The Hershey Company · NYSE:HSY
The Hershey — Investor Day (March 2017)
120 slides from The Hershey's investor day presentation, Mar 1, 2017
Slide 1: Investor Update, March 1, 2017
INVESTOR UPDATE MARCH 1, 2017
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements can be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “s
Slide 3: Agenda
AGENDA WELCOME MARK POGHARIAN BUSINESS MODEL AND GROWTH STRATEGY MICHELE BUCK BUILDING SHAREHOLDER VALUE PATRICIA LITTLE WRAP UP MICHELE BUCK Q&A HERSHEY LEADERSHIP TEAM
Slide 4: Michele Buck: Business Model and Growth Strategy
MICHELE BUCK CHIEF EXECUTIVE OFFICER BUSINESS MODEL AND GROWTH STRATEGY
Slide 5: Hershey at a glance: net sales, employees, countries
PRODUCTS AVAILABLE IN PRODUCTS ~$7.4B ~18,000 EMPLOYEES OVER 70 MANUFACTURED IN 7 NET SALES AROUND COUNTRIES AROUND COUNTRIES THE WORLD THE WORLD BUSINESS MODEL AND GROWTH STRATEGY
Slide 6: What is Timeless
WHAT IS TIMELESS THE HERSHEY COMPANY IS A CONSUMER CENTRIC, BRAND-BUILDING, CUSTOMER-ADVANTAGED COMPANY THAT CREATES OPPORTUNITIES TO PROSPER, BRINGING GOODNESS TO ONE ANOTHER AND THE WORLD. INVESTMENT IN ICONIC BRANDS CREATING GREAT OPPORTUNITIES 111 “DOING WELL, BY DOING GOOD” A 100+ YEAR LEGACY C
Slide 7: We Are a Purpose-Driven Organization
WE ARE A PURPOSE-DRIVEN ORGANIZATION through our iconic brands, remarkable people and helping children in need DELIVER THE BUSINESS FOSTER A COMPELLING WORKPLACE BUILD FOR A SUSTAINABLE FUTURE BUSINESS MODEL AND GROWTH STRATEGY
Slide 8: We Are a Purpose-Driven Organization
WE ARE A PURPOSE-DRIVEN ORGANIZATION BUSINESS MODEL AND GROWTH STRATEGY
Slide 9: Core Brands Driving Growth
CORE BRANDS DRIVING GROWTH U.S. RETAIL SALES PERFORMANCE OF TOP 5 CORE BRANDS 2011-2016 RETAIL SALES CAGR +4.0% CMG SHARE +1.7pts BUSINESS MODEL AND GROWTH STRATEGY Source: Nielsen Custom Database xAOC + C
Slide 10: Strong Financial Performance
STRONG FINANCIAL PERFORMANCE NET SALES ADJ. OPER. INC. MARGIN ADJUSTED EPS $7,440 20.4% $4.41 $6,081 $2.83 17.9% 2011 2016 2011 2016 2011 2016 BUSINESS MODEL AND GROWTH STRATEGY Source: Hershey Financials See Appendix for a Reconciliation from GAAP to Adjusted Operating Income and EPS
Slide 11: Evolving With a Changing World
EVOLVING WITH A CHANGING WORLD CONSUMER BUSINESS GLOBAL TRENDS TECHNOLOGY ENVIRONMENT BUSINESS MODEL AND GROWTH STRATEGY
Slide 12: Our Vision: An Innovative Snacking Powerhouse
OUR VISION: AN INNOVATIVE SNACKING POWERHOUSE INCREASE SHAREHOLDER VALUE
Slide 13: An Innovative Snacking Powerhouse
OUR VISION: AN INNOVATIVE SNACKING POWERHOUSE Delighting Operating with Guided by a Winning with a Delivering top consumers an advantaged strong sense of compelling performing across snacking business model purpose workplace of growth and occasions and remarkable shareholder leading-edge people retu
Slide 14: Advantaged Business Model
ADVANTAGED BUSINESS MODEL ADVANTAGED ADVANTAGED ADVANTAGED CATEGORY BRANDS CAPABILITIES Highly Impulsive Analytics & Insights Commercial Ubiquitous Capabilities Expandable Enterprise Consumption Connectivity BUSINESS MODEL AND GROWTH STRATEGY
Slide 15: Delivering Innovative Snacking Leadership
DELIVERING INNOVATIVE SNACKING LEADERSHIP REIGNITE CORE REALLOCATE CONFECTION & GROW EXPAND RESOURCES TO MARGINS EXPAND BREADTH IN INCREASE EXPAND MARGINS & SNACKING SHAREHOLDER VALUE FUEL GROWTH INVEST STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE BUSINESS MODEL AND GROWTH
Slide 16: Delivering Innovative Snacking Leadership
DELIVERING INNOVATIVE SNACKING LEADERSHIP REIGNITE CORE REALLOCATE CONFECTION & GROW EXPAND RESOURCES TO MARGINS EXPAND BREADTH IN INCREASE EXPAND MARGINS & SNACKING SHAREHOLDER VALUE FUEL GROWTH INVEST STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE BUSINESS MODEL AND GROWTH
Slide 17: Global Snacking Is a ~$1 Trillion Opportunity
