David J. West - library.corporate-ir.netlibrary.corporate-ir.net/library/11/115/115590/items/297821/HSY_IU... · David J. West President & CEO. 2 ... value-enhancing strategy;

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June 17, 2008June 17, 2008

David J. WestDavid J. WestPresident & CEOPresident & CEO

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Forward Looking StatementsForward Looking StatementsThis release contains statements which are forwardThis release contains statements which are forward--looking. These statements are made based looking. These statements are made based upon current expectations which are subject to risk and uncertaiupon current expectations which are subject to risk and uncertainty. Actual results may differ nty. Actual results may differ materially from those contained in the forwardmaterially from those contained in the forward--looking statements. Factors which could cause looking statements. Factors which could cause results to differ materially include, but are not limited to: ouresults to differ materially include, but are not limited to: our ability to implement and generate r ability to implement and generate expected ongoing annual savings from the initiatives to transforexpected ongoing annual savings from the initiatives to transform our supply chain and advance our m our supply chain and advance our valuevalue--enhancing strategy; changes in raw material and other costs and enhancing strategy; changes in raw material and other costs and selling price increases; our selling price increases; our ability to execute our supply chain transformation within the anability to execute our supply chain transformation within the anticipated timeframe in accordance ticipated timeframe in accordance with our cost estimates; the impact of future developments relatwith our cost estimates; the impact of future developments related to the product recall and ed to the product recall and temporary plant closure in Canada in the fourth quarter of 2006,temporary plant closure in Canada in the fourth quarter of 2006, including our ability to recover including our ability to recover costs we incurred for the recall and plant closure from responsicosts we incurred for the recall and plant closure from responsible thirdble third--parties; the impact of parties; the impact of future developments related to the investigation by government rfuture developments related to the investigation by government regulators of alleged pricing egulators of alleged pricing practices by members of the confectionery industry, including ripractices by members of the confectionery industry, including risks of subsequent litigation or sks of subsequent litigation or further government action; pension cost factors, such as actuarifurther government action; pension cost factors, such as actuarial assumptions, market al assumptions, market performance and employee retirement decisions; changes in our stperformance and employee retirement decisions; changes in our stock price, and resulting impacts ock price, and resulting impacts on our expenses for incentive compensation, stock options and ceon our expenses for incentive compensation, stock options and certain employee benefits; market rtain employee benefits; market demand for our new and existing products; changes in our businesdemand for our new and existing products; changes in our business environment, including actions s environment, including actions of competitors and changes in consumer preferences; changes in gof competitors and changes in consumer preferences; changes in governmental laws and overnmental laws and regulations, including taxes; risks and uncertainties related toregulations, including taxes; risks and uncertainties related to our international operations; and our international operations; and such other matters as discussed in our Annual Report on Form 10such other matters as discussed in our Annual Report on Form 10--K for 2007. The Company K for 2007. The Company undertakes no duty to update any forwardundertakes no duty to update any forward--looking statement to conform the statement to actual looking statement to conform the statement to actual results or changes in the Companyresults or changes in the Company’’s expectations. s expectations.

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AgendaAgenda

Hershey business overviewHershey business overview

Historical performanceHistorical performance

LongLong--term growth ratesterm growth rates

ConsumerConsumer--driven demand modeldriven demand model

Core growth opportunitiesCore growth opportunities

Innovation processInnovation process

International expansionInternational expansion

Financial updateFinancial update

WrapWrap--upup

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+3.5%*YoY

+3.5%*+3.5%*YoYYoY$141bn$141bn

Confectionery is an attractive category Confectionery is an attractive category ……

USAUSA

91%91%

Rest ofRest ofWorldWorld

9%9%

…… and weand we’’ve broadened our reachve broadened our reach

USAUSA

86%86%

Rest ofRest ofWorldWorld

14%14%

*Source: *Source: EuromonitorEuromonitor, Hershey estimates, Hershey estimates

2007200720022002

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U.S. confectionery is attractive U.S. confectionery is attractive ……

Snack/NutritionSnack/NutritionBarsBars

BakeryBakerySnacksSnacks

Salty SnacksSalty SnacksCookies/Cookies/CrackersCrackers

ConfectioneryConfectionery4%4%

12%12%

14%14%

30%30%

40%40%

U.S. Snack Market $69bnU.S. Snack Market $69bn

Source: Data Monitor, IRI, Hershey EstimatesSource: Data Monitor, IRI, Hershey Estimates

Confectionery is the largest

snack segment

Confectionery Confectionery is the largest is the largest

snack snack segmentsegment

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…… with great purchasing dynamics with great purchasing dynamics ……

