好時 (HSY) 2001 Q1 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Hershey's Foods Corporation first quarter 2001 sales and earnings release conference call. At this time, all participants have been placed on listen only mode and the floor will be open for questions and comments from the presentation. It is now my pleasure to turn the floor over to your host Mr. Rick Lenny. Sir, you may begin.

Thank you operator. Good morning ladies and gentlemen and welcome to our first quarter conference call. With me this morning are Bill Christ Executive Vice-President and Chief Operating Officer, Frank Cerminara, Vice-President and Chief Financial Officer, and James A. Edris Director of Investor Relations. We welcome those of you listening via the live webcast. Let me remind everyone who are listening, that today's conference call will contain statements, which are forward-looking. These statements are based on current expectations, which are subject to risk and uncertainty. Actual results may differ materially, from those contained in the forward-looking statements, because of factors such those listed in this morning's press release and in our 2000 Form 10K filed with the SEC. First, I would like to thank and congratulate Bill and Frank, obviously Kenn Wolfe and all other Hershey associates for a very good first quarter. By now, we assume that all of you had a chance to read our press release those issued earlier this morning. As we mentioned in the release, the first quarter of 2000 benefited from 3 cents per share one time gain on the sale of corporate aircraft. In my remarks today, I'll focus on operational results, so, we have excluded last year's gain from the comparative base. Our consolidative net sales for the first quarter of 2001 increased by 8.8% essentially all volume with all business units contributing to the gain. While our core business volumes increased versus a strong performance in the first quarter last year, we also benefitted from the newly acquired mints and gum businesses. Equally is important our performance at retail was very good. Strong In Store merchandizing activity behind Valentine's Day and continued improvement in our costumer service levels, we had a consumer take rate that outpaced the industry growth rate resulting in a solid gain in market share. While it is too early to judge Easter retail, our salients of the trade showed good performance versus the Ester season of last year. Our gross margin increased by a 190 basis points as a result of improved logistic and commodity cost as well as other operating efficiencies. However, while we do expect our full year gross margin to be up it would be unrealistic to expect this much of an improvement on an annualized basis. Our selling marketing and administrative expenses increased as a percentage of sales coming in at 27.6% versus 26.3% last year. As I mentioned earlier, the number for last year excludes the $7 million pretax gain on the aircraft sale booked at that time. Marketing expenses increased year-over-year at a rate greater than sales growth, promotional cost increased in line with sales and advertising as we said previously increased at a significantly greater rate. We must continue to ensure strong level of marketing investments; primarily advertising that is consistent with our category leadership and product quality. G&A expenses increased primarily as a result of higher administrative cost reflecting a large part additional selling expenses related to the newly acquired businesses additional sales representatives we hired to improve our retail coverage across a broader retail base and market development in selective countries. EBITDA of a $144.2 million increased by 13.6% for the first quarter of 2001, compared with the adjusted first quarter of 2000 with a margin of 13.3% compared with 12.8% last year. EBITDA of a $191 million for the first quarter of 2001, increased by 12.3% with a margin of 17.7% versus 17.1% in 2000. Interest expense for the first quarter of 2000 was $17.3 million versus $17.5 million last year. The tax rate was 37.8% compared with 39.0% in the first quarter last year, primarily reflecting the lower tax rate on the newly acquired business. Net income of $78.9 million was 18.3% higher than the adjusted first quarter of 2000 with a margin of 7.3% compared with 6.7% last year.

Given the slightly lower number of weighted average shares, outstanding earnings per share diluted of 57 cents increased by 18.8% compared with last year's 48 cents per share diluted again on an adjusted basis. Before opening this session to questions, I have a few additional comments. Our enterprise Lyden from Asian systems and our new eastern distribution center are functioning smoothly. Infact, our year to date case flow rate is around 97% and we are anticipating continuous improvement in that area. This effort is aided by the STU reduction undertaken over the last six months, whereby we've eliminated approximately 400 + profitable items resulting in a more efficient product line. The integration of the newly acquired mints and gum businesses is essentially completed and as expected the business is approved. It also boosts our position in the overall confectionery business in the United States adding about 2.6 points to our share as measure by IRI. Excluding the acquired products, our share was well up in the quarter as we completed the recoveries from our late 1999 and early 2000 difficulties. As I mentioned in the press release, we've gotten off to a good start. Going through the remainder of the year, we have planned to boost our core business volumes introduced value added new products and contain cost. We expect 2001 to be a record year for Hershey and we are working diligently to make that happen. On that note, let me stop and I will be happy to entertain the questions. Operator, you can open it up for questions.

