好時 (HSY) 2011 Q3 法說會逐字稿

Good morning. My name is Denise and I will be your conference operator today. At this time, I would like to welcome everyone to The Hershey Company third quarter 2011 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Mark Pogharian, you may begin your conference.

Thank you Denise. Good morning, ladies and gentlemen. Welcome to The Hershey Company's third quarter 2011 conference call. J.P. Bilbrey, President and CEO; Bert Alfonso, Senior Vice President and CFO; and I will represent Hershey on this morning's call. We also welcome those of you listening via the webcast. Let me remind everyone listening that today's conference call may contain statements which are forward-looking. These statements are based on current expectations, which are subject to risks and uncertainties. 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 2010 filed with the SEC.

If you have not seen the Press Release, a copy is posted on our corporate website in the Investor Relations section. Included in the Press release is a consolidated balance sheet and a summary of consolidated statements of income prepared in accordance with GAAP. Within the Notes section of the press release, we have provided adjusted pro forma reconciliations of select income statement line items quantitatively reconciled to GAAP. As we've said within the Notes, the Company uses these non-GAAP measures as key metrics for evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes the presentation of earnings that exclude certain items, provides additional information to investors to facilitate the comparison of past and present operations.

We will discuss third quarter results excluding net pre-tax charges related to Project Next Century of $13.5 million in 2011 and $4.5 million in 2010, as well as a third quarter 2011 net pre-tax gain on the sale of non-core trademark licensing rights of $17 million. Our discussion of any future projections will also exclude the impact of these net charges. With that out of the way, let me now turn the call over to J.P. Bilbrey.

Thanks Mark, and good morning everyone. Before I start, I just want to make sure that this question doesn't come up later. Bert Alfonso is the Executive Vice President, CFO, and CAO; so nothing happened to him on the way to this call. Results for the third quarter were solid and I'm pleased with our financial and marketplace performance despite the macroeconomic challenges that persist. The CMG -- candy, mint and gum category continues to grow above its historical growth rate and is outpacing salty snacks, cookies, and crackers.

Our business is strong in all classes of trade and our collaborative relationship with retailers continues as they value the importance of the confectionary category and the leadership that Hershey's provides. Hershey's third-quarter results reflect a continued momentum of our brand. Net sales increased 5%, slightly ahead of our expectations. Seasonal volume, which was sold in at previously agreed upon price points and represents about one-third of our total US net sales in the third quarter, increased and for the year will be greater than our initial expectations. Price realization on non-seasonal items in the US was also ahead of our estimates. Importantly, volume elasticity on these pack types was in line with our modeling and better than the historical staples group average.

From a profitability perspective, earnings came in a bit better than our expectations; our overall commodity cost profile was significantly higher this quarter than in 2010. However, cost savings and productivity initiatives, as well as net price realization helped mitigate the impact. Our solid results enabled us to be flexible in our approach to incremental brand investment. In 2011, we estimate that advertising will increase high single digits on a percentage basis versus the prior year, enabling us to support new advertising on Jolly Rancher and Hershey's Cookies N Cream. This is greater than our previous estimate of a mid-single digit increase. Full-year adjusted SM&A, excluding advertising, is also expected to increase slightly versus our initial estimates as we accelerate investments in our go-to-market strategies and capabilities. Year-to-date, CMG is up 4.4% in the measured FDMxC-channels greater than the historical growth rate of about 3% to 4%.

In the third quarter, CMG was up 4.5%. As we look to 2012, we would expect historical growth rates to prevail in the category, although the underlined drivers of growth may differ as pricing is implemented in the marketplace. In terms of Hershey's marketplace performance, total CMG retail consumer takeaway for the 12 weeks ending October 8, and year-to-date periods per our custom database in channels that account for over 80% of our retail business was up a strong 8.7% and 8.3%, respectively. As a reminder, these channels include food, drugs, mass, [here] including Walmart and convenience stores. In the channels measured by syndicated data, FDMxC, or food, drug, mass, excluding Walmart and including convenience stores, Hershey's Q3 CMG retail takeaway was 8.4%, resulting in a market share gain of 1 point. On a year-to-date basis, we have also gained 1 point of market share. Specifically, within the food class of trade, CMG grew by 2.3% in the third quarter, less than the historical category growth rate due largely to [gum] performance.

Chocolate category performance within the food channel was solid, up 4.7% driven by new products and seasonal items. Investments in the category in the form of innovation and advertising are present for most major manufacturers. Hershey's food channel retail takeaway increased 3.8% in the third quarter, driven by our chocolate and non-chocolate performance, up 3% and 8.7%, respectively. This resulted in a Q3 food channel market share gain of 0.4 points. These results were driven by core brand performance, new advertising on Payday and Jolly Rancher, and our in-store merchandising and programming.

For perspective, Payday retail takeaway was up 37% over the last 12 weeks and retail takeaway on Jolly Rancher, up 20%. To date, retail customer Halloween orders, shipments and sell-through is on track although we have not had a complete read on sell-through for another couple of weeks. Seasonal specific advertising, coupons, and programming support is greater than last year and we believe this is the right mix that sets the stage for another winning season. In 2011, we estimate that our seasonal market share will increase for the fourth consecutive year, and that we'll exit 2011 with at least a 32% share of the total seasons.

Turning now to the C-store classic trade where the CMG category was up a solid 6.5% in Q3. Hershey's C-store takeaway increased for the 13th consecutive quarter and was up 12.8%, resulting in a share gain of 1.5 points. In Q3, Hershey's C-store chocolate, non-chocolate and mint takeaway was up 13%, 15.4% and 13.8%, respectively. These gains were driven by price realizations, net volume gains due to king-sized growth, and strong in-store merchandising. Within the C-store channel, the king-sized candy bar has emerged as the fastest growing pack type. Year-to-date, king-sized is up about 18%, greater than the three-year [CAGR] of about 11% and on pace to be a $1.1 billion business in convenience stores by year end. Here, Hershey is the king-sized leader with a [54%] share of the segment. In 2011, Hershey's C-store king-sized retail takeaway has increased 22% with market share up 1.6 points. As it relates to our March pricing action, king-sized conversion has progressed nicely due to merchandising, continued distribution gain, innovation and consumer recognition that this is a good price value proposition.