Household penetrationHousehold penetration

Impulse purchasesImpulse purchases

Merchandising responsivenessMerchandising responsiveness

Checkout conversion rateCheckout conversion rate

Source: IRI BuildersSource: IRI Builders

7

…… and good channel dynamicsand good channel dynamics

CC-- StoresStores

Dollar StoresDollar Stores

Special ChannelsSpecial Channels

Drug StoresDrug Stores

43%43%43%

SupermarketsSupermarkets

MassMassMerchandisersMerchandisers

Wholesale Wholesale ClubsClubs

88

12122929

2828

1111

99

% of Sales% of Sales

Source: Hershey salesSource: Hershey sales

33

8

CMG category continues to grow CMG category continues to grow ……

2002 2003 2004 2005 2006 20070

$15b

+2.4%+2.4% +3.3%+3.3% +3.2%+3.2% +0.4%+0.4% +2.8%+2.8% +3.5%+3.5%

CMG Annual CMG Annual Category Growth RateCategory Growth Rate

CMG +2.8%,52 Wks

CMG CMG +2.8%,+2.8%,52 Wks52 Wks

Source: Nielsen, IRI Hershey estimates Source: Nielsen, IRI Hershey estimates FDMxCFDMxC(2008, 52 weeks ended May 18, 2008)(2008, 52 weeks ended May 18, 2008)

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Recession Vulnerability YogurtDry Pasta

Short Oil

Ice Cream

Laundry

Candy

IC NoveltiesPour Sauces

Pasta Sauces

Milk

Froz Pizza

CreamersBread Rolls

Froz Bkfast Food

BeerBaking

SoupPoultry

Paper ProdsHH

Cheese

Salty SnacksLaundry Supp

Coffee ButterFroz Veg

Dog Food

Spice SeasCookies

Bkfast Food

Crackers

Frozen DinnersDel i

Cold Cereal

Eggs

Juice

MiscultCarb Bev

Tobacco

Bottled WaterFood Prep Storage

Cups / Plates

Baby Formula

Processed Meat

Juice Drink

Sweets

Hair Care

Fruit & Nut Candy

Prepared Foods

90

95

100

105

110

95 100 105 110Category Vulnerability to Recession

Abi

lity

to R

ecov

er F

rom

Rec

essi

on…… and does so in a struggling economyand does so in a struggling economy

Source: NielsenSource: Nielsen

Candy

10

CategoryCategory--defining iconic brandsdefining iconic brands

11

Mars/Wrigley Hershey Cadbury Nestle Lindt

Strong share position within U.S. CMG Strong share position within U.S. CMG ……

Source: IRI F/D/MxC 52Source: IRI F/D/MxC 52--weeks 5/18/08weeks 5/18/08

8%8%

27%27%

6%6%

2%2%

MarsMars18%18%

WrigleyWrigley14%14%

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Hershey Mars Nestle R.Stover Lindt

…… with leadership U.S. Chocolate position with leadership U.S. Chocolate position ……

Source: IRI F/D/MxC 52Source: IRI F/D/MxC 52--weeks 5/18/08weeks 5/18/08

42.5%42.5%

7.0%7.0%

29.7%29.7%

5.0%5.0% 3.6%3.6%

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…… strong seasonal share strong seasonal share ……

ReeseReese’’ssKissesKisses

HersheyHershey’’ss

~~75%75%

Seasonal Net SalesSeasonal Net Sales

14

…… and takeand take--home chocolate leadershiphome chocolate leadership

#1 in packaged #1 in packaged chocolate candychocolate candy

Hershey has 41% share Hershey has 41% share of marketof market

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AgendaAgenda









WrapWrap--upup

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Keys to performance from 2001Keys to performance from 2001--20052005

Accelerated USA topAccelerated USA top--line growthline growth

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This growth was driven by innovation This growth was driven by innovation ……

New ItemsNew Items

Limited EditionsLimited Editions

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…… and strong selling capabilitiesand strong selling capabilities

Customer marketingCustomer marketing

New trade promotion architectureNew trade promotion architecture

Retail selling capabilitiesRetail selling capabilities

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Keys to performance from 2001Keys to performance from 2001--20052005

Accelerated USA topAccelerated USA top--line growthline growth

Gross margin expansionGross margin expansion−− SKU reduction (15SKU reduction (15--20% of items discontinued)20% of items discontinued)−− Price realization via mix, weight, list pricingPrice realization via mix, weight, list pricing−− Distribution network streamlined (22 to 5 DCs)Distribution network streamlined (22 to 5 DCs)−− Closed/sold four minor manufacturing locationsClosed/sold four minor manufacturing locations−− Manageable commodity costsManageable commodity costs

EBIT margin expansionEBIT margin expansion−− G&A controlG&A control−− Early Retirement ProgramsEarly Retirement Programs

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Strong growth not sustainableStrong growth not sustainable

Net Net SalesSales

Earnings Earnings Per Share*Per Share*

13.8%13.8%

5.3%5.3%

*Diluted excluding items affecting comparability*Diluted excluding items affecting comparability

20022002--2005 CAGR2005 CAGR

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Margins were Margins were flatteningflattening

Pursue large scale Pursue large scale productivityproductivity

Global Supply Chain Global Supply Chain Transformation Program, Transformation Program, however commodities however commodities increasedincreased

Innovation less Innovation less incrementalincremental

Global Growth and Global Growth and Innovation group Innovation group formedformed

““WellnessWellness”” entries did not entries did not gain tractiongain tractionNew category segments New category segments emergedemerged

Despite strong results issues existedDespite strong results issues existed

One categoryOne category

ResponseResponse ResultResult

SnacksSnacks Resources diverted from Resources diverted from corecoreCompetitive activity Competitive activity intensifiedintensified

