好時 (HSY) 2006 Q1 法說會逐字稿

Good morning.

My name is Katie, and I will be your conference operator today.

At this time, I would like to welcome everyone to The Hershey Company first-quarter 2006 results conference call. (Operator Instructions).

Thank you.

Mr. Edris, you may begin your conference.

Thank you, Katie, and good morning, ladies and gentlemen.

Welcome to Hershey's first-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.

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 2005, 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 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.

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 first-quarter results for 2006, excluding net pretax charge of $1.7 million associated with our previously-announced business realignment initiatives, to advance the Company's value-enhancing strategy.

Any future projections will also exclude the impact of net charges related to these business initiatives.

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

Rick?

Thanks, Jim, and good morning.

Results for the first quarter were mixed, as modest sales growth was offset by strong productivity and solid cost control to deliver an 11% increase in diluted earnings per share from operations.

The sales performance was impacted by the previously-highlighted seasonal shift and a slowdown in single-serve sales.

This slowdown resulted from a below-average growth rate in limited-editions takeaway and a reduction in selected customer inventory levels at retail.

Based on recent trends and initiatives in place for the balance of 2006, we anticipate sales growth to improve throughout the year.

Hershey's marketplace momentum continued to build.

We gained a market share in all major segments and across most classes of trade on both a seasonal and non-seasonal basis.

Equally as important, we've identified several opportunities to ensure that Hershey continues to deliver a superior value proposition to both our consumers and our customers.

Specifically, we will be focused on reducing the absolute number of existing and new items, while aggressively pursuing major growth platforms.

This approach will enable us to leverage Hershey's iconic brands, marketplace leadership and in-store presence.

To get us started, Dave West will discuss the first-quarter results in detail.

He will then highlight some key factors that provide a good perspective on our expected EBIT margin expansion for the balance of 2006.

Next, I will discuss some exciting new growth initiatives for the second half of 2006 and beyond.

It's the combination of stronger top-line sales growth and good visibility into total input cost that will enable Hershey to deliver its 2006 full-year expectations.

Dave?

Thanks, Rick, and good morning, everyone.

As Rick highlighted, our Q1 results were mixed with modest top-line results but strong cost controls enabling delivery of EPS diluted from operations of $0.50 in the quarter, up 11% versus prior year.

Importantly, we remain committed to our full-year estimates, somewhat above 4% net sales growth and slightly above 11% EPS growth from operations.

Now, for some details, starting with sales.

As anticipated and discussed on our last call, Q1 comparisons were difficult, cycling a price increase buy-in in 2005 Q1 as well as overcoming a seasonal shift, where more Easter business shipped in Q4 of 2005.

The decision to ship and merchandise seasons earlier continued to pay dividends in the marketplace, as we had a strong Valentine's Day and early indications are that we had a strong Easter.

The Q1 shortfall in single serve, due to cycling last year's price increase buy-in was exacerbated by selected customers reducing inventory levels at retail as well as by diminishing impact of our limited-edition entries.

We do not believe that this slowdown is related to pricing and price points.

We will be focusing on larger platforms with higher incrementality in the future.

Rick will discuss this in greater detail later on.

We were very pleased with the performance of this type of new platform innovation, such as Kissables, Ice Breakers Ice Cube and Sours, and Really NUTS!

International remains on track, and Scharffen Berger and Joseph Schmidt added modestly to sales during Q1.

Overall, retail takeaway and market share performance remained very strong.

Given the later Easter in 2006 versus 2005, reported retail takeaway comparisons will be distorted until May.

Overall, we gained 0.9 share points in FDMxC in the latest 12 weeks.

As I mentioned earlier, we expect to have good Easter performance at retail.

But given the seasonal timing, for a more meaningful comparability, let me provide 12-week data, excluding the impact of seasonal items.

For the latest 12 weeks in channels that account for over 80% of our retail business, Hershey's everyday consumer takeaway increased by 4.5%.

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

In the reportable FDMxC universe, Hershey expanded its non-seasonal leadership position by 1 full share point.

In the chocolate segment, our share increased by 1.3 points.

In sugar confectionary, our share leadership expanded by 0.9 points.

Within the mint segment, we increased our share to 35% during the quarter with a gain of 6.6 points.

Hershey's market share gains for the latest 12 weeks in the confectionary market were broad based with share gains in food, drug and mass.

The one exception was c-stores, where for the 12 weeks, our takeaway was up 4% but we lost 0.2 share points.

We were not pleased with January and February c-store results and quickly implemented very specific actions to improve performance.

We immediately employed our handheld terminal technology to reroute our sales force to focus on the convenience channel.

This dynamic routing covered an additional 65,000 outlets in a 4-week period, concentrating on placing 12 key focus items into distribution in each store.

As a result, shipments from our distributors to retail have increased 80% for these 12 items.

This supports the nearly 30-point gain in ACV on these 12 SKUs.

During the most recent 4-week period, our c-store takeaway improved to 6% with a 0.2 point gain in share.

Clearly, we are regaining traction and momentum.

Turning now to margins, where strong cost control enabled solid 7% EBIT growth, and EBIT margin expanded 120 basis points up to 18.7% from 17.5% a year ago.

SM&A expenses were 7% below last year, down 160 basis points.

About half this reduction was enabled by our realignment and early retirement initiatives as well as administrative and salaried -- administrative salaries and benefits coming in below last year.

Total brand spending for the quarter -- advertising, consumer promotion and trade promotion -- was flat versus prior year, as dollars were reallocated to consumer and trade promotion.

Our ad spending was focused on new platforms, such as Kissables and Ice Breakers Ice Cubes.

Consumer promotion spending increased primarily in the form of sampling in our eBay wrapper cash event.

Gross margin of 37.8% was down 40 basis points, primarily due to the negative mix impact stemming from the lower sales of more profitable single-serve items.

We did achieve favorable net price realization with carryover list pricing from last year only partially offset by promotion -- by slightly increased trade promotion expense.

Some of the higher trade promotion rates supported the distribution and merchandising costs of the c-store drive I just outlined.

While we are experiencing broadly higher input costs as anticipated, we continue to have very good visibility into our cost structure and productivity initiatives.

There were no surprises in these areas or in unit costs during the quarter.

Interest expense for the quarter increased, coming in at $25.2 million versus 19.4 million in last year's first quarter, reflecting higher short-term borrowings to fund continued share repurchases and pension contributions made last year.

The tax rate for the first quarter was 34.4%.

This is below the average rate we anticipate for the full year, which we project at 36.2%.

This lower rate contributed approximately $0.01 per share to results.