At the drug class of trade, the CMG category continues to expand with growth of 6.1% in the third quarter. Hershey's drug channel retail takeaway was solid, up 11%, resulting in a share gain of 1.1 points. Our performance was balanced with retail takeaway, up about 9.4% in chocolate and 16.8% in non-chocolate. Our Ice Breakers Mint platform, driven by the new Ice Breakers Frost product continues to do very well, as evidenced by our 19% third-quarter mint retail takeaway in the drug channel. We are leveraging the momentum we have in mints to drive our Ice Breakers Ice Cubes gum business. During the quarter, we achieved the desired distribution levels of Ice Breakers Ice Cubes in bottle packs at a couple of our key drug customers, enabling us to secure key point-of-sale position resulting in a gum share within this category, up 0.2 points. In the fourth quarter, we will be active in all classes of trade for solid brand building initiatives including core brand merchandising, programming and consumer promotion around the Hershey's S'mores Tailgating, Reese's NCAA Football Perfect Seat Promotion, and Ice Breakers Frost New Year's Eve and Las Vegas Promotion and the Holiday and Baking Seasons.

Now for a quick update on new products. The Hershey's Air Delight launched commenced during the summer and on-air advertising began in September as we reached targeted distribution points. Early trial numbers are outpacing our initial model and driven by high-value FSI. In Q4, we'll focus on C-store distribution and the high-valued coupon program to build awareness and trial. While we are very excited about this launch, it's important to remember that Air Delight is a new and unique form and texture for US consumers and will require brand building efforts. Reese's Minis and Hershey's Drops have been in the market for a little less than a year and have been an overwhelming success. Both products have exceeded our expectations and we'll support them with strong year-two advertising, multiple FSI, and strong merchandising support. This investment will ensure the brands continue to grow in 2012 and beyond.

The take home and instant consumable king-sized pack types are both doing well in the marketplace. We were particularly pleased with the Reese's Minis king-sized where dollar velocity ranked second among all king-sized offerings in C-stores and sixth in FDMx. Lastly, late in the fourth quarter and into 2012, we'll launch some [closed] end line extensions that will bring variety and excitement to some existing brands, including -- Hershey's Drops Cookies N Cream in a king-sized pack type, Hershey's Pieces Milk Chocolate with Almonds, and Jolly Rancher Crunch n Chew.

I would now like to spend some time on our international business. Outside of the US, our international business remains on track. I'm happy to reaffirm my comments from last quarter and tell you that in our focus markets of Mexico, China, Brazil and India, we are ahead of plan forecasted to grow a combined 20% to 25%. This is a bit better than our modeling assumptions. Therefore, if our business outside the US and Canada continues to grow at the current organic rates, we could achieve our target of $1 billion in sales earlier than our 2015 objectives. As we have done to date, we'll do this in a disciplined way, maintaining balance across our overall business. Thoughtful consumer insights and portfolio expansion and building our go-to-market capability is where we are focusing our efforts.

Now, to wrap up. The CMG category continues to grow across all retail channels in the US despite the economic challenges facing consumers. The category is proven to be resilient in difficult times and we would expect this to be the case going forward. As we look to the remainder of the year in 2012, consumers will see higher every day and promotional retail prices. With our fourth quarter sales growth, we now expect full-year 2011 net sales, including the impact of foreign currency exchange rates, to increase around 7%, and earnings per share diluted to increase around 10%. Over the coming months, we'll closely monitor category performance and work with our retail partners to continue to win in the marketplace. Our initial expectation for 2012 was for net sales growth in our 3% to 5% long-term objectives. So we anticipate higher input costs in 2012; we are very focused on gross margin, and have pricing, productivity and cost savings initiatives in place for our margin structures. Therefore, based on our current views and expectations for 2012, we expect growth and adjusted earnings per share diluted within our current long-term target of 6% to 8%. Now let me turn it over to Bert, who will provide some additional financial detail and perspective.

Thank you J.P. and good morning everyone. Hershey posted another quarter of quality results as net sales increased at the higher end of our long-term target. Top line growth was balanced across the US and international markets and retail takeaway continued to be strong, leading to market share gains. These results allow for flexibility in the timing of incremental brand investments during the third quarter and over the remainder of the year. The third-quarter 5% net sales gain was driven primarily by the continued growth of our core brands and new products. Net price realization, primarily in the US, was about a 5.4 point benefit. As J.P. mentioned, price realization on non-seasonal items in the US was ahead of our estimates.

Seasonal volumes gains that were better than initial expectations were driven by Halloween, and new products, primarily Reese's Minis and Hershey's Drops; that continued to perform well in the marketplace. Offsetting these gains were modest volume declines in line with our price elasticity model, resulting in overall volume decline of about 1 point. In addition, favorable foreign currency rates contributed approximately 0.5 point. Importantly, on the portion of the portfolio where pricing was in effect, we were pleased at net price realization and volume elasticity which was relatively in line with our estimates.

Turning to margins. Third-quarter adjusted gross margin was 42.5%. As expected, the third-quarter adjusted gross margin decline of 20 basis points sequentially improved versus Q2 and was in line with our estimates. Net price realization and productivity improvements were offset by increased commodity and supply chain costs. Input costs were about $45 million unfavorable in the quarter and in line with our expectations. We had good visibility into our cost structure for the remainder of the year, and there is no change to our full-year commodity cost outlook. We have achieved approximately $70 million in year to date productivity cost savings primarily within cost of goods and expect an additional $20 million to $25 million to be generated in the fourth quarter. Therefore, we continue to expect adjusted gross margin to sequentially improve in Q4 and be about the same as last year for the full year.

In the third quarter, adjusted earnings before interest and taxes increased about 4.4%, resulting in adjusted EBIT margin of 19.6%, a 10 basis point decline versus last year. Advertising expense increased about 7% versus the year-ago period. For the full year, we now expect advertising to increase high single digits on a percentage basis versus the prior year. This is greater than our previous estimate of a mid-single digit percentage increase. As expected, adjusted SM&A, excluding advertising, increased about 3% versus last year driven by cost related to non-advertising, brand building and go-to-market capabilities in both the US and International markets. We expect the year-over-year increase in Q4 to be greater than Q3, although for the full-year adjusted SM&A, excluding advertising, will be up less than the increase in net sales.

Now let me provide an update on our international businesses. Overall, our sales outside the US and Canada increased about 25%. On a reported on constant currency basis, net sales increased meaningfully in our four focus markets -- Mexico, China, Brazil and India. The investments we have made in these markets are enabling our brands to gain momentum in the marketplace. We'll continue to make disciplined investments to drive brand awareness and trial that will position the Company for future growth. As a result, organic net sales in our business outside of the US and Canada are on track to increase at least 20% in 2011, putting us well on pace to achieve our goal of $1 billion in organic sales by 2015. Operating income outside the US and Canada increased slightly year-over-year, driven in part by our export business model. The combined investments in our four focus markets during the third quarter unfavorably impacted profitability.