One countryOne country Organic international Organic international growthgrowth

Positive, but takes time to Positive, but takes time to contributecontribute

Key IssuesKey Issues

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Resulting in disappointing performanceResulting in disappointing performance

2006 2007 2008E

Net SalesNet Sales

+2.6%+2.6% +0.1%+0.1%

~+~+33--4%4%

2006 2007 2008E

EPS*EPS*

$2.37$2.37

$2.08$2.08

$1.85$1.85--$1.90$1.90


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AgendaAgenda









WrapWrap--upup

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Predictable, sustainable topPredictable, sustainable top--line grows 3line grows 3--5%5%−− Demand driven modelDemand driven model−− Emerging market expansionEmerging market expansion−− Fully funded brand investmentFully funded brand investment−− Improving price/value equationImproving price/value equation

Annual EPS growth of 6Annual EPS growth of 6--8%8%−− Aggressive approach to cost structure/G&A in Aggressive approach to cost structure/G&A in

face of commodity volatilityface of commodity volatility−− SelfSelf--funding consumer investmentfunding consumer investment−− Strong cash generation provides flexibilityStrong cash generation provides flexibility

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Net SalesNet Sales

+3+3--5%5%

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New Consumer-Centric Demand

Model

New ConsumerNew Consumer--Centric Demand Centric Demand

ModelModel

Net Sales opportunitiesNet Sales opportunities

Leverage strong USA CoreLeverage strong USA Core

Focused, disciplined innovationFocused, disciplined innovation

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Improving Price Value

Improving Price Improving Price ValueValue

Aisle, architecture, package/ Aisle, architecture, package/ product upgrades, price realizationproduct upgrades, price realization

New Consumer-Centric Demand

Model

New ConsumerNew Consumer--Centric Demand Centric Demand

ModelModel

Net Sales opportunitiesNet Sales opportunities

Leverage strong USA CoreLeverage strong USA Core

Focused, disciplined innovationFocused, disciplined innovation

InternationalInternationalInternational Exposure to faster growing Exposure to faster growing emerging markets emerging markets

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+6+6--8%8%

+3+3--5%5%


Net Net SalesSales


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Key drivers of longKey drivers of long--term EPS profileterm EPS profile

Aggressive productivity, price realization will Aggressive productivity, price realization will be the normbe the norm

Commodity market volatility as a backCommodity market volatility as a back--drop drop over next several yearsover next several years

Continued strong investment in brand buildingContinued strong investment in brand building

Continued investment in emerging marketsContinued investment in emerging markets

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Commodity prices have risen dramaticallyCommodity prices have risen dramatically

Commodity Costs 2001Commodity Costs 2001--2009E2009EIndexed 2001=100Indexed 2001=100

2001 2002 2003 2004 2005 2006 2007 2008E 2009E

100100 108108

129129++++++

31

Global Supply Chain Transformation (GSCT) Global Supply Chain Transformation (GSCT) on track on track ……

Crucial to HersheyCrucial to Hershey’’s longs long--term competitivenessterm competitiveness−− Will enhance profitabilityWill enhance profitability−− Flexible manufacturing to meet consumer and Flexible manufacturing to meet consumer and

customer needscustomer needs−− Improve our position in the marketplace allowingImprove our position in the marketplace allowing

investment in brandinvestment in brand--building initiativesbuilding initiatives

GSCT cumulative savings in 2008 expected to beGSCT cumulative savings in 2008 expected to be$80$80--$90 million$90 million

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2008 2009 2010+

…… improves the cost profileimproves the cost profile

Annualized Cumulative Savings ($m)Annualized Cumulative Savings ($m)

8080--9090

140140--160160

170170--190190

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Sourcing 80+% production in U.S./CanadaSourcing 80+% production in U.S./Canada

HersheyHersheyU.S. networkU.S. network

Hershey network Hershey network Mexico, Brazil, AsiaMexico, Brazil, Asia

22%22%60%60%

% of Business Manufacturing by Location% of Business Manufacturing by Location

2010 lbs.2010 lbs.

18%18%

Outsourced Outsourced U.S. & CanadaU.S. & Canada

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Still room for improvementStill room for improvement

2006 2010

42%42%

~58%~58%

Capacity Utilization %Capacity Utilization %7 Days/Three Shift Basis7 Days/Three Shift Basis

35

Updated GSCT profileUpdated GSCT profile

Realignment Charges:Realignment Charges:

CashCash $193$193 $35 $35 -- $40$40 $5 $5 -- $10$10 ----

NonNon--CashCash $193$193 $65 $65 -- $70$70 $10 $10 -- $15$15 ----

Project Management andProject Management andStartStart--up Costsup Costs $14$14 $30 $30 -- $35$35 $5 $5 -- $10$10 ----

GSCT CapGSCT Cap--ExEx $78$78 $160 $160 -- $170$170 $30 $30 -- $40$40 ----

Total Hershey CapTotal Hershey Cap--ExEx $204$204 $300 $300 -- $325$325 $225 $225 -- $250$250 $140 $140 -- $160$160(including GSCT)(including GSCT)