Thank you. The floor is now open for questions. If you do have a question or a comment, please press the numbers 1 followed by 4 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask while you post your question to please pick up the handset to provide optimum sound quality. Once again, ladies and gentlemen that is 1 followed by 4. Please hold while we go for question.

Thank you, our first question or comment is coming from Jeff Canter 07:12 with Prudential Securities. Please state your affiliation.

Good morning, Prudential securities. How much do the newly acquired Nabisco mint and gum business contribute to the top end and bottom line?

We are not going to break that out specifically for the two. As I mentioned it was obviously accreted on the top and bottom line, but most important the newly acquired businesses came in about what we thought they would.

And just Rick, this is somewhat of a sensitive question, but some of the former management team from the Nabisco who have got into top jobs of various companies have made some changes and I realize that you haven't been in ______ 07:58 for a long time. Can you give us a hint as to what your thoughts are as you get settled and any changes that you would like to make, if you would please.

Well it is a fair question. But it is one that I am not certainly not at this point prepared to make. I think the important distinction is some of the other companies actually might have been referencing and are in much different situation than we at Hershey are, Hershey as you know came out of troubles in 1999, and in year 2000 was forward sales market share and profit growth and we are building upon that in the first quarter of this year, so it might challenge us and how do we accelerate off the very strong foundation that we built. So in terms of any changes, it will most likely be more along the line of certainly the evolutionary than revolutionary, but as anybody who starts a new job have got a lot to learn and I am working with the leadership team to figure team what is the best way to unlock those opportunities to maximize share holder value.

Thanks and good luck and a good quarter.

Thanks very much.

Thank you, our next question or comment is coming from Romitha Mally. Please state your affiliations.

Goldman Sachs. Good morning.

Romitha Good morning.

Congratulations on a great quarter.

Thank the folks here. I just got to report on it.

Just back to the unit volume growth. You do not want to break out the Nabisco acquisition, but some ___ 09:25 in the underlying business data, look at the consumption trans from IRI, they look quite strong for the base business and I am wondering where shipments lower than consumption for the quarter for the base business.

This is Bill Christ, how are you doing?

Fine. Thanks.

The answer for your question, the way I would phrase it like is obviously we got a nice boost from the Nabisco over last years since it was here last year and those items are doing very well, they go soft on the gum side, but is overall doing very well. The rest of our businesses we would refer to as the core business from a factory sales point of view was up in the low single digit, but up nicely and we've gained some good market shares. So, we were very pleased. The areas that we are focusing our efforts on now is what we've said last year is to get the regular count on that area. We are moving faster than we were. But, overall we are very pleased with our market share gains, sales of our core business and of the Nabisco acquired.

Now you see any retail inventory adjustment for some of your other food company PSR.

No, we see actually we seem to be in fairly good shape when we look at our, as you call it our consumption graphs. It is about, we have a pretty well defined graph regarding back over history and at this point we think our inventories are in very good situation in the retail level. It is little too early to tell you about the Easter sales, we feel pretty good about that also overall.

Do you have any anecdotal evidence for us on Easter at this point, can you share with us.

Not at this time. Good Easter overall, if we look at out Easter season which we call Easter season, we go back to last year. We see Easter up nicely about 5%, keep in mind that last year this time Easter was up almost 10%. So, Easter-to-Easter season when comparing this is a very strong Easter.

You think up 5% on a year-over-year basis.

Something at that neighborhood. Not the final figures coming out I think it will be around that neighborhood.

One final question. Why were payables up so much in the quarter?

Are you comparing to the same period last year.

Yes.

We've really tried very hard to manage the balance sheet, particularly receivables and payables and inventories in that trading capitals. So, they are up compared to year ago, they were up the same levels as the end of the year. But it is conscious effort that we made through to manage the net trading capitals

Okay, thank you.

Thank you.

Thank you. Our next question or comment is coming from David Adelman. Please state your affiliation.

Moragan Stanley. Hi everyone.

Hi David.