The lower rate in the first quarter resulted from the resolution of certain state tax audits.

You'll see a fluctuation in our quarterly tax rates as we reflect the timing of the resolution and the establishment of tax contingencies in our quarterly rates.

For the balance of the year, we expect quarterly rates to be 36.6%, 36.4% and 36.9% respectively.

Weighted average shares outstanding on a diluted basis for the quarter were 243.1 million versus 250.3 million shares for the first quarter of 2005, leading to EPS of $0.50 per share diluted from operations compared with $0.45 per share diluted for the first quarter of 2005; that's an increase of 11.1%.

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

At the end of the first quarter, net trading capital increased around $200 million compared to last year's first quarter.

Accounts receivable grew $125 million due to the timing of shipments, both everyday and Easter.

With Easter falling in April this year versus March in 2005, we have additional seasonal receivables open versus last year.

Also, the timing of last year's price increase buy-in shifted everyday volume earlier in the quarter.

The accounts receivable balance was $145 million lower than year-end.

In fact, of the $530 million receivable balance on-hand at December 31, less than $1 million remains uncollected.

Our AR balance remains extremely current and of high quality.

Inventories were higher by some $80 million compared to the first quarter of last year.

We're carrying nearly $70 million higher raw material balance as a result of our commodity and sourcing strategies.

We will be embarking on some new initiatives, which we believe will improve working capital efficiency.

As we focus on fewer, larger platforms and evaluate the product line over the next 12 months, we will work to reduce our SKU count by 20 to 25%.

This will reduce working capital and also help reduce some P&L cost that's obsolescence and unsellable.

As we look to the remainder of 2006, we continue to expect to have working capital reductions contribute to our free cash flow for the full year.

Let me highlight some other cash flow items.

During the quarter, capital additions including capitalized software were $38 million.

For 2006, we continue to target total capital additions to be in the range of 190 to $200 million.

Depreciation and amortization totaled $48 million in the quarter and should be in the 190 to $200 million range for the full year.

Dividends paid during the first quarter were $57 million.

We spent $173 million or 3.3 million shares in our share repurchase program during the first quarter.

Thus, we have completed the $62.9 million remaining on the $250 million authorization approved by the Board of Directors in April 2005, and we purchased $110 million against the $500 million authorization approved by the Board last December.

Shares acquired through our repurchase program are held as treasury shares.

In addition, during the quarter, we repurchased $11 million of our common stock shares in the open market to replace shares issued in connection with employees exercising stock options.

Our goal is to repurchase all such shares and we're current at the moment.

Let me quickly update you on the realignment charge that we announced last July.

During the quarter, $3.3 million pretax was recorded in the business realignment charge caption along with a credit of $1.6 million in cost of sales related to a more favorable final disposition of our Puerto Rico facility.

The total after-tax impact was net expense of $1.2 million and did not change our diluted EPS for the quarter.

This brings project to-date expenses to $100 million in realignment charges and $21 million in cost of sales for a total of $121 million pretax, the after-tax cost of $75 million or $0.29 per share diluted spread over the past three quarters.

We continue to expect to substantially complete the realignment initiatives in the second quarter and expect the cost to be somewhat below our original estimate of 140 to $150 million pretax.

Let me now talk about the rest of 2006.

For the full year, we continue to anticipate that net sales will be somewhat above our long-term 3 to 4% targets.

Marketplace performance remains strong.

With everyday Q1 takeaway up 4.5%, our lower net sales performance in Q1 is largely due to seasonal timing and inventory reductions at retail.

With the strong programs, which Rick will highlight shortly, and anticipated continued share gains during the balance of the year, we remain committed to this goal with sales performance improving throughout the remainder of the year.

Our EBIT margin expansion target of close to 90 basis points for the year remains in place.

As the year progresses, we will continue to have tight SM&A spending controls, although not as strong as the 160 basis point reduction in Q1, for the timing of retiring employees on December 31, 2005 created a favorable hiring lag in Q1.

We now expect gross margin for the full year to be flat to up very slightly versus 2005, an improvement over Q1 performance, as net sales growth and mix improve in the balance of the year.

We continue to have good visibility into 2006 input costs and productivity programs and expect broadly higher input costs to be offset by price realization and improved supply chain efficiency.

We take a long-term view of our input costs.

During Q1, many commodity-based items moved down from relative highs -- dairy, tree nuts and natural gas just to name a few.

We're now beginning to gain visibility of the total 2007 cost basket based on the current market.

We are also continuing to create the new global supply chain and customer service capabilities envisioned in our realignment.

Projects to consolidate global procurement of transportation and packaging components are expected to improve costs and efficiencies in these areas by about 10% over the next 18 to 24 months.

So, to summarize, Q1 was marked by mixed results with net sales below our long-term expectations but with strong expense control contributing to good EPS performance.

Marketplace share and takeaway remain strong.

We remain committed to achieving full-year performance somewhat above 3 to 4% net sales and slightly above 9 to 11% EPS from operations for 2006.

Here is Rick to talk about some specifics.

Thanks, Dave.

As Dave just highlighted, Hershey continued to outperform the category during the first quarter.

We expanded our leadership within the confectionary market with strong share gains in both our seasonal and everyday businesses.

Within the broader total snack market, where Hershey has just a 10% share, we accounted for over 50% of the total non-seasonal growth within this larger market.

Both the characteristics of the category and Hershey's position within it auger well for long-term profitable growth.

The confectionary category has structural advantages that reinforce its long-term attractiveness.

For example, the confectionary category has virtually 100% household penetration.

It has the highest level of impulse purchases.

When promoted, the chocolate and sugar confectionary segments have the highest promotional lift.

Another structural advantage is the absence of a price segment.

Approximately 60% of the units scanned have a retail price below $1.

This absolute low price point limits the opportunity for deep discounting by retailers and thus the distortion of the price value relationship for consumers.

Equally as important, this preserves an attractive margin structure for our customers and for us.

Lastly, the retail ubiquity of the category is very compelling, as no one class of trade has a disproportionate share of sales and thus can't overly influence pricing or consumer behavior.

Hershey is well-positioned within this attractive category.

Our leadership share of the US confectionary market is broad based.

We are number one in the chocolate and sugar confectionary segments, while Ice Breakers has helped widen our leadership position within the highly incremental mint segment.

From a class of trade perspective, we are number one in the food, drug, mass and convenience store channels.

Most important, over the past year, we have expanded our leadership in each of the product segments and across each of these four classes of trade.

So, with this as a backdrop, we see an opportunity to streamline our growth programs behind major brands and major platforms.

