好時 (HSY) 2005 Q4 法說會逐字稿

Good morning.

At this time I would like to welcome everyone to the fourth quarter year-end 2005 results conference call. [OPERATOR INSTRUCTIONS] Mr. Edris, Vice President of Investor Relations, you may begin your conference.

Thank you, and good morning, ladies and gentlemen.

Welcome to Hershey's fourth quarter conference call.

Rick Lenny, Chairman, President, and CEO;

Dave West, Senior Vice President and CFO; and I will represent Hershey on this morning's call.

Rick will provide an overview of the Company's performance for the quarter;

Dave will provide the specific details and bring you up to date on our restructuring program to advance our value-enhancing strategy; and then we'll take your questions.

We welcome those of you listening via the webcast.

Let me remind everyone who is listening that today's conference call may contain statements which are forward-looking.

These statements are based on current expectations which are subject to risk and uncertainty.

Actual results may vary materially from those contained in the forward-looking statements because of factors such as those listed in this morning's press release and in our 10-K for 2004 filed with the SEC.

If you have not seen the press release, a copy is posted on our corporate website, www.hersheys.com, in the Investor Relations section.

Included in the press release are the consolidated balance sheets and summary of consolidated statements of income prepared in accordance with GAAP as well as our pro forma summary of consolidated statements of income quantitatively reconciled to GAAP.

As we said in the press release the Company uses this non-GAAP measure as a key metric for evaluating performance internally.

This non-GAAP measure is not intended to replace the presentation of financial results in accordance with GAAP, but rather the Company believes the presentation of earnings excluding certain items provides additional information to investors to facilitate the comparison of past and present operations.

Therefore we will be discussing the fourth quarter and full-year results for 2005 excluding the pre-fax charges associated with our previously announced business realignment program which were recorded in the third and fourth quarters of 2005.

Also, the benefit of the $61.1 million, or $0.24 per share diluted tax reserve adjustment recorded in the second quarter of 2004 is excluded from the full-year comparison.

Any future projections will also exclude the impact of charges related to our previously announced realignment program.

With that, let me turn the call over to Rick Lenny.

Rick.

Thanks, Jim, and good morning.

I will begin with our performance during the fourth quarter.

Hershey delivered solid results during the quarter, a combination of innovative new products, strong seasonal sales, and good cost control across the business system delivered record profitability from operations.

Total net sales increased by close to 7% with nearly 4% from organic growth and acquisitions adding the remainder.

New products that began shipping during the quarter, such as Kissables, peanut butter-filled Kisses, and new Ice Breaker items contributed to the organic sales growth.

Strong seasonal shipments gave us an excellent holiday period as well as a quick start to the first quarter 2006 seasons.

Accelerating some seasonal shipments enhances Hershey's competitiveness as these seasonal shipments get merchandised earlier thus leading to quicker sell-through and replenishment of regular stock.

Most important, it's working.

This happened with Halloween and with holiday as our market share gains accelerated during the fourth quarter.

Hershey's takeaway and market share gains within the U.S. confectionery market were broad-based with share gains across all major product segments and across all classes of trade.

Here are a few specifics.

For the latest 12 weeks in channels that account for over 80% of our retail business Hershey's consumer takeaway increased by 7%.

As a reminder, these channels include food, drug, mass, including Wal-Mart, and convenience stores.

And the reportable FDMxC universe, which excludes Wal-Mart, Hershey expanded its leadership position by 1.4 share points.

In the chocolate segment our share increased by 1.5 points.

In sugar confectionery our share leadership expanded by 1.4 points.

Within the mint segment we increased our share to 29% during the quarter with a gain of 6.3 points.

These market share gains have been consistent.

We've now gained share within FDMxC for 21 consecutive quad-week periods.

Our 0.5 point increase within the convenience store channel marks the 48th consecutive quad week period of share gains.

In drug stores we've increased our market share in 20 of the last 21 periods.

There were three key enablers of this performance.

First is new products.

In the fourth quarter Hershey had three of the top five fastest turning items.

Second is expanded retail availability.

During the quarter, we achieved an 8% increase in retail distribution.

Third are the continued gains in merchandising activity with our customers.

For the quarter, quality merchandising, which has the highest return on investment, increased by 11%.

Both expanded distribution and better in-store merchandising performance reinforced the effectiveness of our trade strategy in terms of leveraging Hershey's portfolio scale.

This will certainly continue in 2006.

The strong retail performance in confectionery, combined with the momentum that's building in selected snack segments, resulted in Hershey becoming the fastest growing company in the total snack market for both the fourth quarter and all of 2005.

For the quarter, our total snack market takeaway increased by 7% resulting in a 0.7-point gain in snack market share.

Equally as important we expanded our leadership position within the highly profitable and fast-growing single-serve segment of the snack market.

For the quarter, our single-serve market share increased by 1.0 points to 18.1%.

This gain is driven by our new product innovation single serve and focus in higher growth classes of trade where single serve is more prominent.

SM&A was down as a percentage of sales during the quarter as we better leveraged our total business system.

This spending efficiency is encouraging given the continuous stream of new confectionery items and our entry into new snack segments.

It reinforces Hershey's portfolio of scale and advantage selling capabilities.

Wrapping up the quarter Hershey's profitability was strong.

Diluted earnings per share from operations before the impact of additional stock-based compensation, was $0.76 per share, an increase of 11.8% versus the year-ago period.

Now, a few comments on our performance for the full year. 2005 was an excellent year for Hershey.

We delivered record sales growth, expanded our category leadership, and achieved record profitability and returns from operations.

Total net sales increased by over 9% with 6% growth from our existing business and another 3% from acquisitions.

New product innovation, higher price realization and solid seasonal performance were the key contributors to our sales growth.

About one-third of our growth was from price and mix, with two-thirds coming from volume gains.

New products shipped during the year were near the high end of our 5 to 10% of shipments range. 2006 should be at about the same level.

The majority of our major brands showed very good growth as these franchises benefited the most from new product innovation.

2005 marked the first full year of extending our brands into the broader snack market.

Focusing on the profitable single-serve segment, Hershey's cookies and snack bars platforms got off to a great start and clearly support this targeted expansion strategy.

Hershey's ability to deliver a superior value proposition to consumes and customers can be seen in our performance at retail.

In both U.S. confectionery and in the broader snack market Hershey was the fastest growing major company in terms of market share gains during 2005.

We expanded our leadership in the highly profitable chocolate segment behind such new platforms as Hershey's Take 5, filled Kisses and Kissables.

Limited editions added news and excitement to many of our chocolate brands.

Our leadership within sugar confectionery grew as new single serve offerings leveraged the Twizzlers and Jolly Rancher equities.

