins
Advertising Advertising BeginsBegins
+7.9%+7.9%
Source: Nielsen/IRI Source: Nielsen/IRI FDMxCFDMxC ((KitKatKitKat franchise,franchise, all all packtypespacktypes))
Blank for Kit Kat Commercial
2/16/2010 9:39 AM CAGNY - 2010 59
52 wk 8-8-09 Sept - Dec 09
…… improved with advertisingimproved with advertising
FDMxCFDMxC Retail TakeawayRetail Takeaway
Advertising Begins
Advertising Advertising BeginsBegins
+7.9%+7.9%
+13.8%+13.8%
Source: Nielsen/IRI Source: Nielsen/IRI FDMxCFDMxC ((KitKatKitKat franchise,franchise, all pack types)all pack types)
2/16/2010 9:39 AM CAGNY - 2010 60
Blank for Commercials
Kisses FactoryTwizzler
BlissYork
2/16/2010 9:39 AM CAGNY - 2010 62
+25-30%
+50%
+26%+18%
-13%
2006 2007 2008 2009 2010P
Advertising spending increasing Advertising spending increasing ……
Total Company AdvertisingTotal Company Advertising YoYYoY Chg. (%)Chg. (%)
$350m$350m
2/16/2010 9:39 AM CAGNY - 2010 63
2007 2008 2009
Trade Promotion Advertising
…… as we shift the marketing mixas we shift the marketing mix
$830$830$928$928 $963$963$1bn$1bn
16.8%16.8% 18.1%18.1% 18.2%18.2%Total as aTotal as a
% of Net Sales% of Net Sales
$128$128$161$161 $241$241
$702 $767 $722
2/16/2010 9:39 AM CAGNY - 2010 64
Activated at retail with good programs Activated at retail with good programs ……
Q4Q4Q4Q3Q3Q3
Q1Q1Q1 Q2Q2Q2
2/16/2010 9:39 AM CAGNY - 2010 65
…… and unique retail sales coverageand unique retail sales coverage
Hours InHours In--StoreStore YoYYoY Increase (%)Increase (%)
2006-2009 2010P
+8%+8%+38%+38%
2/16/2010 9:39 AM CAGNY - 2010 66
Strong 2009 marketplace resultsStrong 2009 marketplace results
+7.2 +7.2 FDMxCWFDMxCW
Highest in over a decadeHighest in over a decade
BroadBroad--based growthbased growth
FDMxCFDMxC +0.1 pts+0.1 pts
First gain since 2005First gain since 2005
Only top four Only top four manufacturer to gain manufacturer to gain shareshare
2009 Market Share 2009 Market Share FDMxCFDMxC Performance (pts)*Performance (pts)*
2009 Retail 2009 Retail FDMxCWFDMxCW Takeaway (%)*Takeaway (%)*
*IRI/Nielsen, Hershey custom database,*IRI/Nielsen, Hershey custom database, 5252--weeks ended 1/2/2010weeks ended 1/2/2010
2/16/2010 9:39 AM CAGNY - 2010 67
Consumer demand model strengthened Consumer demand model strengthened
Improved Hershey and retailer profitability
Improved Hershey and Improved Hershey and retailer profitabilityretailer profitability
Improved category dynamics
Improved category Improved category dynamicsdynamics
Strong merchandisingConsumer promotionRetail excellence
Strong merchandisingStrong merchandisingConsumer promotionConsumer promotionRetail excellenceRetail excellence
Adv
erti
sing
Adv
erti
sing
Pric
e Re
aliz
atio
nPr
ice
Real
izat
ion
Trad
e Pr
omot
ion
Trad
e Pr
omot
ion
== Strengthened brand equity
Strengthened brand Strengthened brand equityequity
2/16/2010 9:39 AM CAGNY - 2010 68
AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
2/16/2010 9:39 AM CAGNY - 2010 69
Hershey already advantaged Hershey already advantaged
Retail SalesRetail SalesRetail SalesPlanogramsPlanogramsPlanogramsSeasonal NavigatorSeasonal Seasonal NavigatorNavigator
Syndicated Dashboard SyndicatedSyndicated DashboardDashboard
Demand LandscapeDemand Demand
LandscapeLandscape Shopper InsightsShopper InsightsShopper Insights
2/16/2010 9:39 AM CAGNY - 2010 70
Opportunities exist to improve selling Opportunities exist to improve selling
Take HomeTake HomeTake Home
Front EndFront EndFront End
SeasonsSeasonsSeasons
2/16/2010 9:39 AM CAGNY - 2010 71
Opportunities exist to improve selling Opportunities exist to improve selling
Take HomeTake HomeTake Home
SeasonsSeasonsSeasons
Front EndFront EndFront End
2/16/2010 9:39 AM CAGNY - 2010 72
Seasonal excellenceSeasonal excellence
Retail ExecutionRetail Execution
FSI FSI Television Television Tab Support Tab Support
Mobile Mobile Smart TV Smart TV
Online Online
2/16/2010 9:39 AM CAGNY - 2010 73
Seasons = merchandisingSeasons = merchandising
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasons are Seasons are merchandised merchandised
37 weeks37 weeks of the year!of the year!
