好時 (HSY) 2011 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Hershey fourth 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.

Mark Pogharian, Head of Investor Relations, you may begin your conference.

Thank you, Laura.

Good morning, ladies and gentlemen.

Welcome to the Hershey company's fourth quarter 2011 conference call.

J.P.

Bilbrey, President and CEO; Bert Alfonso, Executive Vice President, CFO and Chief Administrative Officer, and I will represent Hershey on this morning's call.

We 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 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 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 reconciliations of select income statement line items quantitatively reconciled to GAAP.

As we 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 averting does that exclude certain items provides additional information to investors to facilitate the comparison of past and present operations.

We will discuss fourth quarter results excluding net pretax charges of $27.7 million which are primarily related to Project Next Century.

Our discussion of 2011 full-year results exclude net pretax charges of $32.1 million primarily associated with Project Next Century and a gain on sale of non-core trader marked licensing rights recorded in the third quarter.

Our discussion of any future projections will also exclude the impact of these net charges and non-service related pension expenses.

With that out of the way, let me turn the call over to J.P.

Thanks, Mark.

I am pleased with Hershey's fourth quarter and full year financial and marketplace results which represents a solid end to another good year.

We accomplished our 2011 objectives while growing adjusted EPS 10.6%, our third consecutive year of a double-digit percentage increase.

We achieved this in what was again a very challenging environment that included a global economic uncertainty and difficult consumer conditions, commodities, spot market price increases and volatility, and the implementation and execution of a major price increase.

The implementation of our March 30 price increase continues.

We are analyzing conversion closely and on the portion of the business where the shelf price reflects the increase, we are tracking as expected.

The speed of conversion varies by channel and is consistent with what we have experienced historically and versus our modeling.

Net volume elasticity on these pack types is in line with our expectations and better than the historical staples group average.

As we look to Easter, the first season where price points will be higher, as expected, retailers are working collaboratively with our headquarter and in-store sales associates.

The seasons is to Easter, Halloween and holiday are important to Hershey as well as retailers as it brings consumers into the store.

We believe we have the right mix of seasonal specific advertising, coupons and programming lined up to help consumers adjust to the new price points.

As has been the case all year in channels measured by syndicated data, the CMG category, that's candy, mint and gum, outpace the historical 3% to 4% category growth rate increasing 4.5%.

CMG also out paced other snack alternatives in 2011 again such as salty snacks, cookies and crackers which all grew less than 3%.

Overall, confectionery continues to grow driven by a balance of pricing and investment in the category in the form of both innovation and advertising.

As a result, in 2012 we would expect CMG category growth will be above the historical annual growth rate of 3% to 4%.

For the full year 2011, net sales increased 7.2% and was balanced between volume and net price realization.

In the fourth quarter net sales were primarily driven by pricing.

We are especially pleased that the volume sequentially improved from last quarter, slightly greater than our expectations and increased about 0.4 points.

In terms of Hershey's marketplace performance, for the 12 and 52 weeks ending December 31, 2011, per our custom database in channels that account for over 80% of our retail business, total Hershey CMG retail consumer takeaway was up a solid 6.5% and 7.8%.

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

Within food, drug, mass and convenience, or FDMXC, here excluding Wal-Mart, the CMG category also continues to grow.

For the 12 and 52 weeks ending December 31, 2011, the CMG category increased 4.4% and 4.5%.

Hershey's FDMXC retail takeaway for the fourth quarter and full year was 6% and 7.5% respectively.

As a result, our market share increased by 0.4 points in the fourth quarter and 0.8 points for the full year 2011.

For the overall Halloween and holiday seasons as expected in Q4, FDMX total combined seasonal category retail sales were up.

Specifically, Q4 seasonal category sales increased 4.2%.

Hershey Q4 seasonal retail takeaway was up 5.8% resulting in 0.5 point market share gain.

For the full-year 2011 in the food class of trade, the CMG category grew 3.2%.

Hershey retail takeaway for the year was up 4% generating a share gain in this channel of 0.2 points.

Fourth quarter food class of trade CMG category growth was 2.5%, less than the category's historical growth rate.

This was primarily due to continued weakness in the gum category which was down 5.1% in this channel.

Hershey's food channel CMG retail takeaway in the fourth quarter was up 3.1% driven by solid non-chocolate candies.

Turning now to the C-store class of trade where Hershey continues to leverage its customer relationships and the only coast-to-coast in-store sales force in the category.

In Q4 Hershey's C-store takeaway was up again and has increased for 15 consecutive quarters.

Specifically, for the 12 and 52 weeks ended December 31, Hershey retail takeaway was up 11.9% and 11.1% respectively resulting in a market gain of 1 full point in the quarter and 1.4 points for the full year.

Similar to last quarter, these gains were driven by price realization, net volume gains due to king-sized growth and strong in-store merchandising.

In Q4 Hershey's C-store chocolate and non-chocolate takeaway was up 12% and 15.5% respectively.

These gains were driven by pricing core brand advertising, in-store merchandising and programming including the Reese's NCAA football perfect seat and the Icebreaker's Frost New Years Eve Las Vegas promotions.

In the drug class of trade, Hershey CMG retail takeaway was up 3.4% for the quarter resulting in a share gain of 0.2 points.

Similar to last quarter, our drug channel retail takeaway increased in every segment.

Our non-chocolate candy, mint and gum performance was especially strong.

The Ice Breakers Mint platform, particularly Icebreakers Frost products, continues to do well and help drive a mint share gain within the drug class of trade of 2.3 points.

Ice Breaker Ice Cubes bottle packs also had another good quarter in drugstores.

As a result, we gained gum market share in the drug channel in the fourth quarter and for the full year.

As we look to 2012, we have many exciting products, promotions, programs and merchandising in place across all channels including various NCAA basketball and football promotions, a Reese's and Coca-Cola promotion, sponsorship of the upcoming Avengers and Spiderman movies, and the launch of many new products to include Hershey's milk chocolate with almonds pieces, Jolly Rancher crunch and chew, Rollo minis, Ice Breakers Duo Mints in both strawberry and raspberry flavors and Hershey's Bliss produced with cocoa that is certified by the Rainforest Alliance.

Additionally, full-year advertising expense for the total Company will increase low double digits on a percentage basis versus last year supporting these new product launches and core brands in both the US and our international markets and new advertising campaigns on Jolly Rancher and the Rollo brands.