GLOBAL SNACKING IS A ~$1 TRILLION OPPORTUNITY CHINA/INDIA/SE ASIA US / CANADA SNACKING MKT SIZE: $130b SNACKING MKT SIZE: $200b SNACKING GROWTH: +6% SNACKING GROWTH: +2% WESTERN EUROPE ` SNACKING MKT SIZE: $250b SNACKING GROWTH: +1% LATIN AMERICA ROW SNACKING MKT SIZE: $110b SNACKING MKT SIZE: $225b
Slide 18: Consumers Are Snacking More
CONSUMERS ARE SNACKING MORE TRADITIONAL SNACKING MODEL MODERN SNACKING MODEL MORNING LIGHT SNACK LIGHT SNACK BREAKFAST LUNCH DINNER SNACKS LUNCH DINNER REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: The Hartman Group
Slide 19: Growth Across Snacking Continuum
GROWTH ACROSS SNACKING CONTINUUM U.S. CATEGORY GROWTH | 2 YEAR CAGR BETTER FOR YOU SNACKING CENTER OF PLATE INDULGENT SNACKING REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen AOD xAOC + C Note: Negative values not shown
Slide 20: Hershey Scale in Large, Growing U.S. Snack Market
HERSHEY SCALE IN LARGE, GROWING U.S. SNACK MARKET HERSHEY IS #2 IN U.S. SNACKING $103B U.S. SNACK MARKET Meat Snacks $3B Other $3B Snack Bars $6B MARKET SHARE Nuts $6B Confection PEPSICO 14.6% Crackers $7B (CMG) $24B #2 HERSHEY 7.5% Cookies $7B MARS 7.3% Ice Cream/ Salty Snacks Novelty $24B MONDELEZ
Slide 21: Confection Remains a Large and Advantaged Category
CONFECTION REMAINS A LARGE & ADVANTAGED CATEGORY Mint ~$1B Gum • High household penetration / purchase frequency ~$3B • Expandable consumption • Highly impulsive Non-Choc. Chocolate ~$14B • Responsive to investment support (media, merchandising) Candy ~$6B • Channel ubiquity • Seasonal destination $
Slide 22: With Solid Growth When Supported
WITH SOLID GROWTH WHEN SUPPORTED U.S. CONFECTION CATEGORY SALES ($B) $24.1 $24.3 $23.5 $23.1 $22.5 $21.7 2011 2012 2013 2014 2015 2016 YOY % Chg. +5.0% +3.7% +2.4% +2.0% +2.6% +0.4% PLATFORM INNOVATION MACROECONOMIC HEADWINDS PRICING KEY RETAILERS REDUCED DISPLAYS MEDIA INCREASES SHORT EASTER IN ‘16
Slide 23: Confection Is Core to Hershey's Business
% OF U.S. NET SALES Snacks CONFECTION IS Baking, Syrup & CORE TO HERSHEY’S All Other BUSINESS AND Confection (CMG) TOP PRIORITY REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Hershey 2016 Net Sales
Slide 24: We Have a Portfolio of Iconic Brands
WE HAVE A PORTFOLIO OF ICONIC BRANDS POWER BRANDS BROAD & DIVERSE BRAND PORTFOLIO REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Kit Kat, Cadbury in the U.S. Only
Slide 25: Diversified Usage Occasions
DIVERSIFIED USAGE OCCASIONS SINGLE SERVE ON-THE-GO TAKE HOME SHARING CELEBRATIONS RITUALS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 26: Channel Advantages
% OF U.S. SALES Dollar Club 6% 7% CHANNEL Specialty Channels Drug Stores 8% Mass Merchandisers 30% ADVANTAGES 9% C-Stores 13% Food 27% REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Hershey 2016 Net Sales
Slide 27: Hershey Is the Confectionery Category Leader
HERSHEY IS THE CONFECTIONERY CATEGORY LEADER U.S. CONFECTION MARKET SHARE (%) 31.2% #1 31.4% 29.3% 29.1% 2011 2016 2011 2016 PEER A REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen Custom Database xAOC + C
Slide 28: Hershey Leadership Across Segments
HERSHEY LEADERSHIP ACROSS SEGMENTS HERSHEY MARKET SHARE MARKET SHARE 2016 POSITION CHOCOLATE 45.7% #1 NON CHOCOLATE 9.6% #2 MINT 39.0% #1 GUM 7.2% #3 TOTAL CMG 31.2% #1 REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen Custom Database xAOC + C
Slide 29: We Invest to Fuel Growth With Proven Results
WE INVEST TO FUEL GROWTH WITH PROVEN RESULTS 2016 ADVERTISING TV ROI INDEX % OF NET SALES 7.0% 200 4.8% 2X 100 FOOD AVERAGE FOOD AVERAGE REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Company 10-k’s, Nielsen 2016 Marketing Mix
Slide 30: Reignite Core Confection
Deepen CONSUMER CONNECTIONS REIGNITE CORE Meaningful INNOVATION CONFECTION Reinvent the SHOPPING EXPERIENCE REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 31: Keys to Reigniting Growth
KEYS TO REIGNITING GROWTH DEEPEN CONSUMER Higher Brand Engagement Top of Mind Awareness CONNECTIONS INNOVATION New Users/Occasions Incrementality REINVENT SHOPPING Products Easier to Find Omni-Channel Availability EXPERIENCE REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 32: Increase Consumer Engagement
