The Hershey Company Q3 2008 Earnings Call Transcript

 |  About: The Hershey Company (HSY)
by: SA Transcripts


Welcome everyone to The Hershey Company third quarter results conference call. (Operator Instructions) Mark Pogharian, you may begin your conference.

Mark Pogharian

David West, President and CEO, Bert Alfonso, Senior Vice President and CFO, and I will represent Hershey on this morning's call. We welcome those of you listening via the webcast.

Let me remind everyone 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 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 10K for 2007 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 are consolidated balance sheets and a summary of consolidated statements of income prepared in accordance with GAAP, as well as our pro forma summary of consolidated statements of income quantitatively reconciled to GAAP.

As we have said in the press release, 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 excluding certain items provides additional information to investors to facilitate the comparison of past and present operations.

We will discuss our third quarter 2008 results excluding net pre-tax charges. The majority of the charges in both 2008 and 2007 are associated with the global supply chain transformation program announced in February 2007. These net pre-tax charges were $31 million in the third quarter of 2008 and $151.9 million in the third quarter of 2007. Our discussion of any future projections will also exclude the impact of net charges related to these business realignment initiatives.

With that let me turn the call over to Dave West.

David West

Hershey's results for the third quarter were solid, and I'm pleased with the progress we continue to make. Marketplace performance is improving as expected, with core brands responding to the investments we have made.

Q3 net sales increased 6.4%. Excluding the impact of the timing of shipments stemming from the buy in related to the August price increase, sales growth was approximately 4%. This growth was driven by price realization and overall growth in most core brands and new products, partially offset by softness in snacks, refreshments, Kisses and some non-core brands.

First let me update you on the U.S. price increase that we announced on August 15th. As we stated at the June 17th analyst day in New York and on our second quarter conference call, commodity costs will be a headwind in 2009. As you're all aware, the prices of many of our commodities used in manufacturing our products have increased significantly since our January 2008 price increase. These costs include double-digit increases on cocoa, sweeteners, nuts and energy. As it stands today, commodities peaked in early July, but the prices of all of these inputs are still up significantly since the beginning of the year.

At the June 17th analyst day and as we approached the second quarter conference call, the markets were volatile and we did not have fully visibility into our 2009 cost basket. During this time and through mid-August we executed certain commodity hedging strategies that provided increased visibility into our 2009 variable cost profile. These transactions added approximately $12 million or roughly $0.03 per share of cost to our initial estimate of about $100 million increase in 2008 input costs. Given the updated cost profile for next year, a price increase was necessary.

The 11% price increase across much of our line averages about 10% on our U.S. business and was effective immediately on August 15th. However, during the four-week period ending September 12th, existing customers were allowed, based on their historic order patterns, to order up to eight weeks of inventory at the previous price if delivery occurred by October 10th. As expected, most of our retail customers purchased product and took delivery during this timeframe. Therefore, we estimate over 2 points of net sales growth in the third quarter was attributable to volume which normally would have shipped in the fourth quarter.

It is important to note that we are honoring previously agreed to promotional allowances for customers to achieve their desired promoted price points on all merchandising events and promotions through the remainder of 2008. This same protection will apply to 2009 Valentine's and Easter promotions.

Other merchandising events in 2009 will fall under a new pricing architecture. Consumers already are starting to see higher everyday prices. We expect initial price elasticity impacts to result in lower unit volume in both the fourth quarter and into 2009.

In terms of marketplace performance, during Q3 net sales were in line with retail takeaway excluding the impacts of the buy in. IRI and Nielsen third quarter amounts are for the 12 weeks ended September 7th. Note that the next quad, for the four weeks ended October 5th, will be released to you today. I'll have a bit more on this later.

Overall, we're pleased with our marketplace performance. Consumer takeaway for the 12 weeks ending September 7th in channels that account for over 80% of our retail business increased by 4% driven by core brands, specifically Hershey's Milk and Milk with Almond Bars, Reese's Peanut Butter Cups, Kit Kat and Twizzlers were all up mid single digits. Our continuity advertising on the Reese's Perfect campaign continued, while the other brands began to gain more traction.