I'm also excited about our acquisition of Brookside Foods.

This was an opportunistic bolt-on that allows us to expand our portfolio and capabilities into the sub segment of chocolate covered fruit juice pieces.

Specifically, Brookside pairs dark chocolate with exotic fruit juice centers such as goji, acacia, blueberry and pomegranate that deliver the benefits of flavonals and antioxidants.

Brookside has increased sales at a compound annual growth rate over the last three years of about 20%.

As a result, they are approaching the limits of our manufacturing capability.

Therefore, in 2012 we will be adding additional manufacturing capabilities that we are targeting to have up and running by the end of the year.

We look forward to building the Brookside brand in the US and Canada and leveraging Hershey's scale at retail.

As we enter 2012, we remain focused on our core US business where we continue to bring news, variety and excitement to the category.

Our US new product launches will be supported with in-store programming and merchandising as well as advertising which will increase meaningfully year over year.

Our solid position in the US marketplace continues to give us the flexibility to invest in key international markets where we are gaining momentum.

In 2011 outside in the US and Canada we invested in our go-to-market capabilities and increased advertising 20% to 25% on a percentage basis versus last year.

We expect international advertising to increase about the same amount in 2012.

Our businesses in the focus markets of Mexico, China, Brazil and India had a good 2011.

Combined reported sales growth in these countries was about 25% in 2011.

As we enter 2012, we have a solid plan that will enable us to maintain our momentum in China and in China will increase the launch select sugar confectionery products that will leverage our in-market capabilities and we expect our R&D facility to be operational in Q4.

In Mexico we will continue our approach of gaining further distribution within the traditional trade and in Brazil will benefit from expansion with our partner Bauducco.

Therefore, if our business outside the US and Canada continues to grow at the current organic rates, we will achieve our target of $1 billion in sales by the year end 2014.

This will be about one year earlier than our original 2015 objective.

We have a solid balance sheet that enables us to pursue potential acquisition targets while also investing in organic opportunities.

We remain focused on all of our markets and will continue to make the necessary investments to ensure that we are positioned to grow our brands and manage challenges.

The power of our brands and our ability to execute in the marketplace gives us confidence that the Hershey company will be able to deliver achievable, predictable and consistent earnings and cash flow growth.

As such, I'm happy to announce that we increased our dividend 10%.

As we look to the future, our financial position allows us to be flexible in our approach to creating value for all of our Hershey shareholders.

Now, to wrap up.

I am pleased with the way the confectionary category, our retail partners and Hershey continue to perform.

In 2012 new products, advertising and in-store merchandising and programming put us in a position to deliver another strong year of net sales and earnings growth.

Therefore, excluding the Brookside acquisition, we expect volume to be up for the full year 2012 resulting in net sales growth of about 5% to 7%.

We have good visibility in to our full-year cost structure and despite higher input costs in 2012, we expect adjusted gross margin to increase about 75 basis points driven by productivity and cost savings as well as net price realization.

Therefore, we have increased our full-year adjusted earnings per share diluted outlook and including the change in the reporting of pension costs we expect adjusted EPS to increase 9% to 11%.

I will now turn it over to Bert who will provide some additional financial details.

Thank you, J.P., and good morning, everyone.

Net sales and adjusted earnings per share diluted from operations for the full year 2011 exceeded the initial range as we communicated at the beginning of last year.

Solid efforts by sales, marketing, operations and finance resulted in a good retail execution and another year of market share gains.

Overall, we're pleased with our financial results and US market place performance as well as the progress we have made in key international markets.

Fourth quarter consolidated net sales of $1.57 billion increased 5.7% versus the prior year.

As expected, the increase was driven primarily by net price realization benefit of 5.9%.

In addition, volume sequentially improved 0.4 points from last quarter, slightly greater than our expectations.

New product introductions in the US and international markets along with seasonal volume gains were partially offset by core volume declines in line with our price elasticity models.

The impact of unfavorable foreign currency exchange rates in the quarter was about 0.6 points.

Fourth quarter adjusted earnings per share diluted $0.70 increased 15%, primarily due to price realization, supply chain productivity and lower advertising which more than offset the impact of higher input costs and additional marketing and related investments.

For the full year net sales increased 7.2% or 6.9% on a constant currency basis and we are balanced between volume and net price realization leading to adjusted earnings per share of $2.82, an increase of 10.6% versus last year.

J.P.

has already provided details related to our market place performance so I will focus on review of P&L and balance sheet starting with gross margin.

During the fourth quarter adjusted gross margin was 41.7%.

While we achieved our productivity and cost savings goals in the quarter, adjusted gross margin decreased 50 basis points as productivity and net price realization were more than offset by higher input and supply chain costs.

This is a greater decline than previously expected.

Specifically, greater-than-expected fourth quarter volume requirements resulted in higher commodity costs than we have forecasted.

For the fourth quarter and full year, total input costs were unfavorable, about $45 million and $150 million.

In addition, the impacts from year-end LIFO inventory and higher discounts and allowances were greater than our previous estimates.

The higher discounts on allowances primarily reflected a packaging change in our full chocolate package candy presentation as we swapped out harvesting packaging and substituted with additional Halloween focused packaging which did not resonate as well with consumers.

For the full year 2011, adjusted gross margin was 42.4% versus 42.8% in 2010, a decline of 40 basis point.

Higher net price realization of productivity gains were more than offset by higher input costs.

Fourth quarter adjusted EBIT increased 8.9% resulting in an adjusted EBIT margin of 16.4%, a 50 basis point improvement versus last year as lower advertising expense more than offset go-to-market and other employee related costs.

In Q4, advertising declined 13% versus last year; however, our on-air presence was strong as the fourth quarter of 2010 included a significant step up investment.

The decline was slightly [rated] on an earlier estimate as we shifted spending to invest in global selling capabilities and our insight driven performance initiative.

As a result, advertising expense for the full year increased about 6%.

Adjusted EBIT for the year increased 8.3% with adjusted EBIT margin up 20 basis points to 17.9% from 17.7%.

The increase was driven by solid net sales growth partially offset by higher input and supply chain costs and investments in SM&A.

Now, let me provide a brief update on our international business.

Our international markets outside of the US and Canada generated more meaningful sales growth during the quarter.