2/16/2010 9:39 AM CAGNY - 2010 74
Seasonal collaboration is Seasonal collaboration is ‘‘Best in ClassBest in Class’’
HersheyHershey RetailerRetailer““SeasonsSeasons””
Best in ClassBest in Class
SegmentationSegmentationSegmentation
Sales ToolsSales ToolsSales Tools
Marketing ProgramsMarketing ProgramsMarketing Programs
InsightsInsightsInsights
SegmentationSegmentationSegmentation
Retailer OutletsRetailer OutletsRetailer Outlets
Marketing ProgramsMarketing ProgramsMarketing Programs
InsightsInsightsInsights
Advanced collaboration to unite tools
and capabilities
Advanced Advanced collaboration collaboration to unite tools to unite tools
and capabilitiesand capabilities
2/16/2010 9:39 AM CAGNY - 2010 75
Opportunities exist to improve selling Opportunities exist to improve selling
SeasonsSeasonsSeasons
Front EndFront EndFront End
Take HomeTake HomeTake Home
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Developing common viewDeveloping common view
Manufacturer ViewManufacturer ViewManufacturer View Retailer ViewRetailer ViewRetailer View
Demand Landscape
Retailers
Trip Missions
Consumers
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HersheyHershey RetailerRetailer
IInsightsnsights
DDrivenriven
PPerformanceerformance
IDP is the Common Language IDP is the Common Language -- The The ““Operating SystemOperating System””
Integrated selling excellenceIntegrated selling excellence
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Marketing LeversMarketing Levers
Retail LeversRetail Levers
ProductsProducts
ConsumersConsumers
CustomersCustomers
Profit Pooling
Demand Profiling
Demand Drivers
Shopper Preferences
MerchEfficient
Assortment Planogram DistributionGaps
MediaMarketing Insights
IDP transforming HersheyIDP transforming Hershey’’s capabilitiess capabilities
Insights Driven
Performance
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Stores will have a demand profile Stores will have a demand profile ……
DetachedDetached
Practical Value Practical Value SeekingSeeking
Engaged Exploring Engaged Exploring MunchersMunchers
Loyal IndulgersLoyal Indulgers
Confection Loving Confection Loving ModeratorsModerators
ControllersControllers
100%
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…… with preferences activated at store levelwith preferences activated at store level
Demand PreferencesDemand Preferences
Right brands
Right packtypes
Right retail programs
Right retail execution
Right marketing
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Advanced collaboration to enable Advanced collaboration to enable ‘‘Best in ClassBest in Class’’
SegmentationSegmentationSegmentation
Sales ToolsSales ToolsSales Tools
Marketing ProgramsMarketing ProgramsMarketing Programs
InsightsInsightsInsights
ManufacturerManufacturer RetailerRetailerBest in Class
SegmentationSegmentationSegmentation
Retailer OutletsRetailer OutletsRetailer Outlets
Marketing ProgramsMarketing ProgramsMarketing Programs
InsightsInsightsInsights
Advanced collaboration to unite tools and
capabilities
Advanced Advanced collaboration to collaboration to unite tools and unite tools and
capabilitiescapabilities
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Will partner to provide mutual solutionsWill partner to provide mutual solutions
Shoppers Shoppers
SyndicatedSyndicated
LoyaltyLoyalty
DatabasesDatabases
MetricsMetrics
CategoryCategory
Fast FactsFast Facts
ToolsTools
CommunicationCommunication
StandardsStandards
FixturesFixtures
InsightsInsightsInsights AnalyticsAnalyticsAnalytics PartnersPartnersPartners SolutionsSolutionsSolutions
Hershey as full service providerHershey as full service providerHershey as full service provider
Contracting Contracting with with proprietary proprietary partnerspartners
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Technology will accelerate transformationTechnology will accelerate transformation
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CC--Store Store videominingvideominingCC--Store Traffic MapStore Traffic Map
Min
Max
Source: Videomining, 2008
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Winning space at checkoutWinning space at checkout
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Aisle merchandising principles Aisle merchandising principles
SegmentationSegmentationSegmentation
WayfindingWayfindingWayfinding
Shop-abilityShopShop--abilityability
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Testing various merchandising strategiesTesting various merchandising strategiesHershey ++Hershey ++Category ++Category ++