Ice Breakers was one of the fastest growing mint brands as we delivered on the refreshment benefit better than competition.

Our selling capabilities in terms of value-added customer programs and in-store execution continue to be a structural advantage for our company.

For the year, we outperformed the competition in all major classes of trade, achieving market share gains in the food, drug, mass, and convenience store channels.

Let me turn now to our margin performance.

For the year, EBIT margin from operations expanded by 40 basis points.

This increase reflects our ability to simultaneously introduce new platforms within confectionery and snacks, remain competitive at retail as we pass along higher prices, and as we offset higher input costs.

We expect this to continue as we further capitalize on the flexibility and leverage across our total business system.

The business realignment initiative announced in July and the new leadership structure put in place in November are both focused on delivering against this strategy.

The combination of strong sales growth and improved margins delivered record profitability from operations.

Diluted earnings per share from operations before the impact of additional stock-based compensation was $2.36 per share, an increase of 14.6% versus 2004.

This marked the fifth consecutive year of double-digit increases in earnings per share from operations.

Turning now to 2006, Hershey's value-enhancing strategy remains both relevant and sustainable.

We're delivering superior financial performance through consistent top-line growth and expanding operating margin.

Product news across the portfolio, including limited editions, new platforms, and benefit upgrades to existing brands, will be the key drivers of our sales growth.

Within core confectionery we'll benefit from a full year of Kissables, Reese's with Carmel and peanut butter filled Kisses.

All three are off to an excellent start.

Whether it's Kisses, Hershey's or Reese's, a limited edition or a permanent item, our filled products are resonating well with consumers.

Expect more of these product in 2006.

Hershey's sticks, which begin shipping in March, with only 60 calories each, will deliver both the convenience and portion control benefit.

To extend our leadership within the refreshment segment Ice Breakers Ice Cubes gum and Ice Breakers Center Ice Intense mints will deliver new packaging and innovative product forms.

One of Hershey's brands that we're just beginning to extend is PayDay.

In 2005 PayDay Pro, a high-protein great tasting product helped propel this brand to a 7% increase in sales growth for the year.

In 2006 we'll extend this equity in two ways.

First, we're introducing PayDay Avalanche, our popular PayDay product enrobed in chocolate.

In the snack bar segment we're introducing PayDay Pro trail mix bars.

These bars have 14 grams of protein and deliver superior taste.

PayDay is synonymous with nuts, and consumers know that nuts are a great source of protein and energy.

Continuing within the nuts arena, our new seven-item line of Really Nuts snack nuts is off to a great start, particularly in convenience stores.

In 2006 this line will benefit from additional retail distribution and new package format.

Hershey's Take 5 was our first new entry into the salty sweet segment.

In the fourth quarter we introduced peanut butter Take 5 to further build this brand.

Later this quarter we're launching a line of sweet and salty granola bars under the Reese's and Hershey's brands.

This segment is large at $2 billion and growing at a rate two times that of all food categories.

Within the very attractive dark chocolate segment, which increased double digits in 2005, we'll be expanding our leadership position in two ways.

First, we'll add new retail distribution of our recently acquired Scharffen Berger premium dark chocolate brand.

Second, we'll accelerate the growth of the Hershey equity where we have the top three selling items in the segment.

Through new packaging, additional retail availability, and new items.

To support our new production and ensure that we're building the equity of our major brands we've developed more persuasive advertising and are using more scale events such as the eBay wrapper cash promotion.

This eBay event is Hershey's first large-scale consumer promotion that leverages our entire single-serve portfolio.

In addition, customer specific events have proven successful in the past and will play a larger role in 2006.

Consumer products overall and particularly our category with its high impulse sales, broad distribution, and overall low absolute prices, cannot rely simply on network TV to reach and persuade a meaningful number of consumers.

A multimedia event with target, a two-week flight on Wal-Mart TV, or an in-store Indy race car event with 7-Eleven will do a much better job of building our brands than just a series of stand-alone commercials.

Both approaches are important, and we'll use both.

I mentioned the high impulse nature of our category and the overall low price points.

These characteristics enable quick trial and more often than not minimize aggressive discounting within the category.

Within this context, it's important to reinforce our approach to price realization.

While price realization is a component of our strategic agenda this does not simply mean raising list prices.

We've stated many times that Hershey takes a holistic view to price realization.

This includes several options.

There's price increases or weight-outs.

We can shift the mix to higher net price items such as loose bars.

For example, loose bars make up just a bit more than one-third of our total portfolio sales.

We see significant opportunities to further shift the mix.

Another option is to introduce higher margin new items.

Our emphasis on single serve new products and the development of new channels such as Home Depot are delivering against this objective.

This brings me to the cost and margin structure for 2006.

While input costs will be broadly higher this year, the combination of net price realization and productivity initiatives across the business system will yield an improvement in operating margin.

Over the past five years, Hershey's has expanded its EBIT margin from operations by 430 basis points.

We expect to have a solid EBIT margin gain this year as well, and Dave will provide more details on this in a moment.

In summary, for 2006 we expect net sales to increase at a rate somewhat above our 3 to 4% long-term goal.

Diluted earnings per share from operations should increase at a rate slightly above our 9 to 11% long-term expectations.

Now Dave will review the fourth quarter and 2005 full-year results in greater detail.

Dave.

Thanks, Rick, and good morning everyone.

As Rick highlighted we delivered very good results in Q4, closing out a strong 2005.

First, let me give you some details on the quarter.

In the quarter net sales increased by 6.7% with about 3% coming from acquisitions.

The organic growth was driven primarily by U.S. confectionery price realizations as our list increases continued to take hold, as well as by U.S. confectionery volume with strong seasonal, and new item performance.

Our international group had another solid quarter.

This top-line growth has leveraged through our business systems to generate an almost a 10% increase in EBIT from operations.

EBIT margin from operations 22.8%, up 60 basis points from 22.2% last year.

EBIT margin from operations was reduced by 20 basis points due to the expensing of stock related compensation.

This EBIT margin expansion was generated through both cost of sales and SM&A leverage as we continue to drive incremental business through our existing infrastructure.

Gross margin from operation decreased 20 basis points in the quarter due to reduction from acquisitions of 60 basis points.

So gross margin from operations excluding acquisitions expanded 40 basis points in the quarter as price realization and supply chain productivity more than offset input cost increases and an unfavorable mix from stronger seasonal sales.

Reported gross margin declined 70 basis points after absorbing the effect of acquisition and a portion of the realignment charge announce in July and recorded during the quarter.

SM&A decreased 90 basis points as a percentage of net sales coming in at 16.6% versus 17.5% last year.