Moving further down the P&L. In Q3, interest expense was $23 million, up 3.5% versus the prior year. In 2011, we now expect interest expense to be down about 4% versus 2010, slightly less than our previous estimate of $95 million. The adjusted tax rate for the third quarter was 34.2% or 90 basis points less than the prior year due to the income mix among our various US and international businesses. Excluding the tax rate impact associated with business realignment charges and the trademark licensing gain, we continue to expect full-year tax rate to be about 35%. In the third quarter of 2011, weighted average shares outstanding on a diluted basis were 229.8 million versus 230.5 million in 2010, leading to adjusted earnings per share diluted of $0.84, up 6.3% versus a year ago.

Now let me provide a quick recap of our year-to-date results. Net sales increased 7.8%. Adjusted gross margin was 42.6% year-to-date versus 43% last year. Higher commodity costs were partially offset by productivity gains and net price realizations. Advertising increased approximately 15% on year-to-date basis. Adjusted EBIT increased 8.1% resulting in an adjusted EBIT margin gain of 10 basis points to 18.4% from 18.3%. Adjusted earnings per diluted share for the nine-month period increased 9.8% to $2.13 per share.

Turning now to the balance sheet and to cash flow. At the end of the third quarter net trading capital was relatively in line with last year. Accounts receivable was up $15 million due to higher seasonal sales and remains extremely current. We continuously monitor our accounts receivable aging and despite current macroeconomic conditions, we have not seen an impact on our customer's payment patterns. Inventory increased by $60 million due to some earlier seasonal build and the upcoming Project Next Century production transition while accounts payable increased by $80 million. We expect net trading capital to improve in the fourth quarter as we cycle through the peak seasonal period of our business.

In terms of other specific cash flow items, capital additions including software were $86 million in the third quarter and $266 million year-to-date. The third quarter amounts included $48 million of Project Next Century capital expenditures. For 2011, we are targeting total capitalizations to be $340 million to $360 million. This range includes base ongoing CapEx of $150 million to $160 million, plus Project Next Century CapEx of approximately $190 million to $200 million. Depreciation and amortization was $55 million in the quarter. This includes accelerated depreciation related to Project Next Century of about $9 million. Adjusted operating depreciation and amortization was $47 million in the quarter. In 2011, we are forecasting total operating depreciation and amortization to be about $210 million while accelerated depreciation and amortization related to Project Next Century is expected to be $25 million to $30 million.

Dividends paid during the quarter were $76 million. During the third quarter, approximately $165 million of our common shares were repurchased to replace shares issued in connection with stock option exercises. We did not acquire any stock in the third quarter related to the $250 million outstanding repurchase program. Cash on hand at the end of the third quarter was $292 million, relatively in line with the year-ago period and lower versus Q2, as we paid down $250 million of long-term notes that were due in September. We continued to monitor the credit markets, and we anticipate issuing notes in the near future, given the current record low interest rate environment.

Let me now provide an update on Project Next Century. We are pleased with the progress we are making at the West Hershey plant expansion and it remains on track. The building is essentially complete and equipment is currently being installed. We anticipate initial production line start-up during the fourth quarter 2011 with continued roll-out and implementation during 2012. The forecast for total pre-tax GAAP charges and non-recurring project implementation costs remains at $140 million to $160 million. During the quarter, we recorded net pre-tax charges of $13.5 million for Project Next Century, consisting mostly of accelerated depreciation. By 2014, we continue to expect ongoing annual savings to be approximately $60 million to $80 million.

Now to summarize. We are pleased with our third-quarter and year-to-date results. Our consumer-driven strategy and investments in global brand building continue to deliver the desired results. As we did in the third quarter, over the remainder of the year, we plan to make incremental investments in our brands and business capabilities. For the full year, adjusted SM&A excluding advertising is expected to increase greater then our previous estimates and full-year advertising is estimated to be up high single digits on a percentage basis versus the prior year. This is greater than our previous estimate of mid-single digit percentage increase. These additional investments will enable us to carry our marketplace momentum into the fourth quarter. In addition, Halloween has gotten off to a good start, with selling greater than initial expectations. As a result, we expect 2011 net sales, including the impact of foreign currency exchange rates to increase around 7% versus 2010.

Commodity markets remain volatile. However, we have visibility into our cost structure for the remainder of the year. While we anticipate meaningfully higher input costs, productivity and cost savings initiatives are in place and we expect full-year 2011 adjusted gross margin to be about the same as last year. Given our strong year-to-date performance, we continue to expect 2011 adjusted earnings per share diluted to increase around 10%. As we look to 2012, we'll continue to focus on our core brands and leverage Hershey's scale at retail in the US while working closely with retail partners to [ensure] achievement of our elasticity model. [Recall] that our first season at higher price points will be Easter which is two weeks earlier than 2011. In addition, we'll continue our disciplined approach related to investments within key international markets. Therefore, our current expectation for 2012 is for net sales growth to be within our 3% to 5% long-term target. While the spot prices of most key commodities has declined from the 2011 peak, many are still trading at price levels greater than the two-year average.

However, we are gaining visibility into 2012 cost structure and we'll focus on preserving our margin structure. While we anticipate higher input costs in 2012, price realization as well as productivity and cost saving initiatives, including incremental savings from Project Next Century, are in place to help mitigate the impact of increased commodity costs. As we all know, the financial markets remain volatile and depending on where the market indices end the year, pension expense could be a headwind in 2012. However, we would expect any charges to be non-cash, given our well funded status. To conclude, based on our current assumptions and views, we expect 2012 growth in earnings, adjusted earnings per share diluted to be within the 6% to 8% range, consistent with our current long-term target. We will now open it up for Q&A.

(Operator Instructions) David Palmer with UBS.

The retail inventory levels, how do they look lately? I guess I'm really getting at, do you see your sales tracking with what looks to be very healthy consumer takeaway numbers going forward?

Yes. I would say yes, David. Our shipments are roughly in line with that consumption pattern. So we have not seen a change of what we consider good inventory levels at the trade.

And then going forward, I guess that price elasticity that you talked about in this quarter. I mean if we were to take a step back and look at consumer price elasticity and think of it that way, how do you see that playing out in terms of that change in your volume momentum, per that change in price realization? What do you think that price elasticity is?