Hershey +++Hershey +++Category +++Category +++
No Segments or Signage
No SegmentsNo Segments or Signageor Signage SegmentationSegmentationSegmentation Segmentation
+ Signage Segmentation Segmentation
+ Signage+ Signage
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Investing in our future Investing in our future ……
IDP work well underway in 2009IDP work well underway in 2009
Pilots scheduled for 2010Pilots scheduled for 2010
RollRoll--out 2011out 2011
…… to strengthen category leadershipto strengthen category leadership
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AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
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A disciplined focus on innovationA disciplined focus on innovation
Enhanced consumer and category understanding Enhanced consumer and category understanding
Broadened to encompass products, packaging, Broadened to encompass products, packaging, marketing services, and business modelsmarketing services, and business models
Developed disciplined process Developed disciplined process
Delivering an incremental, sustainable innovation portfolio
Delivering an incremental, Delivering an incremental, sustainable innovation portfoliosustainable innovation portfolio
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Increasing hurdle ratesIncreasing hurdle rates
Understanding cannibalizationUnderstanding cannibalization
Partnering with retail customers on lead timesPartnering with retail customers on lead times
Innovation disciplineInnovation discipline
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Controlled new product launchesControlled new product launches
New forms of coreNew forms of coreNew forms of core
New equities, segmentsNew equities, segmentsNew equities, segments
Close-in variety of coreCloseClose--in variety of corein variety of core
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Blank for Pieces commercials
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New products in the secondNew products in the second--half of 2010half of 2010
2/16/2010 9:39 AM CAGNY - 2010 96
2/16/2010 9:39 AM CAGNY - 2010 97
2/16/2010 9:39 AM CAGNY - 2010 98
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AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long term Ability to deliver over the long term
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Increasing our global footprint Increasing our global footprint ……
Hershey International Net SalesHershey International Net Sales% of Total Company% of Total Company
2004 2006 2009
Canada RoW
10%10% 11%11%
14%14%
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Organic With M&A
…… with strong growth outside U.S./Canadawith strong growth outside U.S./Canada
+20%+20%
+14%+14%
Hershey International 2004Hershey International 2004--2009 CAGR2009 CAGR Net Sales* (%)Net Sales* (%)
*Excludes Canada*Excludes Canada
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International investment is workingInternational investment is working
BrandsBrands
InsightsInsights
AdvertisingAdvertising
GoGo--toto--market expertisemarket expertise
Our Capabilities are Extendable GloballyOur Capabilities are Extendable Globally
…… aided by JVaided by JV’’s and test/learn approachs and test/learn approach
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Strong brands and partnersStrong brands and partners
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MultiMulti--country brand platformscountry brand platformsBrazilBrazil MexicoMexico
ChinaChina KoreaKorea
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Anchored in the consumer and categoryAnchored in the consumer and category
Consumer SegmentsConsumer Segments
Personal Personal RewardReward
Oral Oral CareCare
U.S. Demand LandscapesU.S. Demand LandscapesU.S. Demand Landscapes
China Chocolate SegmentationChina Chocolate SegmentationChina Chocolate Segmentation
Mexico Demand LandscapeMexico Demand LandscapeMexico Demand Landscape
Personal Reward
Indulgent Pleasure
Need StatesNeed States
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2007 2008 2009 2010
Investing in international advertisingInvesting in international advertisingInternational* AdvertisingInternational* Advertising
YoYYoY % Inc% Inc+26% CAGR +26%+26% CAGRCAGR
+35%+35%+21%+21%
+38%+38%
~+20%~+20%
*Excludes Canada*Excludes Canada
Int’l Adv Spots - Pure Mexico, - China
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Today + 5 Years
Creating meaningful presenceCreating meaningful presence
$1b+