Brand expenditures declined a bit during the quarter and tight G&A controls remained in place.

Interest expense for the quarter increased coming in at $24.3 million versus $17.9 million in last year's fourth quarter, primarily reflecting higher short term borrowings to fund continued share repurchases and the funding of our domestic pension plans.

The effective income tax rate for operations in the quarter was 36.4%, down a bit from last year's 36.6%.

Record net income from operations of $181.1 million was 8.3% higher than the fourth quarter of 2004.

Weighted average shares outstanding on a diluted basis for the fourth quarter of 2005 were 245.4 million shares versus 250.6 million shares in the fourth quarter of 2004, leading to EPS of $0.74 per share diluted from operations compared with $0.67 per share diluted for the fourth quarter of 2004.

Excluding the effect of expensing stock-based compensation, EPS from operations for the fourth quarter of 2005 was $0.76 compared with $0.68, an increase of 11.8%.

Now let me give you a brief recap of the full-year results.

Net sales increased by 9.2% with about 3% from acquisition.

Price realization, U.S. confectionery volume, international gains, and the penetration of snack adjacencies all contributed to the results.

EBIT from operations increased 11.1% and the EBIT margin from operations increased to 20.3% from 19.9%.

Excluding the impact of stock-based compensation, EBIT margin grew by 50 basis points, marking the fifth consecutive year of margin expansion from operations.

Gross margin from operations for the year declined 40 basis points due to reduction from acquisitions of 70 basis points.

Excluding the impact of acquisitions gross margin from operations was 39.8% versus 39.5% last year, an increase of 30 basis points.

This is roughly in line with our estimate for the year.

SM&A declined 70 basis points as a percentage of sales for the year, coming in at 18.9% versus 19.6% last year.

As a result of leveraging higher sales over stable cost base, more efficient marketing spend, and tighter control of administrative expenses.

We continue to demonstrate our ability to introduce new items within confections as well as new snack adjacencies with minimal increases to fixed costs.

Net income from operations increased 9.8%, and EPS diluted from operations increased 13.4% to $2.28 from $2.01.

Excluding the effect of expensing stock-related compensation EPS diluted from operations came in at $2.36 versus $2.06, an increase of 14.6%.

Excluding the impact of SFAS 123R our EROIC on a rolling 12 month basis increased 70 basis points to 20% up from 19.3%.

On the same basis since 2001 Hershey's EROIC has increased from 16.3% to 20%.

Let me now turn to our balance sheet and cash flow.

At the end of the fourth quarter net trading capital increased $184 million compared to last year's fourth quarter.

Accounts receivable grew due to the strength and timing of shipments as well as seasonal demand, as well as from acquisitions.

The AR balance, while higher, remains well over 90% current.

Inventories were higher by some $50 million.

Finished goods were even with prior year so the increase reflects the timing of raw material receipts and in-process inventories.

As we look to 2006 we expect to have working capital positively contribute to our free cash flow.

Overall in 2005 we created over $700 million in cash from income and depreciation and amortization.

We deployed this cash in a variety of ways.

During the quarter capital additions including capitalized software were $45.5 million and for the full year totaled $194.3 million.

For 2006 we again expect total capital additions to be in the range of 190 to $200 million.

During the year we also funded pension plans with an additional $277 million.

At present our pension obligations are essentially fully funded with assets exceeding obligations by well over $100 million.

Depreciation and amortization totaled $54.9 million in the fourth quarter and $218 million for the full year.

These amounts included accelerated depreciation as we wrote down our Puerto Rico facility in the realignment.

The amounts excluding the realignment were $49 million in the quarter and $196 million for the year.

In 2006 we expect full-year D&A to be in the $200 million range.

Dividends paid during the fourth quarter were $57.5 million.

For the full year the total in dividends paid was $221.2 million.

We increased our common dividend by 11.4% in August.

We spent $100.2 million to purchase 1.8 million shares in our open market share repurchase program during the fourth quarter.

Thus we had approximately $62.9 million remaining on the $250 million authorization approved by the Board in April 2005, as well as the entire $500 million authorization approved by the Board last December.

Shares acquired through our purchase programs are held as treasury shares.

In addition during the quarter we repurchased $10.4 million of our common stock shares in the open market to replace shares issued over the last several years in connection with employees exercising stock options.

Over time our goal is to repurchase all such shares and we are current at the moment.

So for the full year 2005 we purchased $537 million of our stock with $295 million to replenish options and $242 million, again to repurchase authorizations.

We also spent $47 million on the acquisition of Scharffen Berger and Joseph Schmidt as we look to expand our presence in the on trend dark chocolate and premium segments of the market.

Let me now shift to the realignment charge which we announced last July.

During the quarter $11.7 million pretax was recorded in the business realignment charge caption.

An additional $6 million was recorded as expense in cost of sales related to the closure of our Puerto Rico facility.

The after-tax impact was expense of $8.8 million in the quarter, or $0.04 per share.

This brings year to date expense to $96.5 million in the realignment charge, and an additional 22.5 million in cost of sales, for a total of $119 million pretax.

The after-tax cost is $74 million, or $0.29 per share diluted.

Approximately 20 to $30 million will be substantially recorded in the first half of 2006 to complete the realignment.

Therefore, the total pretax charge remains targeted in the 140 to $150 million range.

The after-tax EPS impact of the total charge will be $0.35 to $0.38, down from our earlier estimates of $0.41 to $0.44 due to a more favorable tax rate on the Puerto Rico closure.

Overall we are very pleased with the progress we made in 2005.

Looking to 2006 we anticipate net sales to grow somewhat above our 3 to 4% long-term goal.

We'll generate strong EBIT margin expansion from operations in the neighborhood of our long-term goal of 90 basis points.

Price realization and productivity are expected to offset input cost increases in a market which continues to be both volatile and difficult.

Our realignment initiatives should create cost advantages in our SM&A profile, some of which is being used to create new capabilities to build our business and some of which we will drive to the bottom line targeting EPS diluted from operations to grow slightly above our long-term goal of 9 to 11% in 2006.

With that we'll take your questions.

The first question, please.

[OPERATOR INSTRUCTIONS] Your first question comes from David Palmer of UBS.

Good morning.

Many investors seem to be concerned really about gross margins and the source of your EBIT growth and your EBIT margin expansion for '06.

Previously you had a target, I believe it was 40 to 70 basis points on the gross margin line for the year.

I don't think you mentioned it on this guidance that you most recently -- that you just said this morning.

Perhaps you can talk about gross margins in light of all the cost pressures we hear about and net of the fact you might have a little less dilution from acquisitions and you have the restructuring and other.

Thanks very much.

