David J. West
                      President & CEO
                    The Hershey Company
                      February...
Forward Looking Statements
           This presentation contains statements that are forward-looking. These
           sta...
Key messages
              Delivered strong 2009* results
                    –   Net Sales +3%, +4% constant currency
  ...
Key messages
              Delivered strong 2009 results

              Reshaped our core business
                    –...
Key messages
              Delivered strong 2009 results

              Reshaped our core business

              Well-...
Key messages
              Delivered strong 2009 results

              Reshaped our core business

              Well-...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
2009 EPS exceeded long-term target …
                            Against a challenging backdrop
                          ...
… with improvements in gross margin …

                                                      Gross Margin (%)*           +...
… and EBIT margin …

                                                                     EBIT Margin (%)*
               ...
… and generating record cash flow
                    Record Operating Cash Flow in 2009 ($m)
                            ...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
Confectionery an advantaged category
                                    High household penetration

                     ...
Confectionery is ubiquitous …
                                          % of Sales

                        Mass          ...
… and on-trend with consumers
                                      U.S. Snack Market $71bn
                              ...
CMG category grows consistently
                                           U.S. CMG Annual
                               ...
Hershey has iconic brands …




2/16/2010 9:39 AM         CAGNY - 2010   17
… loved by consumers …
                       Harris Interactive
                     Brand Equity Ranking

              ...
… with strong corporate reputation …
      Top 10 Corporate Millward Brown Reputation Score
                    155   148 ...
… built on unique heritage …
                    100 Years of Corporate Social Responsibility …




2/16/2010 9:39 AM     ...
… still at heart of the company today
                       Sustainable Supply Chain
           Co-founder and member of...
Blank for MHS video / commercial
Leadership in U.S. Chocolate …
                       43%


                                             31%




         ...
… strong overall category position …

                     33%
                                                           ...
… with significant competitive advantages

                     Iconic brands

                     Category leadership
...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
We are evolving our entire supply chain




                                                        Sell/
                ...
We are evolving our entire supply chain




                                                             Sell/
           ...
Optimizing manufacturing network

                     From                        To
                              North ...
Improved cost profile and gross margin

                    Annualized Cumulative Savings ($m)
                           ...
Improving service, lowering inventory


                      U.S. Case Fill                       Inventory ($m)
        ...
Still room for improvement
                    Capacity Utilization %
                    7 Days / 3 Shift Basis
         ...
We are evolving our entire supply chain




                                                                     Sell/
   ...
Productivity visibility …
              Productivity/continuous improvement, historically,
               about 3% of var...
Significant opportunity in new footprint
                             Continuous improvement mindset
                     ...
We are evolving our entire supply chain




                                                                        Sell/
...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
Fundamental re-grounding in the consumer

                    Who They Are                    Demographics

              ...
Spoke with countless consumers

              Shopper insights                       Chocolate segmentation
            ...
The Who: grounded in the consumer
                                        6 Identified Segments




                    En...
… confectionery need states the why/how …




                    More Emotional        More Physical/Functional




2/16/...
… confectionery need states the why/how …


        Reward         2     3       4          5       6   7     8      Oral
...
The intersection of “who” and “why”
                                Total Confection Demand Landscape
                    ...
Hershey Demand Landscape drives decisions


                                                   $ Brand D

                ...
Changes the game for growth

                     Identifies biggest opportunities

                     Optimizes portf...
Brand propositions strengthened…

                     DL Segment

                     Need States
                      ...
EEM + LI
                                                        “Perfect
                                                ...
Blank for Reese’s commercials
Drives powerful marketing mix




2/16/2010 9:39 AM         CAGNY - 2010   49
Positive, sustainable results

                                     FDMxC Retail Takeaway
                                ...
DL Segment                       “Pure”
                                                      “Pure”
                     ...
Positioning strengthens S’mores activation




2/16/2010 9:39 AM          CAGNY - 2010              52
Blank for Hershey’s S’mores (Rascal Flatts)
& Pure commercials
Solid results
                                    FDMxC Retail Takeaway