INCREASE CONSUMER ENGAGEMENT REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 33: Increase Consumer Engagement
INCREASE CONSUMER ENGAGEMENT REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 34: Increase Consumer Engagement
INCREASE CONSUMER ENGAGEMENT Hunter Jobbins @jabbins – Oct 30 Left my car for maybe 15 minutes in front of the dorms and I come back to this. College man 642M+ EARNED IMPRESSIONS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 35: Deepen Brand Emotional Connections
DEEPEN BRAND EMOTIONAL THROUGH MEANINGFUL MOMENTS CONNECTIONS TRADITIONAL CELEBRATIONS EVERYDAY MOMENTS Valentine | Easter | Halloween | Holiday S’mores | Birthdays | Appreciations REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 36: Innovate Confection Portfolio to Capture New Occasions
INNOVATE CONFECTION PORTFOLIO TO CAPTURE NEW OCCASIONS NEW PLATFORMS MEANINGFUL CORE BRAND NEWS • New textures and • Excitement snacking portions • Variety • Relevance with new users • Increased Merchandising • Incrementality REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 37: Innovate Confection Portfolio to Capture New Occasions
INNOVATE CONFECTION PORTFOLIO TO CAPTURE NEW OCCASIONS NEW PLATFORMS MEANINGFUL CORE BRAND NEWS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 38: Simple Ingredients
SIMPLE INGREDIENTS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 39: Choice & Transparency
CHOICE & TRANSPARENCY PACK SIZES SMART LABEL SOURCE MAP Info for full portfolio of Transparency into origin Portionable choices to fit 2,200 ITEMS of ingredients from consumers’ lifestyles available on-line by 2018 field to production REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 40: Reinvent the Shopping Experience
REINVENT THE SHOPPING EXPERIENCE CURRENT SHOPPING EXPERIENCE REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 41: Packaging Innovation
PACKAGING INNOVATION WILL IMPROVE SHOPPER EXPERIENCE IN AISLE COMING THIS MONTH! REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 42: Pipeline of Experiential Solutions
PIPELINE OF EXPERIENTIAL SOLUTIONS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 43: Leader in Innovating via eCommerce
#1 CHOCOLATE “Alexa order Hershey’s Halloween candy.” LEADER IN SHARE INNOVATING VIA ECOMMERCE TEST AND LEARN CONFECTION ~45% CMG SHARE IN KEY INCREMENTAL OCCASIONS OMNI-CHANNEL RETAILERS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 44: Reese's: Strong Growth on $2B Brand
REESE’S: STRONG GROWTH ON $2B BRAND ~$1.9b 2016 RETAIL SALES +4.7% CMG SHARE +0.3PTS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen xAOC + C
Slide 45: Hershey's: Expanding to New Occasions & Users
HERSHEY’S: EXPANDING TO NEW OCCASIONS & USERS ~$1.5b RETAIL SALES GROWTH 4.9% ++ -2.4% 2016 Nov 2016 Dec 2017E YTD REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen xAOC + C
Slide 46: Kit Kat: Contemporizing for New Consumers
KIT KAT: CONTEMPORIZING FOR NEW CONSUMERS ~$700m 2016 RETAIL SALES +5.7% CMG SHARE +0.1PTS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen xAOC + C
Slide 47: Ice Breakers: Leveraging Proprietary Product
ICE BREAKERS: LEVERAGING PROPRIETARY PRODUCT ~$475m 2016 RETAIL SALES +7.7% CMG SHARE +0.1PTS REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen xAOC + C
Slide 48: Kisses: Deepening Connections
KISSES: DEEPENING CONNECTIONS ~$460m 2016 RETAIL SALES +2.0% CMG SHARE FLAT REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING Source: Nielsen xAOC + C
Slide 49: Broad Portfolio
BROAD PORTFOLIO DELIVERING AGAINST RANGE OF CONSUMER PREFERENCES LICORICE PREMIUM SNACKING CHOCOLATE & MINT COCONUT CHOCOLATE & FRUIT TOFFEE HARD CANDY MALT REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 50: Expand Breadth in Snacking