David, as we talked at holidays in Hershey back in December we continue to look at our EBIT margin expansion of 90 basis points going forward as the goal that we're going to communicate and target.

We will find both gross margin expansion opportunities but also SM&A leverage opportunities to get there.

In the fourth quarter our gross margins from operations excluding the acquisitions expanded about 30 basis points, which is a very -- which is a number sequentially better than we had in the second and third quarters so we feel pretty good about the productivity we generated in the fourth quarter, coming into next year.

As we look forward into 2006 we see ourselves generating the EBIT margin expansion of 90 basis points through a balance of gross margin as well as SM&A.

I don't really want to get into a lot of specifics around the programs.

We do have visibility into our input costs for 2006, and we have productivity plans and price realization in place to deal with those cost inputs.

One separate question.

You seem to say in your opening remarks, I think Rick was saying it, that share gains had accelerated.

Was the category growth, I guess, of weighted -- blended average category growth across confectionery a little slower in the fourth quarter than the third quarter because your overall takeaway didn't seem to really change all that much.

Perhaps you can talk about the category growth.

Thanks.

Well, in the category we saw a little bit of growth in the most recent 4 weeks and 12 weeks, but we were talking about is our total takeaway was up 7% in the quarter, which was much better than what it had been in the third quarter, and the share gains is what's very important is that we saw 1.4 share-point gain for the fourth quarter versus 0.9-point share gain for the full year and that's just in U.S. confectionery.

Thank you.

Your next question comes from Jonathan Feeney of Wachovia.

Could you get a little bit more specific about -- you talked about visibility into your cost structure.

Clearly the couple of confectionery names under pressure recently due to concerns particularly on sugar costs.

Could you get any more specific about how much visibility you have, not only in sugar costs but in energy and some of the other, major -- at least identify what are the major cost concerns and how you're handling them?

We have said that we anticipate substantial input cost increases in 2006, and there has been a lot of news lately in several of the commodities that we use in our business.

Cocoa markets have focused on news from the Ivory Coast about political unrest.

The sugar markets have been focused on refinery capacity, tightness resulting from last summer's hurricanes, and there's also been some volatility in the oil markets as well.

So there's a lot of volatility in the market, dairy is also at a relatively high level as well.

So in this rapidly changing environment, it's important to recognize that what we do is develop procurement strategies for our key commodities based on careful tracking of market fundamentals.

We're using hedging strategies and forward purchasing to minimize price fluctuations and to provide some predictability for future costs.

So at any particular time, the Company has the visibility to a substantial part of our cost structure.

Importantly, market price changes may not be truly indicative of this cost structure.

And in this period where it's particularly volatile, what we don't want to do is start to focus in on any one given commodity and our particular position because competitively, we don't want to give out that type of information into our cost structure because we don't want to -- we don't want to give out that type of competitive information about what our costs may or may not be at any given time.

It is a volatile environment.

We expect substantial cost increases in 2006, and we have incorporated those cost expectations into our plans.

We expect price realization productivity initiatives to offset these increases, and when we combine that with the other SM&A programs that we have we plan on generating EBIT margin expansion from operations in that neighborhood of 90 basis points, which is consistent with our long-term goal.

We really don't want to give much more specifics than that into our cost structure.

I understand the sensitivity about specific commodities, but would it be fair to interpret what you just said as -- you mentioned it's certainly higher than historical volatility.

Does that mean you're probably a little bit more active, as far as hedging and controlling forward costs than you've been in the past?

I don't think it's even fair to make that characterization.

I think, again, it varies by the commodity.

We're hedged out varying degrees of length of time in each of the different commodities in the market, and I would say that we're not any more or less hedged than we have been historically.

It may very well be different by different commodities, but I don't really want to get into anything specific because I think we really would be giving away our procurement strategy on some fairly important parts of our business.

Okay.

One quick other question for Rick.

A lot has been made of the price of gasoline and its potential effect on convenience store consumption in the single bars and certainly with these big promotions you're putting on.

Have you seen any impact from higher gas prices?

Do you worry about that on candy purchasing?

Well, I think there's a couple of things.

Everybody certainly should be concerned about higher energy costs broadly on store traffic and things of that nature, I think we have several things going in our benefit.

First off, news and innovation continues to drive takeaway and share gains in the category broadly and certainly for Hershey, as we've talked about.

Secondly the absolute low price point of the majority of our items I think plays well into that as we've discussed in the past.

Third, we've seen a rebound as I talked about in terms of takeaway and share gains.

In fact, for the fourth quarter, while we said that total takeaway was up 7%, our single-serve takeaway was up 7% for the quarter, and up close to 7% for the full year.

So we continue to see strong gains, and that's where the innovation is coming, the strong gains in single serving.

The majority of our innovation with the possible exception of filled Kisses, because that's a great growth platform, is going to be within the single serve format, it's got that highest penetration and better/best margin structure and it's certainly growing the best in the high-growth channels.

I understand that, but I guess just specific to -- I mean, do you think there is an impact?

It might have -- would it have been -- I guess another way of putting it is would it have been even better had gas prices cooperated and been lower?

Or would you say there's just no relationship?

No, we saw some impact, as we talked about earlier, I'm sorry, last fall, we saw some impact post the disasters in the Gulf region.

We saw that come back in the fourth quarter.

So we see it ebb and flow somewhat, but for us consistency in terms of good takeaway gains in share growth is what we're targeting.

So if we see a slow down then we're going to work harder to introduce new platforms and bring more innovation which is one of the we reasons we rapidly developed and introduced the Really Nuts snack nuts platform.

So, yes, there's always going to be that pressure but for us it's always important to continue to bring innovation to the market.

Okay.

Thank you.

Thank you.

Your next question comes from Pablo Zuanic of JP Morgan.

Hi, this is [Axhed Jatel], I'm actually asking a question on Pablo's behalf.

We have two questions.

One, is just really if you could comment on the deceleration in organic growth?

In the first half it was 8%, and third quarter 6%, and now this quarter it was indicated it he is about 4%.

Can you just comment on that?

And just the second question, I mean, you kind of answered it before but just if you could give any more color on sugar, if you're more exposed to raw or refined sugar, because refined sugar seems to be more volatile than raw, but again, I know that you made a comment regarding your competitors, et cetera.

So if you could just comment on those two questions, I'd appreciate it.

Thanks.

Sure, I'll take the first question regarding organic growth.

We were very pleased with the close to 4% core business growth in the fourth quarter.

If you recall last year's fourth quarter, meaning fourth quarter of 2004, I think our organic growth was around 7.5% and we had some significant new product introductions in the fourth quarter of 2004, most notably Take 5 and the launch of our cookies.