The Hershey's bar business is benefiting from the continued investment behind the S'mores campaign and the immediate lift from the Hershey's Pure advertising that started airing during the Olympics. Hershey's Milk and Milk with Almond Bars were up 7.9% during the quarter. Kit Kat jumped 7% in the quarter behind merchandising and support of customer-specific radio tie-ins. Twizzlers grew nearly 9% behind improved merchandising in the food class of trade as well as the launch of a king-sized format in C-stores.

These gains were offset by softness in snacks, refreshment and Kisses, the later of which was down double-digits as we lapped the Filled Kisses Limited Editions that were in the marketplace last year as part of the 100th anniversary promotion. As we've previously communicated, work to improve Kisses performance is ongoing.

In the channels measured by syndicated data - food, drug, mass (excluding Wal-Mart) and convenience stores - total category growth was 3.1%, with Hershey retail takeaway increasing 2.7%, resulting in a market share loss of 0.1 points. We do feel good about the progress we are making. In the third quarter total Hershey retail takeaway was up in all classes of trade. This had not occurred in about two years.

We continue to perform particularly well in food, one of the channels where we added additional retail resources. In the food class of trade, the category grew by 2.3% in the third quarter. Hershey retail takeaway increased 4.6%, resulting in a 0.7 point market share gain. These results were driven by increased levels of merchandising behind Reese's Batman, S'more's Brad Paisley, and the U.S. Olympics sponsorship as well as the fact that many of the new associates hired over the last nine to 12 months are now past the learning curve.

Hershey's Bliss was a key driver of our gain in the food class of trade. The launch has exceeded internal targets - sales, ACV and repeat. During the third quarter our raspberry flavored Bliss chocolate product was an exclusive item at Target. It did very well and a national launch is scheduled for December 1st. For the holiday season, we will also be launching Hershey Bliss Crème de Menthe as an in and out item. We'll continue advertising during the remainder of the year, and we'll support various in-store merchandising with coordinated FSIs.

Hershey's Bliss will continue to anchor Hershey's commitment to the trade up segment in 2009, driven by consumer support as well as additional new items. This investment will ensure the brand continues to grow in 2009. The addition of Reese's Select Clusters during the quarter will add to the trade up lineup.

The Starbucks Chocolate launch is progressing, although trial and repeat are behind initial targets due to distribution timing as well as an overall category slowdown in premium products. The portfolio performance for Starbucks is mixed. Starbucks solid chocolate items are off to a slower start, but the café-inspired truffle line is resonating with consumers, driven by espresso and café mocha flavors that rank among the top of all premium truffle items in the category. Carmel Macchiato truffles were introduced in September and are off to a good start, with distribution at several of our top customers.

In the fourth quarter, strong customer programming is planned to drive Starbucks Chocolate trial as seasonal buyers enter the category, including a line of holiday truffle gift boxes that feature Starbucks seasonal drink flavors like Peppermint Mocha and Gingerbread and Eggnog lattes.

In the C-store class of trade, the category was up 2.7% for the 12 weeks ended September 7th, slightly less than the year-to-date growth of 3.2%. Recall in the year ago period that this class of trade was up almost 5%. Total Hershey C-store takeaway increased for the second consecutive quarter and was up 1.7%. While this resulted in a slight share loss of 0.3 points, it was a significant improvement year-over-year. Hershey chocolate and non-chocolate takeaway in this channel during the quarter grew 1.3% and 10.1% respectively.

Our refreshment performance was soft and declined by about 6% in the third quarter, driven primarily by Mints. As a segment, Mint is underperforming the total category and is down about mid double-digits for the quarter and the year-to-date periods.

The core brands that we are supporting did well in C-stores and outpaced our total results. Our increased retail coverage is working, emphasizing our core brands on shelf at retail. In the fourth quarter, merchandising and promotional support will continue with nostalgia programming featuring all of your favorite Hershey core brands and retro package graphics as well as a full lineup of seasonal instant consumables such as Reese's Pumpkins and Christmas Trees.