                                                ...
DL Segment
                                                     “Break time.
                                             ...
Kit Kat and coffee, break time in action




2/16/2010 9:39 AM          CAGNY - 2010            56
Good results …
                                         FDMxC Retail Takeaway



                                         ...
Blank for Kit Kat Commercial
… improved with advertising
                                         FDMxC Retail Takeaway
                               ...
2/16/2010 9:39 AM   CAGNY - 2010   60
Blank for Commercials



              Kisses Factory
                 Twizzler
                   Bliss
                 ...
Advertising spending increasing …

                           Total Company Advertising
                                  ...
… as we shift the marketing mix
                           Trade Promotion       Advertising
                    $1bn     ...
Activated at retail with good programs …
                    Q1                    Q2




                    Q3          ...
… and unique retail sales coverage
                                 Hours In-Store
                                YoY Inc...
Strong 2009 marketplace results

                    2009 Retail FDMxCW                          2009 Market Share FDMxC
 ...
Consumer demand model strengthened




                                    Trade Promotion


                             ...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
Hershey already advantaged
                    Seasonal
                                 Planograms       Retail Sales
   ...
Opportunities exist to improve selling



                          Seasons


                         Front End


       ...
Opportunities exist to improve selling


                          Seasons


                          Front End



      ...
Seasonal excellence




                    Retail Execution                 Smart TV            Mobile




              ...
Seasons = merchandising


             Jan Feb Mar Apr May Jun            Jul   Aug Sep Oct Nov Dec




                  ...
Seasonal collaboration is ‘Best in Class’
                                           “Seasons”
                      Hersh...
Opportunities exist to improve selling


                           Seasons



                         Front End



     ...
Developing common view

                    Manufacturer View                    Retailer View
                    Demand ...
Integrated selling excellence
                    IDP is the Common Language - The “Operating System”




                ...
IDP transforming Hershey’s capabilities


               Customers
               Customers

               Consumers
    ...
Stores will have a demand profile …
                         100%
                        Detached
                       ...
… with preferences activated at store level


                                      Demand Preferences
                   ...
Advanced collaboration to enable ‘Best in Class’


                    Manufacturer          Best in Class         Retaile...
Will partner to provide mutual solutions


                    Insights        Analytics                 Partners      Sol...
Technology will accelerate transformation




2/16/2010 9:39 AM         CAGNY - 2010              83
C-Store videomining
                                     C-Store Traffic Map

                    Max




                ...
Winning space at checkout




2/16/2010 9:39 AM         CAGNY - 2010   85
Aisle merchandising principles


                    Segmentation



                     Wayfinding



                  ...
Testing various merchandising strategies
                              Hershey ++        Hershey +++
                     ...
Investing in our future …


                     IDP work well underway in 2009

                     Pilots scheduled f...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
A disciplined focus on innovation
             Enhanced consumer and category understanding

             Broadened to e...
Innovation discipline

                     Increasing hurdle rates

                     Understanding cannibalization
...
Controlled new product launches



               Close-in variety of core
               Close-in

                    Ne...
2/16/2010 9:39 AM   CAGNY - 2010   93
Blank for Pieces commercials
New products in the second-half of 2010




2/16/2010 9:39 AM         CAGNY - 2010            95
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
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
Increasing our global footprint …
                      Hershey International Net Sales
                           % of To...
… with strong growth outside U.S./Canada
                    Hershey International 2004-2009 CAGR
                        ...
International investment is working
                    Our Capabilities are Extendable Globally

                        ...
Strong brands and partners




2/16/2010 9:39 AM         CAGNY - 2010   103
Multi-country brand platforms
                    Brazil                  Mexico




                    China            ...
Anchored in the consumer and category
        U.S. Demand Landscapes
        U.S. Demand Landscapes
                    Co...
Investing in international advertising
                            International* Advertising
                            ...
Int’l Adv Spots
- Pure Mexico,
- China
Creating meaningful presence


          At current organic rates,
           business could be  $1 billion             ...
Global confectionery is fragmented
                     14.9%
                           14.5%