Are you referring to Q4? How we think about next year?

No, for this year. How do you think it is indeed playing out because it doesn't look like, from the consumer data that you are nearly having the price elasticity, for instance, that you had in previous price increase.

If you look at how we had talked about this historically in models and even going all the way back to 2008. As you know, we talked about it being a one-for-one relationship that for every point of increase you would see a point of volume decline. As we have revised our both models and experiences, and we have mentioned this a couple of times as well, it is really much closer to about one-half in volume decline for 1 point of increase. And then we continue to see that the pricing is being passed through faster following each of our experiences with recent price declines.

And then the other point I think that is important to think about, and we are also learning from, when some of the commodity costs inflation began, our investment levels in advertising and our brands were certainly significantly lower than it is today. So I think reminding consumers why they participate in the category in the face of the news, the pricing, et cetera, has really helped us. So we think that has really been fundamental to the better conversion that we've seen over time.

If I could just squeeze one more, as far as the inflation you are expecting for 2012, any comments there? And then if there is even a feeling as to how the earnings growth for next year might be weighted back half, first half, that would be helpful. Thank you.

In terms of what we've really said today is that we do expect meaningful commodity cost inflation to continue from this year into next year. Having said that, we are very focused on our gross margin and we believe that maintaining that gross margin structure is important us. We have a lot of productivity programs next year; we get an (technical difficulty) from Project Next Century as we bring some lines in. It is a little early for us at this stage to start providing any seasonalization to the earnings for next year but needless to say, we do expect continued inflation. But we also believe that we have good programs in place to help mitigate those.

Thank you very much.

Alexia Howard with Stanford Bernstein.

We have seen reports that you are setting up a supply chain and distribution collaboration with Ferrero here in the US. Could you tell us a little bit more about the arrangement -- how that is going to work and the potential cost savings?

Well, I won't detail the specific cost savings piece of it. Bert may talk about that within a more holistic basket. But as we look at our overall distribution opportunities, we look across the total CPG Group for opportunities that we may be able to combine efforts. As you know, in China, we have a joint asset with Lotte. And as we were looking at building additional distribution capability, and by the way, this distribution facility will be in Canada, but it will serve a broader market, we found that we had similar needs. It is pretty common in a number of other geographies, where manufacturers go together for some of these non-competitive types of things where you can get synergies, via cost-sharing, et cetera, and so that is really -- there is not a lot more to it than that. That is really the complexion of what we are looking at, with that particular project.

Okay. And then just a quick follow-up. Last quarter, you mentioned that there might be some changes in how you participate in India. Could you perhaps comment on how your thinking is developing on that?

Well, we continue to be very excited about India. If you look at the combination and I'll talk a little bit about this, is that the Indian market, for us -- we have a joint venture with Godrej. That business is doing well this year; it's up versus previous year. We have learned a lot. We continue to be committed to the Indian market. We are going to be assessing, over time, what is the best way for us to participate in India, but right now our joint venture with Godrej is the way forward for us in India.

Thank you very much. I'll pass it on.

Eric Katzman with Deutsche Bank.

I have a couple of questions on the top line. Maybe I'm just not correctly understanding it but let's just talk about the category first. The category, I think you said, offtake was up like 8% or so? And yet, your sales are up 5%. And then Bert, I think you talked about how you were shipping to consumption. So is it that the retailers are taking greater price? If what you are shipping in terms of volume is equal to what's being taken off at retail? I'm not exactly clear how these two figures match up.

Yes, what we said was that the category in the quarter had performed at 4.5% and year-to-date around 4.4%. So, it is, the category is tracking ahead of the 3% to 4%, which we see historically, so a little bit ahead of the 4%. The 8% is the Hershey takeaway number. So obviously, we are gaining share within the category. About 1 point year-to-date and about 1 point in the quarter. So what I'm referring to in terms of inventory levels across -- the different classes of trade. Obviously, you have some of the impact of Halloween going in that we don't see a big change in inventory levels at the trade level and that we are shipping in approximately what consumption patterns are. But the category itself is not the 8% number; that is our number.

No, I'm talking about your takeaway. You are up 8% or 9% at retail and your sales at revenue-to-revenue are up, well, let's say 4% to 5%, because you got the international component, which is going to be my next question. But right to your -- either the retailers are taking higher pricing than you are putting through, or the volume -- you're undershipping volume right?

Yes, and I think J.P. did refer to that. What we are seeing, and I think I spoke to it. I said if you look at the quarter, net price realization was about 5.5 points. We had 1 point of volume decline and then about 0.5 point of FX to the positive. So that is how we get our 5 points. But J.P. did mention that we are seeing greater performance at convenience because within that 8%, we were up almost 13%. We are seeing that price is something that the retailers are being more aggressive about. So you are right about that point and I think we alluded to that. So volume-for-volume is roughly okay but the retailers are taking more pricing and that is why you are seeing greater dollar revenue growth at retail for business versus what you are reporting. Yes, and the mix, we think, influences that. Because while our total takeaways is around 8%, convenience stores, where we do see a lot of pricing coming through, is almost 13%.

It can -- seeing as an example was up 18% in conveniences, part of that price/mix equation.

Right. So there is a mixed benefit as well in terms of the channels.

Okay and then just as this follow-up; on the sales that you mentioned for international, you talked about, I think, Bert, 25% growth. And is that on the -- does that include Canada and export or whatever? So that is like 15% to the business?

It does not include Canada, but it would include exports. Some of our markets are export markets and but in Mexico, Brazil India, China, we actually have production on the ground. So that includes the focus markets' exports but not Canada.

So is it -- given that's -- I have to imagine that is mostly volume. Does that mean that your US volume was actually down, let's call it, 2% or 3%?

We didn't given an exact US number; we did say 1% was the composite number. Yes, the US would have been a little bit more than the 1% and the international numbers would have been positive volume.

All right. I'll pass it on. Thank you.

David Driscoll with Citi Investment Research.

Just a couple of quick questions. Bert, wanted to go back to the 2012 commodity costs. So you mentioned, both in the press release and then in your prepared comments, about the cost in comparison to the two-year average. You guys are always a little bit murky about how the commodity costs flow through the system and how we should look at it. This is, I think, the first time I have seen you mention a two-year trailing look at commodities were on a spot versus that historical basis. Can you just expand upon why you choose that time frame, how that flows into the Company's thinking on commodity costs and then consequently, pricing?

