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Hershey Increases 1Q Net Sales 13.9 Percent

HERSHEY, Pa. -- The Hershey Company reported sales and earnings for the first quarter ended April 4, 2010, with these key highlights:

-- Net sales increased 13.9 percent, driven by a balance of volume gains and price realization
-- Earnings per share-diluted of $0.64
-- Solid FDMxC marketplace performance, resulting in a 0.5 point market share gain in the U.S.
-- Net sales growth in 2010 to be at least 6 percent, greater than long-term target and previous outlook of 3 percent to 5 percent
-- Adjusted EPS in 2010 expected to increase low-to-mid-teens on a percentage basis vs. 2009, greater than the 6 percent to 8 percent original outlook.

Specifically, consolidated net sales were $1.4 billion compared with $1.23 billion for the first quarter of 2009. Reported net income for the first quarter of 2010 was $147.39 million or $0.64 per share-diluted, compared with $75.89 million, or $0.33 per share-diluted for the comparable period of 2009.

"Hershey's first quarter results were strong against all key metrics, as our core brand momentum continued to build in the marketplace," said David J. West, president and Chief Executive Officer. "Financial and marketplace performance exceeded our expectations as higher levels of advertising and consumer promotion, as well as focused sales execution, resulted in solid net sales and retail takeaway. The components of the first quarter net sales growth of 13.9 percent were balanced with volume gains and carryover seasonal pricing contributing to top-line performance. A portion of this gain, as we mentioned last quarter, was due to the seasonal shift in volume from the fourth quarter of 2009 to the first quarter of 2010. Growth in our international business as well as a one point benefit from foreign currency exchange rates also bolstered results. Base business volume trends improved during the quarter and exceeded our expectations. Seasonal volume, while down slightly due to volume elasticity associated with the August 2008 pricing action, was in line with our projections, with Easter dollar sell through about in line with historical norms.

"U.S. retail takeaway for the 12 weeks ended March 20, 2010, was up 7.5 percent, in channels that account for over 80 percent of our retail business. This period benefited slightly from an early Easter, which was one week earlier than the previous year. Excluding the impact of Easter seasonal activity in the year ago and current periods, Hershey's retail takeaway increased 5.5 percent. In the channels measured by syndicated data, U.S. market share, including Easter seasonal activity in the year ago and current periods, increased 0.5 points. Hershey's retail performance was solid and preliminary data indicates Hershey will again gain market share in the Easter season. In convenience stores, which are less impacted by the Easter season, we generated retail takeaway up mid-single digits driven by volume/mix.

"Hershey's brands continue to respond to consumer and customer programming. In the U.S., advertising increased about 68 percent in the first quarter behind continued support of core brands -- Hershey's, Reese's, Kisses, Hershey's Bliss, Kit Kat and Twizzlers -- as well as new advertising copy on the York, Almond Joy and Mounds brands. Our December new product launches, primarily Hershey's Special Dark, Almond Joy and York Pieces are off to a strong start, exceeding our internal expectations behind advertising and distribution support. Combined with successful in-store execution by Hershey's sales force, we are well positioned to deliver on our 2010 marketplace and revised financial objectives.

"Adjusted income before interest and income taxes (EBIT) increased 47 percent in the first quarter, exceeding our expectations, resulting in a 410 basis point margin improvement. The increase was driven by better volume trends than we had initially expected, net price realization, supply chain efficiencies and productivity gains. Offsetting a portion of these gains were higher marketing and selling expenses, costs related to our consideration of a transaction with Cadbury plc, as well as legal and other administrative expenses. Strong earnings growth and our disciplined approach to balance sheet and working capital management resulted in another solid quarter of operating cash flow generation.

"We're very pleased with the start to 2010. Similar to last year, our performance continues to afford us the flexibility to deliver on our financial objectives while making additional investments in our business, in both domestic and international markets that should benefit Hershey in the near and long term. We will focus our efforts on brand-building initiatives and consumer insights that will ensure that the category and Hershey continue to perform well during the remainder of the year and into 2011. We are planning additional advertising for the full year and now expect advertising expense to increase 35 to 40 percent in 2010. This is greater than our previous estimate of a 25-to-30 percent increase. We now see 2010 net sales increasing at least 6 percent, including an approximate one point benefit from foreign currency exchange rates. This will exceed our long-term objective and initial estimate of 3 to 5 percent growth. For the full year, we have good visibility into our cost structure and expect to achieve gross and EBIT margin expansion that will result in a low-to-mid-teens increase in adjusted earnings per share-diluted on a percentage basis versus 2009," West concluded.

In other Hershey news, the company unveiled its Sweet Deal Movie Ticket Offer, which allows consumers to mail in UPCs and receive Fandango codes redeemable for movie tickets.

Through July 9, consumers can send in four UPCs from 10-ounce or larger bags of Hershey's Kisses, Reese's Peanut Butter Cup Miniatures, Hershey's Miniatures Chocolate Bars and York Peppermint Patties. They must also fill out, print and enclose the online form available at Hershey's web site to receive a promotion code good for one ticket.

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