Excluding Canada, international fourth quarter reported net sales increased double digits on a percentage basis versus last year driven by our focused markets, Mexico, China, Brazil and India.

On a constant currency basis, partially driven by seasonality and gifting, fourth quarter net sales in Brazil increased more than 40%, about 30% in China and 15% in Mexico.

For the full year 2011, net sales in our businesses outside of the US and Canada increased close to 25%.

Our commitment to investing in these markets continues to drive solid top-line growth enabling our brands to gain momentum and greater recognition among consumers.

Fourth quarter interest expense decreased coming in at $21.3 million versus $27.6 million in the prior period reflecting the bond tender offer costs in the fourth quarter of 2010.

For the year, interest expenses in line with expectations totaling $92.2 million versus $96.4 million a year ago.

In 2012 we expect higher interest expense of approximately $95 million to $105 million primarily due to higher interest rates in some of our international businesses and increases in the Company's finance lease obligations.

The adjusted tax rate tax rate for the fourth quarter was 32.2%, down 40 basis points versus year ago due to an increase in domestic production as well as the mix of income among our various US and international businesses.

For the full year the tax rate was 34.8%, down 40 basis points versus a year ago and within the range of our previous estimate.

In 2012 we expect the tax rate to be about the same as the 2011 annual rate.

However, the rate will be about 36% in Q1 and Q2 and about 34% in Q3 and Q4.

In the fourth quarter 2011 weighted average shares outstanding on a diluted basis were 229.1 million versus 230.8 million shares in 2010 leading to adjusted EPS of $0.70 per share diluted from operations, an increase of 14.8% versus year ago.

For the year, shares outstanding were 229.9 million versus approximately 230.3 million shares in 2010.

Adjusted EPS diluted for the year was $2.82, an increase of 10.6%.

Before moving onto the balance sheet and cash flow I'd like to share some details regarding a change in our pension cost disclosures in 2012.

Similar to a number of other S&P 500 companies, we're going to exclude non-service related pension expenses and our defined benefit pension plans from adjusted earnings.

These non-service related expenses include the amortization of actuarial gains and losses and interest on participants' balances which are offset by expected earnings on pension assets.

Such expenses can vary significantly from year to year based on actuarial assumptions, actual performance and interest rates.

We believe that excluding these costs and included only service related costs better reflects the ongoing operating cost to our business given the well-funded status of our plans that have been close to new entrants since 2008.

As a result, we will exclude them from adjusted earnings beginning in 2012.

On this basis, 2011 and 2010 full-year adjusted earnings per share would have been $0.01 and $0.02 higher respectively.

In 2011 the actual return on pension plan assets was below are assumptions and interest rates declined resulting in higher non-service related pension expenses in 2012.

Therefore, our reported outlook reflects non-service related pension expense of $19 million or $0.05 per share diluted.

This amount is excluded from our 2012 adjusted earnings outlook.

For your modeling purposes, details reflecting this change from 2006 to 2011 are available on the Company's website within the investor relation section.

Let me also note that going forward the Company will exclude the impact of M&A related deal costs from its adjusted earnings per share diluted.

We believe excluding these will provide investors with a better understanding of the underlying profitability of the business.

Therefore, our reported outlook of $2.79 and $2.89 per share diluted share for 2012 includes nonrecurring acquisition, closing and integration cost related to the Brookside acquisition of $0.04 to $0.05 per share diluted.

Now turning to the balance sheet and the cash flow.

At the end of the year net trading capital increased $115 million versus last year due to an increase in inventory of $115 million resulting primarily from Project Next Century production transaction.

Accounts receivable was up $9 million and remains very current.

Accounts payable also increased about $9 million.

In terms of other specific cash flow items, total company capital expenditures, including [soft] were $82 million in Q4 and $348 million for the full year.

These include the Project Next Century capital expenditures of $24 million in Q4 and $179 million for the full year.

In 2012, we expect ongoing CapEx to be $215 million to $225 million excluding Project Next Century capital additions that are expected to be an additional $65 million to $70 million.

Therefore, the total CapEx estimate for the Company is $280 million to $295 million in 2012.

Depreciation and amortization was $58 million in the fourth quarter.

This includes accelerated depreciation related to Project Next Century of approximately $12 million.

Adjusted operating depreciation and amortization was $47 million in the fourth quarter.

For the full year 2011, depreciation and amortization expense was $216 million of which accelerated depreciation and amortization was $33 million; therefore, adjusted operating depreciation and amortization was $183 million.

In 2012, we are forecasting total adjusted operating depreciation and amortization of about $195 million to $205 million.

Dividends paid during the quarter were $76 million bringing the full-year total to $304 million.

During the fourth, approximately 27 million of our common shares were repurchased to replace shares issued in connection with stock option exercise.

We did not acquire any stock in the fourth quarter related to the 250 million outstanding repurchase program.

Cash on hand at year end was $694 million, down $191 million versus year ago, due primarily to the aforementioned inventory increase along with higher capital expenditures and stock option repurchases.

As you exit 2011 we are well-positioned to manage the capital needs of the business.

Now let me update on Project Next Century program.

We are pleased with the progress we are making on the West Hershey plant expansion which remains on track.

The building is essentially complete with the majority of equipment now installed.

The start up of the multiple production lines began during the fourth quarter and continues to roll out and implementation is expected throughout 2012.

The forecast for total project pretax GAAP charges and non-recurring project implementation costs is $150 million to $160 million.

By 2014, we expect ongoing annual savings to be approximately $65 million to $80 million.

These figures are essentially the same as previously communicated.

Please see the note in appendix 1 in today's press release for further details.

Let me close by providing some context on our 2012 outlook starting with some details on the Brookside Foods acquisition.

On January 19, 2012, we successfully completed the acquisition and established a project management office to facilitate the integration of the business.

If you tasted the Brookside products I'm sure you would agree they are great tasting snacks and a strong addition to the Hershey's portfolio.

Hershey will invest to grow the brand in the US and Canada as well as international markets.

In 2012, we will focus on integration, adding additional manufacturing capacity and market research.

Therefore, in 2012 we expect Brookside to generate sales of approximately $90 million at current exchange rates and be neutral to our adjusted earnings.

As J.P.

outlined, we have initiatives in place that we believe will drive net sales growth across our businesses in 2012.