Yes, the reason we made that comparison, David, was more to put in perspective the fact that there has been some recent decline. So the stock market, as you know, ourselves and our competitors, they have some degree of hedging, in fact our 10-K says we could be anywhere from three months to 24 months. So it was only a reference point because commodities have come down as a basket but they still remain high. That was really the key message that they still remain high; cocoa has come off a bit but we see sugar prices, even oil yesterday closed about $92 so energy prices remain high. The message really for us was to put some perspective around the recent decline that, yes, there has been a recent decline but still on a relative basis, we have high commodity costs and they're quite volatile.

Even in today's market, you're seeing cocoa creep back up as the dollar weakens a bit against the Euro. So I think the real takeaway that we tried to put across was that we are very gross margin focused and that we have good programs against those commodity cost increases.

Is it then correct to say the recent declines are not beneficial to Hershey because of the hedging program, meaning to say you had already locked in a great amount of 2012 so don't get so excited about the recent declines because you won't see them? Is that the right message --?

No, that's really not the message. Declines are always good so -- in any context; we're just not trying to put any one-to-one relationship between the decline in any particular period, that's all. But declines are good in any case.

You mentioned headwinds. You mentioned that in your prepared comments as well. What do current rates suggest about the EPS headwind from pensions? Can you give us a ballpark?

No, we are not giving any specifics on those. The markets today are relatively flat and you would expect that our pension assumption has some return. So if they ended today, we would have some impact. I would say that it is still, we still believe within that context that we would be within our 6% to 8%. It could go any way because the end of year, up 10%, in which case it may not be an issue at all but it could end 10%, in which case might be a bigger issue but at relatively flat rates, our 6% to 8% still feels good.

So that is not a discount rate issue; that is the return issue and how it is amortized over the life of the --

No, it is both. It is both The fact that the rates have come from roughly 5% to 4% has had a pretty significant impact.

Yes, I would have thought that was the bigger one. And then final question, you mentioned the likelihood of a note issuance. Can you talk about the size? I believe that, that's just incremental to the balance sheet. So I would expect interest expense to rise upon the completion of a note offering. Am I thinking correctly?

I wouldn't think of it as an interest rate increase and no, I'm not going to comment on the size.

Okay. Thank you.

Jason English with Goldman Sachs.

I want to circle back to Eric's question because it sounded like on the back and forth, the takeaway was that, yes indeed, retailers are pricing ahead of you and therefore, margining up the category. Is that what's really happening or is this just a factor of two-thirds of your shipments went out at an 8% to 9% price increase which is what we see in consumption data and one-third went out with zero which has yet to pop up in the consumption data?

Well, I think it -- that's probably a reasonable assumption to make that a higher percentage is going out at the higher price. That would be affecting also the mix that we would have forecasted for the quarter. And then I come back to the fact that retailers seem to be converting price at retail faster than they have before. The seasons, of course, are going to be at the old price. The good news is that the conversion is good, especially on the instant consumables, which have already taken the pricing and people are participating in the marketplace. And then for me, one of the most encouraging things around the pricing environment is the fact that king continues to do so well as consumers see it as a value and it is not an obstacle to participate in the category.

The king information is interesting; I think you said 18% in C-store. I know last time you guys took price, we saw a tailwind on that; that was a nice margin boost. But your margins remain confoundingly lower than I would expect. You gave us an inflation number of around $45 million and price is around $83 million on that [5.4%]; just mathematically, not even accounting for productivity, that get me to a margin number that's above where you came in. Is there a mix effect? Is this maybe the international factor or are there expenses in the COGS line that are incremental and maybe you haven't called out?

No, I wouldn't say that. There is some mix as we grow more rapidly in international, we said 25%; it is not the same margins so that part would be true. In any case, our margins, we said, would be flat versus last year. We continue to believe that. We continue to see sequential improvement. I think we were down a bit over 100 basis points in the second quarter and about 20 basis points this quarter and we expect a further sequential improvement in the fourth quarter. And so there is a lot of commodity inflation built into this year. And while we do have strong productivity programs, we expect to be about flat margin to the year.

Okay thanks a lot. I'll pass it on.

Rob Moskow, Credit Suisse.

Just had a couple of quick questions. First one is, why not guide to the high end of your normal sales guidance for 2012? You have said today that you are seeing a better elasticity of demand relationship than you have historically; you are taking market share. You say that the category is performing quite well and now you have the international on top of it. It seems like, if anything you have also had two years where you have been above your range. So it seems like we are going to have another year just like that.

And then, secondly, can you tell me, is there any negative impact to your mix from the shift of consumers to king-sized items? And then also, we noticed in the Nielsen Data a lot of bagged items growing faster than your regular single serve. Have you done the math on that? Thank you.

Well, let me take the king-sized first. So There is no negative impact to the growth of king from a margin standpoint. We'll provide additional perspective on how we are looking at 2012 when we get together the next time. We've still got a couple of months of the year left and we don't know what Halloween sell-through looks like yet although we feel very good about where Halloween is headed. We don't know how consumers are going to [react] to the holiday as they look at their total macroeconomic perspective. So we feel very comfortable about the outlook of our business and we'll provide greater texture to that the next time we get together.

Okay. Well, I'll let it go.

Jonathan Feeney, Janney Capital Markets.

When I look back over the past few quarters now, it is like this consistent pattern of you guys are beating at the gross profit line, and investing more at the SG&A line. I think particularly in advertising if you look at the past two years or three years, but marketing and advertising this quarter. I guess, do you reach a saturation point, both as a category and a Company, where there is a diminishing marginal return to those investments? And maybe you pocket some more of that or are there other places to invest at the expense line as we look forward to 2012 that would impact the way you are going to talk about guidance?

Jonathan, let me talk about it in a little bit of a broader sense that may give you some perspective there. As I look over the five-year plan that we have in place, there is really four things that I would like you to think about -- first of all, we want to drive predictable, profitable and sustainable growth in our North American business. We continue to believe there is a lot of potential with our North American business. We also want to deliver geographic expansion in the key markets we talked about and one of the ways you do that is by creating density in each of those markets around urbanization, economic density and the coverage that we need in our business. And then we want to create and expand consumer preferred portfolios in each of those markets. So a lot of these markets -- our portfolio on some level is not as broad as we have the potential for it to be within our own existing portfolio, and the new brands that we would be able to add to that.