I will now discuss four strategic growth opportunity areas.

These four are -- continuing market share gains within core confectionary, building innovative new platforms, expanding single-serve leadership and implementing a trading-up strategy.

I will begin with core confectionary.

We will continue to leverage our iconic brands as we deliver superior benefits.

Our filled products have been very successful, delivering indulgence.

We have successfully expanded from filled Kisses to offerings, such as Reese's Filled with Caramel and the just-announced Hershey's Filled with Peanut Butter.

Seasons provide an attractive source of profitable growth during high consumption periods.

We've streamlined our offerings, while gaining sales and market share.

Our momentum is strong.

We've now gained market share for six consecutive seasons.

Based on early results, Easter 2006 will be our strongest seasonal performance in 2 years.

Limited editions will be just that, limited.

This tactic provides an opportunity to inexpensively bring news and excitement to the category.

We will use them but do so in a much more disciplined way.

By bringing targeted innovation to sugar confectionary, we have accelerated the growth of Twizzlers and Jolly Rancher.

PayDay will be our next $100 million brand as we expand the successful PayDay Pro line.

Given our focus on incrementality and our superior relationship with customers, we expect continued strong market share performance within core confectionary.

Now, on to the second growth area, new platforms.

The major platforms that we will be focused on are refreshment, cookies and single-serve snack nuts, starting first with refreshment.

Our Ice Breakers platform has been very successful.

Through a combination of innovative new products and packaging, we have increased our leadership position within mints by over 6 points to 35% over the past year.

Moreover, this business is highly incremental.

New products within the refreshment segment are 85% incremental to our confectionary portfolio.

Beginning this quarter, we're introducing Ice Breakers Tropical Sours and two new Ice Breakers Ice Cube gum flavors.

We will be expanding distribution of the two original Ice Breakers Sours flavors and the two original Ice Cube gum products that were launched over the past few months.

In June, we will begin shipping our newest refreshment innovation, Ice Breakers Ice Packs.

Ice Packs are pouches made of two breaths strips filled with mouth-cooling xylitol.

The second platform is cookies.

Our cookie business is gaining traction behind new varieties and expanded take-home distribution.

As with the refreshment segment, cookies are highly incremental with a level of incremental contribution of almost 90%.

We've just begun to Mini Kisses Cookies.

Later in the year, we are launching three varieties of sandwich cookies.

The sandwich cookie segment measures close to $1 billion in sales and accounts for over 20% of the total cookie market.

With Real Hershey's Chocolate and Reese's Peanut Butter, we're confident that we can deliver a superior product to consumers.

For primarily the convenience store class of trade, we will be introducing two new single-serve brownies.

Given Hershey's strength within this channel, we believe that it is an appropriate segment in which to expand our cookie platform.

The third platform initiative is snack nuts.

Our 7 item line of Really NUTS! introduced last fall is now available in over 20,000 convenience stores with distribution continuing to build.

As with refreshment and cookies, snack nuts are highly incremental with an incremental contribution of 90%.

In addition, we will be introducing several new items that deliver a superior salty/sweet taste to consumers with an attractive margin structure for the trade.

These include chocolate-covered and cocoa-dusted almonds and macadamia nuts.

The next strategic growth opportunity area is single serve.

This is a very attractive segment.

Within the total snack nut -- snack market, over 40% of all units scanned are single serve.

This number expands to 68% within the confectionary category.

Moreover, single serve is highly profitable with an average profitability index of 1.8 times that of the total snack market.

Hershey is the clear leader within single serve.

For the year-to-date period, Hershey represented 19% of the single-serve segment within total snacks and accounted for just about half of this segment's growth.

Our goal is to significantly increase this portion of our portfolio.

In 2001, single serve represented 23% of Hershey's total sales.

In 2005, this increased to 25%.

Our goal is by 2008, single serve will account for at least one-third of our total portfolio.

Here is how we are increasing its importance and expanding our leadership share.

Within the highly-profitable convenience store class of trade, single serve accounts for 70% of all snack items scanned.

This quarter, we implemented a major distribution and merchandising drive on 12 of our most important single-serve items.

Kissables is one of these 12 products and has benefited from the c-store initiative.

Before Kissables, less than 3% of Kisses volume was sold in convenience stores.

To date, 20% of Kissables initial scanned sales came from this channel.

We will build on this momentum with the launch of Dark Chocolate Kissables in December.

A major source of incremental growth in convenience stores is our king-sized business.

In c-stores, 19 of Hershey's fastest turning 30 confectionary items are king sized with Reese's being the category's largest and fastest turning SKU over the most recent 12-week period.

Reese's King Sized is also our most profitable loose bar with a margin 7 points higher than the standard bar average.

We will expand our presence by securing incremental distribution on our top 10 king-sized SKUs.

We're launching several new king-sized items -- King-Sized Big Cup Reese's, King-Sized Crunchy Reese's and King-Sized Kissables.

New channels will provide another source of incremental growth for single serve.

Our test with Home Depot during the first quarter was very successful.

As such, the national rollout begins next month.

In addition to more stores, we will also be expanding our availability within each Home Depot.

We will have new rack space on the top of soft drink coolers as well as merchandising units at the contractor checkout area.

With 1.3 billion transactions annually, Home Depot offers tremendous upside for Hershey's highly-profitable single-serve portfolio.

The last strategic growth opportunity area to highlight is our trading-up strategy.

This is a very exciting opportunity for Hershey, as we're seeing this phenomenon play out broadly across many consumer goods categories.

We're already executing this strategy within the refreshment segment.

Here's how it works.

Previously, Breath Savers Roll Mints sold for a retail price of $0.69.

By introducing a superior Ice Breakers Sours in tens, the retail price now ranges from $1.69 to $1.99.

Not only is this a more profitable sale for the retailer, for Hershey, our profit per unit sold increases by 3 times.

The impact at retail has been powerful.

Ice Breakers Sours is the fastest-turning SKU on the front end at most of our customers.

We are expanding this strategy to premium chocolate.

The premium chocolate segment is large at $2.5 billion and is growing at a rate 2 times that of total confectionary.

So, to capitalize on the consumer demand for premium chocolate and leverage Hershey's scale within dark chocolate, here's what we're doing.

We will increase distribution of the Hershey Extra Dark line and Hershey Special Dark single-serve items.

In addition to the high levels of media coverage around dark chocolate, these brands will be supported by in-store merchandising, sampling, and Special Dark will have another wave of television advertising.