Rick I had a question about margins at Hershey. In the press release you talked about continuing to improve our margins in your comments on the call earlier, you talked about containing cost and I was wondering from your perspective, coming to Hershey, the organization that you have been involved in certainly have a higher EBIT margins than Hershey does. Are there any gross opportunity that you see or any significant parts of the cost structure that really, puzzles you or seen out of lying or do you think is a very significant opportunity to raise margins overtime.

David, not as of yet, obviously, I am just getting in and were digging into it. I think as in all businesses the opportunities to see where we can improve our productivity, but again in terms of continue to make inroads on the logistics front. I think that is the most important message to get across but in terms of the asset level of the EBIT margins and where I think we can go long term is that it is obviously premature for me to comment on that now.

Okay, thank you.

Thank you.

Thank you. Our next question or comment is coming from Terry Bivens. Please state your affiliation.

Bear Sterns. Hi, good morning every body.

Very good morning.

Couple of questions here. Can you comment on the mix in this quarter obviously we are making a bigger effort this year to get some of the standard count out there, but is there anything you can share with us on how that faired in Q1.

Well, the first quarter has a lot of obviously Easter and Valentines Day sales. So, you are going to see a lot of mix there towards you know the novelty side, the package side, etc. As I stated earlier that the first quarter this year versus the first quarter of last year had a very tough comparison in regular account and in inventory. The regular count last year was up way up. The regular count was up 12-13% and inventory was up70-80%. So, we went into this quarter and those two categories, very difficult comparisons. So, the mix in that regard was probably not as where we would like to have seen it. Keep in mind that tough comparison. But then because we have lot of Easter and obviously Valentine's in this quarter the mix is I would say shift a little bit more heavily towards the package care.

Okay. In regard to Easter, last year of course we had it a week later putting, you know, proportionately a little bit more in this year's first quarter, given that fact do you have any qualms about looking at a second quarter consensus here at 38 cents. Are you comfortable with that at this point given the Easter timing issue?

Yes we are.

Okay great. And lets see third and lastly, 200 basis points on the gross margin, little bit better than I was looking for. Is there any way to kind of roughly allot that between the efficiencies on the EDC versus savings on the raw materials side?

It is just a caution, our margins last year buildup every quarter, our gross margins got better and better. Those results basically are getting more efficient within our operations as we straighten up the supply chain and commodity cost coming down, essentially every quarter. So, this slip is mostly efficiency, but were relating them back to efficiencies a year ago that were quite inefficient, if you know what I mean. So, I would not expect the 190-200 basis points to persist, but we will go back and confirm what I said that we can do over the course of the year, I think we can still rely on a 100 basis point improvement, but the difference is between this year and last year you get smaller and smaller each quarter we would expect into to.

Okay Frank. Some of you are still okay with a kind of a flat cost of goods year-on-year even with a little, we are seeing some picks up in Dairy commodity cost which have not changed your opinion on that.

No it is essentially flat through the year when you include all commodities and packaging.

Okay, terrific. Thanks very much.

Thanks Terry.

Thank you. Our next question or comment is coming from Bill ___ 17:13. Please state your affiliation.

______ 17:15: good morning.

Good morning.

Good, I just have a couple of questions. Did you guys book any gains in the quarter, first of all, and secondly, can you just explain the tax rate being low year-over-year. Is that associated with the terrible back off in the mints and gum business.

Yes, actually your first question is now we have not picked up any gains this year and then on the second question is basically related to the acquisition of the Mint and Gum business.

I guess, in followup to the question which was asked earlier, why you guys are so worrisome to talk about the accretion of the mints and gum business in the first quarter, I mean you talked about what it would add, you may be acquisition why are you so worrisome to talk about that now.

We do not, generally, as you know, talk about our earnings on the second phase for various reasons and I have been saying that the you know basically our sales are looking like there in line with what we had thought it would be and level of freedom this is really fine. Also keep in mind, that I think it is little premature to start to say how much accreted, because we are using some of that money back into the business. Therefore, it would be more misleading than helpful to tell you anything more than that.

Okay, thank you.

Thank you, our next question or comment is coming from Leonard Teitelbaum with. Please state your affiliation.

The leader. Merrill Lynch. Good morning.

Good morning.