At current organic rates, At current organic rates, business could be business could be
$1 $1 billion billion
outside of U.S./Canada in 5 outside of U.S./Canada in 5 yearsyears
Only requires growing with Only requires growing with the marketsthe markets
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Global confectionery is fragmentedGlobal confectionery is fragmented
Source: Euromonitor 2008 global market share Source: Euromonitor 2008 global market share ($ retail sales)($ retail sales)
KraftKraftCadburyCadbury
Mars/Mars/WrigleyWrigley
FerreroFerreroNestleNestle HersheyHershey PerfettiPerfettiVanVan
MelleMelle
LindtLindt LotteLotte
14.9%14.9%
7.9%7.9%
4.6%4.6% 4.5%4.5%
3.0%3.0%2.0%2.0% 1.6%1.6%
14.5%14.5%
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Global confectionery scaleGlobal confectionery scale
Global BrandsGlobal BrandsGlobal Brands
Research & DevelopmentResearch & DevelopmentResearch & Development
Manufacturing Know-HowManufacturing KnowManufacturing Know--HowHow
Financial ResourcesFinancial ResourcesFinancial Resources
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Regional scale can be equally relevantRegional scale can be equally relevant
Regional manufacturing Regional manufacturing
Customized flavor profilesCustomized flavor profiles
Local routesLocal routes--toto--marketmarket
Regional customersRegional customers
112
Most customers are regionalMost customers are regional
Limited Overlap of Top Retailers Across GeographiesLimited Overlap of Top Retailers Across Geographies
Fo
od
Dru
gM
ass
North America
Latin America
Western Europe
Asia
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Regional markets still largely unconsolidatedRegional markets still largely unconsolidated
Share of MarketShare of Market
Top 3Top 3 Top 5Top 5Western EuropeWestern Europe 3939 5252
North AmericaNorth America 5858 6464
Asia PacificAsia Pacific 2424 3434
Latin AmericaLatin America 4747 5353
Eastern EuropeEastern Europe 4444 5555
Middle East/AfricaMiddle East/Africa 3737 4545
AustralasiaAustralasia 7474 8080
Source: EuromonitorSource: Euromonitor
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Good opportunity to augment organic Good opportunity to augment organic growth via M&Agrowth via M&A
Global knowGlobal know--how, brandshow, brands
Strong balance sheet and cash flowStrong balance sheet and cash flow
Willingness to partner where it makes senseWillingness to partner where it makes sense
Evolving category creates opportunitiesEvolving category creates opportunities
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AgendaAgendaStrong results and foundationStrong results and foundation––
2009 results2009 results
––
Category reviewCategory review−−
HersheyHershey’’s core assetss core assets
Reshaped our businessReshaped our business––
Focus on cost structureFocus on cost structure
––
New approach to brand buildingNew approach to brand building
Leveraging/investing for the futureLeveraging/investing for the future––
GoGo--toto--market capabilitymarket capability
––
InnovationInnovation––
International expansionInternational expansion
Ability to deliver over the long termAbility to deliver over the long term
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Net Sales Earnings per Share*
LongLong--term growth ratesterm growth rates
+6+6--8%8%
+3+3--5%5%
*Diluted excluding items affecting comparability*Diluted excluding items affecting comparability
Achievable, consistent and predictable, while allowing for Achievable, consistent and predictable, while allowing for growth and investmentgrowth and investment
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LongLong--term net sales growth term net sales growth ……
+3+3--5%5%
U.S. Growth +3-4%
U.S.U.S. GrowthGrowth +3+3--4%4%
International Growth
+++
InternationalInternational GrowthGrowth
++++++
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…… achieved via multiple leversachieved via multiple levers
Price / Volume / MixPrice / Volume / Mix
Market share gainsMarket share gains
InnovationInnovation
Distribution, channel mixDistribution, channel mix
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Key drivers of longKey drivers of long--term EPS profileterm EPS profile
Investment in brand building initiativesInvestment in brand building initiatives
Continued investment in emerging marketsContinued investment in emerging markets
Aggressive productivity, optimize Aggressive productivity, optimize ““newnew”” manufacturing footprint manufacturing footprint
Commodity market volatility Commodity market volatility