Accelerated DepreciationAccelerated Depreciation& Amortization (GSCT) Exp.& Amortization (GSCT) Exp. $109$109 $55 $55 -- $65$65 $0 $0 -- $5$5 ----

Total Hershey DepreciationTotal Hershey Depreciation& Amortization (including GSCT)& Amortization (including GSCT) $311$311 $245 $245 -- $255$255 $180 $180 -- $185$185 $175 $175 -- $180$180

2007A2007A 20082008 20092009 20102010

Latest Estimate ($m)Latest Estimate ($m)

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G&A best practicesG&A best practices

Leverage global IT platforms (SAP)Leverage global IT platforms (SAP)

Process improvement/redesignProcess improvement/redesign

““Grow intoGrow into”” international infrastructureinternational infrastructure

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AgendaAgenda









WrapWrap--upup

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DemographicsDemographicsDemographics

Need StatesNeed StatesNeed States

Brands, Packs, Tastes, Textures

Brands, Packs, Tastes, Brands, Packs, Tastes, TexturesTextures

Shoppers and Channel Dynamics

Shoppers and Channel Shoppers and Channel DynamicsDynamics

Usage OccasionsUsage OccasionsUsage Occasions

Fundamental reFundamental re--grounding in the consumergrounding in the consumer

Who They AreWho They AreWho They Are

Why They BuyWhy They BuyWhy They Buy

What They BuyWhat They BuyWhat They Buy

Where/How They BuyWhere/How They BuyWhere/How They Buy

When They ConsumeWhen They ConsumeWhen They Consume

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Spoke with countless consumers Spoke with countless consumers

Shopper insightsShopper insights

Shopper segmentationShopper segmentation

Seasonal ethnographySeasonal ethnography

Chocolate segmentationChocolate segmentation

Controlled store testsControlled store tests

Purchase driverPurchase driver

Consumer Demand LandscapeConsumer Demand LandscapeConsumer Demand Landscape

40

Consumer segments define the Consumer segments define the ‘‘whowho’…’…

Engaged Exploring Engaged Exploring MunchersMunchers

Loyal IndulgersLoyal Indulgers Practical Value Practical Value SeekersSeekers

ControllersControllers Detached Detached OccasionalistsOccasionalists

Confection Loving Confection Loving ModeratorsModerators

41

…… mega consumer trends mega consumer trends ……

Globalization

On-Demand Lifestyle

Customization/Personalization

Health & Well-Being

Increased Social Consciousness

Connectedness

Premiumization

Convenience

42

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

Oral Oral CareCare

88776655443322Reward Reward MeMe

More EmotionalMore Emotional More Physical/FunctionalMore Physical/Functional

43

…… intersection creates the landscape intersection creates the landscape ……

Segments

Nee

d St

ate

s

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

44

…… identifies growth opportunities for core, identifies growth opportunities for core, innovation innovation

Drive Core Business

Brand Positioning & Consumer MessagingPortfolio ManagementResource Allocation

Address areas where Hershey is under-sharedTap into current ‘white spaces’Identify & address emerging consumer needs

Develop Sustainable Innovation


Segments

Nee

d S

tate

s


Loyal Indulgers


Co nfection Lo ving

Mo derators Contro ller sDetached

Occasionalis ts

Reward Me

2

3

4

5

6

7

8

Oral Care

45

Changes the game for growthChanges the game for growth

From From ““pushpush”” to to ““pullpull””

Optimizes portfolio rolesOptimizes portfolio roles

Strong identification of biggest opportunitiesStrong identification of biggest opportunities

Maximizes Maximizes incrementalityincrementality

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AgendaAgenda









WrapWrap--upup

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Increased levels of consumer supportIncreased levels of consumer support

Investment in selling capabilitiesInvestment in selling capabilities

Sharpened portfolio rolesSharpened portfolio roles

Tighter brand positioningTighter brand positioning

48

Advertising spending increasing Advertising spending increasing ……

Total Hershey AdvertisingYoY % Chg.

2006 2007 2008 2009

--13%13%+18%+18%

~+20%~+20%~+25~+25--30%30%

49

…… and is more focused on the coreand is more focused on the core

U.S. Core Brand AdvertisingU.S. Core Brand Advertising

2006 2007 2008 2009

+55%CAGR+55%+55%CAGRCAGR

50

Consumer investment gaining tractionConsumer investment gaining traction

$ Share Variance$ Share VarianceFDMxCFDMxC

Source: IRI ending 5/18/08, ACN ending 5/17/08Source: IRI ending 5/18/08, ACN ending 5/17/08

--1.1 pts1.1 pts--0.9 pts0.9 pts

--0.6 pts0.6 pts

--0.2 pts0.2 pts

5252--WeekWeek YTD 20YTD 20--WeekWeek 1212--WeekWeek 44--WeekWeek

51

Increased retail coverage Increased retail coverage ……Retail StaffingRetail Staffing

% Increase 2007% Increase 2007

Total: +30%Total: +30%

FullFull--TimeTime PartPart--TimeTime

+16%+16%

+47%+47%

52

…… at the point of consumptionat the point of consumption

53

*Adjusted and excludes seasons in both *Adjusted and excludes seasons in both the current and year ago periodsthe current and year ago periods

