HSY 2010 Cagny

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Hershey Presentation at 2010 Consumer Goods Analyst Conference

Hershey Presentation at 2010 Consumer Goods Analyst Conference

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  • 1. David J. West President & CEO The Hershey Company February 16, 2010 2/16/2010 9:39 AM CAGNY - 2010 1
  • 2. Forward Looking Statements This presentation contains statements that are forward-looking. These statements are made based upon current expectations that are subject to risk and uncertainty. Actual results may differ materially from those contained in the forward-looking statements. 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 and selling price increases, including volume declines associated with pricing elasticity; market demand for our new and existing products; increased marketplace competition; political, economic, and/or financial market conditions; changes in governmental laws and regulations, including taxes; risks and uncertainties related to our international operations; the impact of future developments related to the investigation by government regulators of alleged pricing practices by members of the confectionery industry, including risks of subsequent litigation or further government action; pension cost factors, such as actuarial assumptions, market performance and employee retirement decisions; and such other matters as discussed in our Annual Report on Form 10-K for 2008. All information in this presentation is as of February 16, 2010. The Company undertakes no duty to update any forward-looking statement to conform the statements in this presentation to actual results or changes in the Company’s expectations. 2/16/2010 9:39 AM CAGNY - 2010 2
  • 3. Key messages  Delivered strong 2009* results – Net Sales +3%, +4% constant currency – EPS +15% – Gross Margin 38.9%, +310 bps – EBIT Margin 16.2%, +120 bps *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 3
  • 4. Key messages  Delivered strong 2009 results  Reshaped our core business – New supply chain post Global Supply Chain Transformation – New approach to brand building focused on consumer first, activated with retail excellence 2/16/2010 9:39 AM CAGNY - 2010 4
  • 5. Key messages  Delivered strong 2009 results  Reshaped our core business  Well-positioned to build on core strengths – Brands – Consumer/shopper insights – Innovation – International expansion 2/16/2010 9:39 AM CAGNY - 2010 5
  • 6. Key messages  Delivered strong 2009 results  Reshaped our core business  Well-positioned to build on core strengths  Poised with strong financial position and good visibility to our long-term model 2/16/2010 9:39 AM CAGNY - 2010 6
  • 7. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 7
  • 8. 2009 EPS exceeded long-term target … Against a challenging backdrop +15% +15% YoY YoY  Consumer uncertainty $2.17  ~11% price increase Aug 08  Increased commodity costs $1.88  Pension headwind 2008 2009 *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 8
  • 9. … with improvements in gross margin … Gross Margin (%)* +310 +310 bps bps YoY YoY 38.9%  Pricing actions  Global Supply Chain 35.8% Transformation 35.5% 2007 2008 2009 *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 9
  • 10. … and EBIT margin … EBIT Margin (%)* 17.6% 15.0% 16.2%  Absorbed 50% advertising increase  Invested in emerging markets  Focused on adding new capabilities 2007 2008 2009 *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 10