Two things. I somehow on my own way screwed up the interest cost and had it too high for this quarter. Frank, what is it going to look like for the balance of the year?

I think the reason for that is not your doing, but essentially the markets working in our favor. So, the guidance that, I have given you was about $80 million for the year net interest expense. If you recall ......

Yeah, can you give us a ......

I think you can say $4-5 million of that money for the entire year.

Now, if I take a look at the look at the SG&A expense, thank you for that Frank. At the SG&A expense, have you consciously increased your ad and promotion expense or is it just a timing issue that cause about. What should we be looking at is we move forward.

I think important thing is and I know that Hershey outlined was the desire and my comment of this morning when in terms of making sure we get the right level of total marketing support and primarily that boost would come from advertising which we did do in the first quarter, so that where a big piece of it is and we expect a reasonable increase and grand support for the entire, you are meeting the balance as well, where specifics are to be determined.

Should we use around the same level going forward in terms of percentages for SG&A if you did in this quarter then.

No, I would think, rather not take it any further than that, because again in this quarter we are learning about the acquired businesses and we are seeing how our business shapes up again with the good market share, we are looking at what we need to spend effectively for the entire year reminding ourselves that another back to school and Halloween season is a big effort for some one to make sure where we will find it for the key seasons of the year.

Okay, and last question. It is a kind of philosophy I think Hershey that it has some sort of things were doing may be a little bit better than people thought we would turnaround and reinvest behind the brands or you had a budget, now just wondering whether you subscribed to that philosophy going with that kind of little bit better than start spending against it. Is that's the philosophy you would embrace?

I think the most important part of the philosophy is making sure we have some thing good to spend behind, whether it be new products which we have a couple coming out whether do some key promotional events or news, I think simply this spending it for the sake of spending particularly, if we have are not certain as to the responses and in the best interest of the money, but what we are going to be looking at is where do we want to appropriately allocate our resources to ensure that we have balanced top and bottom line growth.

Thank you very much and good job everybody.

Thanks.

Thank you. Our next question or comment is coming from William Leach. Please state your affiliations.

Banc of America Securities. Good morning everyone.

Hi, Bill.

I have question on the sales. If you take the acquisition as had $270 million net sales, according to your press release. If you divide by 4 and that is $68 million we do equivalent to 7% of last years' sales, and I would suggest your internal sales growth is only about 2% and I think you did raise prices a little bit reasonably, it sounds like your internal line growth was not that strong, am I missing something?

No, I think you are in the general range there. We did not raise prices, we have minor price increase on some bag lines which wasn't sold much. Our major price increase on candies isn't till the fourth quarter. So, I think you are in a general ___ 22:58.

I thought you said the candy as you raised prices, it is like a 2% increase overall.

Yeah, we raised it 7% on our peg line and we raised 7% on our, and that was done the first one was done sort of inline with ____ and the second price increase we talked about was on the larger product line business. The package candy and tropical package candy, that does not take effect until the fourth quarter basically for Christmas when you take that on an annualized basis, that would be something in the level of 2% price increase overall in a full year.

In this quarter, you didn't have any pricing really?

Not really.

I was just wondering that in your earlier tenure that if you had a chance to think about what the realistic growth objective for Hershey was in the top line and the bottom line over the next three to five years?

I have started to think about that, I do not think I will communicate yet in terms of wanting to do make sure I better understand what are the key drivers within our businesses and where the category opportunities, but I think you can certainly expect both balanced top and bottom line growth and making sure that we have created affordability to invest in the growth of our brands.

Okay, thanks.

Thank you.

Thank you, our next question or comment is coming from Ann Gurkin. Please state your affiliation.

Davenport & Company. Good morning.

Good morning Ann.

If I can go back to the Gum and Mint business, I am just hearing reports that you have an increase in marketing to support the gum business and I am worried that that's going to attack margins and then the deposited ___ against from earnings this year or too early.

I do not think we said we are going to have to increase anything in gum, and I think what I said was that the gum business was, in general, in the category that there are some very good increases in the gum business both on our part that Wrigley's eclipsed and Dentin's ice is doing extremely well and our ____ currently is doing very well. But the gum business, in the sugar side it is down and in the sugarless side, it is up, so that helps a little bit, as that is basically .....