Next, beginning in the second half of 2006, we will be introducing a line of mass premium chocolate items under the Hershey Cacao Reserve brand name.

These items will be priced above our existing products, reflecting the use of the finest beans, a slower roasting process and a higher cacao content.

However, this line will be priced below the super premium segment, where our Scharffen Berger line is well-positioned.

The Cacao Reserve items are single-serve square chocolate bars and truffles in premium tens, all to be merchandised on the front end, the most profitable location for snack products.

We will also have take-home items merchandised in the confectionary aisle.

For the fourth quarter, we are introducing several high-end premium baking chocolates under the Scharffen Berger brand.

Roughly 60% of baking chocolate purchases occur during the fourth quarter.

Scharffen Berger is the leader in the fast-growing premium baking ingredient segment with a 68% share.

In fact, one-third of Scharffen Berger's total sales are used for baking, thus a great match-up during this high consumption period.

This trading-up strategy will also play out in our new snack nuts business.

Our snack nuts offer consumers a superior product and provide our customers with a profit per unit that indexes at 150 times -- 150 versus the total snack nut segment.

Let me wrap up.

The results for the first quarter were mixed.

While sales grew only modestly, our end-market performance continued to build momentum, as Hershey increased its market share for the seventh consecutive quarter.

We achieved solid profitability, as excellent cost controls offset modest sales growth.

As we look ahead to the balance of 2006, we have good visibility into the majority of our input cost and expect improving sales growth.

As such, we anticipate net sales growth for 2006 to be somewhat above our long-term range of 3 to 4% and diluted earnings per share from operations should slightly exceed our long-term expectations of 9 to 11%.

In addition, we have highlighted several growth initiatives that will both benefit the second half of 2006 and continue to position Hershey for balanced and sustainable growth over the long-term.

We will now open it up for questions.

Katie, the first question, please.

(Operator Instructions).

David Nelson, Credit Suisse.

On single serve, I was interested that that was slower -- at least slower growth.

You said that you didn't think that was related to price elasticity.

I guess first question there is, why do you think it isn't related to price?

Then second of all, part of it was related to limited editions.

It seemed like in December, you had a lot of new news related to limited editions.

Could you comment on that, please?

I think a couple of things.

First off, within single serve, which is obviously within our chocolate, non-chocolate and refreshment business, we had on a non-seasonal basis, a 6% increase in single-serve takeaway for the first quarter.

Importantly, when you look at the difference between everyday and then everyday plus limited editions, where we did see some slowdown in takeaway, it was within limited edition.

As we said, we're starting to see a point -- hit a little bit of a point of diminishing returns within limited editions.

Ironically, one of the drivers of that has been the great growth in our new platforms.

So, as we've done a good job getting Kissables and Ice Breakers, either Ice Cubes Gum or Sours, into distribution, we start to see a negative impact on limited-edition sales.

So, I think that's the important thing.

Also, the inventory reduction that we said we were seeing in selected retail locations was not price point related.

I think, Dave, you commented that you were getting some visibility into your cost situation for 2007.

Did you say that that was -- you expected -- what your expectations were that the gross margins would be -- well, just if you could comment on the [input] cost basis.

Revisit that, there was so much information coming at me at once.

Sorry.

Okay, David.

We do have good visibility into '06 costs at this point in terms of the input basket.

We had no surprises in terms of unit costs or productivity programs or where we wanted them to be in the first quarter.

We also obviously continue to monitor our input costs in the entire market basket.

You know, some of the key movers -- natural gas, dairy, tree nuts -- came down and retreated off of some pretty high points.

So, we're starting to get some visibility into '07.

At this point, I wouldn't make any comments about what the '07 basket would look like.

But, the market itself seems to be easing a bit.

Terry Bivens, Bear Stearns.

On the trade deload thing, obviously we've heard a lot from Wal-Mart.

How much of a factor was Wal-Mart in the trade deload, and how long do you anticipate that sort of thing going on?

Terry, I don't really want to talk specifically about any one given retailer.

Can you specify by state, Dave?

I can give it to you by location and store number.

No, actually, we would expect that it's largely one time in nature and it's a correction that occurred in terms of retail stock.

I would rather really not get into who specifically and where specifically.

Well, you wouldn't expect it to show up in the Q2 release then?

I would not expect it to occur in the 2Q release, correct.

Just one other one if I may -- the skew rationalization that I think if I got it right, it sounded like an awfully big number to me.

Didn't you say -- what was that again? 20 to 25% of what?

20 to 25% of the count over the next probably 12 to 18 months.

As we deemphasize some of the limited editions, that will help on the SKU count.

We continue to simplify our seasonal offerings.

What we are finding seasonally is that fewer bigger, better brands are working.

We actually are going to pare back between one-third and one-half of the Mauna Loa items that we -- in that portfolio as we make that work harder.

So, it's a number of initiatives, and we're looking at some of the other product lines in the portfolio that have lower margins that just aren't growing.

So, we will manage that through the normal kind of day-to-day target setting.

But, we will do it in kind of ratably over 12 to 18 months.

What would you expect the impact on sales to be of that, percentage-wise perhaps?

At this point, I wouldn't -- I wouldn't expect to see much of an impact as we migrate more toward platform innovation.

We'll have fewer items, but they should be bigger items.

That's kind of the way we're approaching it.

David Driscoll, Citigroup.

Rick, since you've taken over Hershey, your strategy to significantly increase new product introductions.

But, it seems from just listening to your comments in the press release that you're signaling what looks like a fairly major change in strategy.

So, if the driver of the positive results in the past was a higher number of new products, it seems somewhat logical to conclude that revenue growth will be much lower than the 9% that the Company achieved in '05 and the 6% in 2004.

How would you respond to that?

David, first off, it does not just signal a shift in strategy.

We will continue to have a strong emphasis on new products.

I think what we're -- not think what we're talking about is to be much more focused on the more sustainable and innovative platforms.

So, we talk about refreshment and all of the excitement that is taking place within Ice Breakers.

We talk about cookies and all the excitement that is taking place behind new entries, whether it be brownies or sandwich cookies and then certainly when talking about the trading-up strategy when you think about Hershey's Cacao Reserve.

So, it's far from moving away from new products.

I think it's after a few years, we continue to learn about what works and what doesn't work and where we have opportunities to grow -- for growth excuse me.

We had a greater contribution from new products in the first quarter this year than we did in the first quarter of last year, most notably Ice Breakers and Kissables.

So, it certainly doesn't represent a major shift in strategy.

This new products and innovation are the lifeblood of the category, whether it be confectionary as a total snack market.