Extend Confection Brands to NEW SNACKING EXPAND BREADTH USAGE OCCASIONS IN SNACKING LEVERAGE M&A in On-Trend Categories REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 51: Snackfection, a Blurring of Sweet and Salty
SNACKFECTION, A BLURRING OF SWEET AND SALTY SNACKFECTION CHOCOLATE SALTY SNACKS Snackfection: A multi-textural and sensorial fusion of chocolate and other snacks, such as nuts, cookies and popcorn, that delivers a distinct eating experience for snacking occasions REIGNITE CORE CONFECTION & EXPAND BR
Slide 52: Leverage Demand Landscape to Identify Opportunities
LEVERAGE DEMAND LANDSCAPE TO IDENTIFY OPPORTUNITIES LARGER M&A INNOVATE INCREMENTALITY GROW CORE SMALLER LOWER FIT BRANDING HIGHER FIT REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 53: Snackfection Platforms
SNACKFECTION PLATFORMS CRUNCH-IFICATION – INTEGRATION OF SALTY SNACK ATTRIBUTES WITH CHOCOLATE CRUNCHERS POPPED SNACK MIX REIGNITE CORE CONFECTION & EXPAND BREADTH IN SNACKING
Slide 54: M&A to Bolster Snacking Presence
M&A TO BOLSTER SNACKING PRESENCE HIGH GROWTH BUILD SCALE PORTFOLIO DIVERSIFICATION • Typically smaller • Brands for category • On trend, leadership differentiated brands • Enhance existing capabilities • Leverage advantaged Hershey capabilities • Financial synergies to scale REIGNITE CORE CONFECTION
Slide 55: Barkthins: Capture Premium Users & New Occasions
BARKTHINS: CAPTURE PREMIUM USERS & NEW OCCASIONS ADVANCES HERSHEY WELL POSITIONED TO LEVERAGE PORTFOLIO STRATEGY HERSHEY SCALE • On trend, high growth brand • Increase distribution with perimeter focus • Premium, high income consumer • Drive awareness with media and field • Clean label, simple ingre
Slide 56: Krave: Fast Growing Meat Snacks Category
KRAVE: FAST GROWING MEAT SNACKS CATEGORY 2016 2017 • Scale via distribution growth and • Build awareness and drive trial category management expertise • Culinary inspired innovation to reach U.S. ACV % new consumer usage occasions 59% 32% 18% 2014 2015 2016 REIGNITE CORE CONFECTION & EXPAND BREADTH
Slide 57: Reallocate Resources to Expand Margins & Fuel Growth
DELIVERING INNOVATIVE SNACKING LEADERSHIP REIGNITE CORE REALLOCATE CONFECTION & GROW EXPAND RESOURCES TO EXPAND BREADTH IN INCREASE MARGINS EXPAND MARGINS & SHAREHOLDER SNACKING VALUE FUEL GROWTH INVEST STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE REALLOCATE RESOURCES TO EX
Slide 58: Margin Expansion
MARGIN EXPANSION ADJUSTED OPERATING INCOME MARGIN 20.4% 22 - 23% • Reset International Investment • Heighten SG&A Discipline • Continue COGS Optimization • Streamline Operating Model 2016 2019E REALLOCATE RESOURCES TO EXPAND MARGINS & FUEL GROWTH See Appendix for 2016 Reconciliation of GAAP to Adjus
Slide 59: Reset International Investment
RESET INTERNATIONAL INVESTMENT FOR PROFITABILITY & LONG TERM GROWTH REALLOCATE RESOURCES TO EXPAND MARGINS & FUEL GROWTH
Slide 60: International & Other Segment
INTERNATIONAL & OTHER SEGMENT SEGMENT NET SALES GEOGRAPHIC SEGMENTATION $907m $731m Global Retail & Licensing China PORTFOLIO: Mexico Chocolate-focus Brazil CHANNEL: Export India Modern trade Markets 2011 2016 REALLOCATE RESOURCES TO EXPAND MARGINS & FUEL GROWTH Source: Hershey estimates; includes a
Slide 61: China
TRANSFORMING BUSINESS AND CREATING A CHINA SUSTAINABLE LONG-TERM MODEL TRANSFORMING FOCUSED COST STRUCTURE PORTFOLIO ROUTE-TO-MARKET IMPROVEMENT • Chocolate as primary • Focus on eCommerce • Drive COGS and network growth driver • Prioritization of key provinces efficiencies • SKU rationalization & h
Slide 62: Other Key Markets to Be Operated More Profitably
OTHER KEY MARKETS TO BE OPERATED MORE PROFITABLY GROSS MARGIN EXPANSION OPTIMIZED MARKETING SPEND SG&A EFFICIENCIES REALLOCATE RESOURCES TO EXPAND MARGINS & FUEL GROWTH
Slide 63: Segment Profitability Expected to Improve
SEGMENT PROFITABILITY EXPECTED TO IMPROVE INTERNATIONAL & OTHER SEGMENT OPERATING INCOME ($M) $40 ++ • Price, Packtype, Innovation Maximization • Right-size infrastructure relative to size of opportunity -$29 • Focus on cost savings and productivity -$98 2014 2015 2016 2019E REALLOCATE RESOURCES TO