  • 11. … and generating record cash flow Record Operating Cash Flow in 2009 ($m) $1,066 $788 $779 $723 $520 $462 2004 2005 * 2006 2007 2008** 2009 *Includes $277m pension contribution **Includes GSCT charges 2/16/2010 9:39 AM CAGNY - 2010 11
  • 12. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 12
  • 13. Confectionery an advantaged category High household penetration High impulse purchases High purchase frequency Responsive to merchandising Seasonal destination Low private label presence Recession resistant … as we’ve seen we’ve Source: IRI Builders 2/16/2010 9:39 AM CAGNY - 2010 13
  • 14. Confectionery is ubiquitous … % of Sales Mass C- Stores Merchandisers 13% Drug Stores 31% 9% 8% Wholesale 42% Clubs 4% Dollar Stores 8% 27% Special Channels Supermarkets Source: Hershey sales 2/16/2010 9:39 AM CAGNY - 2010 14
  • 15. … and on-trend with consumers U.S. Snack Market $71bn Percent Mix 17% Salty Snacks Bakery Snacks 26% 41% Snack/Nutrition Bars Confectionery 12% Cookies/Crackers 4% Source: Data Monitor, IRI, Hershey Estimates 2/16/2010 9:39 AM CAGNY - 2010 15
  • 16. CMG category grows consistently U.S. CMG Annual +3.6% +3.6% $15 bn Category Growth Rate ’’05-’09 05-’09 +4.4% CAGR CAGR +4.0% +3.1% +2.8% 2006 2007 2008 2009 Source: Nielsen/ IRI, Hershey custom database FDMxC 52-Weeks 1/2/10 52- 2/16/2010 9:39 AM CAGNY - 2010 16
  • 17. Hershey has iconic brands … 2/16/2010 9:39 AM CAGNY - 2010 17
  • 18. … loved by consumers … Harris Interactive Brand Equity Ranking #2 #4 #5 2/16/2010 9:39 AM CAGNY - 2010 18
  • 19. … with strong corporate reputation … Top 10 Corporate Millward Brown Reputation Score 155 148 147 131 130 121 115 112 105 98 2/16/2010 9:39 AM CAGNY - 2010 19
  • 20. … built on unique heritage … 100 Years of Corporate Social Responsibility … 2/16/2010 9:39 AM CAGNY - 2010 20
  • 21. … still at heart of the company today Sustainable Supply Chain  Co-founder and member of World Cocoa Foundation  Partner with Bill and Melinda Gates Foundation  Fund farmer education via Sustainable Tree Crops Program & Farmer Field Schools 2/16/2010 9:39 AM CAGNY - 2010 21
  • 22. Blank for MHS video / commercial
  • 23. Leadership in U.S. Chocolate … 43% 31% 7% 5% 4% 1% Hershey Mars Nestle R.Stover Lindt P/L Source: Nielsen/ IRI, Hershey custom database FDMxC 52-Weeks 1/2/10 52- 2/16/2010 9:39 AM CAGNY - 2010 23
  • 24. … strong overall category position … 33% In the largest In the largest 28% most profitable most profitable Wrigley market in the market in the world world Mars 8% 6% 3% 2% 2% Mars/ Hershey Cadbury Nestle P/L R. Stover Lindt W rigley Source: Nielsen/ IRI, Hershey custom database FDMxC 52-Weeks 1/2/10 52- 2/16/2010 9:39 AM CAGNY - 2010 24
  • 25. … with significant competitive advantages  Iconic brands  Category leadership  Dedicated direct sales force  Proprietary go-to-market tools 2/16/2010 9:39 AM CAGNY - 2010 25
  • 26. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 26
  • 27. We are evolving our entire supply chain Sell/ Buy Make Move Market 2/16/2010 9:39 AM CAGNY - 2010 27
  • 28. We are evolving our entire supply chain Sell/ Buy Make Move Market 2008-2009  GSCT  Working capital 2/16/2010 9:39 AM CAGNY - 2010 28
  • 29. Optimizing manufacturing network From To North American 17 Manufacturing Facilities 11 5 Distribution Centers 4 $190m - Capital Expenditures $140m - $200m $160m 2/16/2010 9:39 AM CAGNY - 2010 29
  • 30. Improved cost profile and gross margin Annualized Cumulative Savings ($m) $175-$185 Est. $160A 2009 2010+ 2/16/2010 9:39 AM CAGNY - 2010 30