We continue to make the necessary investments to build our international businesses. Obviously this impacts margin, but we're committed to long-term success in these markets. Of note are the recent press reports related to dairy issues in China. At Hershey, product quality and consumer safety are our number one priorities. The Hershey Company has not purchased milk ingredients, including powdered milk, from China.

All Hershey products use the highest quality ingredients and are safe to consume. This includes Cadbury products manufactured and distributed in the United States by The Hershey Company as well as products manufactured in China for sales by Hershey throughout Asia.

Let me summarize our performance and outlook. Overall, I'm pleased with our U.S. marketplace performance. During the 12 weeks ending September 7th we continued to grow at 4% in FDMxC with Wal-Mart, with improved trends in measured market share, essentially holding our own on share after an extended period of decline.

We have consistent levels of investment throughout the remainder of the year and into 2009, giving us confidence that this market share performance should continue. This is reflected in the October 5th quad data, which will be released later today. This is the first month of Q4.

C-store takeaway for the four weeks ended October 5th showed category of 2.5%. Hershey takeaway was up 4.4%, resulting in a share gain of 0.5 points. This is our first gain in C-stores in over two years.

Hershey's retail takeaway in the FDMx classes of trade is up 1.9%. We gained 0.4 share points in the October 5th quad, with [inaudible] share gains in all three classes of trade - food, drug and mass ex - however, the category measured growth did slow some. Our demand planning and volume elasticity models reflect a category unit volume slowdown into the fourth quarter and 2009 due to anticipated retail price increases.

We do continue to expect full year 2008 net sales growth of 3% to 4%. A good portion of the category in the fourth quarter is driven by seasonal sales. Programs are in place to ensure sell in and sell through. We're leveraging the additional associates that are in the stores. Their efforts, along with our brand investment, will enable us to remain competitive in the marketplace.

The global supply chain transformation program is on track to deliver cumulative project savings of $80 to $90 million in 2008. A material portion of these savings will occur in the fourth quarter. Additionally, we'll be lapping our initial investments in advertising, increased retail coverage and international G&A infrastructure, which began in the fourth quarter of 2007. Therefore, we expect our fourth quarter cost profile to improve versus year-to-date results.

Given these savings, price realization and continued consumer investment, we anticipate [2008] earnings per share diluted from operations towards the lower end of the $1.85 to $1.90 range.

In 2009 our expectation remains for total company net sales to increase 2% to 3%. This is consistent with what we communicated in August. We will continue to execute well at retail and to invest in our core brands. During Valentine's and Easter we expect to see seasonal price points at levels consistent with those prior to the price increase. However, outside of these two seasons consumers will see higher everyday and promoted prices. We expect U.S. unit volumes to decline due to the elasticity effects of these higher overall price points; however, we will recognize modest dollar sales growth as a result of price realization.

We'll continue to invest in our international business, where net sales will continue to grow at rates greater than the U.S. business on a constant currency basis. The impact of foreign exchange will be particularly difficult to assess in today's markets.

In 2009 we expect our commodity costs to increase approximately $200 to $225 million versus 2008, about double the 2008 increase over 2007. While many of our key ingredients are below the 2008 peak levels, they're still much greater than year ago and January 1st spot prices.

We also remain committed to higher levels of consumer investment in 2009 and, given market returns, expect pension expense to be a headwind.

We will deliver approximately $60 to $70 million of global supply chain savings and gain the benefit of improved price realization. Therefore, we continue to expect earnings per share diluted from operations in 2009 to increase; however, it will be at a rate below our long-term objective of 6% to 8% growth.

I'll now turn it over to Bert Alfonso, who will provide some additional financial detail.

Bert Alfonso

Thank you, Dave, and good morning, everyone.

As already highlighted, third quarter results were in line with our expectations. Consolidated net sales of $1.487 billion represent an increase of 6.4% versus year ago. The buy in related to the August price increase contributed approximately 2 percentage points of sales growth, with the balance driven by price realization.