Slide 64: Strengthen Capabilities & Leverage Technology
DELIVERING INNOVATIVE SNACKING LEADERSHIP REIGNITE CORE REALLOCATE CONFECTION & GROW EXPAND RESOURCES TO MARGINS EXPAND BREADTH IN INCREASE EXPAND MARGINS & SNACKING SHAREHOLDER VALUE FUEL GROWTH INVEST STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE STRENGTHEN CAPABILITIES &
Slide 65: Integrated, Harmonized Data
INTEGRATED INSIGHTS PERFORMANCE ENGINE HARMONIZED DATA TRANSFORMATIONAL ADVANCED ADVANTAGED INTEGRATED, ANALYTICS & COMMERCIAL SOLUTIONS & INSIGHTS CAPABILITIES PERFORMANCE TECHNOLOGY-ENABLED ENTERPRISE CONNECTIVITY STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 66: Integrated, Harmonized Data
INTEGRATED INSIGHTS PERFORMANCE ENGINE TRANSFORMATIONAL ANALYTICS & INSIGHTS ADVANCED COMMERCIAL CAPABILITIES PRECISION INSIGHTS HARMONIZED DATA PRECISION EXECUTION ADVANTAGED INTEGRATED, REAL-TIME AND STRATEGIC CATEGORY & PREDICTIVE ANALYTICS TOTAL STORE LEADERSHIP SOLUTIONS & PERFORMANCE PROPRIETA
Slide 67: Integrated, Harmonized Data
INTEGRATED, HARMONIZED DATA INTERNAL DATA SYNDICATED DATA EXTERNAL DATA … … … Integrated, Harmonized, Single Source of Truth Customized Applications & Role Based Data & Insights Delivery Marketing Sales Supply Chain … STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 68: Integrated, Harmonized Data
INTEGRATED, HARMONIZED DATA INTERNAL DATA SYNDICATED DATA EXTERNAL DATA ENABLES: TRANSFORMATIONAL, … … … REAL TIME ANALYTICS Integrated, Harmonized, Single Source of Truth PRECISION APPLICATIONS Customized Applications & Role Based Data & Insights Delivery AGILE, INTEGRATED EXECUTION Marketing Sales
Slide 69: Transformational Analytics & Insights
TRANSFORMATIONAL ANALYTICS & INSIGHTS REAL TIME & PROPRIETARY ROLE BASED DATA & PRECISION INSIGHTS PREDICTIVE SNACKING DEMAND INSIGHTS DELIVERY ANALYTICS LANDSCAPE STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 70: Robust Snacking Consumer Demand Landscape
ROBUST SNACKING CONSUMER DEMAND LANDSCAPE Total Snacking View Category and Brand Level Insights Guiding Branding, Innovation & M&A Efforts STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 71: Advanced Commercial Capabilities
ADVANCED COMMERCIAL CAPABILITIES PRECISION STRATEGIC CATEGORY DYNAMICALLY SUPPLY CHAIN EXECUTION & TOTAL STORE ROUTED RETAIL SCALE & AGILITY LEADERSHIP SALES FORCE STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 72: Advantaged Solutions & Performance
ADVANTAGED SOLUTIONS & PERFORMANCE STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 73: Holistic Front End Leadership
HOLISTIC FRONT END LEADERSHIP PROPRIETARY INSIGHTS, TOTAL STORE ANALYTICS & RETAILER COLLABORATION Happiness FRONT END Balance SALES LIFT Well-being 2X Moderation Original Hershey Experience Optimized STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 74: Precision Retail Execution
PRECISION RETAIL EXECUTION PRECISION INSIGHTS, TECHNOLOGY & PROPRIETARY RETAIL SALES FORCE STORE LEVEL ANALYTICS EXECUTION & REAL TIME & PRIORITIZATION DOCUMENTATION EVALUATION +15% Entrance In Aisle +5% Endcap WHICH STORE 52 PRIORITIES: Produce STORE? 1. Easter Store 52 2.Reese NCAA 3.Krave Back of
Slide 75: Attacking Supply Chain Costs
ATTACKING SUPPLY CHAIN COSTS REAL TIME & HARMONIZED DATA, ADVANCED ANALYTICS & SUPPLY CHAIN AGILITY US SUPPLY CHAIN VISIBILITY INTO # OF TOUCHES INEFFICIENCY PLANNED EXCESS 2016 2019E STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 76: Delivering Innovative Snacking Leadership
DELIVERING INNOVATIVE SNACKING LEADERSHIP REIGNITE CORE REALLOCATE CONFECTION & GROW EXPAND RESOURCES TO MARGINS EXPAND BREADTH IN INCREASE EXPAND MARGINS & SNACKING SHAREHOLDER FUEL GROWTH VALUE INVEST STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE
Slide 77: Increase Shareholder Value
INCREASE SHAREHOLDER VALUE TOP QUARTILE SALES GROWTH & TOP QUARTILE MARGINS INCREASE SHAREHOLDER VALUE