We continue to be very disciplined but proactive in terms of leveraging both Hershey's iconic brands and our tremendous in-store presence.

When you talked to us back at the holiday at Hershey's, I think you said that 2006 new products would amount to 50 new products versus 40 in 2005.

Can you give us an update on what the '06 -- just the aggregate numbers?

I'm just trying to get a sense here as to kind of what's changed in what you're trying to tell us today.

I don't remember that specific number.

What I do remember saying that on an ongoing basis, we like to see somewhere between 5 and 10% of our annual sales from new products.

We said in '05, it was going to be at the high end of the range.

I think at the time, we also said '06, it will be at the high end of the range.

That's still the principle that we're following.

What is important about what we are just discussing today is what is going to comprise that new product innovation -- much more platform based, much more sustainable -- continuing to expand our core confectionary business but also recognizing where we've had some very good successes and relevant adjacencies that makes sense for us -- snack nuts, refreshment, and cookies.

Eric Katzman, Deutsche Bank.

I guess a few questions.

First, Rick, I think when you first started, you were promoting the [ADSD] approach.

It seemed like you were putting a lot of money into the sales force.

One of the things I came away with at your analyst meeting was just this huge proliferation of new products.

Do you think that part of this as opposed to the trade deload -- do you think part of this may have to do with the sales force being somewhat overwhelmed, where certain parts of the business are emphasized and others are not?

Does that mean that you have to spend a little bit more on the sales force just in terms of the number of people out there to handle all this?

No.

I think a couple of things, Eric.

I think what's important if we were overwhelming the sales force, I think a couple of places it would immediately show up would be in takeaway and share.

Since we continue to have strong share gains across our major product categories and across most classes of trade -- and Dave even highlighted how we started to pick up traction within the convenience stores -- they are certainly not overloaded by any stretch of the imagination.

Regarding the cost, we continue to have excellent leverage throughout the P&L, which is why we're able to have EBIT margin expansion.

I think what's important is we immediately, dynamically rerouted our sales force coverage over the past several weeks in convenience stores so that we could focus on these 12 highly incremental and high-growth items and it has paid off.

So, we're very mindful of that.

We certainly are much more disciplined about the directions that we give the sales force.

I think scaling back appropriately on limited editions and giving them some sustainable news to go work with their customers I think is the right approach.

Second question, I think that you had said again at the analyst meeting that the premium chocolate category was growing double digit.

It sounded like you said that the premium business for you is up slightly.

What is going on there?

Is there some difficulty in terms of acquisitions at the Company because also it sounds like Mauna Loa is not working out nearly as well as you had hoped?

I will address Mauna Loa at the end.

Let me go back.

What we talked about was there is the dark chocolate segment, where -- solid dark chocolate segment where Hershey is the clear leader at 67%.

The point that I referenced was premium chocolate, which is about $2.5 billion and growing at a rate 2 times that of total confectionary.

There's different numbers that tend to be reflected in terms of a premium and then dark chocolate within premium.

I think what's important, dark chocolate will beat out Hershey's fastest-growing business in 2006.

So, we see continued high-growth potential both within our existing products that I highlighted, special dark and extra dark, and then the exciting introduction of Hershey's Cacao Reserves.

So, we see a major growth opportunity -- a, within chocolate overall, certainly within dark chocolate and then on a smaller -- but the premium segment.

Regarding acquisitions, the two that are off to a good start are Scharffen Berger and Joseph Schmidt, which are entries in the premium chocolate segment.

Regarding Mauna Loa, it's really a tale of two cities.

Half the business is in Hawaii, and our Hawaiian business is doing extremely well.

The other half here in the States is -- has had spotty successes.

Dave just highlighted, we see opportunities to streamline the portfolio.

But, to be clear, had we not acquired Mauna Loa and not learned some more about the attractive snack nut market, we wouldn't have introduced our Really NUTS! line.

As I said, that's now available in 20,000 convenience stores and it's off and running.

Last question, Dave, can you touch on the breakdown of sales?

I mean, you said I think price was up.

Promotion was up slightly.

So, does that mean volume was down in the quarter?

Yes, that's the way to read it, Eric.

We're up 6 -- basically 0.6, and we did get price realization from the list pricing.

So, we did have US confectionary volume overall down.

Again, it's largely in the single-serve components that we talked about.

So volume may be down what, 1, 2%, and then price the difference?

I guess if you want to think about it in the US, think about it maybe price up 1 point and volume down 1 point.

Pablo Zuanic, JP Morgan.

I just want to expand on the SG&A theme.

I think the Company would be criticized for maybe not reinvesting but part of those SG&A savings in more advertising on supporting some of the new platforms it has launched.

To some extent, I would say that a lot of people sit over there don't know about Take 5 unless they've seen it on the front end of the store and maybe Kissables could be more supported.

Can you comment on that, please?

Sure.

I think it's important to provide our perspective on advertising but more broadly total brand support.

We have said repeatedly and we continue to update it that over the past few years, our extensive marketing mix modeling where it continues to reinforce that trade promotion provides the highest ROI.

If you think about it, it's a category with high household penetration, very short purchase cycle and the highest level of impulse sales that what we do in store has proven to be very beneficial and our spending reflects this marketplace reality.

Here's why.

Since 2001, we've spent over $300 million on in-store merchandising units, such as racks, displays and shippers.

In addition, because so much action happens in stores, we have increased our in-store sampling activity while capitalizing on our scale with consumers through on-pack events, such as the wrapper cash with eBay.

From a retail perspective, we have increased our retail ACV by 17% over the past 2 years.

So, we continue to take advantage of our in-store presence and the high impulse nature.

But, here's one factor to consider about advertising.

One of the most difficult targets to reach via traditional media is young men.

This group watches 25% less TV than the average consumer.

However, young men are the largest and most frequent shopper within convenience stores with 68% of this group shopping once a day or more.

Where advertising truly makes a difference is in support of our new platforms and innovation, and that's where we've talked about we will continue to focus and direct our spending so those brands and those platforms that we know have end-market success with advertising.

Ice Breakers share gains can be directly attributable to strong advertising support, and both Kissables and our cookie business have benefited from advertising.

So, we look at it -- the combination of advertising, consumer promotion and trade, and that's where we see our competitive advantage.

That's very useful.

Now, just to follow-up, in the past, you had talked about this new rack program.

I understand the racks have been in the store for a while.

But you had talked about 11,000 new racks for the first quarter and I think 50,000 for the whole year at c-stores.

I'm just trying to get a sense in terms of where are you with that program and just help us out in terms of the incrementality there?