Selling investment yields improving trendsSelling investment yields improving trends

Source: IRI F/D/MxC 4Source: IRI F/D/MxC 4--week/quad dataweek/quad data

-5.8

-1.8 -1.4

4.7

2.63.9

-5.8 -6.2

-3.4

-0.6

2.74.2

12/30/07 01/27/08 02/24/08 3/23/2008* 4/20/08* 05/18/08

Food C-Store

Hershey Retail TakeawayHershey Retail Takeaway

54

Our largest brand demonstrates Our largest brand demonstrates new approachnew approach

55

New portfolio disciplineNew portfolio disciplineTotal Confection Demand LandscapeTotal Confection Demand Landscape

Segments

Nee

d St

ate

s


Loyal Indulgers


Confection Loving


Occasionalists

Reward Me

2

3

4

5

6

7

8

Oral Care

X X

52% of category users

$4+bn segment

56

Innovation in new need states Innovation in new need states with unique users with unique users ……

57

…… versus prior versus prior ““cannibalisticcannibalistic”” efforts efforts

58

Advertising up stronglyAdvertising up strongly

ReeseReese’’s Franchise U.S. Advertisings Franchise U.S. AdvertisingYoY % Chg.YoY % Chg.

2008 2009

~+20%~+20% + Double Digits+ Double Digits

59

SL 1.5oz King 2.8oz Pkg 12oz

ReeseReese’’s Key Item Baseline Velocity Trends s Key Item Baseline Velocity Trends -- FDMxFDMx

Source: IRI Infoscan Data F/D/Source: IRI Infoscan Data F/D/MxMxending 9/9/07ending 9/9/07

12 Wks pre media Post media

ReeseReese’’s responds to advertisings responds to advertising

+5.5%+5.5%+5.5%

+2.3%+2.3%+2.3%+9.2%+9.2%+9.2%

60

ReeseReese’’s award winning advertisings award winning advertising

61

ReeseReese’’s advertisings advertising

A campaign message that's adaptableA campaign message that's adaptable

Rolling StoneRolling Stone ESPNESPN

62

Coordinated with onCoordinated with on--target merchandisingtarget merchandising

63

Improving takeaway trendsImproving takeaway trends

Source: Source: FDMxCFDMxC IRI/Nielsen 52IRI/Nielsen 52--weeks weeks ending 5/18/08ending 5/18/08

5252--WeekWeekTakeawayTakeaway

+5.7%+5.7%

64

New portfolio discipline New portfolio discipline ……Total Confection Demand LandscapeTotal Confection Demand Landscape

Segments

Nee

d St

ate

s


Loyal Indulgers


Confection Loving


Occasionalists

Reward Me

2

3

4

5

6

7

8

Oral Care

65

Similar work underway on HersheySimilar work underway on Hershey’’s brands brand

HersheyHershey’’s PURE campaigns PURE campaign

Heavy onHeavy on--air supportair support

Highly extendable POSHighly extendable POS

Will complement S'mores Will complement S'mores promotion promotion -- "Pure Summer""Pure Summer"

66

HersheyHershey’’s PURE ins PURE in--storestore

67

Shopper insights being utilizedShopper insights being utilized

Source: SmartRevenueSource: SmartRevenue

Planned to Planned to Buy Candy Buy Candy

Did Not Plan Did Not Plan to Buy Candyto Buy Candy

Total Candy PurchasesTotal Candy Purchases

58%58% 42%42%

Item Choice Item Choice Made in Store Made in Store

61% Purchases:61% Purchases:Item decision made in storeItem decision made in store

19%19%19% 42%42%42%

100%100%

25% of consumers

“walk”without

purchasing

25% of 25% of consumers consumers

““walkwalk””without without

purchasingpurchasing

Average time in aisle:

59 seconds

Average Average time in time in aisle:aisle:

59 seconds59 seconds

68

Reinventing the aisle Reinventing the aisle ……

Potential SolutionsPotential Solutions

69

…… improving shopimproving shop--abilityability

70

AgendaAgenda




Consumer driven demand modelConsumer driven demand model





WrapWrap--upup

71

Innovation Innovation …… a sharpened focusa sharpened focus

Enhanced consumer and category understanding Enhanced consumer and category understanding

Broadening to encompass products, packaging, Broadening to encompass products, packaging, marketing services, and business modelsmarketing services, and business models

Developing improved, disciplined process that will Developing improved, disciplined process that will lead to a more robust, balanced pipelinelead to a more robust, balanced pipeline

This will deliver an incremental, sustainable innovation portfolioThis will deliver an incremental, This will deliver an incremental, sustainable innovation portfoliosustainable innovation portfolio

72

Drive Core Business

Brand Positioning & Consumer MessagingPortfolio ManagementResource Allocation

Address areas where Hershey is under-sharedTap into current ‘white spaces’Identify & address emerging consumer needs

Develop Sustainable Innovation


Segments

Nee

d S

tate

s


Loyal Indulgers


Co nfection Lo ving

Mo derators Contro ller sDetached

Occasionalis ts

Reward Me

2

3

4

5

6

7

8

Oral Care

The demand landscape drives critical The demand landscape drives critical business decisions business decisions