Slide 78: Our Net Sales Performance Reflects a Challenging Environment
OUR NET SALES PERFORMANCE REFLECTS A CHALLENGING ENVIRONMENT 9.3% HERSHEY NET SALES 7.2% 7.6% 3.9% 0.7% -0.5% 2011 2012 2013 2014 2015 2016 INCREASE SHAREHOLDER VALUE Source: Hershey Financials
Slide 79: Top Quartile Sales Performance Among S&P Food Peers
WE HAVE ACHIEVED TOP QUARTILE SALES PERFORMANCE AMONG S&P FOOD GROUP PEERS U.S. RETAIL SALES 4 YEAR $ % CAGR 2016 $ % CHG VS YA Hershey 3.2 McCormick 2.3 Hormel 2.4 Hershey 0.7 Mead Johnson 2.0 Hormel 0.3 Mondelez 1.7 Mondelez -0.2 McCormick 1.4 Campbells -0.3 Campbells 1.1 Smuckers -0.4 Tyson 1.0 T
Slide 80: Solid Track Record of Operating Margin Expansion
SOLID TRACK RECORD OF OPERATING MARGIN EXPANSION ADJUSTED OPERATING INCOME MARGIN HERSHEY NET SALES 19.6% 20.0% 20.4% ++ 18.5% 19.2% 17.7% 17.9% 15.0% 16.2% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E Source: Hershey Financials INCREASE SHAREHOLDER VALUE See Appendix for a Reconciliation of G
Slide 81: Focused on Gross and Operating Margin Expansion
FOCUSED ON GROSS AND OPERATING MARGIN EXPANSION ADJUSTED GROSS MARGIN % ADJUSTED OPER. INCOME MARGIN % 46%+ 22% - 23% 45.6% 20.4% 42.4% 17.9% 2011 2016 2019e 2011 2016 2019e Source: Hershey Financials INCREASE SHAREHOLDER VALUE Not to Scale See Appendix for a Reconciliation of GAAP to Adjusted Gross
Slide 82: Our EPS Remains Strong
OUR EPS REMAINS STRONG ADJUSTED EPS-DILUTED $4.12 $4.41 $3.72 $3.98 $3.24 $2.83 2011 2012 2013 2014 2015 2016 Source: Hershey Financials Not to Scale INCREASE SHAREHOLDER VALUE See Appendix for a Reconciliation of GAAP EPS to Adjusted EPS
Slide 83: Long Term Targets
LONG TERM TARGETS LEVERAGING U.S. SCALE NET SALES +2-4% MARGIN IMPROVEMENT ADJUSTED DILUTED EPS +6-8% VIA COGS AND SG&A PROFITABLE DIVIDEND YIELD 2-3% INTERNATIONAL GROWTH TOTAL SHAREHOLDER RETURN ~10% INCREASE SHAREHOLDER VALUE Net Sales in Constant Currency
Slide 84: Patricia Little: Building Shareholder Value
PATRICIA LITTLE CHIEF FINANCIAL OFFICER BUILDING SHAREHOLDER VALUE
Slide 85: Delivering Innovative Snacking Leadership
DELIVERING INNOVATIVE SNACKING LEADERSHIP REIGNITE CORE REALLOCATE CONFECTION & GROW EXPAND RESOURCES TO MARGINS EXPAND BREADTH IN INCREASE EXPAND MARGINS & SNACKING SHAREHOLDER VALUE FUEL GROWTH INVEST STRENGTHEN CAPABILITIES & LEVERAGE TECHNOLOGY FOR COMMERCIAL ADVANTAGE BUILDING SHAREHOLDER VALUE
Slide 86: It All Starts With Gross Margin
IT ALL STARTS WITH GROSS MARGIN HERSHEY ADJUSTED GROSS MARGIN S&P FOOD GROUP* Mead Johnson 64.1 46.0% 46.0% Hershey 45.6 ~45.8% McCormick 41.5 45.6% Mondelez 39.8 Kellogg 39.2 Kraft-Heinz 38.8 44.9% Smuckers 38.0 Campbells 37.1 General Mills 35.6 Conagra 29.1 Hormel 22.7 2013 2014 2015 2016 2017e Ty
Slide 87: Levers for Gross Margin Expansion
LEVERS FOR GROSS MARGIN EXPANSION FIXED COST LEVERAGE NET PRICE REALIZATION NEW MANUFACTURING PACKAGING OPTIMIZATION CAPABILITIES / TECHNOLOGY PRODUCTIVITY PRODUCT MIX BUILDING SHAREHOLDER VALUE
Slide 88: Benefits of Scale in North America
BENEFITS Granby, QC OF SCALE IN Ashland, OR St. Hyacinthe, QC Hershey , PA (2) Lancaster, PA NORTH AMERICA Robinson, IL Hazleton, PA Stuarts Draft, VA CAPACITY Memphis, TN UTILIZATION 65% Monterrey, Mex MANUFACTURING DISTRIBUTION FACILITIES: 11 CENTERS: 5 BUILDING SHAREHOLDER VALUE
Slide 89: International Opportunity
INTERNATIONAL OPPORTUNITY CAPACITY UTILIZATION 40% MANUFACTURING DISTRIBUTION FACILITIES: 8 CENTERS: 8 BUILDING SHAREHOLDER VALUE
Slide 90: Focus on COGS
FOCUS ON COGS ~$4.0b ~$100m ANNUAL PRODUCTIVITY 2017-19 Distribution SG&A Raw Materials & Manufacturing OFFSETTING Packaging Overhead NORMAL INFLATION COGS Source: Hershey Financials BUILDING SHAREHOLDER VALUE
Slide 91: Maintaining Commitment to Responsible Sourcing
MAINTAINING COMMITMENT TO RESPONSIBLE SOURCING… COMMITMENT TO 100% CERTIFIED AND SUSTAINABLE COCOA INVESTING IN COCOA COMMUNITIES ENSURING THE INTEGRITY OF OUR SUPPLY CHAIN BUILDING SHAREHOLDER VALUE