I mean, obviously, we run the math.

But does it double your space, your ACVs, those racks at c-stores?

In terms of actual sales, do you think that they leave sales 20% on a per-store basis?

Help us out there in terms about where the program is and the math in terms of the impact of those racks.

We will be placing the racks as the year -- kind of ratably throughout the year.

If you think about it, it's part of the top performer program.

Does it increase our ACV?

I mean, what it really does is actually gets us better location.

It's getting perimeter locations and counter space in the convenience class of trade, which is very important for us.

So we do see very good list off the racks.

I don't want to get into specific category management statistics for competitive reasons.

But, it does -- the category grows and our brands obviously grow off of these racks.

We're going to be placing them throughout the year.

Equally as important what we did in the first quarter, we visited 65,000 convenience stores in a 4-week period.

Many of those convenience stores don't participate in the top performer program.

So what we did was also got some merchandising and some activity in the stores beyond that universe of the 35,000 that you're talking about.

So, we continue to feel good about the programs because it does get us the prime locations and the good real estate in the store.

That program continues to roll out through the year.

Just one last question in terms of the math -- can you differentiate in terms of your sales for the quarter?

I mean the number is 0.6%.

What happened with seasonal merchant products and the non seasonal?

Could you distinguish between the two?

I would really rather not give you exact specifics.

But, if you think about we had Easter shipments in the fourth quarter, so we did have a little bit more difficult time with seasonal shipments; although, our takeaway was very good.

So, I think if you think about it, we've got some price realization and our volume was off a little bit.

We were pretty -- as I said, single serve was one of the things that was affected as well.

Okay but just on that point, on the fourth-quarter conference call, you guys said that the takeaways were about 8% in total and shipments have been about 4%.

We had expected some of that to reverse in the first quarter, but I understand the Easter effect.

So, now, we have another situation where takeaways are ahead of shipments for two quarters in a row.

I mean, you can try to explain that.

But, more important than that, how do you explain the slowdown in takeaways?

We went from 8% growth in the fourth quarter to 4% in the March quarter.

I think the single-serve volume also was valid in the December quarter when you actually had 8% takeaway growth.

I don't remember specifically the 8%.

Is that you're talking about the full business or (multiple speakers)?

No, I think you guys mentioned it as the number that was comparable with organic 4% shipment growth for the December quarter.

In the call, you said that the relevant comparable number in organic terms was 8% out in December.

But, anyway --

I think the important thing is we said our -- we had very strong seasonal takeaway.

We're just starting to now get the later weeks, which have the seasonal numbers in them.

So we are starting to see what would be minuses for the quarter start to turn around and go positive.

The past couple of weeks, we've had very good takeaway and share gains; although, we only report it today through the quarter ending March 25.

With 4.5% non-seasonal takeaway, which is all measured channels for us, we feel that's very good.

I think we are in a better position when we have takeaway ahead of shipments.

Rick, if I may, just one last question.

Where does adjacency program end?

I mean, are you going to have one day Reese's beef jerky?

How far can we extend these brands?

(multiple speakers) I think what's important is, we're very disciplined about which brands can go where.

That's why we will continue to focus on the major brands, whether it be Reese's, Hershey's, or Kisses, your point is a good one that we continue to be disciplined about where the consumers says we can take our brands.

We use an expression here that we say a foot in a familiar.

We're never going to get to a point, where we've extended the brand so far just to try to get some incremental sales and it no longer delivers upon the equity.

More importantly, it doesn't continue to build the core brand equity.

Jon Feeney, Wachovia.

Could you -- just a couple of questions.

As an aside, if you are thinking about getting into Reese's beef jerky with protein prices, it's probably a decent time to think about it.

But --

Thanks for the tip.

But, when you look at your broadening your reach, you're getting into a lot of different competitors wheel houses I guess.

Are there any specific competitors you can think about that are getting tougher to compete with as you expand more and more outside the candy category?

I think there's a couple of things to think about.

Whether we were to expand into snacks or not, we compete against the broader snack companies day in day out if you think about convenience stores.

When a consumer goes into shop within convenience stores, he or she is not necessarily saying, I want a candy bar, I want a cookie, I want a snack nut.

They say, I want a snack or I want an indulgent snack.

So, we have been competing against a much broader universe for several years now.

As we said all along, we're going into those segments -- into the categories and the segments within those categories, where we believe we can bring a superior value proposition to our consumers and that the trade can have a good margin structure.

That's why within cookies, we're very mindful of being targeted in primarily single serve and indulgent cookies and where we can bring a difference.

We're not getting into some of the mainstream segments.

So, to answer your question specifically, we have not seen very aggressive competition in a major segment that would bring into question our ability to compete.

In fact, we had a very strong first quarter on our cookie business.

That's where we see opportunities to continue to expand but expand with close in variety.

So, when you think about doing something in sandwich cookies with Reese's and Hershey, that's a logical extension off our cookie platform.

Okay, David, and finally, when you think about sugar costs, just a detailed question really.

This is on a lot of people's minds and they kind of came back almost towards pre-Katrina levels.

Is this spike kind of behind the Company, or did you find yourself in a situation where you know maybe bought some sugar at prices substantially higher than today?

I think, as we said before, we're certainly not going to comment on any one specific commodity.

We look at a basket of input costs.

I think what is important is that our packaging expense is about 60% higher than our sugar expense and sugar cost.

We see opportunities as Dave articulated for us to have greater control over potentially reducing our packaging expense.

So, there's a lot of opportunities for us to continue to improve our underlying cost structure.

Kenneth Zaslow, Harris Nesbitt.

A couple of questions.

First, in terms of your sales growth outlook above 4%, that's including the SKU reduction, the trade deloading.

So we're not going to see it -- we're not going to hear you kind of next quarter or the quarter after saying, well, we had 3 to 4% -- above 3 to 4%.

But if you take out the SKG reduction, it's a little bit lower than that.

Is that fair?

That's fair.

In terms of the SKU reduction, how much SKU reductions come out of new product outside the seasonal and limited editions?

I guess I'm trying to get an idea of what is the failed new products out there?

What's the what?

I'm sorry I didn't catch the last part.

The failed new products.

I'm assuming you are reducing the SKUs of seasonal, limited editions and products that probably didn't do so well.

Some of the ones that in the past maybe not have done so well -- for example, the Swoops platform didn't work as well as we would have liked to.

We have our Bites business.

Pot of gold, for example, is a business where we think we can get to the same outcome from a retail standpoint with a lot fewer SKUs.

So there are a number of them that we are looking at, at rationalizing that way.