And I think just billed on that. I think, the important thing we said the acquired businesses are on track with where we thought there would be, so there is not a situation where something is going +/- where we were and we are going to have take some other or medial actions. I think we would be communicating this to ensure that we have continued and increased support on our core businesses and maintain the level of support necessary to deliver the acquisition plan of the acquired businesses.

Okay, and then in terms of sales force earlier on, do you need to ramp up sales force throughout 2001 or can you give me some more detail on that?

Well, first we started package in February and by moving some of our sales out to brokers, freed up some of our drift sales force but what we wanted to do is ramp up our sales force to the extent we are more coverage in some of the areas that look, the emphasis is more on least bars, such as convenient stores, ____, and grocery stores, etc. So, that is where we were increasing our sales force, and that is an increase both in full-time, regular sales reps as well as full-time merchandizers. So, the two of them together will give us much more representation, much more intensive coverage and ultimately help us address some of the regular issues in all category, not just in Hershey.

Right, thank you.

Thank you.

thank you, our next question or comment is coming from Andrew Lazar. Please state your affiliation.

Lehman Brothers. Good morning everybody.

Good morning Andrew.

Just a quick question, you have mentioned obviously the STU rationalization program that you've been doing, can you give us any sense of what kind of a negative impact that probably had on the top line in this quarter, and I think you mentioned at ___27:09, maybe you have an estimated impact of about a $100 million on the sales line for the full year. Is that so, sort of accurate?

I think, as well from the 400 items that we have eliminated, we started eliminating those last year, that is as much as this quarter. We did say it is around a $100 million, but keeping in mind that these were lower sales, lower margin items we expected to see, you know a positive impact to some of our margins. Most of these items that we eliminated were out in the broker sales force. And by doing that we have allowed the brokers now with, the first time in our history I believe, we have given the brokerage, that our total brands are managed ___ 28:01. So, now they have a great focus on some of our launch of the non-chocolate brands as well as some of our powdered grocery brands and with that added focus, we would expect to get some sales back in those areas. It is little too early to tell us we are just getting started. The joint ventures grew too. By the way we are still managing, All signs right now are looking very good towards, so the thesis of that strategy is working and there is a focus on time.

So, you would say in spite of that ___ 28:32 probably did work against a little bit on the topline?.

I think on the top line, obviously, any time you get rid of $100 million as sales, I think we assume we can get some of that back until you do I think it is a little bit of negative to me.

I am trying to get a consensus on that. On the additional sales force in the merchandizing staff, are all of those people a kind of hired in and now just getting up the speed or I am trying to get a sense of thick time in order to get up in the form of maximum effectiveness?

Obviously when they hire new people they are not going be effective day 1 unless they are coming from a lot of prior sales experience. But, we are already in the process, I said we are probably somewhere in the 60-70% range of getting the people, the numbers that we hope to get, may be these economic conditions with layoffs we can get little better benefit there, but we are basically where we wanted to be in that area and I think the effectiveness will be probably more towards the second half of the year.

Okay that is the couple of things, thank you very much.

Thank you Andrew Lazar.

Thank you our next question or comment is coming from Evin Morris. Please state your affiliation.

UBS Warburg. Just a few questions. First, following on the STU reduction is that not fast as completed.

The STU reduction process, I would say is never completed. We have always been removing STU from our product line. This was a sort of a major thrust where we went in because we had narrowed the availability of prices via the information system, we were able to really segment our products by profitability basically as well as just sale. And that is where we got to the 400 or so, but I think that process will I know that process will continue well be in terms of 400 for sure that the rationalization process will continue. In regard to the 400, we did not like to turn the switch one night and next morning there were all gone. The result is the inventory in the pipeline, stores etc and we had orders in house to some of these items we had to fill, so it will take some time to transition into that. But, if it is not finished as close to be in credit for that point.

Okay and will marketing has failed to continue to be up for the balance of the year.

Yes. That was an answer to one of the previous questions, I think may be Leonard Teitelbaum might have asked it in terms of I would not extrapolate the percentage increases or as a percentage of sales amounts from the first quarter and hold that constant for the balance of the year, but I would expect to add that full year with marketing support having been a procedure so that we can restore grain growth and in support couple of new items that are coming out.

Great thank you.

Thank you. Our next question or comment is coming from Christina Kornopisa. Please state your affiliation.