And then the fourth thing that we are very focused on is building the people, the processes and the capability to the leverage, the intellectual capital we have. So what I feel really good about is this enables us to deliver a very strong foundation to be very consistent that we deliver the things that we say we are going to deliver; and we create a Company that has a better platform and foundation than the one we even have today, as good as we feel about it. If you think about the potential of that story, it makes our brands available to an incremental one-third of the world's population by focusing on only those key markets and building out our business there. As we do that, it is going to change the mix of some of the investments we make from what we've done historically. But if we do that in a thoughtful and mindful way, we believe it is a very compelling growth story for our Company.

Thank you. That's very helpful. And I think the -- just one follow-up that I had. The 8.7% retail takeaway number you give, the IRI Data correspondent to that is 6.3%, as I see it in sales and a 10 basis point decline in volume are generally given to mix shift. Can you tell us what the volume component, if you haven't already, of that 8.7% is?

I mean, I spoke to it earlier.

I'm sorry, I missed it.

You're talking about the quarter, yes?

Just on the quarter. The 12 week end [at September 30].

The 8.7% that you've referred to is our custom database, which would include Walmart. So that would be different than the syndicated FDMxC at 8.4%. Then the volume impact in the quarter was the minus 1 point.

But that's shipment volume, right?

Yes.

I was wondering if you could give us the volume component of that 8.7% the same way IRI gives us the volume component of the correspondent 6.3% (multiple speakers) if you haven't already?

I was going to say Jonathan, it is Mark. Again J.P. referenced how we look at the volume elasticity. I mean, if you assume that is all just the pricing component of the business, because Halloween had yet to show up in those numbers in a meaningful way and again, just being liberal here for our discussion. You are assuming that's all 9 points of price almost, okay? Let's assume it's less than a one-for-one, [really], volume-to-price relationship that staples group averages but it's not quite the one-half to one, so it's somewhere in between there.

Okay.

Let me just add one additional piece of texture that may or may not help you on this. But the other thing that was different in Q3, that if you go back over the last couple of years, you have heard us talk a lot about how we needed to do better in the drug channel than we have been doing. Two particular pieces of our business were not only in Q3, but as we begin to build a better base here, going forward we've now, I'll call it, turned our business around to more positive results in the food channel and made significant strides in drug as well. So if you look at the way the business has been performing, we have been performing well across channels. We have really also benefited from a bit of a channel mix change as well as we do better and better in those particular channels. So we are almost participating in those segments in a way that we haven't for quite some time.

Okay. I get all that. But maybe it's because I've had like 6 Kit Kats this morning. But I think the -- is it -- am I asking for a number you have already given us or are you not giving me the number?

We didn't get into that level of specificity.

Perfect, that's all I needed to know. Thank you Mark. I appreciate it. The call was very helpful. Thank you.

Bryan Spillane with Bank of America.

Just a clarification on how pricing, how the price increases flowed through your P&L. I guess when, after the -- you had disclosed or announced your price increase back in March, the -- I guess the impression, or the commentary that you guys were making about how that would flow through your P&L, was essentially that there wouldn't be much in the, I guess, second and third quarters because of the mix. And it seems like it's come in better than what we had modeled and better than what you would expect. So I guess one thing I'm trying to understand is how much of that is just that the mix has been different? You have done better in single bar and in convenience store? How much of it has been that you haven't had to support the price increase as much with promotions, meaning your net, you have been net more -- you have net seen more of the pricing flow through your P&L?

It's certainly been more about the mix than the -- we think of as supporting the price increase. So think of Halloween in the third quarter. It is at the old prices, and mechanically from an accounting perspective, the way that would work, is that between gross and net, we would have a higher trade promotions number that supports that supports that price increase. But it is more mix than it is that we are spending less to promote -- to protect the prices, if that is your question.

Okay, so relative to what you were expecting going into the quarter, your mix was just much different than you thought it was going to be.

Well, the mix was different, yes, and part of that you can see in the almost 13% takeaway in convenience. J.P. also talked about drug stores, which also has a decent amount of consumable on the front end. So it would certainly be mix that would be important. Then within the context of that, one-to-one of historical CPG price conversion, on the 0.5 point that we talked about, Mark mentioned, we're somewhere in between there so a little bit better than what we anticipated.

And then with retailers, pricing up, or taking more price at the shelf, and being successful with it, is there any chance that on your seasonal items, I guess as we go through Halloween and the holidays, that we'll see more, some of that as well? That if they have been successful pricing on raising prices on the non-seasonal, that it makes sense to maybe go up on the seasonal as well?

I mean, that is not something that is predictable for us. Obviously, retailers set their own prices. What we do is provide the price protection, because we have already agreed on a demand equation six months, eight months, nine months, ten months ago on a particular season, so that could happen. But again, J.P. may want to speak to some of these programs.

As I look at some of the pricing and all that we are seeing in the market, it really looks as though that the prices are, the prices we would have anticipated because we had not taken up prices on Halloween. So I don't think that is an area where people are taking pricing earlier. I think they are really looking at it as a good destination for the consumer. They want to have attractive pricing. It's competitive and so you wouldn't really see [against] the Halloween promotion any pricing inflation.

Okay. All right. Thank you.

Eric Serotta with Wells Fargo.

Clearly, your overall category growth has been stronger than historical averages. And you also alluded to it being stronger than what you are seeing in some substitute categories, like salty snacks. I'm wondering whether you could give some color as to why you think you're outperforming salty snacks? And what's going on in some of these substitute categories or your category that is enabling that?

Well I think what I would say, is that as we have moved through the last couple of years with broad economic pressure on the consumer, our category has really, on some level, benefited from the fact that it is an accessible indulgence. Rather than contrast things against cookies, crackers, et cetera, I just think that our category participates in this environment almost at a higher level than it does on a regular basis. Because you pick up business from people who maybe have left something [else], they still went to feel good, they know that it is something that is within an arm's reach of desire. We have broad-based availability for our product, similar to some of those other categories. But I guess it's just one of the real magic benefits of this category, is that it's accessible, it's affordable; chocolate is one of the most -- this is, frankly, the most affordable country in the world on a cost per pound to participate in the category.

I think that is as important as anything and then remember, we have ubiquitous distribution so as we talk about being within an arm's reach of desire or in the front end of the store, near the check outs, we're at the counters in a lot of places and then the convenience store business has continued to do very, very well. One of the things, one of the dynamics we have seen there is some people had pressure on not filling their tank and making multiple trips per week versus maybe they were making one and filling their entire tank, they still seem to be going in the store. We have also benefited from that, so that is really the color commentary I would give that versus try to contrast us, versus 2 or 3 other segments.

Okay thanks. I'll pass it on.

Rob Dickerson with Consumer Edge Research.