As Rick says, we're going to have less limited editions.

The Mauna Loa business is another one where we think there were too many SKUs.

So, as I look at it, it really is for us, looking at it kind of product line or segment by segment and taking out some of the underperformers in each.

So, even going back to '04, '05 and going to '06, the deceleration in sales growth is really not that big if you assume internal sales growth for '04 was about 6%, internal sales growth for '06 was about 6% and this year is going to be somewhere above 4%, even including the SKU reductions.

Yes, we are still saying somewhat above 4% for the year.

In terms of the outlook for commodities, ADM just announced a cocoa plant in Pennsylvania.

One of their strategies seems to be processing a little bit more chocolate.

Is this a cost-reduction agreement that you could come up with ADM, or is it just coincidence that they are in Pennsylvania too?

I would rather not talk about specific companies that we do business with or sourcing.

We continue to look at activities for us that are non value-added.

To the extent that we can have someone do it more cheaply, we will.

But, there's nothing specific I would draw from anything that ADM has announced that relates to us.

Then, my last question is, how do you assess the return on invested capital and your margin structure as you expand beyond your core brands -- core products, such as going into cookies and nuts?

Is there a return on invested capital that you need to achieve?

Is there margin structure?

How does that all play out and is there any pressure on your return on invested capital or margin structure because it is a higher risk business?

I think quite the contrary.

The fact that we are essentially using our major brands, so we're not having to invest in a new brand that we use so much of our existing value chain and that it's certainly sold through our existing sales force.

We get very good leverage.

Therefore, we wind up with very good returns on invested capital as our ROIC has shown over the past few years.

The fact that we can continue to expand the EBIT margins while we expand into these other segments I think validates that we are getting very good leverage throughout the entire businesses system.

Andrew Lazar, Lehman Brothers.

Just two quick things.

One -- and if I missed it, I apologize -- you had talked about being somewhat disappointed I think with c-store business in January and February.

I'm just trying to get a sense again of what specifically -- and I realize what you did to sort of turn that around and the proactive steps you took.

What was it exactly that sort of led to that?

Was it a competitive scenario in some specific area or just some of the timing things you've talked about?

I think it's probably twofold.

We actually didn't -- we are not performing very well in the king-sized segment of the market.

So, when we look at what was happening from a share standpoint, we were not performing well there.

The velocity of some of the limited editions that we had introduced in the latter part of last year, they weren't turning as quickly.

So, we weren't getting the new items that we thought had better prospects for long-term growth, such as Kissables, dark chocolate, some of the cookie items, to the marketplace fast enough.

So, what we were seeing was a little bit of a slowdown in our takeaway.

A lot of it was velocity of limited editions.

So, that's why we move very quickly to use the dynamic routing capability we have with our handheld terminals in the sales force.

So, if you think about it, our overall takeaway for the 12 weeks was up over 4%.

We had a 6% growth in the latest 4.

So, we were a little slower in the first couple of months and we weren't pleased with that.

Is that dynamic that you just discussed maybe what -- is that sort of the straw that broke the camel's back in terms of saying, hey, let's get on with this, focus more proactively on the larger -- fewer bigger platforms versus some of the limited edition activity?

Maybe you saw that happening for a while, but was that maybe the straw that broke the camel's back and say, hey, let's get on with that process?

I think a little bit of that.

I think what's also important is we started to see the traction we are getting behind Kissables and Ice Breakers and some of the platforms, which has always felt had a longer-term, much more viable in the long-term and sustainable.

So, let's do that and really make sure we allocate our resources there accordingly.

So, I think that was it.

So, while we had seen a -- what we don't want to do is overemphasize a slowdown in limited editions because we still gain share in loose bars in c-stores during the quarter.

I think what's important is that we see an opportunity.

Part of it is exacerbated by the great growth we've seen in the new platforms.

So that's why we think it's a more appropriate way going forward.

It seems to me -- and tell me if this is fair -- that limited editions were always perhaps intended to be sort of an evolutionary process, right, doing more with the brands you already had but always intending to keep going on other platforms and things at the same time.

But just it takes whatever it is -- 1 year or 2 years or more to come up with additional platforms, given -- from the point when you started.

Yes, I think that's correct.

If you think about when we started limited editions and I think 2002 and into 2003, we really had nothing in the relevant snack market adjacencies.

Then, we would start to think about refreshment.

Because it's so highly incremental to our core confectionary, we look on refreshment as an adjacency almost.

If you think about where we've come with refreshments and certainly now with cookies and snack nuts, to your point, that does say limited editions play a role but a much smaller role.

The last thing is just, I remember with limited editions also one of the things that was I think nice about it was because you were bringing in new news, kind on a one-off basis to retailers, you kind of said, hey, you can't put these on the core sort of aisle but had to be secondary or sort of tertiary sort of placements.

Correct.

I'm assuming you sort of get that same sort of incremental display and merchandising activity with new platforms even more so maybe than you could have with limited editions.

But I went to make sure you don't lose anything on that front.

Exactly.

What we wouldn't want to do is if there were an opportunity for incremental space in a rack or merchandising unit, we want it to be behind a platform than necessarily behind a limited edition.

So, you are still getting the incrementality from a merchandising standpoint obviously, maybe even more so I'm assuming with these platforms (multiple speakers).

From the new items, yes, from the platforms.

They do get cut into the regular shelf space, correct.

Leonard Teitelbaum, Merrill Lynch.

Most of mine have been asked and answered.

I'll follow up off-line here.

Thank you.

Eric Larson, Piper Jaffray.

Just one quick question everyone.

Rick, could you give us a little flavor for what -- how much ACV potential gains you can still capture?

You have over the last 3 years captured quite a bit of ACV, and does the racking system for convenience stores help you achieve some more of that?

The answer is yes to the second question.

In terms of our opportunities to expand ACV, as we continue to have share gains broadly, yet in a couple of the classes of trade, we have -- our market share is less than our weighted average.

We continue to believe if we bring innovative marketing programs and products to our customers, we can gain the distribution.

The fact that we have broad portfolio scale, we are able to come in with a much larger amount of merchandising funds yet on a per unit basis.

It could be less than that of a competitor, who is only coming in, in one segment.

So, yes, we do believe there's continued opportunities for -- a, regular distribution in shelf or in the aisle but also one of the gains for us is how we continue to get incremental merchandising.

David Palmer, UBS.

How much of your -- of the drag to revenue do you think it was that this trade deload in the first quarter?

I know you didn't estimated before.

Any rough numbers you can give us there?

I would prefer not to get into the specifics.