We have planned merchandising and programming events throughout the year and plan to work closely with retail customers and monitor brand performance given the higher price points for seasonal products.

We expect 2012 advertising to increase low double digits on a percentage basis versus the prior year supporting new product launches and core brands in both the US and international markets.

We will also invest in new advertising campaigns for the Jolly Rancher and Rollo brands.

We are confident of our plans and excluding Brookside volume to be up for the year resulting in net sales growth of 5% to 7% including the impact of foreign currency exchange rates.

We have good visibility at this time into our full cost structure and despite higher input costs in 2012, expect adjusted gross margin to increase about 75 basis points to the by productivity and cost savings as well as net price realization.

Therefore, we have increased our full-year adjusted earnings per share diluted outlook and including the aforementioned change in pension cost disclosure expect to increase 9% to 11%.

Before we open up to Q&A, as you work your models, note that due to the timing and full implementation of the price increases, we would expect volume to decline in the first quarter and then improve to be up in the second quarter and for the full year.

Despite higher seasonal pricing in Q1, based on our investments and merchandising plans, we expect a good start to the year.

Thank you for your time this morning and we will now open it up for your questions.

(Operator Instructions) Your first question comes from the line of Jason English from Goldman Sachs.

Your line is open.

Good morning, folks.

Two quick questions for you.

First, can you update us on the progress you're making with the Ferrero partnership?

Well, I think that as we talked about earlier, we are doing the distribution center agreement with them in Canada and that project is progressing.

So I think that we are on track.

There is nothing new in terms of the context of that relationship beyond that.

There was a press report out earlier this week where one of your sales director quoted in it talking about having conversations for distribution expansion in Europe?

Is that something that you guys are seriously exploring right now?

Yes, let me add the proper context to that.

So ISM was this week and one of our sales directors had talked about distributors that they were talking to really around our export business.

So I think it was easy to maybe take that out of context.

So in terms of our overall strategic direction focusing on the core markets that we've talked about, nothing has changed there.

So I think as you read that, it might have been misleading.

And that was really nothing more than our continuing export business discussions.

Thanks.

One more housekeeping item and then I will pass it on.

That 25% rest of world growth, was that constant currency or with FX?

That was with FX.

Thank you.

I will pass it on.

Your next question comes from the line of Jonathan Feeney from Janney Capital Market.

Your line is open.

Thank you very much guys.

Good morning.

Hi, Jonathan, how are you?

Good.

When you talk about the retail takeaway, the 6.5% for the fourth quarter, can you give us a sense what kind of volume is associated with that, because I think the biggest point of contrast with your business and some of the other businesses out there right now is the volume.

And I just wanted to know what you can tell us about that and what you are thinking for maybe category volume trends over the course of the year?

Well first of all, I will start with if you look at the FDMXCW takeaway in Q4 it was up about 6.5%.

If we were to look at our net sales in the quarter, it was just slightly below that, but really almost the same.

So from the metric of what you are selling and what is being taken away, we felt pretty good.

Most of that would have been price.

But volumes were up on a takeaway basis you would say?

Seasonal volumes, which is an important part of the Q4 volume, were all up, but I think as we talk about the combination of price and volume and as we do price conversion, I think, Jonathan, what you'll remember is we said about 60% of that will occur in 2012.

The balance is happening in 2011.

The modeling shows that we are really on track and we think that, as we get to 2012, unit volume in 2012 will be back to flat -- or 2013, I'm sorry, when we get to 2013 we will be flat again and that is right on the modeling.

Okay.

Great.

And just -- when you think about the risks to the category, it seems like you have got a top competitor who has also been very aggressive with pricing and aggressive with spending back against the category to drive value.

Have you seen any uptick in sort of intrusion, if you will, from other categories like salty snacks or nuts or anything else that is adjacent to candy that as these prices come up?

I don't think so.

We continue to outperform, as I mentioned in my remarks, salty snacks and cookies and so forth.

So the consumer continues to participate in our category.

I think it is good news for us in the retailers.

So we really have not seen anything that would be different than what we have been experiencing.

Great.

Thank you very much.

Your next question comes from the line of Eric Katzman from Deutsche Bank.

Your line is open.

Hi.

Good morning, everybody.

I have got a follow-up I guess on Jonathan's question and I may have touched on this last time.

So, international which is mostly volume and is probably 8% of the total of the business today, maybe a little bit more since it is growing so much, was up 20% or more.

Seasonal volume was up so that has to mean that your non-seasonal everyday business volumes were down pretty materially?

Can you talk a little bit about that?

And then as a follow-up or related to that, I heard that Mars was having some difficulty in terms of their seasonal shipments.

So assuming that they correct that, wouldn't that mean that your volumes could actually struggle a bit?

What I would say, Eric, is with respect to that combination of international and US, and we have talked about it a lot, we have taken a little pricing in some of the international markets, but volume certainly was up and we saw sequential improvement.

You're quite right, seasonal volume in the US was up in the quarter and from what we are seeing, we continue to see the progression of volume recovery as the models would indicate.

While we did mention that in the first quarter, given the new pricing on the Easter season, that we would expect volume to be down in first quarter 2012 and then sequentially improve, and then JP sort of went a little beyond that said we think we'd be back to pre-price increase volumes around end of year first quarter.

But, no, we have seen improvements across volume.

And to get to the second part of your question, I am not familiar with any distribution or shipping issues but -- that is not something that we have seen.

Okay.

All right.

And then to just clarify and understand a little bit more, Mark and I talked about it off line earlier, but on this pension expense McCormick reported last week, it seems like it is the same issue but they are including it in their GAAP or their adjusted earnings outlook with the way most analysts were kind of taking that in and putting into their models.

So I'm not exactly sure why you are trying to exclude the volatile component?

And then I'm also -- given how US-based the Company is, why would you not move away from FASB and take an IFRS accounting approach?

Actually your latter point is a very good one.

In fact the methodology that we are following or that we have changed to is far closer to IFRS than GAAP reporting.

So what we have chosen to do, given the fact that we have a well-funded plan, and I'm speaking primarily US plant which is by far the largest.

If you read the K, we have not had any significant contributions to the plan because of its funded status.

It has been closed to new entrants and so the service cost, which is the cost or the liability of the members that are in the plan and, again, there are no new entrants into the plan, is quite consistent year on year, and we believe it the better measure of the underlying operating performance of the Company.