73

TradeTrade--Up/Premium is key growth segmentUp/Premium is key growth segment

2007 2008 2012

~$2.5bn~$2.5bn

~13%CAGR

’08-’12

~13%~13%CAGRCAGR

’’0808--’’1212

Premium/Trade-Up Chocolate

~$1.5bn~$1.5bn

60% of total chocolate category growth in

2007

60% of total 60% of total chocolate chocolate category category growth in growth in

20072007

74

Demand landscape sharpened our targetDemand landscape sharpened our targetTotal Confection Demand LandscapeTotal Confection Demand Landscape

Segments

Nee

d St

ate

s


Loyal Indulgers


Confection Loving


Occasionalists

Reward Me

2

3

4

5

6

7

8

Oral Care

75

Rigorous consumer validation from concept to Rigorous consumer validation from concept to commercializationcommercialization

Introduction met with enormous enthusiasm by our Introduction met with enormous enthusiasm by our customers and consumerscustomers and consumers

HersheyHershey’’s Bliss represents a model for the companys Bliss represents a model for the company

HersheyHershey’’s Blisss Bliss

76

…… delivering the ultimate in personal delivering the ultimate in personal indulgence to engaged exploring indulgence to engaged exploring munchersmunchers

A specially designed chocolate A specially designed chocolate ……

7777

Source Source -- MRI Doublebase 2006.MRI Doublebase 2006.

HersheyHershey’’s Bliss: A well defined brand targets Bliss: A well defined brand target

She is 25 She is 25 –– 49 years old49 years old

Desires moments of Desires moments of chocolate indulgencechocolate indulgence

Active life, balancing Active life, balancing family, career, and family, career, and personal interestspersonal interests

Loves her life when in Loves her life when in balancebalance

Defines Defines ““BlissBliss”” as as ““having time for myselfhaving time for myself””, , but not necessarily alonebut not necessarily alone

78

Drivers of Liking approach yielded Drivers of Liking approach yielded ““best of the bestbest of the best”” product formulationsproduct formulations

50 55 60 65 70 75 80 85

H

G

F

E

D

C

B

A

Competitor Target

HSY Bliss

Everyday Premium Users Consumer Liking:Everyday Premium Users Consumer Liking:Dark ChocolateDark Chocolate

Consumer LikingConsumer Liking

79

DarkDark MeltawayMeltaway

MilkMilk

Product shape and design with unique eating propertiesProduct shape and design with unique eating properties

Upscale package design with strong appeal to female targetUpscale package design with strong appeal to female target

StateState--ofof--thethe--art printing technique for enhanced shelf art printing technique for enhanced shelf presence presence

Package, product form Package, product form ““seal the dealseal the deal””

80

FSI w/BOGO

TV TV

PRINT PRINT

Sampling

Win a Bliss Party

Trial Size Shipper

Merchandising

Bliss Home Party Event

FSI w/BOGO

AdvertisingAdvertising

InIn--StoreStore

Consumer Consumer PromotionsPromotions

PRPR

Win a Season of Bliss

Robust consumer support plan Robust consumer support plan

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

81

Demand landscape sharpened our targetDemand landscape sharpened our targetTotal Confection Demand LandscapeTotal Confection Demand Landscape

Segments

Nee

d St

ate

s


Loyal Indulgers


Confection Loving


Occasionalists

Reward Me

2

3

4

5

6

7

8

Oral Care

82

It all started with a simple dream It all started with a simple dream ……

83

Actually it started with consumer research Actually it started with consumer research ……

PremiumizationPremiumization megamega--trendtrend

++Coffee as part of cultureCoffee as part of culture

++Research with engaged consumers, loyalists segmentResearch with engaged consumers, loyalists segment

Why can’t I get chocolate/coffee together? I love them both

Why canWhy can’’t I get chocolate/coffee together? t I get chocolate/coffee together? I love them bothI love them both

84

…… that led to a clear business vision that led to a clear business vision ……

””ArtisanArtisan--Style Chocolate Inspired Style Chocolate Inspired by Starbucks Coffee, Tea & by Starbucks Coffee, Tea &

Coffeehouse Flavors Coffeehouse Flavors ……

…… that capture the imaginations of that capture the imaginations of chocolate lovers by bringing the chocolate lovers by bringing the

authentic Starbucks experience to authentic Starbucks experience to the world of chocolate.the world of chocolate.””

85

…… brought to life with a powerful partnershipbrought to life with a powerful partnership

Chocolate expertiseChocolate expertise

Selling capabilitiesSelling capabilities

Retail scaleRetail scale

Powerful brandPowerful brand

Epitome of premiumEpitome of premium++

86

Reflects new open innovation approach Reflects new open innovation approach

Joint development Joint development −− Paired coffee masters with Paired coffee masters with chocolatierschocolatiers−− New protocol in cacao sourcingNew protocol in cacao sourcing

Leveraged strong business partners across disciplinesLeveraged strong business partners across disciplines−− Barry Barry CallebautCallebaut−− Packaging suppliersPackaging suppliers

Transformative Success in Premium SellTransformative Success in Premium Sell--in in −− Dedicated continuous space allocated to brandDedicated continuous space allocated to brand−− Merchandising enhancements on and off shelfMerchandising enhancements on and off shelf−− Coordinated distribution and promotional executionCoordinated distribution and promotional execution