Deutsche Bank. Just a few questions, could you state us on your outlooks for share repurchase for giving a lower interest expense bank.

Ya, we still have about a $100 million on program that is into effect about a year and a half ago and as I mentioned as stated before we are willing to revise shares, but they have obviously were looking to do that. At times and we will not like that for an instance and at times of they make sense for us, so with lower interest rates we have to see.

Okay on second question, are there any indication that the industry is following the price increase on the chocolate package line I guess it affects the fourth quarter.

Well, if we are increasing prices on a standard bar line. Everybody would have fall right in line within admitted to each other. In the packaged area there is constantly price changes and rate changes, more specifically going on, so when we or large or other major manufacturers announces a price change in our package area, you might see it followed not immediately, I think more is due to weight changes. We chose to do it through a price and a weight increase which help us maintain a better line on consumer value. So, we have not seen much indication in the rest of the competitive force after what there are making any drastic changes.

Okay thanks. And last question. Can you just give an update on the West Coast distribution facility?

Yes on schedule and it should start to receive merchandise from our factories in the late summer. And hopefully be up fully up in running by the fourth quarter or so everything we see right now is on schedule.

Okay thank you.

Our next question or comment is coming from Arc Stefen. Please state your affiliation.

__________ 33:57 Good morning. In your March, I think Rick you talked about part of the increase in SG&A had to do with spending in selected countries. Could you amplify on that is the spending picking up, what's your philosophy on the importance of overseas activities?

Let me answer the second part of that in terms of the philosophy and then I will turn it back to Bill to tell you on some of the specific. I think it is again early days, but I think our initial strategy of where can we best maximize the penetration of our brands in selected countries. So we think this is good opportunity for profitable growth that is the right approach, it certainly is not a philosophy of it looks to plant a Hershey flag in every piece of geography that is available. I think our strategy of going in first via export establishing our grand presence and then again adding the appropriate infrastructure whether the people or hard assets is just the way to go. So, I am still obviously early base in terms of better understanding our strategy and also we have a greatest potential, but that is kind of an overall philosophy, but at least help on the second part of the question.

Ya thank you.

Now, let me turn back to Bill to answer this specific from the SG&A projects.

The correct expenses are you can say that it is across the border in the first quarter BBE had given up I would say substantially in all areas of geography. I say that in regards to our international operation a well as in the Mexico. So, from BBE point of view now our administrative cost basis we are having some substantial increases in administrative cost in our international division but do keep in mind that's a much smaller unit, but there way of getting up with a lot of personnel there to the part of the international groups so that to the total companies it is not material, it is a kind of big increase.

You are as far of earnings which I guess were not talk in too much about, but certainly if you come close to this pace for the rest of the year you are going to blow by everybody's estimates, is that your intention.

Our intention is as we said will be with guidance previously given.

Okay. So the consensus earning is like 274 and at this pace you should be up around 280-285 it looks like it.

There is a couple of things going on and I will certainly ask Frank and Bill to join us here, I have remember this as Frank had mentioned the 200 basis point improvement in margin reset would be high water mark throughout the year and again we are slicing a relatively softer quarter and in terms of at least take away for certain in the first quarter and again of the year ago in our business really got back on track and started to accelerate in the second half of 2000 and again the second half of the year is larger absolute number for us in terms of the key holiday. So, I would not extrapolate this first quarter performance for the balance of the year.

Okay thanks very much.

Thank you our next question or comment is coming from Erika Long. Please state your affiliation.

J.P. Morgan. I have just a couple of quick questions. First with regards to the West Coast distribution center. Should we look for any volatility in your working capital as you prepare for that facility to take shipments and be up in running by the fourth quarter?

Ya I think obviously any time we ramp up a new distribution center I would not call volatility we have to stop it and at the same time we have to keep inventory levels in the facilities that are in existence So for a period of time, I would say in the early fall, we will probably see inventory a little bit higher than normal within the work house and we are closing other facilities. I would not call that volatility, I will just call that just a normal way we have to do it.

So you think even third quarter and possibly fourth quarter slightly higher inventories, but back to normal by the first quarter certainly.

Ya I would say that for the longer term, definitely.

In terms of new products can you give us sense of some timing and then the level this year versus last year in the second half.