The other measures are quite volatile.

I mentioned that in 2010 and 2011, they actually added to earnings and then we have shown the reconciliation of the $0.05 impact.

So, a number of companies have gone on the same direction with slightly different techniques.

We think ours is pretty clean in terms of it's in the GAAP numbers and we show exactly what it is coming out.

But, again, what we wanted to get away from was the some years positive and some years negative aspect of it and IFRS is part of our thinking.

It is much closer to those reporting requirements.

All right.

And I guess we will just see how the rest of the industry does it.

Okay.

I will just pass it on.

Thanks.

Your next question comes from the line of Rob Moskow from Credit Suisse.

Your line is open.

Hi.

Thank you.

Two questions.

On the gross margin, it was pretty far below our expectation for fourth quarter.

You mentioned some Halloween issues and I think off line I heard that there was some obsolescence issues also.

Can you kind of break apart the gross margin miss?

How material was the taylors and the obsolescence charges compared to just higher commodity costs?

And then, secondly, can you give us some commodity cost guidance for 2012?

Will the cost hit be higher than it was in 2011?

Thanks.

Yes, let me put it in context on the gross margin.

And, as I mentioned, we expected sequential improvements.

So the decline was higher than our expectations as you would have heard in the third quarter.

There really was a multitude of factors.

I mentioned the more significant ones, so there wasn't one significant factor that really impacted the most.

We did have some higher volumes, particularly in the US.

So we procured that at closer to spot prices for that volume so that had a commodity impact.

As we chewed up our LIFO calculation at year end, that charge also impacted our cost.

And the obsolescence and Halloween issue are actually the same issue.

We made some changes.

In prior years we had harvest packaging, which was included if you look at the syndicated data in the Halloween numbers, and frankly what we found was that moving away from harvest and having more Halloween packaging actually resonated less with consumers.

So, as we changed out of that packaging we did provide some cover for the retailers.

So, it really was a multitude of those items.

There really wasn't one in particular that I would say was the predominant one.

In terms of 2012, really nothing has changed versus what we said in the past.

We do expect higher commodity costs.

We have not given specific guidance on the inflation factor, but at this stage, those commodity costs we think will be significantly mitigated by our productivity programs which remain on track and including Next Century, as well as, JP already mentioned, about 60% of our price realization comes in 2012.

The one bit of information that we have added that we have not spoken to in the past is that we said we think we will be up about 75 basis points in gross margin, if you think of all those factors, commodities offset by price realizations and savings, and so that gives you some indication of where we think gross margins will be the next year.

Okay.

So, Bert, you don't want to give us an absolute dollar number for commodity cost for 2012?

No, we are not providing that at this stage.

Okay.

And this might be nitpicking, but if seasonal sales were actually pretty good, I think you gained share, why was there an issue related to the packaging?

Why you think that didn't resonate well?

Is it possible you just over shipped and overestimated how much they would want?

Yes.

Well, first of all we felt good about the volumes that went into Halloween, the total category was up.

Essentially with a bit of humility here, we underestimated the value that the consumer had in the harvest packaging in previous years.

They use it for decoration and it actually kind of broadened the season, if you will, in terms of packs that the consumer was used to seeing.

We also had fewer items in our total Halloween offering this year.

We had a higher percentage of sales in the large bags which were $20 bags, which obviously you sell fewer units when you get into those larger dollar rings, et cetera.

So, there were a couple of things that, while the latter one was good, I think that what we would do is return to the harvest packaging in subsequent years and I think this is one where we have some learnings but, overall, this is a very positive quarter for overall seasonal sales and I think in Halloween, while we feel good about the total Halloween program, there are some things we're going to need to do to improve and take these learnings on board.

Okay.

I will pass it on.

Thank you.

Your next question comes from David Driscoll of Citi Investments.

Your line is open.

Great.

Thanks a lot.

Just to build on Eric Katzman's comment on the pensions, I would just kind of add to you guys that I appreciate the disclosure, but these non-service pension costs are, I believe that they really are ultimately real financial impacts to the Company.

So while I understand your desire to want to exclude them from maybe a current period in time, it does appear that at some point in time they probably should run through the P&L, and then I think that we come down to kind of imperfect plans on this, which is why they do run through on a current basis.

But I go to what Eric said.

He mentioned McCormick, but I think you could go on a lot of companies.

Just to put this on apples to apples basis, it seems like the first call estimates have to continue to include these things unless we see broad agreement across the sector that all of these things need to be excluded.

Still, I think the strongest argument would be if these were not truly real costs that were never materialized, but I don't think you guys are actually making that argument right now.

If you are, I would love to hear it.

So, that is just maybe a first little statement there.

And then getting into to some kind of key questions, what is your confidence that you have for 2012 that the pricing will hold, i.e, can you talk about the stickiness of pricing in comparison to the desire to want to be promotional?

David, I think that the best barometer that I always look at is what is happening in convenience, because it is the one where you see it first.

And so if you look at the growth in the off take in convenience, it would be lead you to believe that it is fully cycled, the pricing at this point and king size continues to grow very nicely and contribute importantly.

Obviously, that is at the upper end of the price range, so I think in that example the pricing has been 100% sticky, right?

So, that is pretty encouraging.

And then as we look at the channels, and there is a lot of noise in the timeframe by which these different channels converge, just because of the different dynamics, but we are seeing that the conversion is right on or slightly better than how we have modeled it and, so for everything we know at this point, I think we feel good.

And as you can imagine, we are all over this in terms of monitoring how it goes.

Easter will be the first season where we are at the new pricing and, so far, what we are seeing is we have got really solid programming and volume looks very good and so all indications are in terms of all of those things you would be executing against as we go through the year, we feel good.

When you talk about advertising, last year at this time you made the comment that advertising would run at a much more normalized rate of increase, but now in your 2012 guidance, you're talking about double-digit increases.

So can you discuss this a little bit?

I thought last year you proved that the advertising budget was really in the right place, but now you are really kind of going a different direction and it is going to be a very big increase in 2012.

Well, actually, let's think about it in two parts.

So, if you look at the core brands and the advertising levels that we have planned, they would look very similar to where we are at this year.

In the US, we are adding Jolly Rancher advertising, we are adding Rollo advertising and so we are actually extending advertising further across the portfolio versus increasing it necessarily on existing brands.

