Second Quarter Performance

Hershey's second-quarter net sales increased 6.7 percent, slightly greater than forecast. Volume was a 6.6 point benefit in the quarter, driven by core brand growth and new products in U.S. and key international markets, including a contribution of approximately 1 point from Brookside distribution gains and on track repeat purchases. Foreign currency exchange rates was a 0.1 point benefit.

Hershey’s U.S. candy, mint and gum (CMG) retail takeaway for the 24 weeks ended June 15, 2013, which along with the comparable period in 2012 encompasses each year’s entire Easter season results, was up 6.8 percent in the expanded all outlet combined plus convenience store channels (xAOC+C-store), which accounts for approximately 90 percent of the Company’s U.S. retail business. U.S. market share was up in every channel resulting in a market share gain of 1.4 points. This performance reflects solid market share gains across many core brands including Hershey’s, Reese’s, Kit Kat and Ice Breakers as well as Brookside.

Second-quarter adjusted gross margin increased 290 basis points driven by lower commodity costs, supply chain productivity and cost savings initiatives, and favorable sales mix as well as fixed cost absorption from volume gains. Selling, marketing and administrative (SM&A) expenses, excluding advertising, increased about 12 percent in the second quarter, relatively in line with the Company’s forecast. Advertising expense increased 22 percent versus the year ago period supporting core brands and new product launches in both the U.S. and international markets. As a result, adjusted EBIT increased 11.5 percent generating adjusted EBIT margin of 18.3 percent, an 80 basis point increase versus last year. Additionally, as previously communicated, the tax rate in the second quarter of 35.7 percent was greater than the year ago period. We continue to expect the full-year tax rate to be about 35 percent.

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