Well, the new products we have announced right now is driving into repurchase and begin shipping that in June I think I have answered you earlier. It seems to be going very low. So, hopefully that trace continues. I did give guidelines that we have I think we have a major new item to come towards the end of the year, I do not have that much of an effect on this year, but is I think that we are presently pleased with that.

Okay great. And then also with regards to international philosophy we are tricked by your answer, because you are very much focussed on existing Hershey brands. Is there any need to touch us Hershey existing Hershey brands once you have gone into new market perhaps with local brands.

I think that is certainly a viable approach and it is one that we are going to be digging into and I think you are at this point it obviously be premature for me to talk about and when you think that might be and the worsen certainly a future strategy, but I think it is a great way to think about how do we increase our scale and profitability with anyone specific geography. So it is a very good point.

And then finally with regards to W. Spice particularly at convenience store level. I found it interesting where Hershey now we are trying to gain back some of the store space that it might has lost in Nabisco.

I will only talk about where we are heading in the future I think nothing is important thing is in catch high back to the comments before about the increased and expense in our selling capabilities as you well appreciate the snap market has such broad points of availability in fact better than half of Hershey's business so little better than half comes from outside traditionally let us call a few drug in mass. So the addition of our resources are on generate the retail to ensure that we maximize our merchandising opportunities, I think sea stored business continues to be a growth channelize of channels. It is little sluggish in the first quarter, but there is plenty of opportunities on the snap market for us to compete effectively.

Okay thank you very much and good luck.

Our next question or comment is coming from Mitchell Pinheiro. Please state your affiliation. .

Janney Montgomery Scott. Good morning. Most of my questions have been answered. Just a couple of things did you break on North America or any grocery international business preferably.

Well in sales, I do not think we have break to tell you about the sales obviously and sales were up across the border.

So, up 9% in all was grocery as strong as your confectionary.

Are you are talking geography or you are general.

Any way you want to give it.

I will give it to by geography. I think that is generally the way we have talked and geography is up everybody was up obviously not equal. Keeping mind whatever the consolidated cooperation has as greatly influenced by the USA. So, but everybody was positive candida was the least of the positive and some of that is related to translations. We can reach a million dollar.

How big grocery did in general at your confectionary products?

Grocery is little flat in general terms. Some items are up very nicely, but overall it can't reflect.

Okay. You have mentioned that you are adding sales people in the earlier part of Q&A, higher administrative expenses due to some new international sale. Did you mentioned where those that sales force?

US and across its borders.

Or it is just one particular country or just Latin America?

No it is US.

Some new international.

We are hearing people at international, but they are all different they are not just sales people they are marketing finance etc. The sales portion increase was in the United States as we said before to ensure that we get maximum retail published behind our program.

Where else do you have your business center on the west coast?

Some in California.

Okay, obviously this prior the little impact from many kind of growing back outs to drive impacting anything or lay up no production in the necessary rates there.

No.

And finally in terms in new products in the first quarter was there any, is there any impact on new products in the first quarter.

Yes we continued to do this. The heat in kit kat base introduction in the first quarter and some of that.

Okay. Alright thank you.

Thank you our next question or comment is coming from Avin Morris. Please state your affiliation.

Actually it is John O'Neil UBS Warburg. I apologize if this has already been answered. What was total international volumes up in the quarter?

International was up in the high teens.

Okay and is marketing as a percent of sales for the gum and mints business that you acquired higher than Hershey company average, that is having impact on those ratios.

Well, that volume of business in general is higher yes. Did it have any impact on our business as you said?

Ya on the ratios.

Right not enough to be material.

Okay, so marketing as a percentage of sales was up even on the quarter.

Correct thanks.

Once again ladies and gentleman if you do have a question or comments please press the numbers 1 followed by 4 on your touchtone phone at this time. Thank you our next question or comment is coming from Lisa Rumaris. Please state your affiliation.

Denver Investor Advisors. Good morning.

Great quarter. Easy question for you Frank the tax rate in this quarter had a good rate to you for the remainder of the year.

You can keep it there.

Okay thank you.

Thank you our next question or comment is coming from Wolf Joffoy. Please state your affiliation.

JLFS Management. Good morning. Grocery showed flattest sluggish. Can you Rick comment on what the breakout of the different channels as full year. And Richard said once it was positive and not sluggish.