So, on brands like Reese's and Hershey's, we believe we are at sustaining investment levels and so the marginal benefit of that extra dollar spent would be less on those kinds of brands.

We're really extending across the portfolio.

And then importantly in our international businesses, we continue to be investing there to build brands and grow penetration.

So some of that investment importantly is up against those businesses.

If you look at it on a total basis, and part of it is remember where we are coming from.

In 2007 and 2008 we were spending about 2.5% of net sales in advertising, which was significantly low at any brand building level, and today we ended up 2011 probably 6.8% or 6.9% of net sales in our advertising spend and will be slightly above that in sort of call it 7% to 7.5% range.

That would be very normal CPG brand oriented company spend levels.

So we really feel good where we're at and that we are executing against our long-term strategy.

Very clear answer.

One final question for me.

Bert, Brookside $90 million in sales.

Given the low cost of funding, you say this is neutral to EPS.

I'm struggling here just a little bit with the math on this one.

Are the margins on this thing really bad or are you guys just wanting to say -- I mean I cannot get to neutral unless I assume that the margins on this thing are really quite bad given the funding costs.

What am I getting wrong here?

David, I wouldn't say that we're disappointed in the margin of the business.

We are investing in the business in a way that will create future opportunity, particularly in the North America where it is already pretty successful and then doing research outside of that.

So, it really is brand investment.

The business is cash flow is positive.

There is a certain amount of goodwill amortization that hits the P&L in the first few years as a result of the purchase, which is non-cash as you might expect, and we're also adding some capacity to be able to expand the brand.

So we are happy with the margins.

Obviously we think we can improve on them with some synergies in terms of our scale, but it is a sound business and one that we think is going to really pay dividends for us.

Very helpful.

Thank you, everybody.

Your next question comes from the line of Chris Growe from Stifel Nicholas.

Your line is open.

Hi.

Good morning.

I just had a couple questions for you.

The first one I just wanted to ask about, as of last quarter we saw some retailers pushing through pricing a little more aggressive rate.

That didn't seem so obvious this quarter, given how your sales and some of the measure channel data kind of lined up pretty well.

Is that just because of the heavier seasonal sales in the quarter?

That is absolutely correct.

Okay.

And then I wanted to ask about the cost savings.

I know they have some Next Century savings next year.

You will have some, I assume, ongoing productivity savings.

Anything unique or can you give kind of a rough range of the cost savings coming through in 2012, particularly in relation to the gross margin being so strong?

Yes.

The 2012 savings program from a dollar range perspective is actually pretty close to 2011, so we were expecting $80 million to $90 million of savings.

There are some minor differences in terms of the contributors.

We always have our normal productivity within the four walls of the plant.

Project Next Century savings actually increases from about 15 to the 20 to 25 range, and then we had an active program that we've talked about the last three years that was against non-manufacturing spend, which we have captured about $100 million.

And while there is savings from that program, that program is not providing as much savings as it has incrementally in the past few years.

The total program remains in that $80 million to $90 million range.

And that is certainly is a big contributor to the gross margin, but, again, I point you to the price realization based on our conversion models where about 60% of that comes in 2012.

Okay.

And my last question is in relation to the balance sheet and how we should think about it.

I mean maybe you can characterize the acquisition pipeline for the year?

I would contend you could do a lot of share repurchase.

So, I'm just trying to understand.

You have got a modest amount of share repurchase authorization available, but is their a full pipeline we should expect you to be trying to execute against if you will?

When you mention pipeline, are you're talking M&A?

Acquisitions, you got it, yes.

We are not going to comment on specific M&A.

With respect to the balance sheet, yes, we continue to be a very predictable, strong cash flow performer.

In 2012 we had slightly less capital but still a good amount of capital, close to $300 million as we finish up Next Century.

While we didn't execute against the 250 buyback program, we did buy back 285 million of shares in the open market against replenishment program.

And then we announced a 10% dividend increase.

So, we continue to have a sound balance sheet.

We continue to explore opportunities for M&A.

And we would be able to finance those in an appropriate manner where we find value for shareholders.

All of those are important to us and we will continue to focus across that range.

Okay.

Thank you.

Your next question comes from Ken Zaslow from BMO capital markets.

Your line is open.

Good morning.

I have just two questions.

The first one, in terms of the pension costs.

Just to understand, when you initially gave guidance, was that included and so it is like for like or is the increase related to the $0.05 decrease?

When we initially gave guidance, we were just really communicating within our three to five, six to eight long-term guidance and so at that time we wouldn't have given any indication around pension.

We frankly hadn't finished the debate and it is something we talked about internally and came to what we thought was the best conclusion.

Obviously, the current numbers do and there's a reconciliation in the press release that gives you pretty good detail of what that is versus what we are currently saying, 9 to 11, which does include that adjustment on a pro forma basis.

And then the second question is, it seems like obviously your international sales growth is actually moving at a greater pace than you anticipated going forward.

Can you give some sort of at least qualitative view on how you are thinking the margin structure of each of the businesses, Mexico Brazil, China, India are progressing relative to expectations?

And do you expect a quicker return on the margin or operating profit line?

Well, first of all, as we have said, our overall international businesses are profitable today.

If you look at the focus markets that we have, we are in an invest mode and so you would expect those margins to be lower but they are certainly taken into consideration within the guidance that we are giving to you.

And then the other comment I would make there is that we believe we are well positioned for both opportunities and challenges.

At any given time if we wanted to change our current model of investment in those markets, those markets could be profitable today, but the intent is that we have a commitment to grow those markets and, therefore, you would expect those key markets which are in an invest mode to be at a lower margin then, in fact, the average of the Company.

And one way to think about that is, depending on where you are measuring.

So, obviously at a gross margin level they are much closer to US rates than operating because that invest profile.

Great.

And then in terms of China specifically.

There is going to be another additional sales force expansion as well there in line with R&D, so is that a two to four-year period, is there a period of time that you actually think that you will be established at a run rate level by 2014 or is it going to be an investment period beyond that for China?

Let Bert and I both probably take a whack at that.

On the investment in the selling capability, our business is largely along the eastern seaboard.

Today we continue to move west as we think that is appropriate.

And then within each of those key geographies if you think of it as concentric circles, we increase our density there as well.

So, I think that we will continue to be investing in our go-to-market capabilities in a very planful way.