                       ...
Global confectionery scale

                         Global Brands

                    Research & Development

          ...
Regional scale can be equally relevant

                     Regional manufacturing

                     Customized fla...
Most customers are regional
 Limited Overlap of Top Retailers Across Geographies
                   North     Latin    Wes...
Regional markets still largely unconsolidated

                                              Share of Market
             ...
Good opportunity to augment organic
        growth via M&A

                     Global know-how, brands

               ...
Agenda
                    Strong results and foundation
                    –   2009 results
                    –   Cate...
Long-term growth rates
             Achievable, consistent and predictable, while allowing for
             growth and inv...
Long-term net sales growth …

                             +3-5%




                      U.S.                  Internati...
… achieved via multiple levers



                     Price / Volume / Mix

                     Market share gains

  ...
Key drivers of long-term EPS profile

                     Investment in brand building initiatives

                    ...
Generating strong cash flow
                    Record Operating Cash Flow in 2009 ($m)
                                  ...
Balance sheet flexibility
                             Cash usage priorities
                     Continued investment in...
January off to a good start
                              Hershey U.S. Retail Takeaway
                                   ...
Reaffirming 2010 outlook


                                                             2010

                    Net Sale...
Summary

              Delivered strong 2009 results

              Reshaped our core business

              Well-posi...
Reconciliation of GAAP and Non-GAAP
        Information

                Appendix I
                                      ...
Reconciliation of GAAP and
        Non-GAAP Information

                Appendix II                                      ...
2/16/2010 9:39 AM   CAGNY - 2010   127
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HSY 2010 Cagny

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Transcript of "HSY 2010 Cagny"