  • 31. Improving service, lowering inventory U.S. Case Fill Inventory ($m) $593 ~99% ~97% $520 2008 2009 2008 2009 2/16/2010 9:39 AM CAGNY - 2010 31
  • 32. Still room for improvement Capacity Utilization % 7 Days / 3 Shift Basis ~58% 42% 2006 2010 2/16/2010 9:39 AM CAGNY - 2010 32
  • 33. We are evolving our entire supply chain Sell/ Buy Make Move Market 2010-2011 2008-2009 2010-2011  Procurement  GSCT  Freight, and sourcing  Working warehousing, initiative capital distribution realignment 2/16/2010 9:39 AM CAGNY - 2010 33
  • 34. Productivity visibility …  Productivity/continuous improvement, historically, about 3% of variable manufacturing overhead  Total COGS spend ~$3 billion Commodities & Packaging Manufacturing Overhead Distribution  Expanding to include indirect spending, G&A 2/16/2010 9:39 AM CAGNY - 2010 34
  • 35. Significant opportunity in new footprint Continuous improvement mindset + Freight/warehousing/logistics in new footprint + Procurement/sourcing now can be revisited first time since 2006 + Global shared services project = Focus will approach 2x the current cost savings 2/16/2010 9:39 AM CAGNY - 2010 35
  • 36. We are evolving our entire supply chain Sell/ Buy Make Move Market 2010-2011 2008-2009 2010-2011 2011-2014  Procurement  GSCT  Freight,  Enhanced and sourcing  Working warehousing, customer initiative capital distribution integration realignment 2/16/2010 9:39 AM CAGNY - 2010 36
  • 37. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 37
  • 38. Fundamental re-grounding in the consumer Who They Are Demographics Why They Buy Need States Brands, Packs, Tastes, What They Buy Textures Where/How They Buy Shoppers and Channel Dynamics When They Consume Usage Occasions Source: IRI Builders 2/16/2010 9:39 AM CAGNY - 2010 38
  • 39. Spoke with countless consumers  Shopper insights  Chocolate segmentation  Shopper segmentation  Controlled store tests  Seasonal ethnography  Purchase drivers Consumer Demand Landscape Consumer Demand Landscape 2/16/2010 9:39 AM CAGNY - 2010 39
  • 40. The Who: grounded in the consumer 6 Identified Segments Engaged Exploring Practical Value Seekers Loyal Indulgers Munchers Confection Loving Controllers Detached Occasionalists Moderators 2/16/2010 9:39 AM CAGNY - 2010 40
  • 41. … confectionery need states the why/how … More Emotional More Physical/Functional 2/16/2010 9:39 AM CAGNY - 2010 41
  • 42. … confectionery need states the why/how … Reward 2 3 4 5 6 7 8 Oral Me Care More Emotional More Physical/Functional 2/16/2010 9:39 AM CAGNY - 2010 42
  • 43. The intersection of “who” and “why” Total Confection Demand Landscape Segments Engaged Confection Exploring Loyal Practical Loving Detached Munchers Indulgers Value Seekers Moderators Controllers Occasionalists Reward Me 2 Need States 3 4 5 6 7 8 Oral Care 2/16/2010 9:39 AM CAGNY - 2010 43
  • 44. Hershey Demand Landscape drives decisions $ Brand D $ White Space Brand A $$ Brand C White Space $$ Brand E $$$ Brand B (Relaunch) 2/16/2010 9:39 AM CAGNY - 2010 44
  • 45. Changes the game for growth  Identifies biggest opportunities  Optimizes portfolio roles  Brand positioning  Market mix modeling  Price realization analysis 2/16/2010 9:39 AM CAGNY - 2010 45
  • 46. Brand propositions strengthened… DL Segment Need States Demand Value Demand Value Demographics Propositions Propositions Benefits/Attributes Usage Occasions 2/16/2010 9:39 AM CAGNY - 2010 46
  • 47. EEM + LI “Perfect “Perfect Emotional Combination” Combination” Younger, M/F Indulgence/Cup E-day + Seasonal E-day 2/16/2010 9:39 AM CAGNY - 2010 47