We do not have an idea of where we get well out over our skis or so far ahead of ourselves.

So, the great thing for our Company in a country like China, and this really applies to our focus market, is you have this dynamic market growth and the important thing is to participate in it at an attractive cost versus get out ahead of it.

So, it is really not about winning share at a high cost from competition as much as it is participating in a dynamic growth, and that enables you to in a very planful way, expand the organization.

So, I don't think you would see us doing something that would get us out of a line with how we feel the size of the business is for us.

Yes, I would not have anything to that.

Great, I appreciated that.

Thank you.

Your next question comes from the line of Alexia Howard from Sanford Bernstein.

Your line is open.

Good morning, everyone.

A couple of questions.

First of all on the revenue guidance for next year, I'm assuming that includes the sales from the Brookside acquisition, which I think is about 1.5%.

And then given that the international business is going so rapidly, that may be adding another couple of percentage points to the total Company top line.

So, would I be right in thinking that the US sales guidance is more in the 2% to 4% kind of range?

Is that the right way to think about it?

No.

Let me try to give you a few more data points.

First, the 5% to 7% that we had mentioned would be an organic growth rate and so would not include Brookside.

Alexia, this is Mark.

That 5% to 7 % does include a little FX.

So it is not truly organic.

Right, it is not constant currency and, again, we expect a little bit of a drag versus last year, particularly in the first half from currency but it is -- think of it more as organic in terms of ex-Brookside and you would add Brookside to that.

JP mentioned that the category continues to trend above historical, which we think of as 3% to 4%, and it certainly performed above that 4%.

We expect a continuation of that in the US market and we expect to be able to be competitive within that range and so I wouldn't think of the US as a 2% to 3% grower where we are saying the category grows a bit of 04 historically and that we are very competitive within that range.

Okay, great.

And then just a follow-up on the pricing situation.

I have just been hearing some commentary that maybe the number three player in the chocolate market in the US is pulling back a bit on the price increases that they try to take.

Are you seeing any of that or at the moment is everybody following you on your price lead?

While we don't think of it as the following or anything like that.

I would say that all of the category players have taken some pricing but we have not seen retailers shy away from those and so we think everybody's converting at some pace and we're pretty happy with our conversion.

Alexia, this is Mark.

I think if you look at the IRI Nielsen data that you guys continually get on a quad basis, I think it indicates that there is pricing across all manufacturers.

Right, thank you very much.

I will pass it on.

Your next question comes from the line of Thilo Wrede from Jefferies & Co.

Your line is open.

Just one quick question for you.

I understand that the CMG category has different dynamics than overall packaged foods.

Packaged food peers have been talking lately about going to smaller pack sizes, going to lower opening price points, yet you talk about getting a growth benefit from selling more king size packages.

Help me understand why king size works in CMG and chocolate, but not in other package food categories?

Well, let me give you just a couple of things to think about.

First of all, it is important to remember that we are not a food group, we're less than 2% of total caloric intake for Americans and we are accessible indulgence.

So the category has some dynamics that are probably different than some of the other categories that we were talking about.

So I think that is just a fundamental element of the differences between us and some of the other snack-type items.

The only thing I would add is, when you mentioned what we specifically call king sized is in the fixed consumable pack type.

You may have been thinking JP's referral to larger pack sizes during some of the Halloween seasonal, which in our mind is not what we think of as king sized, but larger pack size in any case.

Let me just add a little more specifics on to that is that the value of king size is an obvious and good value to the consumer.

They can do the math easily and, therefore, again it is at a low price point.

It is accessible and I think again the reason people purchase and participate in the category may be a little bit different.

So even though your regular sizes show the regular price and elasticity, the price sensitivity that the overall packaged food industry is talking about does not seem to apply to these king sized products then?

I think that's correct.

Okay.

Thank you.

Your next question comes from the line of David Palmer from UBS.

Your line is open.

Good morning, guys.

Just a couple questions.

First, a follow-up on your answer earlier.

You mentioned that seasonal mix was higher.

Was there a dynamic about in your take-home packaging where the seasonal did not have pricing but some of your other packaging, sort of the lay down packs did and you a shift in packages in mix that might have been a little greater than expected?

We wouldn't have seen a shift for that reason, but you are right that we did not take pricing on the seasons.

They are still under price protection, but a lot of our everyday package candy would have been at higher prices, yes.

So don't look at that as a price elasticity thing rather just a function of the marketing?

Yes, I think it is really season specific and so consumers buy for the season.

The don't necessarily buy more seasonal packs because they are not priced up yet versus the everyday.

They're different usage occasions so they wouldn't stock up on seasonal to avoid the everyday package price increase.

Thanks.

And second question on your C-store trends, I'm wondering if you can give some feeling about how that channel may play out in 2012?

I know you're not going to give the exact channel guidance, but perhaps some ways to think about it.

As I'm thinking about it you have strong momentum in the second half and, exiting the year it looks like you have some fantastic growth in that channel but you're going to be lapping some innovation.

And I just wonder about king size.

It has been such a wonderful lift for many years now, at least as I perceive it, do you see that dynamic continuing to play out in a favorable way for that channel?

Any thoughts would be helpful.

Thanks.

I will make a couple of comments.

First, we have experienced very good trends in C-store.

So we are going to be lapping some pretty challenging comps.

So it would be nice to assume that we will continue to have those that look the same but my guess is some of those are going to be pretty tough comps to lap.

With that said, I think the momentum in the C-store channel is going to continue.

I don't see anything that suggests their business model or traffic will change.

So, I am pretty optimistic about the overall dynamics of the convenience store channel.

With regard to king-size, again I think because of the accessibility of our category, it will be far more about the category performance than it will be any individual pack size and because these products are accessible in every measure and we continue to have about eight points of presentation or activation in the average C-store across the country, that we feel good about our programming and I'm quite optimistic about the channel.

Is that mostly the big cup, big pack Reese's stuff in the king-size?

What is really -- what are your key king size drivers?

Over the last several years there has really been a couple of really key drivers I think between -- behind our C-store success.

First of all is we had, you may remember, we used to talk about the big 33 program.

So I think what happened is we got far better at having a very constant range across C-stores in general and then that enabled our advertising to work harder for us and it enabled the consumer to be able to find the things that we were talking to them about and so our distribution was really important.