Slide 92: Minimizing Our Environmental Footprint
…AND MINIMIZING OUR ENVIRONMENTAL FOOTPRINT PROGRESS AGAINST OUR EFFICIENT OPERATIONS GOALS NEW AMERICAN BUSINESS CLIMATE ACT GOALS CLIMATE SMART COCOA INITIATIVES BUILDING SHAREHOLDER VALUE
Slide 93: Solid Operating Cash Flow
SOLID OPERATING CASH FLOW $B $1.2 $1.1 $1.2 $1.0 +++ $0.85 2012 2013 2014 2015 2016 2017-19E Source: Hershey Financials BUILDING SHAREHOLDER VALUE
Slide 94: Cash Returned to Shareholders
CASH RETURNED TO SHAREHOLDERS $M $922 Dividends Share Buyback $879 SOLID TRACK RECORD OF RETURNING CASH TO SHAREHOLDERS $642 $420 $403 $466 $202 ~$5b IN DIVIDENDS $402 $404 $394 AND SHARE $125 REPURCHASES* $263 $263 $283 $100 $150 OVER THE LAST 10 YEARS $502 $440 $476 $304 $341 $252 COMMITTED TO A D
Slide 95: Capital Allocation Priorities
#4 #1 DEBT BUSINESS REDUCTION GROWTH CASH FLOW FINANCIAL (INCL. M&A) PRIORITIES #3 FLEXIBILITY #2 SHARE DIVIDEND BUYBACK BUILDING SHAREHOLDER VALUE
Slide 96: Capital Expenditures
CAPITAL EXPENDITURES $M $351 $371 $357 $$$ $270 $270-$290 2013 2014 2015 2016 2017e 2018 to 2019 % OF NET 4.9% 5.0% 4.8% 3.6% |----- < 4% of net sales-----| SALES Source: Hershey Financials BUILDING SHAREHOLDER VALUE
Slide 97: M&A Focused on Extending Snacking Breadth
M&A FOCUSED ON EXTENDING SNACKING BREADTH • Growth categories • Preference to be EPS accretive after 2 years • Continue to build on execution / implementation experience BUILDING SHAREHOLDER VALUE
Slide 98: Dividend Payout Ratio
DIVIDEND PAYOUT RATIO Kraft-Heinz 61.9% General Mills 59.0% SOLID CASH FLOW ENABLES Kellogg 52.7% Hershey 51.7% Mead-Johnson 51.3% COMMITMENT TO McCormick 46.1% AT LEAST A Campbell Conagra 44.8% 44.2% 50% PAYOUT Hormel 39.9% Smuckers 38.5% Mondelez 36.2% Tyson 19.0% BUILDING SHAREHOLDER VALUE *Last
Slide 99: Commitment to Share Buybacks
COMMITMENT TO SHARE BUYBACKS $M Option Replenishment Buyback / Share Count Reduction STOCK BUYBACKS IN $510 PLACE TO REDUCE $489 $454 SHARE COUNT (EXCLUDES OPTIONS) 202 REPURCHASE $249 403 420 OPTIONS IN THE OPEN MARKET AS A $159 MATTER OF PRACTICE 125 252 PART OF 159 124 107 69 CAPITAL DEPLOYMENT P
Slide 100: Net Debt to Adjusted EBITDA
NET DEBT TO ADJUSTED EBITDA As of December 31, 2016 A / A1 1.5 DEBT RATING (S&P / Moody’s) 1.2 1.0 $1.0b (UNSECURED) 0.8 CREDIT REVOLVER IN PLACE 0.5 OUTSTANDING U.S. COMMERCIAL PAPER $474m 2012 2013 2014 2015 2016 Source: Hershey Financials BUILDING SHAREHOLDER VALUE
Slide 101: Long-Term Debt, Mostly Fixed and Long Dated
LONG-TERM DEBT, MOSTLY FIXED … AND LONG DATED $1.1b AVERAGE FIXED RATE $0.7b ~3.5% $0.6b 2018 to 2020 2021 to 2025 2026 to 2046 Source: Hershey Financials BUILDING SHAREHOLDER VALUE
Slide 102: Targeted Capital Structure
TARGETED CAPITAL STRUCTURE • Target range of 1.5x to 2.0x Net DEBT / ADJ. EBITDA Debt/Adjusted EBITDA 1.5x to 2.0x • For “right” strategic acquisition would consider Net Debt/Adjusted EBITDA greater than 2.0x • Given strong cash flow LTD trades at a value better than current “A” rating BUILDING SHAR
Slide 103: Productivity Initiatives Driving Operating Income Margin Expansion
PRODUCTIVITY INITIATIVES DRIVING 3 YEAR OPERATING INCOME MARGIN EXPANSION $150M to $175M $300M 22% - 23% 20.4% $450M - $475M 3 YEAR TARGET 2016 Adj. Sales Normal “Margin For Inflation Technology / 2019E Adj. Oper. Income Leverage Productivity Growth” (Materials, Go to Market Oper. Income Margin Bene
Slide 104: Savings Primarily Achieved in 2018/2019
SAVINGS PRIMARILY ACHIEVED IN 2018/2019 2017 2018 2019 2019 “Run Rate” Normal Productivity $100M $100M $100M $300M “Margin For Growth” $15M $135M - $160M $150M -$175M SG&A % of Sales ~ 100 bps lower (ex Adv/Mkt) than 2016 Advertising, Marketing & ~25% Trade % of Sales BUILDING SHAREHOLDER VALUE
Slide 105: Restructuring Pre-Tax Charge of $375M-$425M
RESTRUCTURING PRE-TAX CHARGE OF $375M-$425M IMPACTING COGS AND SG&A Total Charges Total Charges $M $M Plant & Office Closures $125 – 140 Cash $175 – 200 Intangibles $100 – 110 Employee Separation $80 – 100 Non Cash $200 – 225 All Other $70 - 75 Total $375 - 425 Total $375 – 425 BUILDING SHAREHOLDER