  • 48. Blank for Reese’s commercials
  • 49. Drives powerful marketing mix 2/16/2010 9:39 AM CAGNY - 2010 49
  • 50. Positive, sustainable results FDMxC Retail Takeaway +12.5% +5.7% +1.1% -0.3% 52W 5-19-07 May-Dec 07 Yr 2008 Yr 2009 Source: Nielsen/IRI FDMxC (Reese’s Peanut Butter Cups, all packtypes) (Reese’ packtypes) 2/16/2010 9:39 AM CAGNY - 2010 50
  • 51. DL Segment “Pure” “Pure” Chocolate Chocolate Need States Happiness Happiness Demographics Benefits/Attributes Usage Occasions 2/16/2010 9:39 AM CAGNY - 2010 51
  • 52. Positioning strengthens S’mores activation 2/16/2010 9:39 AM CAGNY - 2010 52
  • 53. Blank for Hershey’s S’mores (Rascal Flatts) & Pure commercials
  • 54. Solid results FDMxC Retail Takeaway +12.0% +7.1% +3.3% 52 wk 4-19-08 M ay - Dec 08 Yr 2009 Source: Nielsen/IRI FDMxC (Hershey, Hershey with Almonds, Special Dark and Cookie & Cream bar products all packtypes) packtypes) 2/16/2010 9:39 AM CAGNY - 2010 54
  • 55. DL Segment “Break time. “Break time. Need States Anytime.” Anytime.” Demographics Benefits/Attributes Usage Occasions 2/16/2010 9:39 AM CAGNY - 2010 55
  • 56. Kit Kat and coffee, break time in action 2/16/2010 9:39 AM CAGNY - 2010 56
  • 57. Good results … FDMxC Retail Takeaway +7.9% 52 wk 8-8-09 Sept - Dec 09 Advertising Begins Source: Nielsen/IRI FDMxC (KitKat franchise, all packtypes) packtypes) 2/16/2010 9:39 AM CAGNY - 2010 57
  • 58. Blank for Kit Kat Commercial
  • 59. … improved with advertising FDMxC Retail Takeaway +13.8% +7.9% 52 wk 8-8-09 Sept - Dec 09 Advertising Begins Source: Nielsen/IRI FDMxC (KitKat franchise, all pack types) 2/16/2010 9:39 AM CAGNY - 2010 59
  • 60. 2/16/2010 9:39 AM CAGNY - 2010 60
  • 61. Blank for Commercials Kisses Factory Twizzler Bliss York
  • 62. Advertising spending increasing … Total Company Advertising YoY Chg. (%) $350m +25-30% +50% +26% +18% -13% 2006 2007 2008 2009 2010P 2/16/2010 9:39 AM CAGNY - 2010 62
  • 63. … as we shift the marketing mix Trade Promotion Advertising $1bn $928 $963 $830 $241 $161 $128 $702 $767 $722 Total as a 2007 2008 2009 % of Net Sales 16.8% 18.1% 18.2% 2/16/2010 9:39 AM CAGNY - 2010 63
  • 64. Activated at retail with good programs … Q1 Q2 Q3 Q4 2/16/2010 9:39 AM CAGNY - 2010 64
  • 65. … and unique retail sales coverage Hours In-Store YoY Increase (%) +8% +38% 2006-2009 2010P 2/16/2010 9:39 AM CAGNY - 2010 65
  • 66. Strong 2009 marketplace results 2009 Retail FDMxCW 2009 Market Share FDMxC Takeaway (%)* Performance (pts)*  +7.2 FDMxCW  FDMxC +0.1 pts  Highest in over a decade  First gain since 2005  Broad-based growth  Only top four manufacturer to gain share *IRI/Nielsen, Hershey custom database, 52-weeks ended 1/2/2010 52- 2/16/2010 9:39 AM CAGNY - 2010 66
  • 67. Consumer demand model strengthened Trade Promotion Price Realization Improved Hershey and retailer profitability Advertising = Strengthened brand equity  Strong merchandising Improved category  Consumer promotion dynamics  Retail excellence 2/16/2010 9:39 AM CAGNY - 2010 67
  • 68. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 68
  • 69. Hershey already advantaged Seasonal Planograms Retail Sales Navigator Syndicated Demand Shopper Insights Dashboard Landscape 2/16/2010 9:39 AM CAGNY - 2010 69
  • 70. Opportunities exist to improve selling Seasons Front End Take Home 2/16/2010 9:39 AM CAGNY - 2010 70
  • 71. Opportunities exist to improve selling Seasons Front End Take Home 2/16/2010 9:39 AM CAGNY - 2010 71
  • 72. Seasonal excellence Retail Execution Smart TV Mobile FSI Television Online Tab Support 2/16/2010 9:39 AM CAGNY - 2010 72