In the fourth quarter of 2005, while we introduced Kissables and peanut butter filled Kisses, in terms of comparison versus the previous year's new items they were pretty close in that regard and we had strong seasonal sales.

So what we feel very good about is that our takeaway is exceeding our shipments, and that's always a much better place to be than the other way, and that's what we continue to drive.

If we continue to drive strong takeaway in share gains we see shipments continue to do well so we feel very good about where we exited the fourth quarter, but in terms of for the full year, with over 6% organic growth, that was very strong performance.

With respect to sugar, again, I don't want to talk a lot about specifics, but if you think about our business, sugar being a relatively important commodity with respect to our production, you would expect that we would not be going hand to mouth on sugar.

So that isn't a commodity that we have always taken a pretty long-term view of, and, yes, the refined market is much more volatile, so folks who are buying refined sugar would be much more exposed to volatility than folks who are buying raw sugar, and , as they said this is something that we've been doing for years, so I don't want to get into what we specifically do, but it is something that we take a very long-term view of, and I'd like to leave it just at that.

Thank you.

Okay.

Your next question comes from Leonard Teitelbaum of Merrill Lynch.

Dave, I want to go back to something on acquisitions here.

I thank you gave what the gross margin would have been without acquisitions.

Could you talk about the acquisitions' impact on operating margins?

Because they were bought late in the year I've got to assume there was some drag on the operating margin.

Have you been able to quantify what that would be?

We haven't really talked about it.

The biggest acquisition we made was the Mauna Loa acquisition which was really the fourth quarter of last year, so as we've gotten into the fourth quarter of this year we are leveraging it through the business system.

That said, the Mauna Loa business, we didn't enjoy the level of profitability we would have liked to have, so as we go to '06 we have some aggressive profit improvement plans for the Mauna Loa business.

So I would say that -- did they hurt operating margins or help it?

I wouldn't characterize it either way.

What I would say is that we do see some big opportunity going forward to improve the profitability of the businesses that we've recently bought.

Well, I guess what I'm trying to get to is that when you take a look at your goals, obviously they're stellar.

Are you looking at that -- we know that the costs are in line.

You've said that a hundred times already.

But I'm thinking of just the pure lift off the operational point.

Are we talking about a half of -- I mean, 50 basis points, 100 basis points?

Is there anything we can look at to break it down between, let's say, businesses in less than a year or about a year, versus the established businesses, or don't you break it down that way?

We haven't been breaking it down that way.

Our going in assumption on the businesses is that we would use the existing infrastructure to leverage them through.

And in terms of the percentage of the total business, what Joseph Schmidt and Scharffen Berger will add is really just not that big a percentage.

It's not something that we've really focused on.

To us it's more about leveraging them through the business system.

We haven't specifically broken them out.

Also, have you broken down sales or set up a paradigm as to how much growth you want to get from new products versus growth from existing product?

Some companies do it.

I don't know if you guys have looked at that it way or not.

Len this is Rick.

Yes, we have.

We've talked before that we'd like to see on average 5 to 10% of a year's annual shipments from new products.

We said in that 2005.

It was towards the high end of the shipments range.

We expect that to be about the same in 2006.

For us, the really important thing is what comprises that 5 to 10%.

We've done very well with limited editions.

We see the opportunity to further build out some of these new platforms, and for us it's a stronger focus on, let's say, fewer, bigger, better, because we have such great brands to leverage, and Kissables is a perfect example of that, as well as the cookies launch.

That is off to a good start.

I think one thing back to your question with Dave, one of the benefits of our business system is our selling capabilities.

Where we're able to use the same sales force to launch new platforms, and so to do this at a lower cost of sales is a major leverage point, and that's where we start to see benefit on the EBIT from operations growth.

Thank you.

And one final question.

As we take a look at some of the -- well, the business realignment charges, are those going to be over now, or how much is going to spill into this current in the first half of next year?

Len, I think we have somewhere between 20 to $30 million that we still will take in the first half of 2006 at this point.

That would be our estimate.

But it's going to be over by then, right?

Correct.

And the stock compensation plans, what are we looking at, $0.02 a quarter? $0.03 a quarter?

It was about $0.08 in 2005, Len, and figure a similar amount in'06.

When does it disappear for you guys?

Have you switched to a different form of comp to where we won't have to worry about it?

Well, what we have is what the current plans are, and that's obviously a decision that the compensation committee makes and the full Board approves, so I can't comment any further until they meet and decide going forward.

Okay, fine.

Thank you very much.

Thanks, Len.

Your next question comes from Terry Bivens of Bear Stearns.

Good morning, everyone.

Good mornings Terry.

Two questions.

One for you, Rick, and then maybe one for Dave.

As we look at the Company, it looks like there's pretty solid correlation between your sales growth and the way the stock performs, so I wanted to go back to the core growth in the fourth quarter of 4%.

I think you clearly pointed out there was a comp issue there.

However, do you think you suffered any volume shortfall from the pricing?

Do you think that was a factor at all there?

No.

Okay.

And your comment that, clearly consumption is running ahead of shipments, would that, in your mind, imply a stronger core growth rate going forward?

It would to me, but I'm wondering if you look at it--?

No, not necessarily.

I think what we saw is the reversal of that.

In the third quarter we started to see as consumption slowed down, as I talked about earlier, from the situation that occurred in the late summer and early fall in the Gulf region.

We saw consumption slow down so shipments had gotten a little bit ahead of consumption and now it's going back the other way and consumption is ahead of shipments, and that's a much better place to be.

Over the long term, over the year, in fact, let's just talk about the full year, for 2005, our shipments were in line with our consumption.

And that's would we should basically expect going forward, I would imagine.

Yes.

Okay.

Secondly, and, Dave, I guess this would be one for you, I guess I'm in a correlation frame of mind this morning, but as we look at the share price, it really matches up beautifully with your economic return on invested capital.

And clearly you guys have done a great job of driving that.

My question to you is, where can that go?

Do you think that could track along with your, say, your algorithm for an improvement in the operating margin?

Is that the way you're looking at that?

It probably won't track through the entire 90 basis points of EBIT margin expansion from operations that we're targeting, but we should get somewhere in the maybe half of that, 50 basis points or so would be our algorithm as we continue to run things through the existing business system, and keep control of our asset base, Terry, we would continue to see EROIC improvement going forward.

Okay, great.

Thanks very much.

Thank you.

Your next question comes from Chris Growe of A.G. Edwards.

I just had a couple questions, and just so I'm clear on this takeaway, the 7% takeaway does that match up with your 4% underlying growth, would that also match up with -- do you also include acquisition benefits in that as well?

Well, the -- for example, the 7% in core confectionery would not have any of the acquired business in it.

