Hershey Announces First Quarter Results; Updates Outlook For 2012

“In the second quarter, shipments of our new products will accelerate with innovation in chocolate, sugar confectionery and mints. We’ll continue with the distribution and rollout of Jolly Rancher Crunch ‘N Chew and the launch of Rolo Minis and Ice Breakers Duos. Additionally, we’re pleased to announce the launch of Hershey’s Simple Pleasures, in three flavors, milk chocolate, dark chocolate and vanilla crème, in a “Smooth & Creamy” format that has 30 percent less fat than the average leading milk chocolates.

“Advertising expense increased about 14 percent versus the year ago period. As previously announced, we expect full-year 2012 advertising to increase low double digits, on a percentage basis, versus last year. Increased advertising will support core brands in both the U.S. and international markets, new product launches and new advertising campaigns on the Jolly Rancher and Rolo brands.

“As expected, input costs were higher in the first quarter. Despite this increase, adjusted gross margin expanded due to pricing, supply chain efficiencies and productivity gains. Selling, marketing and administrative (SM&A) expenses, excluding advertising, declined as a percentage of sales versus last year, resulting in an expansion of adjusted income before interest and income taxes (EBIT) margin. However, a portion of this gain was timing related and over the remainder of the year we expect SM&A expenses, excluding advertising, to increase at a level greater than the first quarter trend as we make planned investments in marketing and go-to-market capabilities in both the U.S. and international markets.

“Strong earnings growth resulted in another solid quarter of operating cash flow. In the first quarter we repurchased $125 million of our shares against the $250 million authorization announced last year.

“We are off to a good start to the year despite the challenging economic environment. As we enter the second quarter we are well-positioned to deliver on our financial objectives. Advertising, new products, merchandising and programming, and focused in-store retail execution will continue throughout the year. This will keep us on track with our projections and help mitigate declines due to price elasticity. As stated earlier, in 2012, we expect advertising to increase low double digits, on a percentage basis versus the prior year, supporting new product launches and core brands in both the U.S. and international markets. We’re confident of our plans and expect organic volume to be up slightly for the full year. Including estimated net sales of the Brookside Foods Ltd. acquisition, about $90 million at current exchange rates, we expect full year net sales growth of about 7 to 9 percent, including the impact of foreign currency exchange rates. This is greater than our previous estimate of a 6.5 to 8.5 percent increase.

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