Well, I think first of all sales were little sluggish. We have out of the top fifteen resource drivers in sea stores. We have five of them. So, we are doing very well. I will say this is in sea stores, be general in category of incentive consumable is down. It was being driven by some new products of ours in fact our Ice Breakers that is how our standard line in the Hershey. Just overall convenient stores I think there is obviously some impact of cash prices etc overall, but in general my comment was in general and not necessarily Hershey.

But the channel was little bit sluggish in the early part of the first quarter not particularly our business.

I wont got much enclose grocery flattish and see there because this is just not a large quarter for growth in the large quarters than in the third and fourth quarter in the baking seasons so it is fairly small portion at the total year and that was flat.

Okay. And still want to get better idea on sales longer term someone has touched on that. Can you still think may be greater four is that kind of we are looking at or 5-7.

I think that is a pretty good range as now again may be a important thing is thinking about the first quarter and contact versus the entire year and is probably closure in that it has been a middle single digit it suddenly had 4-5 pack of range. You did Frank you wan to add on that.

We have been driven all along 4-5 or a little bit ahead of the market.

Okay 3-4 cents okay?

No I think 4-5 would be most stood and say five plus or minus and that is how it is the best way to think about it.

Thanks.

Thank you our next question or comment is coming from Douglas Christopher. Please state your affiliation.

_____ 48:25. Question regarding the margins, obviously very strong, but is there any additional preopening cause or expenses associated with the any distributions facilities in the cost of sales or overhead and as we move closer to that fall opening will there be any effect on margins if any or would it be at third quarter fourth quarter potential benefit 2002 benefit.

I will start for instance any should in regards to that distributions centers they will give some additional inventory stock in there and into additional start up charges any time of the potential we started up EGG drive. We had trained the people or hiring the people etc, so some of that start up there is that last long there is a little bit of start up cost.

Yes the thing I add to that basically is that is based into our clients in the guidance of what we have given the relative to the improved margins will favor a 100 points to 100 basis points for the year would include that anticipated start up. So the guidance would still be the same.

Okay then that would basically go way away by the fourth quarter of this year.

Into the year yes.

Okay thank you.

Thank you our next question or comment is coming from Wolf Joffoy. Please restate your affiliation.

One more questions. Our plain margins 14 point up for the year as year that touched on gross margins SG&A, gross margin has been open is initially done. What do you think about operating margins? How much it will be down for the year?

EBITDA margins improved as the year goes alone, particularly in the second half because of the much greater volume of business that we do. Again, our last guidance I gave you was EBITDA margins or EBITDA itself is going to be growing at a pretty nice phase, but EBITDA margins would stay pretty flattish because at that time the guidance was going to be spending a reasonable amount more on selling and marketing in the support of our brands. Rick answered that a little while ago, we have got to see just how effective while that spending is to the side whether we want to continue it in the balance of the year or obviously going to spend more in sales in marketing growth what rate. So I guess right now I would not change the guidance I would give on EBITDA margins, but they would stay relatively flat year to year.

Thanks.

Once again ladies and gentleman if you do have a question or comments please press the number 1 followed by 4 on your touchtone phone at this time.

We have time to have one or two more questions.

Thank you our next question or comment is coming from Steve McCrakin. Please state your affiliation.

I am wondering if you could mention you have introduced the couple of new products in the quarter was kind and feel that Hershey market I am wondering if your expect any material impact or is it really just brand awareness.

First of all it is a licensing range of food they were doing well and I would not say that we had anything too material to our business. It is a really a way licensing as a way for us to get our brands in part of our store and where we wouldn't necessarily build a shop or shop of confectionary etc.

Do you say that it is an arrangement.

Ya.

And then one aspect of this we are heading into this summer on holidays as I am wondering if you are planning any movie tie ups or special promotions.

Yes this summer we are tide in with a Lost Empire subtitled and then we also have a summer program which we did a lot of trips back virtually to other local amusements parks and we've added to that excitement this year with prices on par of ship lines I believe it is for conclusion, so it is most likely very exciting summer.

And as advanced has schedule to check our plan.

In this summer driven I believe.

Thanks.

Gentleman there are no further questions at this time. If you have any closing remark.

No I don't believe so. Thanks everybody for participating and thank you.

Thank you that concludes today's teleconference, you may disconnect your lines at this time and have a lovely weekend.