Okay.

It's core confectionery.

Yes, the 7% that I mentioned for total snacks, that would have a little bit of Mauna Loa, but that's not what's really is driving it.

Understood, okay.

And then the other quick one I wanted to clarify was on your See store trends in the fourth quarter, if I recall they were around 4% growth in that channel for you in the third quarter.

How did they fair in the fourth quarter?

They were about 3.5%.

3.5%, okay, same level.

Okay.

Then I know that in the third quarter you had a little bit of your sales you pulled forward I think around some seasonal sales.

Did that have any effect on the fourth quarter growth rate?

Well, actually in the third quarter we did have a very good set of shipments for the Halloween season as we got early display for Halloween.

In the fourth quarter our Easter and our Valentines goods moved a little bit earlier as we continue to see, that's the right algorithm for our market share gains in seasons.

So we are shipping a little earlier again.

So the answer to your question on the third -- the third quarter pull forward I think actually we had a similar type of early shipment in the fourth quarter related to the seasons in Valentine's and Easter.

So what it would tell you, though, as we look out at the first quarter, we will not ship -- we will not have a growth in seasonal shipments in the first quarter.

So for the year, as we look at 2006, we're still looking at that somewhat above 4%, although seasons will be a bigger contributor to that in the second half.

We're really looking at market share takeaway and the seasonal performance has been very, very good from a market share standpoint and a total shipment standpoint, and that's really how we look at it, is what's happening in the marketplace, and less around what month does it ship in.

Just along those lines, should a later Easter have any effect on the first quarter, or modest, or?

No.

The total Easter season will be up year-over-year when you look at total shipments, as that falls in 2006 versus 2005, although, as I said, some of them shift in 2005, versus in the early part of 2006.

So the market share will certainly be strong, but in the first quarter, we would see kind of flattish seasonal shipments.

Understood.

And then you had a very solid benefit through -- mostly, as we can seat, through SM&A, as well as, of course, through cost of goods sold from your cost efficiency programs and just general cost savings.

And that's contributed pretty nicely to your earnings.

If we look at 2006 and I guess really it can be driven by this new program, do you have any estimate of the cost savings coming through in '06 that we should expect and sort of consider as part of our modeling for '06?

I think the modeling guidance that we've given is 90 basis points with respect to operating EBIT margin improvement from operations.

We've said that our realignment savings program would generate $45 to 50 million of ongoing savings.

Some of that we'll spend back to create new capabilities in the business.

Some will fall through to the bottom line.

But I think as you look at how we've generated our EBIT margin improvement over time, it has become much more balanced between cost of sales and SM&A improvements.

As you look at 2006 we're probably balanced or maybe even a little bit more tilted towards the SM&A improvement.

Okay.

Thank you.

Thank you.

Your next question comes from Andrew Lazar of Lehman Brothers.

Good morning.

Good morning, Andrew.

I guess, Rick, with all of the new products and the flurry you've had and you're looking out for into '06 I like to try and keep tabs as best I can on sort of core confectionery sort of business growth.

Even excluding some of the adjacencies and even within just the core sort of standard bar.

I know it's hard to sort of cut the data that way with some of the new products and some of the limited editions and things, but perhaps you can add some color on just the core sort of confectionery business and to try and get a sense of incrementality of some of the new products that you're putting out there.

It's difficult to parse out a limited edition which we think has been so effective in terms of bringing news and innovation to a brand and is so inexpensive relative to new platforms.

So when we think about core business growth, if we're flowing through a limited edition, that very much contributes to core business growth.

I think what's important is that we saw very good growth in the majority of our scale brands, and they all didn't benefit at the same level.

Certainly from new platforms or limited editions.

I think one of the strategies that works well for us is if we have a limited edition, let's say on Reese's, it gets merchandised with regular Reese's peanut butter cups, so there you see in-store merchandising and display activity that we wouldn't have gotten otherwise.

I think, Andrew, that's the best way for us to view it.

But we saw very good core business growth.

It's important to note that we saw good growth in our sugar confectionery business behind Jolly Rancher and Twizzlers, and that wasn't just from the new items but bringing some news to sugar confectionery is a strategy we had talked about the better part of a year ago and it's started to work out well.

That's something I know you track to the best of your ability on the core side, but you see where I'm coming from.

I'm just trying to keep a tab on what the base most profitable part of your business is kind of doing as you do all this other stuff which is obviously accelerating the growth.

I think one thing that's important with a 44, 45% share of the chocolate segment we continue to look broadly across all of our brands and how can we get growth on the ones that we know have strong leverage and maybe don't have the same level of competition as others, so your point is well taken.

Core brand growth for us is every bit as important as new items because that's what makes it sustainable, which is why our target range of shipments is within the 5 to 10%.

Anything much greater than that starts to bring about complexities, but anything less than that starves the category and our brands from innovation.

Thanks very much.

Thank you.

Your next question comes from David Nelson of CSFB.

Good morning.

Congratulations.

Good morning, David.

Thanks, David.

Good morning.

I've got a question on your 2010 guidance.

No, my question is on your margin growth goals, and we're talking, 90 basis points at the EBIT line next year, and you had been talking 70 to 90 at the gross margin level longer term, but I understand, to keep an SM&A flat as a percent of sales and you've done a great job of course, of expanding your EBIT margin, Rick, since you've joined.

Do you feel there's an inherent ceiling as to where you can get to with EBIT margin at which point you create an umbrella for competition?

You've grown to over 20% now.

Is there an inherent umbrella at, or ceiling at 22% or 24%?

Have you thought much about that?

I think what we've -- what we think a lot about is what type of investment we need in our brands and selling capabilities which has the governor effect, so to speak, on EBIT margin growth.

We've certainly modeled out gross margin expansion, EBIT margin expansion and we see good potential in both going forward and we have done a good job over the past few years in terms of offsetting input cost pressures, introducing multiple platforms and new items, and expanding sales force coverage.

Stull being able to do it in the context of EBIT margin expansion.

Your point is very well taken and it's one that we think about, but we don't have a hypothetical or theoretical ceiling that we look at.

We look more importantly is what's it going to take to continue to drive sales and market share gains, and then work from that point.

Okay.

Let me ask a more nitty-gritty question.

On the FASB, which was $7 million, or $0.03 in the quarter, you indicated in the release that $0.01 of that was related to realignment.

So does that imply that some layoffs, laying off some people was related to that $0.01?

David, it would be the early retirement.

Yes.

So as we -- as people who opted to take early retirement, as you look at the way the FASB works, people who are already at retirement age would accelerate their options vesting, and as people were retiring we were vesting their options.

So that's really what that $0.01 is.