Just a couple quick questions. So I hate to beat the dead horse again but back to the question on the takeaway of the 8.7%. I think you said it was 8.4% in FDMxC-channels. What we are seeing in the 4 channels though is that volumes were actually still a little bit up in the quarter, so if that is the case does that imply then that volumes could have been a little bit pressured at Walmart or are we just missing something?

Walmart would have been (technical difficulty) that number. The 8.7% is with Walmart.

Right, but the 8.4% that you mentioned.

The 8.4% is FDMxC; that excludes Walmart. The 8.7% includes Walmart.

Right. I'm just saying we actually look at the 4 channels, and the 4 channels that we are looking at show volumes up a little bit. So that would -- I guess the question is, if there were any volume pressure in that 8.7% number from what we are seeing, and that would imply that the volume pressure would not be in FDMxC; it would be in Walmart. I'm just trying to get a little color around it.

I think we are not going to talk about any specific retailer's volumes. But I think in total, we continue to feel very good about the Q3 trends and in the areas of issue.

Okay. Fair enough. I'll leave it at that. And then another question back on interest expense, you said earlier that you -- we shouldn't look at the potential credit raise as an increase in interest expense now. with rates where they are it could also mean a decrease in interest expense as we get into 2012. Is that credit raise factored in already into the 6% to 8% EPS growth for next year?

Yes, in terms of what I mentioned was that we pay down the $250 million and we are looking at the credit markets; we like the current rates and that there's certainly a potential to reissue. That would be neutral to next year.

Okay. Okay. Fair enough. All right, thanks a lot, I'll pass it on.

Thilo Wrede with Jefferies.

I wanted to first ask a question about your new product -- revenues from new product. Can you tell us what the revenue contribution was from new products here in the quarter? And now that you're about to [lap] the Minis and Drops introduction, and what you expect for the next few quarters?

Sure, first of all let me go back and anchor us in our overall objectives, and that is that we get about 1 point of our growth algorithm from innovation. Certainly in 2011, we are well ahead of that and we're very pleased with the innovation stream that we have in the pipeline. What we are doing that is probably differently from the past is where I think the category, in many ways was focused on just introducing a number of items, I think we are far more consumer-centric than we were before. And when we have innovation that's working hard for us, We want to make sure we continue to invest in that in year two and year three. So we are very comfortable and I think our retail partners are pleased with the innovation stream that we have. We do have new things that we are introducing. In the fourth quarter, we will be lapping the introduction of both Minis and Drops and we won't have in the fourth quarter the same innovation contribution that we did in 2010.

And then we believe we have a good pipeline of products that enable us to continue to deliver against that growth algorithm going forward. I think there's going to be some years we do better than that. Certainly, the last couple of that, that's been true and then there's going to be others that we are about on that pace. That is why we talk about it that way. Our goal is not about quantity but it's about quality and ensuring that they have net contribution after cannibalization to our business. So when we talk about those numbers, that is not a gross number of new things selling within the year, but it is really about sticky innovation that's additive to both ourselves and retailers.

But can you give us an idea if the new product innovation contributed -- how much more it contributed than the target 1% during the quarter?

Well, I'm not going to give the exact contribution level but I can tell you we are very, very pleased and it was well above what all of our [bases] testing and forecasting would have told us. So we just feel really good about it, and rather than break that out, I would leave it at that. We have innovation coming in June of next year that we are excited about, that we think will also be good news for us. We haven't introduced that in the marketplace yet. We have certainly gotten some retailer input during the development phase but you'll see us back in the middle of the summer with some things that we'll be taking to retailers soon.

Okay, that is helpful. Thank you. Then one more question maybe on the retail takeaway, you said that retailers priced higher than you actually priced. Did volumes for the retailers were therefore lower than what you saw for your own shipment volume?

I think what we are really saying is that the timing of when pricing is happening in the marketplace seems to have changed over the historical reference point. Because with all of the broad level of pricing that's happened in the market and with all the broad commodity basket inflation, I think what's happening is that retailers are taking that pricing maybe sooner than it would have happened historically and therefore; we are seeing that pass-through. That is really the effect. I don't think anybody is necessarily taking pricing beyond what's being passed through from manufacturers.

Is the timing -- but does that mean that there is also timing issues about the volume impact of this [pricing]?

No. We believe that as we look at the conversion modeling that we've done, it continues to be on track versus what we have said. And we have said it's moved from broad staples number of what's historically been a one-to-one effect to really a one to much closer to one-half of effect in terms of price-to-volume ratio. Yes, Thilo, and that's been built into our forecast. So we would expect the volume trend to actually improve going forward, especially here into the fourth quarter.

Okay. Thank you very much.

Todd Duvick with Bank of America.

Quick question on the balance sheet. Just with respect to financial leverage, obviously your leverage is lower now since you paid off the note but it's been coming down the last couple of years. So as you look at the credit market, can you tell us what you are looking at in terms of how much you may look to issue? Is there a leverage ratio or is there a credit rating? Is that coming from the management team or the Board or a combination?

Yes. I would say that the -- let me start with your latter point and I'll work back to your initial question. Certainly the capital structure of the Company is ultimately a Board-level decision. Management has a view and we certainly inform the Board what we think is the appropriate position to take. We think of it less in terms of a debt-to-equity or a particular metric, although clearly, you have to pay attention to those with the rating agencies. But we think of it more in terms of a desired credit rating, and we are an A1/P1 issuer. We like the A credit rating. We have talked in the past about strategically for M&A purposes, which you come off those ratings, we said that for something that was strategic and transformational, we would; you would want to see a clear path back and so right now, we are at about 1.5 times in terms of debt-to-equity. And we paid down the bond, but we are looking at the credit markets to see if it is not an appropriate time, given the interest rate environment to get back into the marketplace. So it is more about the credit rating. Absolutely to your point, it is ultimately a Board-level decision.

Okay. That is very helpful. Thank you very much.

Ken Goldman with JPMorgan.

I just wanted to follow-up a little bit on Rob Moskow's question on guidance. When you look back, your initial guidance for both 2010 and 2011, you pointed to 6% to 8% and then you finished or will finish hopefully above that. Look back to 2009, you got it to below 6% to 8% initially and finished well above that and now you are guiding to that 6% to 8% range again for next year. So given your history, why should we not believe that you are being fairly conservative? I appreciate you don't want to give a lot of detail on that today. But any insight into the thoughts on what some of the general pushes and pulls there would be helpful that maybe we are not thinking about? Is it something on the tax line or is it just something in the general markets for confectionary items? I know I'm fishing here, just hoping for a little nibble.