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2004 2005 2006 2007 2008 2009
$520
$1,066
*Includes $277m pension contribution*Includes $277m pension contribution **Includes GSCT charges**Includes GSCT charges
$779$723
$462
$788
** ****
Generating strong cash flowGenerating strong cash flow
Record Operating Cash Flow in 2009 ($m)Record Operating Cash Flow in 2009 ($m)
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Balance sheet flexibilityBalance sheet flexibility
Continued investment in core businessContinued investment in core business
AcquisitionsAcquisitions
Dividends Dividends
Share repurchasesShare repurchases
Cash usage prioritiesCash usage priorities
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January off to a good startJanuary off to a good start
Lat 4 Wks 12/26/09 Lat 4 Wks 1/24/10
Source: Nielsen/IRI FDMxC
FDMxCFDMxC FoodFood DrugDrug MassxMassx CC--StoreStore
Hershey U.S. Retail Takeaway Hershey U.S. Retail Takeaway
2.9%2.9%
6.0%6.0%
--5.55.5%%--3.3%3.3%
3.6%3.6%
9.0%9.0%
4.0%4.0%4.2%4.2%6.0%6.0%
11.4%11.4%
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Reaffirming 2010 outlookReaffirming 2010 outlook
20102010
Net SalesNet Sales 33--5%5%
Adjusted earnings per Adjusted earnings per shareshare--diluted*diluted* 66--8%8%
*Excludes business realignment and impairment charges
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SummarySummary
Delivered strong 2009 resultsDelivered strong 2009 results
Reshaped our core businessReshaped our core business
WellWell--positioned to leverage our core strengths positioned to leverage our core strengths
Strong financial position and good visibility to Strong financial position and good visibility to our longour long--term modelterm model
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Reconciliation of GAAP and NonReconciliation of GAAP and Non--GAAP GAAP InformationInformation
Appendix I
For the years ended December 31, Income Income Income
Net Per Share- Net Per Share- Net Per Share-In millions of dollars except per share amounts EBIT Income Diluted EBIT Income Diluted EBIT Income Diluted
Results in accordance with GAAP $761.6 $436.0 $1.90 $589.9 $311.4 $1.36 $458.8 $214.2 $0.93Items affecting comparability: Business realignment charges included in cost of sales 10.1 6.3 0.03 77.8 53.4 0.23 123.1 80.9 0.35 Business realignment charges included in selling, marketing and administrative ("SM&A") 6.1 3.8 0.02 8.1 4.9 0.02 12.6 7.8 0.03 Business realignment and asset impairments, net 82.9 50.7 0.22 94.8 60.8 0.27 276.9 178.9 0.77
Non-GAAP results excluding items affecting comparability * $860.7 $496.8 $2.17 $770.6 $430.5 $1.88 $871.4 $481.8 $2.08
20082009
Reconciliation of GAAP and Non-GAAP Information
2007
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Reconciliation of GAAP and Reconciliation of GAAP and NonNon--GAAP InformationGAAP Information
*Excludes business realignment and impairment charges*Excludes business realignment and impairment charges
Possible adjustments to exclude business realignment charges forPossible adjustments to exclude business realignment charges for 2010 are not known at this time; therefore, the Company is unab2010 are not known at this time; therefore, the Company is unable to provide a le to provide a reconciliation of adjusted earnings per sharereconciliation of adjusted earnings per share--diluted for 2010. diluted for 2010.
These nonThese non--GAAP financial measures, as shown in the reconciliation above, aGAAP financial measures, as shown in the reconciliation above, are used in evaluating results of operations for internal purposere used in evaluating results of operations for internal purposes. These s. These nonnon--GAAP measures are not intended to replace the presentation of fiGAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company belnancial results in accordance with GAAP. Rather, the Company believes ieves exclusion of such items provides additional information to invesexclusion of such items provides additional information to investors to facilitate the comparison of past and present operationstors to facilitate the comparison of past and present operations. .
20072007 20082008 20092009
Reported EPSReported EPS--DilutedDiluted $0.93$0.93 $1.36$1.36 $1.90$1.90
Total Business Realignment Total Business Realignment and Impairment Chargesand Impairment Charges
$1.15$1.15 $0.52$0.52 $0.27$0.27
Adjusted EPSAdjusted EPS--Diluted*Diluted* $2.08$2.08 $1.88$1.88 $2.17$2.17
Appendix IIAppendix II
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