Understood.

Just trying to understand why the $0.01 of that was in the realignment.

Now I do.

Thank you.

Your next question comes from Eric Katzman of Deutsche Bank.

Hi, good morning, everybody.

Good morning, Eric.

How are you?

Okay.

I guess, can you give a further break down -- I think you've done it kind of in the past, but on the 4% core?

I know Dave you mentioned price first.

So is price a bigger percentage of the core versus volume?

In the quarter, Eric, price and confectionery volume, price is probably more than a third of it, U.S. pricing within the quarter, and then U.S. confectionery volume was a good contributor as well.

All right.

And then I guess -- I think you mentioned also that D&A was 218 million for the full year and is going to drop to 200.

Why is that?

The 218 includes the accelerated depreciation.

The way the Puerto Rico facility closure gets accounted for is when -- once you know that you're going to close it you accelerate the depreciation over the remaining useful life, so it really -- it occurs as a depreciation acceleration rather than a write-off.

So there's 20, I guess, let me make sure I give you the exact right number.

I think it was $22 million for the year of the 218 was related to the acceleration of that Puerto Rico facility.

That comes out for next year and you're back down to that more normal $200 million range.

I see.

And then the working capital number, maybe I just kind of missed the explanation, but working -- sorry, the accounts receivable was up I guess year-over-year 37% and your sales were up 9.

I don't understand how that's -- what's happening there.

It's the timing of shipments twofold.

One, we had accelerated higher Easter and Valentines shipments in the fourth quarter of 2005 versus 2004, and so they -- and they go with extended seasonal terms, so they're sitting in the receivable balance at a higher level.

We also had a bigger December in 2005 than we did in 2004.

So it is a higher number.

They are still well over 90% current.

Our deduction balance is in very, very good shape.

So as we exit the year, and in the early parts of January here we're collecting those receivables at a pretty rapid pace.

But why should that -- I mean that seems to be the biggest like swing factor when you said that should be a positive for -- or working capital should be a positive for cash flow.

For next year.

Right, for '06.

Why should that swing so much?

Again, because as you compare year-over-year, Eric, we would expect similar shipping patterns in 2006 versus 2005.

So from a comparability standpoint, year-over-year we should have an inflow on the accounts receivable line.

Okay.

And then I guess, has -- I haven't been able to find out.

Has Mars followed you on the sugar confection price increase?

Actually, from a sugar confection, Eric, we were actually pricing to get up to parity.

So they haven't moved above -- if they see their brand as being higher equity value or whatever, they haven't moved up?

We've seen no other changes in the competitive pricing environment in sugar since we last talked in December.

Then last question, just kind of a small detail, but when you first announced a restructuring charge in third quarter, I think you said it was going to be a total of 121 million, but when you add it up now, it's I think only 119.

I mean, granted, that's only $2 million, but did something -- did you go back and adjust the third quarter number lower?

No, I'm sorry, the total charge was always announced at 140 to $150 million.

We've taken 119 of it in 2005 and so we have another 20 to 30 to take in 2006.

And the EPS related to that we originally said on that 140 to $150 million would be about $0.41 to $0.44.

We're now going to be in the $0.35 to $0.38 range because we have a more favorable tax rate on the entire transaction.

No, I realize that there's a chunk coming in in '06 but in your third quarter release you said for third quarter of '05 these results include pretax charges of 101 million, right?

Then in the fourth quarter it's 17.6.

So you get to 119.

Correct.

But when you originally talked about the amount for '05, it was over 120.

So it's just -- I mean, I realize it's a small number but I just want to make sure that I'm kind of -- maybe something moved from this year into next.

It's going to be timing of the charges more than anything.

We're still looking at the entire 140 to 150 number right now, and we've taken 119 of it to date.

All right.

Thank you.

Your next question comes from Eric Larson of Piper Jaffray.

Yes, good morning and congratulations, everyone.

Most of my questions have been answered.

Just a couple little technical questions.

Restated '04 numbers for stock option expense I think it was only $0.05 for '05.

Should we only take about $0.01 out of each quarter for comparable numbers as we go forward in'06, for '05?

I'm sorry, '05, the '05--?

'05 is $0.09, less 1, 8, and '04 was $0.05.

So I guess maybe only $0.01 in '04?

Per quarter?

Yes.

Then one real quick question for Lenny.

Looking at the total innovation cycle for this year, obviously you have combinations of introductions from existing brands.

I'm just looking for a flavor here.

Do you envision any new platform introductions this year, or is it -- is it going to be mainly existing brands and that sort of -- line extensions, that sort of thing?

I think what we talked about specifically is that we get the full year benefit of Kissables and peanut butter filled Kisses and Reese's with caramels, which are excellent items and off to a good start as I had mentioned.

Also there's some items that we're working on that we certainly wouldn't announce at this point, which is very similar to what happened in 2005.

That we waited until we had presented to customers and were ready to good before we announced them and a similar situation would take place this year and we also talked about a full year off of Really Nuts snack nuts platform and then the sweet and salty granola bars that I mentioned earlier.

But think of it once again strategically a discipline around how do we leverage our scale brands through our existing business system and capitalize on the high-growth channels where we have a leadership share and growing share.

Got you.

Okay.

Thank you.

Thank you.

Your next question comes from Rob of Prudential Equity Group.

Good morning, gentlemen.

Good morning.

Going back to -- real quickly to your guidance specifically the 3 to 4% long term revenue growth goal, you seem to be moving toward that.

How should we look at that target?

Is the sort of the one-third price mix, two thirds volume that you've been posting sort of the right algorithm for that?

Close.

Pretty close to that, yes.

Within the two-thirds volume, are we -- what are we looking at kind of category share, probably wouldn't want to get down to that level but just broadly.

I think what's important is we -- lock-term growth rates, and again, this is just within the confectionery category,in the 2 to 3% range.

And again as we start to target selected snack segments, then we look at where they have differential growth rates.

So for us the goal is which categories have good -- are attractive us in terms of growth prospects, both revenue and profitability, and where can we gain market share.

So for us it's a combination of category growth.

And what takeaway we want to get.

So it's not just simply the category is growing at X. What type of share gains will give us the takeaway that we know we need to deliver within our long-term expectations.

Okay.

And one quick question on the SM&A line.

I may have missed this and if so I apologize.

I think last quarter you gave sort of directionally brand expenditures, or direct brand expenditures, and trade promotion.

Which way did they move in this quarter?

Brand expenditures, advertising and consumer were basically flat, maybe slightly down, and then the trade promotion expense was a bit higher in the quarter as we spent back against the price increase that hit some of the seasonal price points.

For the full year trade promotion was down on a rate basis as a percent of sales.