Slide 106: Long Term Growth Objectives
LONG TERM GROWTH OBJECTIVES +6-8% +2-4% Net Sales Adjusted Earnings Per Share-Diluted BUILDING SHAREHOLDER VALUE Net Sales in Constant Currency
Slide 107: Outlook Reaffirmed
2017 OUTLOOK CHG. VS. 2016 Net Sales +2.0% to +3.0% Adjusted Gross Margin +15bps to +25bps REAFFIRMED Adjusted EPS +7.0% to +9.0% BUILDING SHAREHOLDER VALUE See Appendix for a Reconciliation of GAAP to Adjusted EPS
Slide 108: Michele Buck: Wrap Up
MICHELE BUCK CHIEF EXECUTIVE OFFICER WRAP UP
Slide 109: Hershey, a Solid Long Term Investment
HERSHEY, A SOLID LONG TERM INVESTMENT Hershey TSR 630% TOTAL SHAREHOLDER RETURN 1.9X THE S&P 500 S&P500 TSR 339% OVER THE LAST 20 YEARS WRAP UP Source: Bloomberg
Slide 110: Path for Continued Growth
PATH FOR CONTINUED GROWTH LEADERSHIP IN CMG, EXPANDING IN SNACKING ICONIC BRANDS ADVANTAGED CAPABILITIES STRONG FINANCIALS WRAP UP
Slide 111: Key Messages
KEY MESSAGES REIGNITE CORE CONFECTION & EXPAND GROW BREADTH IN SNACKING EXPAND REALLOCATE RESOURCES TO EXPAND MARGINS & FUEL GROWTH INCREASE MARGINS SHAREHOLDER STRENGTHEN CAPABILITIES & LEVERAGE VALUE INVEST TECHNOLOGY FOR COMMERCIAL ADVANTAGE WRAP UP
Slide 112: Investor Update
INVESTOR UPDATE MARCH 1, 2017
Slide 113: Appendix
APPENDIX HERSHEY.
Slide 114: Reconciliation of GAAP and Non-GAAP Information (2017 projected)
Reconciliation of GAAP and Non-GAAP Inform ation Below is a reconciliation of projected 2017 earnings per share-diluted calculated in accordance w ith GAAP APPENDIX to non-GAAP adjusted earnings per share-diluted: 2017 (Projected) Reported EPS – Diluted $3.19 - $3.45 Derivative Mark-to-Market Losses
Slide 115: Reconciliation of GAAP and Non-GAAP Information (2016)
Reconciliation of GAAP and Non-GAAP Information For the year ended December 31, 2016 APPENDIX In millions of dollars except per share amounts Gross Profit Operating Income Interest Expense, net Net Income Income Per Share- Diluted GAAP results $3,157.9 $ 1,205.8 $ 90.1 $720.0 $ 3.34 Adjustments: Der
Slide 116: Reconciliation of GAAP and Non-GAAP Information (2015)
Reconciliation of GAAP and Non-GAAP Information For the year ended December 31, 2015 APPENDIX In millions of dollars except per share amounts Gross Profit Operating Income Interest Expense, net Net Income Income Per Share- Diluted GAAP results $3,382.7 $ 1,037.8 $ (105.8) $513.0 $ 2.32 Adjustments:
Slide 117: Reconciliation of GAAP and Non-GAAP Information (2014)
Reconciliation of GAAP and Non-GAAP Information For the year ended December 31, 2014 APPENDIX In millions of dollars except per share amounts Gross Profit Operating Income Interest Expense, net Net Income Income Per Share- Diluted GAAP results $3,336.2 $ 1,392.3 $ (83.5) $846.9 $ 3.77 Adjustments: A
Slide 118: Reconciliation of GAAP and Non-GAAP Information (2013)
Reconciliation of GAAP and Non-GAAP Information For the year ended December 31, 2013 APPENDIX In millions of dollars except per share amounts Gross Profit Operating Income Interest Expense, net Net Income Income Per Share- Diluted GAAP results $3,280.8 $ 1,338.1 $ (88.4) $820.5 $ 3.61 Adjustments: A
Slide 119: Reconciliation of GAAP and Non-GAAP Information (2012)
Reconciliation of GAAP and Non-GAAP Information For the year ended December 31, 2012 APPENDIX In millions of dollars except per share amounts Gross Profit Operating Income Interest Expense, net Net Income Income Per Share- Diluted GAAP results $2,859.9 $ 1,111.1 $ (95.6) $660.9 $ 2.89 Adjustments: A
Slide 120: Reconciliation of GAAP and Non-GAAP Information (2011)
Reconciliation of GAAP and Non-GAAP Information For the year ended December 31, 2011 APPENDIX In millions of dollars except per share amounts Gross Profit Operating Income Interest Expense, net Net Income Income Per Share- Diluted GAAP results $2,531.9 $ 1,055.0 $ (92.2) $629.0 $ 2.74 Adjustments: B