In terms of the guidance what we said in the past was that, the 3% to 5%, 6% to 8% gives us the flexibility in terms of investment posture; and we have increasingly have been investing more not just in the US but outside of the US. Given the scale differences there are different margin structures in non-US markets. The guidance around the -- last year, I think around this time we did give guidance around the 3% to 5%, 6% to 8%. As the fourth quarter ended and we had more visibility into the year, we did change to the upper end of those ranges and we gave that indication early in the year.

So our intent would be some what similar and as we see the year come to a close as we get a better read on next year, whether it's cost basket-wise or how we see our sell-throughs on an important season like the Halloween and the holiday, that we would provide further detail and further color around how we feel within those ranges. So I understand the point in terms of being more specific. For us, it is really time of year. It gives us the flexibility to invest [behind] our business. We think we do that in a disciplined way. We want to be predictable to the extent that we can manage our business within those ranges.

Okay. Then just one more brief question. Can you talk a little bit about currency? I don't think you mentioned this yet. Forgive me if you did. How it affects, right now, given spot rates, your top line and margins next year?

The currency markets in the first, let's call it, certainly in the first half of the year, we saw that the dollar was weakening. We saw somewhat of a reversal of that, as you know, in the third quarter, mostly precipitated by concerns around Europe obviously in flight to safety. And then we have seen that [coat] tail off a little bit again to where the dollar is starting to weaken again. So right now, we would anticipate that we have less exposure, obviously than some of our competitors to the international markets and yet this year, we have seen about a 1 point benefit from FX, less so in third quarter.

We think that, that trend could continue in terms of a flat to down dollar and so it -- but it cuts both ways. On the one hand, while it may provide a better top line, there is some commodity inflation that occurs from a weaker dollar because of the commodity markets just trading US dollars. So it is not that it drives you in one direction. It really depends on how much commodity and prices are influenced by lower dollars versus the benefit you get from translation.

Interesting. I would have thought you would have suggested currency would be a little bit of a headwind given the spot rates into next year. But it doesn't sound like you are saying that.

Well, I guess it is a little bit unpredictable. You have to believe, to some degree, that the flight to safety element stays in place versus whether people can be convinced the European markets can take care of themselves and then the focus may get right back to the US deficit. So we don't think there is going to be a dramatic change at this point. But needless to say, it affects you both ways, translation-wise and unfortunately, commodity-wise.

Okay, thank you very much. Operator, we'll take one more question.

John Baumgartner with Telsey Advisory Group.

Just wanted to ask about your thoughts on SM&A expense for 2012? Maybe this relates to John's question a bit, but in the US specifically, do you feel you are at a place right now where maybe you are comfortable with the sales force given these continued share gains here? Or is there more opportunity maybe going forward either to increase the size of the sales force or at least your [hours spent within each store] next year?

I think that, from a coverage standpoint, we feel very good about where we are at with the results we are getting. We probably have a more flexible sales organization today given some of the technology investments that we have made that we have had in the past. So I do think we are at a good place and certainly over the last couple of years where we thought we could benefit from incremental coverage, we've done that. At the same time, as I talked about earlier as we think about building density around our coverage in key markets, we want to continue to be able to be flexible to do that.

So I think what you'll see that may be a bit different is that as we build out our distribution in China, as an example where our business is, is growing very, very nicely in what is a growing category. We'll continue to be making certainly investments there as well as a couple of other places. So again, I think, going back to driving a predictable, profitable, and sustainable business in North America, we feel good that we are doing that. And then the second goal that we have around delivery geographical expansion in key markets, a few places where we make investments around coverage and capability.

Two follow-ups if I can. J.P., thinking about the retailers, at least how the merchandising in confectionary category here, do you tend to see that we're seeing increased shelf space for the category, maybe more endcaps, more free standing displays than historically? I mean, is there a way to think about the extent to which maybe retailers might be using the category more as a traffic driver relative to past history?

One of the things that's been clear over the last couple of years, 2011 with certainly no exception, is that because the category has performed well, it's been one of the most attractive categories in the entire box. So we have benefited from that. I think where we have seen some retailers who have gone through periods where they said, well, we may do less of this and more of something else, I think the category has really proven itself there. One example I would give you, which I find really interesting and compelling, is that as we have done some of our IDP [work], we worked with one of our large retailers and we realized that while they were doing a really good job in gum and mint on what we would call a snack grab trip mission, they weren't doing so well in the overall consumable candy bar segment. So we put together a cross-functional team. We worked with them at our headquarters; we used our center of excellence group here and we did a number of pieces of research as well as some testing. Now as we have implemented

those results of the test and the way we think it is the right way to go about it. And if you look at the total instant consumable category, these are your category results, we're not talk being specifically just our brands, but in the year one roll-out of that in these clusters of stores, sales increased for the categories, up 15%. As we have gotten now into the second round of expecting again, taking this IDP approach to getting very specific consumer insights, and then trip missions and combining those, the results are up almost 20%. So there now it's enabling us to engage further around specific trip missions where we take our consumer insights, their shopper data; we look at store clustering and really are able to move the levers across individual and unique stores. So the interest in the category for our retailers continues to be very high and the performance of the category certainly has allowed all of us to work on things that we think are good for all of our mutual businesses.

Great, thanks a lot. And then Bert, last question. Thinking about your input costs for 2012, you mentioned in the press release the two-year average. Can you say at all whether you may have been buying below market for some of your input costs for 2011 at all? Because I feel like dairy is usually the wild card here and that seems to be tracking deflationary year-on-year for 2012. So is there anything somewhere in your hedge basket or in terms of your source that can maintain that this cost push in the new year?

We really don't talk about our hedging programs or how far out we are and so on and so forth. Part of that, obviously, is some of our competitors don't report any of that information. Needless to say, we have an active hedging program and we take a view on whether there is value in the marketplace and look at all the things you would expect us to look at, whether it's fundamental supply and demand or really just a lot of the technical factors, given all the financial money out there in terms of the asset class. Dairy, you are quite right, is the one that's least [hedgeable] and always presents the most uncertainty. But really, the message that we wanted to put across was that this year, it's been an inflationary year for commodities and next year will be as well but that we do think we have the right programs and that our focus on the margin will continue to be just as strong next year as it has been this year.

Great. Thank you very much.

Okay. Thank you for joining us for today's conference call. Matt Miller and myself will be available all day to answer any follow-up questions you may have. Thank you.