  • 73. Seasons = merchandising Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Seasons are merchandised 37 weeks of the year! 2/16/2010 9:39 AM CAGNY - 2010 73
  • 74. Seasonal collaboration is ‘Best in Class’ “Seasons” Hershey Best in Class Retailer Insights Insights Insights Insights Advanced Segmentation Segmentation Segmentation collaboration Segmentation Sales Tools Sales Tools to unite tools Retailer Outlets Retailer Outlets and capabilities Marketing Programs Marketing Programs Marketing Programs Marketing Programs 2/16/2010 9:39 AM CAGNY - 2010 74
  • 75. Opportunities exist to improve selling Seasons Front End Take Home 2/16/2010 9:39 AM CAGNY - 2010 75
  • 76. Developing common view Manufacturer View Retailer View Demand Landscape Retailers Consumers Trip Missions 2/16/2010 9:39 AM CAGNY - 2010 76
  • 77. Integrated selling excellence IDP is the Common Language - The “Operating System” Insights Hershey Driven Retailer Performance 2/16/2010 9:39 AM CAGNY - 2010 77
  • 78. IDP transforming Hershey’s capabilities Customers Customers Consumers Consumers Efficient Distribution Assortment Planogram Merch Insights Gaps Products Products Driven Demand Profiling Shopper Preferences Profit Pooling Demand Drivers Performance Retail Levers Retail Levers Marketing Insights Media Marketing Levers Marketing Levers 2/16/2010 9:39 AM CAGNY - 2010 78
  • 79. Stores will have a demand profile … 100% Detached Controllers Confection Loving Moderators Loyal Indulgers Engaged Exploring Munchers Practical Value Seeking 2/16/2010 9:39 AM CAGNY - 2010 79
  • 80. … with preferences activated at store level Demand Preferences  Right brands  Right packtypes  Right retail programs  Right retail execution  Right marketing 2/16/2010 9:39 AM CAGNY - 2010 80
  • 81. Advanced collaboration to enable ‘Best in Class’ Manufacturer Best in Class Retailer Insights Insights Insights Insights Advanced Segmentation Segmentation Segmentation Segmentation collaboration to Sales Tools unite tools and Sales Tools Retailer Outlets Retailer Outlets capabilities Marketing Programs Marketing Programs Marketing Programs Marketing Programs 2/16/2010 9:39 AM CAGNY - 2010 81
  • 82. Will partner to provide mutual solutions Insights Analytics Partners Solutions Shoppers Databases Contracting Tools with Syndicated Metrics Communication proprietary Loyalty Category partners Standards Fast Facts Fixtures Hershey as full service provider 2/16/2010 9:39 AM CAGNY - 2010 82
  • 83. Technology will accelerate transformation 2/16/2010 9:39 AM CAGNY - 2010 83
  • 84. C-Store videomining C-Store Traffic Map Max Min Source: Videomining, 2008 2/16/2010 9:39 AM CAGNY - 2010 84
  • 85. Winning space at checkout 2/16/2010 9:39 AM CAGNY - 2010 85
  • 86. Aisle merchandising principles Segmentation Wayfinding Shop-ability Shop-ability 2/16/2010 9:39 AM CAGNY - 2010 86
  • 87. Testing various merchandising strategies Hershey ++ Hershey +++ Category ++ Category +++ No Segments Segmentation Segmentation or Signage + Signage 2/16/2010 9:39 AM CAGNY - 2010 87
  • 88. Investing in our future …  IDP work well underway in 2009  Pilots scheduled for 2010  Roll-out 2011 … to strengthen category leadership 2/16/2010 9:39 AM CAGNY - 2010 88
  • 89. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 89
  • 90. A disciplined focus on innovation  Enhanced consumer and category understanding  Broadened to encompass products, packaging, marketing services, and business models  Developed disciplined process Delivering an incremental, Delivering an incremental, sustainable innovation portfolio sustainable innovation portfolio 2/16/2010 9:39 AM CAGNY - 2010 90