  1. 1. David J. West President & CEO The Hershey Company February 16, 2010 2/16/2010 9:39 AM CAGNY - 2010 1
  2. 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. 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. 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. 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. 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. 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. 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 $1.88  Pension headwind 2008 2009 *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 8
  9. 9. … with improvements in gross margin … Gross Margin (%)* +310 +310 bps bps YoY YoY 38.9%  Pricing actions  Global Supply Chain 35.8% Transformation 35.5% 2007 2008 2009 *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 9
  10. 10. … and EBIT margin … EBIT Margin (%)* 17.6% 15.0% 16.2%  Absorbed 50% advertising increase  Invested in emerging markets  Focused on adding new capabilities 2007 2008 2009 *Adjusted, excludes business realignment and impairment charges 2/16/2010 9:39 AM CAGNY - 2010 10
  11. 11. … and generating record cash flow Record Operating Cash Flow in 2009 ($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. 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. 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. 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. 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. 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. 17. Hershey has iconic brands … 2/16/2010 9:39 AM CAGNY - 2010 17
  18. 18. … loved by consumers … Harris Interactive Brand Equity Ranking #2 #4 #5 2/16/2010 9:39 AM CAGNY - 2010 18
  19. 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. 20. … built on unique heritage … 100 Years of Corporate Social Responsibility … 2/16/2010 9:39 AM CAGNY - 2010 20
  21. 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. 22. Blank for MHS video / commercial
  23. 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. 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. 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. 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. 27. We are evolving our entire supply chain Sell/ Buy Make Move Market 2/16/2010 9:39 AM CAGNY - 2010 27
  28. 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. 29. Optimizing manufacturing network From To North American 17 Manufacturing Facilities 11 5 Distribution Centers 4 $190m - Capital Expenditures $140m - $200m $160m 2/16/2010 9:39 AM CAGNY - 2010 29
  30. 30. Improved cost profile and gross margin Annualized Cumulative Savings ($m) $175-$185 Est. $160A 2009 2010+ 2/16/2010 9:39 AM CAGNY - 2010 30
  31. 31. Improving service, lowering inventory U.S. Case Fill Inventory ($m) $593 ~99% ~97% $520 2008 2009 2008 2009 2/16/2010 9:39 AM CAGNY - 2010 31
  32. 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. 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. 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. 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. 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. 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. 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. 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. 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. 41. … confectionery need states the why/how … More Emotional More Physical/Functional 2/16/2010 9:39 AM CAGNY - 2010 41
  42. 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. 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. 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. 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. 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. 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. 48. Blank for Reese’s commercials
  49. 49. Drives powerful marketing mix 2/16/2010 9:39 AM CAGNY - 2010 49
  50. 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. 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. 52. Positioning strengthens S’mores activation 2/16/2010 9:39 AM CAGNY - 2010 52
  53. 53. Blank for Hershey’s S’mores (Rascal Flatts) & Pure commercials
  54. 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. 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. 56. Kit Kat and coffee, break time in action 2/16/2010 9:39 AM CAGNY - 2010 56
  57. 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. 58. Blank for Kit Kat Commercial
  59. 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. 60. 2/16/2010 9:39 AM CAGNY - 2010 60
  61. 61. Blank for Commercials Kisses Factory Twizzler Bliss York
  62. 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. 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. 64. Activated at retail with good programs … Q1 Q2 Q3 Q4 2/16/2010 9:39 AM CAGNY - 2010 64
  65. 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. 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. 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. 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. 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. 70. Opportunities exist to improve selling Seasons Front End Take Home 2/16/2010 9:39 AM CAGNY - 2010 70
  71. 71. Opportunities exist to improve selling Seasons Front End Take Home 2/16/2010 9:39 AM CAGNY - 2010 71
  72. 72. Seasonal excellence Retail Execution Smart TV Mobile FSI Television Online Tab Support 2/16/2010 9:39 AM CAGNY - 2010 72
  73. 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. 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. 75. Opportunities exist to improve selling Seasons Front End Take Home 2/16/2010 9:39 AM CAGNY - 2010 75
  76. 76. Developing common view Manufacturer View Retailer View Demand Landscape Retailers Consumers Trip Missions 2/16/2010 9:39 AM CAGNY - 2010 76
  77. 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. 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. 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. 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. 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. 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. 83. Technology will accelerate transformation 2/16/2010 9:39 AM CAGNY - 2010 83
  84. 84. C-Store videomining C-Store Traffic Map Max Min Source: Videomining, 2008 2/16/2010 9:39 AM CAGNY - 2010 84
  85. 85. Winning space at checkout 2/16/2010 9:39 AM CAGNY - 2010 85
  86. 86. Aisle merchandising principles Segmentation Wayfinding Shop-ability Shop-ability 2/16/2010 9:39 AM CAGNY - 2010 86
  87. 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. 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. 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. 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. 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. 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. 93. 2/16/2010 9:39 AM CAGNY - 2010 93
  94. 94. Blank for Pieces commercials
  95. 95. New products in the second-half of 2010 2/16/2010 9:39 AM CAGNY - 2010 95
  96. 96. 2/16/2010 9:39 AM CAGNY - 2010 96
  97. 97. 2/16/2010 9:39 AM CAGNY - 2010 97
  98. 98. 2/16/2010 9:39 AM CAGNY - 2010 98
  99. 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. 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. 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. 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. 103. Strong brands and partners 2/16/2010 9:39 AM CAGNY - 2010 103
  104. 104. Multi-country brand platforms Brazil Mexico China Korea 2/16/2010 9:39 AM CAGNY - 2010 104
  105. 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. 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. 107. Int’l Adv Spots - Pure Mexico, - China
  108. 108. Creating meaningful presence  At current organic rates, business could be  $1 billion $1b+ outside of U.S./Canada in 5 years  Only requires growing with the markets Today + 5 Years 2/16/2010 9:39 AM CAGNY - 2010 108
  109. 109. Global confectionery is fragmented 14.9% 14.5% 7.9% 4.6% 4.5% 3.0% 2.0% 1.6% Kraft Mars/ Nestle Hershey Ferrero Perfetti Lindt Lotte Cadbury Wrigley Van Melle Source: Euromonitor 2008 global market share ($ retail sales) 2/16/2010 9:39 AM CAGNY - 2010 109
  110. 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. 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. 112. Most customers are regional Limited Overlap of Top Retailers Across Geographies North Latin Western Asia America America Europe Food Drug Mass 112
  113. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 127. 2/16/2010 9:39 AM CAGNY - 2010 127
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