87

…… we are broadening our approachwe are broadening our approach

NowNowChannel &Channel &Route toRoute toMarketMarket

MarketingMarketing ConsumerConsumerExperienceExperience

PackagingPackaging

ProductProduct

88

Creating balanced innovation pipelineCreating balanced innovation pipeline

Business Model InnovationBusiness Model Innovation

ConfectioneryConfectioneryProduct/TechProduct/Tech

InnovationInnovation

NewNew

NewNewClose to Close to ExistingExisting

Close to Close to ExistingExisting

Business ModelBusiness Model

89

Direct to consumer opportunityDirect to consumer opportunity

90

Innovation Innovation …… a renewed focusa renewed focus

Enhanced consumer and category understanding Enhanced consumer and category understanding

Broadening to encompass products, packaging, Broadening to encompass products, packaging, marketing services, and business modelsmarketing services, and business models

Developing improved, disciplined process that will Developing improved, disciplined process that will lead to a more robust, balanced pipelinelead to a more robust, balanced pipeline

This will deliver an incremental, sustainable innovation portfolioThis will deliver an incremental, This will deliver an incremental, sustainable innovation portfoliosustainable innovation portfolio

91

AgendaAgenda









WrapWrap--upup

92

Increasing our global footprint Increasing our global footprint ……

Hershey International Net SalesHershey International Net Sales% of Total Company% of Total Company

2006 2007 2008 2009

11%11%14%14%

++++++ ++++++

93

…… in fast growing geographiesin fast growing geographies

Global Confectionary Growth %Global Confectionary Growth %by Geographyby Geography

$48.7B$48.7B$32.3B$32.3B$22.0B$22.0B $15.7B$15.7B$15.4B$15.4BTotalTotalSalesSales

10.2

6.0

7.9

3.6

1.3

-0.4

E. Europe Asia L. America N. America ROW W. Europe

$7.2B$7.2B

94

Disciplined approach to expansionDisciplined approach to expansion

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

InvestInvest

Selective Selective OpportunityOpportunityMaintainMaintain

Selective Selective OpportunityOpportunity

Att

ract

iven

ess

Market growth

Average growth

13%

Mexico

Brazil

China

Philippines

India

95

+9% +13%

+47%

+16%

2004 2005 2006 2007

Mexico Net SalesMexico Net SalesYoY % Chg.YoY % Chg.

Mexico is a good growth modelMexico is a good growth model……

Balanced portfolioBalanced portfolio

BoltBolt--on acquisitionon acquisition

96

…… with a diverse portfoliowith a diverse portfolio

97

ReeseReese’’s in Mexico to test global brandings in Mexico to test global branding

Launching peanut flavorLaunching peanut flavor

Hazelnut flavor to followHazelnut flavor to follow

98

India is an attractive, highIndia is an attractive, high--growth marketgrowth market

Partner with a local company Partner with a local company for entryfor entry

Godrej, a premier Indian Godrej, a premier Indian consumer goods companyconsumer goods company

99

Leverage existing relationships: Leverage existing relationships: LotteLotte

Build on 4Q07 launch/entry via manufacturing JVBuild on 4Q07 launch/entry via manufacturing JV

Higher levels of consumer support Higher levels of consumer support

Invest in capabilities and distributionInvest in capabilities and distribution

100

Leverage existing relationships: Leverage existing relationships: BauduccoBauducco

Hershey will manufacture and market our productsHershey will manufacture and market our products

Bauducco will sell and distribute HersheyBauducco will sell and distribute Hershey’’s brands s brands throughout Brazilthroughout Brazil

101

AgendaAgenda









WrapWrap--upup

102


+6+6--8%8%

+3+3--5%5%



Net Net SalesSales

103

2008 Full2008 Full--Year OutlookYear Outlook

U.S. investment building momentumU.S. investment building momentum

International business gaining tractionInternational business gaining traction

Q2 takeaway and shipments reinforce full year net Q2 takeaway and shipments reinforce full year net sales growth of +3sales growth of +3--4%4%

Commodity visibility and continued consumer Commodity visibility and continued consumer investmentinvestment

EPS diluted excluding items affecting comparability, EPS diluted excluding items affecting comparability, $1.85 $1.85 -- $1.90$1.90

104

2009 preliminary thoughts2009 preliminary thoughts

Net Sales consistent with longNet Sales consistent with long--term growth rateterm growth rate−− Focus on core in USA, filling innovation pipelineFocus on core in USA, filling innovation pipeline

−− Benefit from higher levels of consumer investmentBenefit from higher levels of consumer investment

−− DeDe--emphasize snacks, refocus refreshmentemphasize snacks, refocus refreshment

−− International contributes to growthInternational contributes to growth

Operating EPSOperating EPS−− Higher costHigher cost--ofof--goods given commodity outlookgoods given commodity outlook

−− Continued investment in core brands, key Continued investment in core brands, key international marketsinternational markets

−− Show some EPS growth, but not at longShow some EPS growth, but not at long--term term growth rategrowth rate