  • 91. Innovation discipline  Increasing hurdle rates  Understanding cannibalization  Partnering with retail customers on lead times 2/16/2010 9:39 AM CAGNY - 2010 91
  • 92. Controlled new product launches Close-in variety of core Close-in New forms of core New equities, segments 2/16/2010 9:39 AM CAGNY - 2010 92
  • 93. 2/16/2010 9:39 AM CAGNY - 2010 93
  • 94. Blank for Pieces commercials
  • 95. New products in the second-half of 2010 2/16/2010 9:39 AM CAGNY - 2010 95
  • 96. 2/16/2010 9:39 AM CAGNY - 2010 96
  • 97. 2/16/2010 9:39 AM CAGNY - 2010 97
  • 98. 2/16/2010 9:39 AM CAGNY - 2010 98
  • 99. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 99
  • 100. Increasing our global footprint … Hershey International Net Sales % of Total Company Canada RoW 14% 10% 11% 2004 2006 2009 2/16/2010 9:39 AM CAGNY - 2010 100
  • 101. … with strong growth outside U.S./Canada Hershey International 2004-2009 CAGR Net Sales* (%) +20% +14% Organic With M&A *Excludes Canada 2/16/2010 9:39 AM CAGNY - 2010 101
  • 102. International investment is working Our Capabilities are Extendable Globally  Brands  Insights  Advertising  Go-to-market expertise … aided by JV’s and test/learn approach 2/16/2010 9:39 AM CAGNY - 2010 102
  • 103. Strong brands and partners 2/16/2010 9:39 AM CAGNY - 2010 103
  • 104. Multi-country brand platforms Brazil Mexico China Korea 2/16/2010 9:39 AM CAGNY - 2010 104
  • 105. Anchored in the consumer and category U.S. Demand Landscapes U.S. Demand Landscapes Consumer Segments Need States Personal Oral Reward Care China Chocolate Segmentation China Chocolate Segmentation Personal Indulgent Reward Pleasure Mexico Demand Landscape Mexico Demand Landscape 2/16/2010 9:39 AM CAGNY - 2010 105
  • 106. Investing in international advertising International* Advertising YoY % Inc +26% +26% CAGR CAGR ~+20% +38% +21% +35% 2007 2008 2009 2010 *Excludes Canada 2/16/2010 9:39 AM CAGNY - 2010 106
  • 107. Int’l Adv Spots - Pure Mexico, - China
  • 108. Creating meaningful presence  At current organic rates, business could be  $1 billion $1b+ outside of U.S./Canada in 5 years  Only requires growing with the markets Today + 5 Years 2/16/2010 9:39 AM CAGNY - 2010 108
  • 109. Global confectionery is fragmented 14.9% 14.5% 7.9% 4.6% 4.5% 3.0% 2.0% 1.6% Kraft Mars/ Nestle Hershey Ferrero Perfetti Lindt Lotte Cadbury Wrigley Van Melle Source: Euromonitor 2008 global market share ($ retail sales) 2/16/2010 9:39 AM CAGNY - 2010 109
  • 110. Global confectionery scale Global Brands Research & Development Manufacturing Know-How Know-How Financial Resources 2/16/2010 9:39 AM CAGNY - 2010 110
  • 111. Regional scale can be equally relevant  Regional manufacturing  Customized flavor profiles  Local routes-to-market  Regional customers 2/16/2010 9:39 AM CAGNY - 2010 111
  • 112. Most customers are regional Limited Overlap of Top Retailers Across Geographies North Latin Western Asia America America Europe Food Drug Mass 112
  • 113. Regional markets still largely unconsolidated Share of Market Top 3 Top 5 Western Europe 39 52 North America 58 64 Asia Pacific 24 34 Latin America 47 53 Eastern Europe 44 55 Middle East/Africa 37 45 Australasia 74 80 Source: Euromonitor 2/16/2010 9:39 AM CAGNY - 2010 113
  • 114. Good opportunity to augment organic growth via M&A  Global know-how, brands  Strong balance sheet and cash flow  Willingness to partner where it makes sense  Evolving category creates opportunities 2/16/2010 9:39 AM CAGNY - 2010 114