I guess the second question would be, over the last couple quarters, it appears that the c-store channel was the major source of the disappointment.

I'm just trying to think about what within that might have been disappointing.

You know, you had the incremental selling rack placements, the rollout of Kissables, Really NUTS!.

I guess you would to some degree depend on the sustainability of Take 5 and other.

Could you perhaps give us a recap of where you might have been disappointed in that channel?

I think it's a couple things.

For the quarter, our total Hershey's convenience store takeaway was up 4%.

Within that is the negative impact of some very -- a little bit of seasonal business -- Cadbury Easter Eggs, which obviously will start to show up in subsequent weeks.

So don't want to lose sight of the fact that in non-seasonal takeaway within overall FDMxC, it was up 6%.

Within convenience stores, we gained share in the fourth quarter.

As we've talked about, we had at the time a lot of consecutive periods of quarterly share gains in convenience stores.

What we are talking about is exiting the first quarter with two-tenths of a share decline.

But more important, we saw an improvement in the most recent 4 weeks.

The program that Dave articulated really only got going towards the end of the quarter.

So, we continue to see convenience stores as a major source of growth, particularly if you think about the items that have high incrementality and being able to get some of our core chocolate brands in there.

So, what's important is whether it be within drugstores, whether it be within mass, certain food customers and convenience stores, we see opportunities to continue to build our portfolio.

We're going to continue to work to gain share in all major classes of trade.

Was the incrementality of Really NUTS! hurt perhaps by new competition in the snack nut segment?

It seemed like you saw Kraft, Frito, Diamond all introducing new nuts/trail mix products.

I mean, for us, the snack nuts are incremental.

It's something that we don't have in our portfolio.

Remember, we're also very much focused on value added.

So, for us, it's natural to do a Reese's nuts.

It's natural to do chocolate-covered, cocoa-dusted.

So we're playing where it makes sense for us to play from a brand equity standpoint.

It is incremental to our portfolio.

You know, it's very much an on-trend segment, which is why we're playing there.

The consumer is blocking to the segment, and it makes sense for us to take advantage of that.

You know, your -- I guess I just wanted to focus on your guidance on the revenue side.

You know, to be somewhat above the 4%, it does seem like a higher hurdle, given the fact that we had the sales in the first quarter.

You have the plans for SKU rationalization.

I'm trying to read this, but perhaps you still have some early selling at retail.

I think it implies something like 6% revenue growth for the last three quarters.

That being the average growth, I'm just wondering if you could comment on how you see that playing out over the last three quarters.

Will there still be a ramp through the final three quarters here?

First off, we don't provide any specific direction on any one quarter.

We said that we do expect sales to increase as we go through the year and you start to think about what we've got in place for primarily the second half.

We also talked about some new initiatives that we are beginning to launch in this quarter.

But as you go into the second half, we have a step-up in some new snack items.

We certainly have the cookie expansion that we talked about -- Dark chocolate, Cacao Reserve, as I mentioned, continued growth in seasons as we've talked about.

That's why we believe when you get to the end of the year, we will be slightly above our 3 to 4% range.

We're not going to get into what that might look like by any one quarter.

But, you're -- the slightly above the 3 to 4 is the guidance for the year, right?

That is correct.

I mean, perhaps one way for us to think of it is you've mentioned takeaway was plus 6 in the last 4 weeks.

Is it just simply your expectation that we're going to see that sort of takeaway continue and that your shipments are going to start to approach or start to mirror takeaway?

One quick thing that we said for the -- in terms of takeaway because this is a seasonally-impacted quarter, the FDMxC including Wal-Mart convenience stores non-seasonal takeaway was up 4.5% for the 12 weeks.

The one number that I reference was total single-serve takeaway, which was up 6%.

So I want to make sure that there's no confusion.

We did not say that any part of our -- that our entire business, seasonal or non seasonal, was up 6%.

We said single serve, which is a very important growth vehicle for us, all in non-seasonal takeaway was up 4.5%.

But you are correct.

As of this point at least through the first quarter, takeaway was greater than shipments.

So, you didn't make any sort of all-channel portfolio comment about consumption for the last four weeks.

You didn't give the number.

The 6% number I think you referenced was the 4 weeks in convenience stores with 6%, not the entire (multiple speakers).

Frankly given the shift in timing of Easter, it's very difficult to get a comparability number for total category until we really get to the end of April and into early May when Easter kind of cycles through the system.

David Driscoll, Citigroup.

Quick question.

Dave, on the last conference call, you mentioned that seasonal shipments in the first quarter would be flat.

I think what you were trying to suggest was that some of it would shift into the second quarter because of the timing of Easter.

Now, I think that my conclusion back on that conference call was that it was on January 25, you had to have at least in my thought a pretty good idea of what your shipments would be for the final 2 months of the first quarter.

Yet, here we are today looking at almost no revenue growth.

Did it really happen subsequent to January 25, where the non-seasonal business shipments declined significantly from your expectations?

Well, let me clear up the seasonal comment.

The seasonal shift -- seasonal business in the -- shifted into the fourth quarter of last year, not into the second quarter of this year.

You know, we shipped Easter earlier.

It shipped in December of '05, and that's turned out to be very good.

Because from a merchandising standpoint, we are having a very good Easter season.

The question that you have -- so my comment would've been that the seasonal business would be flat for the first quarter.

I'm not going to give you exact numbers, but it was pretty close to flat for the first quarter.

The shortfall, as we've been very clear about, is on single serve.

It's related to -- I said it's related to somewhat the slower velocity at retail of our limited edition items but also selected retailers taking inventory levels down at retail.

So that's pretty much as clear as I think I can be in terms of what happened in the first quarter.

Eric Katzman, Deutsche Bank.

Dave, I'm not sure I got down all the numbers, but I think you said that the restructuring charge is coming in a little bit lower than you thought.

I'm wondering, was there any reversals of that in the quarter in the P&L?

Will you let us know if you decide to reverse some of the charge going forward?

No reversals.

If we do -- if we do do anything, we would obviously -- that would be an operation that we would pro forma any reversal out from an operations standpoint that we would continue to report it that way.

(Operator Instructions).

Katie, I think hearing no more questions, we will conclude today's session. [Mona Fern] and I will now be available to answer any additional questions you may have.

As a reminder, our 2006 second-quarter sales and earnings release and conference call is scheduled for July 20, 2006.

We will release earnings at 7 AM that day, and our conference call is set for 8:30 AM.

Thank you for your interest and good day.

This concludes today's Hershey Company first-quarter 2006 results conference call.

You may now disconnect.