105

Business generates strong cash flowBusiness generates strong cash flow

$788$723

$779$739*

2004 2005 2006 2007

Cash Flow from OperationsCash Flow from Operations

*Excludes $277m pension contribution*Excludes $277m pension contribution

106

Cash usage prioritiesCash usage priorities

Preserve debt rating in current credit marketPreserve debt rating in current credit market

Global Supply Chain Transformation Program usesGlobal Supply Chain Transformation Program uses

BoltBolt--on acquisitionson acquisitions

Modest dividend growthModest dividend growth

ShortShort--TermTerm

107

Cash usage prioritiesCash usage priorities

BoltBolt--on acquisitionson acquisitions

Dividends inDividends in--line with EPS growthline with EPS growth

Share repurchasesShare repurchases

LongLong--TermTerm

108

AgendaAgenda









WrapWrap--upup

109

The Hershey Company has great brands, business system, The Hershey Company has great brands, business system, competes in good categorycompetes in good category

Confident in 3Confident in 3--5% long5% long--term topterm top--line growthline growth

—— Reinvestment in USA showing tractionReinvestment in USA showing traction

—— New consumer demand approach will be beneficialNew consumer demand approach will be beneficial

—— International growth to continueInternational growth to continue

GSCT and other cost initiatives help offset commodity GSCT and other cost initiatives help offset commodity volatility, fund investmentvolatility, fund investment

New longNew long--term Operating EPS growth range of 6term Operating EPS growth range of 6--8%, with 8%, with modest growth in 2009modest growth in 2009

SummarySummary

110

Reconciliation of GAAP and NonReconciliation of GAAP and Non--GAAP GAAP informationinformation

Appendix I

For the y ea rs ended December 31, Income Income Inco me

Net P er Sha re- Net Per Sha re- Net Per Share-In mi llions of do llars excep t per share amounts EBIT I ncome Diluted EBIT I ncome Diluted EBIT Income Diluted

Resu lts in accordance with GAAP $4 58.8 $ 214.2 $0.9 3 $9 92.6 $ 559.1 $2. 34 $8 53.6 $488. 5 $1. 97Items affecting comparabil ity: Business real ignment charges includ ed in cost of sales 1 23.1 80. 9 0. 35 (3.2 ) (2. 0) (0 .01) 22.5 13 .4 0 .05 Business real ignment charges included in selling, market ing and administrative ("SM &A") 12.6 7. 8 0. 03 0.3 0. 2 - - - - Business real ignment and impairment charges , net 2 76.9 178. 9 0. 77 14.5 9. 3 0 .04 96.5 60 .7 0 .25

Non-GAAP resu lts exclu ding i tems affecting comparabi lity $8 71.4 $ 481.8 $2.0 8 $1,0 04.2 $ 566.6 $2. 37 $9 72.6 $562. 6 $2. 27

For the y ea rs ended December 31, Income Income Inco me

Net P er Sha re- Net Per Sha re- Net Per Share-In mi llions of do llars excep t per share amounts EBIT I ncome Diluted EBIT I ncome Diluted EBIT Income Diluted

Resu lts in accordance with GAAP $8 76.6 $ 574.6 $2.2 4 $7 67.4 $ 439.2 $1. 66 $6 83.0 $393. 9 $1. 43Items affecting comparabil ity: Business real ignment charges included in co st o f s ales - - - 2.1 1. 3 - 6.4 4 .1 0 .01 Costs to ex plore the sale of the Company includ ed in SM&A - - - - - - 17.2 10 .9 0 .04 Business real ignment and impairment charges , net - - - 23.4 14 .2 0 .05 27.6 17 .4 0 .06 Gain on sale o f b usiness - - - (8.3 ) (5. 7) (0 .02) - - - Tax provis ion adjustment - (61. 1) (0. 24) - - - - - - Cumu lative effect of acco untin g ch ang e - - - - 7. 4 0 .03 - - -

Non-GAAP resu lts exclu ding i tems affecting comparabi lity $8 76.6 $ 513.5 $2.0 0 $7 84.6 $ 456.4 $1. 72 $7 34.2 $426. 3 $1. 54

2004 200 3 200 2

Reconcil iatio n o f GAAP and Non-GAAP Informa tion

2007 200 6 200 5

111

Reconciliation of GAAP and Reconciliation of GAAP and NonNon--GAAP InformationGAAP Information

$2.08$2.08

$1.15$1.15

$0.93$0.9320072007

$1.85 $1.85 -- $1.90$1.90Expected EPSExpected EPS--Diluted from Diluted from Operations* Operations*

EPSEPS--Diluted from Diluted from Operations*Operations*

$0.39 $0.39 -- $0.42$0.42Total Business Total Business Realignment and Realignment and Impairment ChargesImpairment Charges

$1.43 $1.43 -- $1.51$1.51Reported / Expected Reported / Expected Diluted EPSDiluted EPS

20082008

*From operations, excluding realignment and one*From operations, excluding realignment and one--time costs.time costs.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. .

Appendix II

112

Documents

David J. West - library.corporate-ir.netlibrary.corporate-ir.net/library/11/115/115590/items/297821/HSY_IU... · David J. West President & CEO. 2 ... value-enhancing strategy;