  • 115. Agenda Strong results and foundation – 2009 results – Category review − Hershey’s core assets Reshaped our business – Focus on cost structure – New approach to brand building Leveraging/investing for the future – Go-to-market capability – Innovation – International expansion Ability to deliver over the long term 2/16/2010 9:39 AM CAGNY - 2010 115
  • 116. Long-term growth rates Achievable, consistent and predictable, while allowing for growth and investment +6-8% +3-5% Net Sales Earnings per Share* *Diluted excluding items affecting comparability 2/16/2010 9:39 AM CAGNY - 2010 116
  • 117. Long-term net sales growth … +3-5% U.S. International Growth Growth +3-4% +3-4% +++ 2/16/2010 9:39 AM CAGNY - 2010 117
  • 118. … achieved via multiple levers  Price / Volume / Mix  Market share gains  Innovation  Distribution, channel mix 2/16/2010 9:39 AM CAGNY - 2010 118
  • 119. Key drivers of long-term EPS profile  Investment in brand building initiatives  Continued investment in emerging markets  Aggressive productivity, optimize “new” manufacturing footprint  Commodity market volatility 2/16/2010 9:39 AM CAGNY - 2010 119
  • 120. Generating strong cash flow Record Operating Cash Flow in 2009 ($m) $1,066 $788 $779 $723 $520 $462 2004 2005 * 2006 2007 2008** 2009 *Includes $277m pension contribution **Includes GSCT charges 2/16/2010 9:39 AM CAGNY - 2010 120
  • 121. Balance sheet flexibility Cash usage priorities  Continued investment in core business  Acquisitions  Dividends  Share repurchases 2/16/2010 9:39 AM CAGNY - 2010 121
  • 122. January off to a good start Hershey U.S. Retail Takeaway Lat 4 Wks 12/26/09 Lat 4 Wks 1/24/10 11.4% 9.0% 6.0% 6.0% 2.9% 3.6% 4.0% 4.2% -3.3% -5.5% FDMxC Food Drug Massx C-Store Source: Nielsen/IRI FDMxC 2/16/2010 9:39 AM CAGNY - 2010 122
  • 123. Reaffirming 2010 outlook 2010 Net Sales 3-5% Adjusted earnings per 6-8% share-diluted* *Excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 123
  • 124. Summary  Delivered strong 2009 results  Reshaped our core business  Well-positioned to leverage our core strengths  Strong financial position and good visibility to our long-term model 2/16/2010 9:39 AM CAGNY - 2010 124
  • 125. Reconciliation of GAAP and Non-GAAP Information Appendix I Reconciliation of GAAP and Non-GAAP Information For the years ended December 31, 2009 2008 2007 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 $0.93 Items 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 2/16/2010 9:39 AM CAGNY - 2010 125
  • 126. Reconciliation of GAAP and Non-GAAP Information Appendix II 2007 2008 2009 Reported EPS-Diluted $0.93 $1.36 $1.90 Total Business Realignment $1.15 $0.52 $0.27 and Impairment Charges Adjusted EPS-Diluted* $2.08 $1.88 $2.17 *Excludes business realignment and impairment charges Possible adjustments to exclude business realignment charges for 2010 are not known at this time; therefore, the Company is unable to provide a unable reconciliation of adjusted earnings per share-diluted for 2010. share- These non-GAAP financial measures, as shown in the reconciliation above, are used in evaluating results of operations for internal purposes. These non- are purposes. non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes non- financial believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations. investors operations. 2/16/2010 9:39 AM CAGNY - 2010 126
  • 127. 2/16/2010 9:39 AM CAGNY - 2010 127