We also got far more focused around the retail programming that we had and, sometimes when we are out having visits with you guys, we will show you some of those programming calendars and we execute really well against those and remember we increased our selling organization, coverage and size across C-stores, so we are covering those with our dedicated sales force at a higher rate than we had in the past.

So, I think all of those things just have really helped us activate in the category and then we have a disproportionate representation in king-size.

So, if you were to look at the total category, our king-size participation there is greater.

Therefore, as this value dynamic, or as the consumer looks at the category, we have gotten a disproportionate share of that growth.

Thanks.

Thanks, JP.

Your next question comes from the line of Andrew Lazar from Barclays Capital.

Your line is open.

Good morning, everyone.

Hi, Andrew.

I will just keep this quick.

Just given Hershey's sort of desire to be more aggressive from an M&A perspective in emerging markets, and it would seem like perhaps you guys are a bit disappointed that you have not been able to do more in that arena so far.

And if that is the case, I'm just trying to get a sense of maybe what it is that you are seeing there that is preventing you from doing it or not seeing there that you had hoped to see?

Just to try to get a sense of how we can think about that going forward.

Is it just that they're opportunistic and they have not been there, or are there some structural things that maybe you are seeing in some of the businesses that might be available that just aren't really doing it for you?

I think, Andrew, first of all, if we were disappointed it has not caused us to be desperate.

So, I think that again, without being overly specific, I think that we said that we are actively looking at a combination of bolt-ons all the way through to larger types of events and these things take time.

You certainly want to do them well.

We want to be choiceful and smart as we go.

So, we are actively paying attention to all the opportunities that we think could be good for our Company and, as we think about making those choices, we really want to make sure that they are really good choices and that they really deliver against the Company's long-term objectives.

Thank you, JP.

Your next question comes from the line of Bryan Spillane of Bank of America.

Your line is open.

Good morning, guys.

How are you?

Good, thanks.

Just two quick points of clarification.

First, on the pension expenses.

Just want to be clear on the piece that you are going to be excluding.

Are you going to be marking to market your pension assets on a quarterly basis and so that will be volatile, or are you still doing the smoothing and so people can at least allocate that $0.05 is sort of a visible cost that can be allocated each quarter?

Yes, it is really not a mark-to-market.

Some of the companies have taken that approach.

As I said, as companies have taken slightly different approaches to adjusting earnings, there are some that have done that.

Ours would be smoothing.

And, as I said, our point on that is that they are primarily non-cash charges.

In the K where there is an impact, if this were to go in one direction for a long time, obviously, it may have some funding implications, but often times we have not seen that.

And the fact that we have some years up and some years down is really what led us to pull that out in terms of what is the real operating cost to the business of the service costs within our pension plan, but it is a smoothing.

It is Mark.

Just to be clear.

Similar to other restructure charges and how we show the -- take that reconciliation from GAAP to adjusted, we will do the same with this as well.

And the lines that predominantly get impacted are the ones you would think, right?

Gross margin because of our factory, employment and SG&A.

Okay.

And then just one other point.

Just in terms of the seasonal business in the quarter.

Did the snow storm, the bad weather on the East Coast, at all affect Halloween for you or for the industry?

No.

Absolutely not.

No, we didn't see that.

Okay, great.

Thank you.

Your next question comes from the line of Rob Dickerson from Consumer.

Your line is open.

Thank you very much.

Just two quick, easy questions hopefully.

For the gross margin I know you are guiding to 75 basis point improvement driven by increased pricing, volumes up and productivity, (multiple speakers) but I'm just curious, do you think that there is actually a little bit more upside to that because we have just seen cocoa now down 30% in June year-over-year and (inaudible) is expected to be down 7% to 8% for 2012.

So, I'm just curious, why we expect commodity costs, we talked about higher costs, are you speaking to just higher absolute levels or what?

Yes, we think of it as more the combination or the cost basket, as we call it, and while you're quite right that we have seen some declines in cocoa and a little bit on the sugar side, what we typically look at is what is the two-year average across that commodity basket and what you will find that by and large we are above those levels, cocoa being the exception at least for the moment, and still things like peanuts and dairy, in fact, and some of the others are still quite elevated.

So we have seen a little bit of tapering and that is good for you, certainly in any case, but it really is based on the basket not any individual commodity.

Okay, perfect.

And then, secondly, I guess this is back to Chris's question originally just on the buyback.

I know you use to buy back shares, you haven't really bought back shares now in five years.

So, I guess the more direct question is just what would get you to buy back your shares or buy back more shares that would be accretive to earnings?

Yes, we did buy back some shares this year.

You are right.

We haven't been as active, we certainly stayed out of the market a couple of years ago when the financial structure was a bit more up in the air.

This year we completed the 06 program that was the $100 million and we were actually pretty active deploying cash in terms of option replenishment.

As you might imagine, the shares were up nicely and so there was more option exercising.

So, it is one of the elements that we look at in terms of giving back to shareholders and we discussed with our Board of Directors.

So, we have not done as much as you pointed out as we had in the more recent past, but it is not one that we would shy away from.

Okay.

And then, lastly, really just kind of the sum of all comments that you have had in Q&A.

If I think about EPS guidance that you had in Q3 more in line with long-term target of 6% to 8%, and now if we look at guidance now, you're guiding 9% to 11%, you just back out the $0.05 let's say because that is probably everyone else was already factoring that in, you are at 7% to 9%.

So, if I look at the 6% to 8% relative to the 7% to 9%, what really was kind of in a nutshell, what was that 100 basis point improvement to three months ago?

Again, in the third quarter we traditionally don't give a lot of details around the guidance.

And so your observation is accurate in terms of we are looking at sales guidance which is above the range and so that is different than what we talked about.

We gave more detail on gross margin.

Last time we said we were focused on it, this time we are actually telling you that we are expecting to be up close to 75 basis points.

And we are investing in the business both in the US and outside of that at appropriate levels where we are pleased with the financial performance that we are projecting for the year, and really that is the additional detail that we are providing today.

Okay, perfect.

Thanks a lot will pass it on.

Operator, this is [Hershey M].

We have time for one more quick question.

(Operator Instructions)

All right.

Well, if that's it, Operator, we thank everyone for joining our conference call today and myself and Matt Miller will be available for any follow-up questions that you may have.

Thank you very much.

Thank you very much everybody.

This concludes today's conference call.

You may now disconnect.