But in the quarter it was up slightly.

And the direct brand expenditure on a full-year basis?

It was up slightly.

Okay.

Thank you, gentlemen.

Your next question comes from David Edelman of Morgan Stanley.

Good morning, just one very quick question.

Did you realize any material cost savings in the fourth quarter associated with the restructuring program?

No, they really will accrue to us starting in 2006.

Okay.

Thank you.

Thank you.

Your next question comes from Ken Zaslow from Harris Nesbitt.

Good morning.

Over the last five years Hershey's generated about 14 to 15% annual EPS growth.

Is there a secular reason why this growth should decelerate?

We won't comment on what might happen the next four to five years.

I think what's important is why we believe what we've done in the past from a marketplace standpoint is sustainable and what has been beneficial to us has been the balance.

I think that's what we set out to do close to five years ago.

We wanted to restore profitable organic growth, improve operating margins, and deliver strong profitability and returns, and we've been fortunate enough to be able to do that.

And as I said earlier, our strategic agenda, the one we've been executing remains both relative and sustainable.

In terms of what we said going forward, is that we believe next year's -- 2006 diluted EPS from operations will be slightly above our 9 to 11% range and that's our long-term guidance.

I will leave it at that.

Okay.

And in terms of the non chocolate or the sugar confectionery, can you give us anecdotal evidence or specific evidence of how that's starting to gain a little bit more traction than, say, a couple years ago?

It's a couple of things.

First off, innovation.

As we bring innovation to two very strong brands, most notably Jolly Rancher and Twizzlers and we do so in the single serve format, that enables us to do a better job within convenience stores and at the front end than what was primarily packaged candy news, which would therefore be just within the candy aisle.

So again, our strategy is very consistent in terms of bringing innovation behind our scale brands but do so in the single serve format primarily because that gives us many more incremental points of merchandising and distribution.

That's probably the greater -- the most clarity I would want to give to it in that regard.

But it's a category that has come back and we saw very good growth and we're the leader within sugar confectionery.

Thank you very much.

Your next question comes from David Driscoll of Citigroup.

Thanks and good morning, everyone.

I know you said this but I missed it.

The price component of the 4% organic growth was what?

A little more than a third.

A little more than a third.

Thank you.

Then in '06 you said to Rob's question that price again, would be, did you say '06 price would be one-third, or was that the long-term goal?

No, he was talking retrospectively historically what has been the -- not the formula, but the break down, and then going forward we said it would be about the same over the long term.

We didn't give any specific direction for '06.

I guess what I'm really trying to get at here, is it seems that price would be a bigger component of '06.

Is that a fair statement just given the price increases and the flow-through?

The FDM data looks like that and I just wanted to hear your thoughts.

Again, when we talk about price realization it's more than just list price it's also trade promotion efficiency as well as shifting the mix to higher price per pound items.

It's not as simple as just looking at the price increase and rolling it forward.

We haven't given any specific kind of guidance around that at this point and I don't think we will today.

SKUs were down 800.

I think you took 800 SKUs out between '02 and '04.

Our Nielsen data is showing SKUs are backed up fairly significantly.

What's going on here?

Sometimes I don't trust the FDM data.

What's the actuals in terms of SKUs?

What's happened since the SKU program was completed in'04?

If you look at the core confectionery SKU count, and when I say core confectionery it's without the snack adjacencies, it's without the acquired Mauna Loa business, it's without the cookie business, et cetera.

The core confectionery SKU count, we had a target of 1450.

We're a little bit above that, call it around 1500, so we're pretty much in line with that on the core confectionery SKU count but we have added SKUs as we've added business.

What you may be seeing in the numbers is other things that have been added.

A lot of times some of the databases don't delete items even if they're not active.

Then just one final question for you, Rick, See stores, the growth isn't slowing, you gave the number at 3.5% just a minute ago, how do you explain this?

And then what would you think going forward?

I know you've talked to us a lot about the indexing of See stores relative to your overall index, and I believe at the analyst day just back in December I think you were making the argument that the index is still below where you think your fair share should be suggesting that See stores should accelerate above the corporate total sales growth rate.

I think what's important is we know what type of takeaway we're capable of getting within the convenience store channel and equally as important, and you're right, we've said that the market share on a -- there's a gap between our convenience store share and our total FDM ex share and we also see opportunities within drug and mass as we had very strong takeaway in share gains there.

So if we focus, as we've said repeatedly, that we're going to say what does it take to win within convenience stores, and within convenience stores what does it take to win chain by chain and same within drug, and that's why we see continued share gains.

Even if it were equal to our total share of roughly 30%, we see continued upside because one of the pieces of information we communicated at holidays in Hershey was that on a relative market share basis although we've seen improvement over the past years in our relative market share versus other major snack categories we're well below so we see a continued upside potential in takeaway and share and particularly so as we bring innovation to the market.

And it's been reflect at least over the past few years in takeaway and share gains.

Please understand that I'm not trying to say that you haven't done a great job there.

You have.

It's just when we plot out the quarterly numbers it's a fairly linear deceleration, and I'm just simply trying to explain why.

And I don't think I quite understand, because it sounds to me like you guys really believe that you can move the indexing up.

So the explanation in terms of the actual historicals versus what I'm hearing from you, I can't really reconcile the two.

As you speaking about share overall or within a specific class of trade?

Sales growth in See stores.

You mean takeaway growth within See stores.

Yes, yes, yes, thank you.

Well, what we've said is, I think we had 48 consecutive quad-week periods of market share gains.

I don't have the specific quarter by quarter growth within See stores.

There's a couple of things to think about.

First off, it's growth on top of growth, so that's one consideration.

The second is what type of innovation we're bringing within convenience stores. 2003 was a major year on Reese's where we had several limited editions and worked extremely well as we start to better determine which brands can continue to grow you're going to see the growth rates ebb and flow somewhat, and we don't have -- it would be great if everything grew the same percentage point every month and every quarter.

It doesn't work that way.

For us the strategy of continuing to get broad-based takeaway in share gains at least as it's been through 2005 has been successful.

Okay.

Very good.

Thank you very much.

Thank you.

Your next question comes from Galexan Alexander of Darfil Associates.

The question has been answered.

Thank you.

Thank you.

There are no further questions at this time.

Hearing no more questions, we'll conclude today's session.

We'll now be available to answer any additional questions you may have.

As a reminder, our 2006 first quarter sales and earnings release and conference call is scheduled for April 20, 2006.

We'll release earnings at 7:00 a.m. that day, and our conference call is set for 8:30 a.m.

Thank you for your interest and good day.

This concludes today's fourth quarter year end 2005 results.

You may now disconnect.