Diluted EPS from operations of $0.64 declined 6%, primarily due to greater levels of consumer investment, selling expense and higher commodity prices that included the cost of hedging strategies communicated in August. These hedging strategies were enacted to enhance our 2009 commodity cost profile and their higher costs in Q3 essentially offset the operating profit from higher revenue generated by the U.S. price increase buy in.

Net sales performance of 6.4% in the quarter was in line with our internal forecast. The 4% plus of price realization was driven by the April 2007 and January 2008 U.S. price increases. Volume was up slightly as solid U.S. core brand and international growth was offset by softness in snacks, refreshment and some non-core brands.

Dave provided details related to our marketplace performance, so I'll focus on a review of the P&L and balance sheet starting with gross margin.

During the third quarter operating gross margin declined 130 basis points. Favorable price realization and productivity were more than offset by increased input and energy costs that were higher by 220 basis points in the quarter.

Looking forward, we have visibility to our input costs for the remainder of 2008. We expect input costs, including energy, to be about $110 million higher year-over-year.

Net obsolescence costs in the quarter were at normal levels.

Reported advertising and consumer promotion expense is up 23% in the quarter, supporting the Hershey's Pure campaign, Hershey's Bliss, Reese's, Twizzlers, and Kit Kat brands as well as brand building initiatives in our international markets. For the year we expect advertising to be up about 25%.

EBIT margin was down 330 basis points and in addition to higher marking expenses was also affected by a few other factors. These include the cost of added retail coverage that began toward the end of the third quarter 2007, other employee-related costs, and investments in international expansion.

Moving further down the P&L, interest expense for the quarter decreased, coming in at $25 million versus $33 million last year. This was driven by [lower short-term] rates on our commercial paper of about 300 basis points as well as lower average debt balances resulting from working capital improvements. For the full year 2008 on a percentage basis, we expect interest expense to be down 15% to 20% versus 2007.

The tax rate for the third quarter was 35.5%, slightly lower than the prior year due to the impact of interim tax accounting. For the fourth quarter and full year 2008, we continue to project a tax rate of 36%. Note that the reported tax rate is higher than the pro forma rate, so the effective tax rate's applicable to business realignment charges.

Weighted average shares outstanding on a diluted basis for the quarter were 229 million versus 230 million in 2007, leading to EPS of $0.64 per share diluted from operations, down 6% versus year ago.

Let me provide now a year-to-date recap of pro forma results.

Net sales increased 4.2% or 3.2% excluding the Godrej acquisition in the January to May period.

Gross margin of 35.2% year-to-date versus 36.1% last year, primarily due to increased input and energy costs, which were approximately 270 basis points higher.

EBIT from operations declined 17%, with EBIT margin down 370 basis points to 14.3% from 18%.

Advertising and consumer promotions increased 22% on a year-to-date basis.

Earnings per share diluted from operations for the nine-month period declined 16% to $1.30 per share.

Next I'll comment on our balance sheet and cash flow.

At the end of the third quarter net trading capital decreased versus the end of last year's third quarter, resulting in a cash inflow of $190 million.

Accounts receivable were down $24 million and remain extremely current and of high quality. We continuously monitor our accounts receivable aging and, despite current conditions in the financial markets, we have not seen an impact on our customer's payment patterns to date. On a year-to-date basis, our accounts receivable days sales outstanding have improved.

Inventories were lower by $101 million compared to the third quarter last year, and accounts payable have increased by $65 million.

During the quarter our capital additions, including software, were $65 million and $211 million year-to-date. For 2008, we are targeting total capital expenditures to be in the range of $300 million, driven by the global supply chain transformation program.

Depreciation and amortization was $66 million in the quarter. This includes accelerated depreciation related to the global supply chain transformation program of $16 million; however, operating depreciation and amortization totaled $49 million in the quarter. For the full year we are forecasting total depreciation and amortization of about $245 to $255 million, including accelerated depreciation and amortization of approximately $55 to $65 million.

Dividends paid during the third quarter were $66 million, and we have repurchased $14 million worth of our common shares in the open market to replace shares issued in connection with employee stock options being exercised. Our goal is repurchase all such shares. We did not acquire any stock in the third quarter related to the current repurchase program. There is $100 million outstanding in the current authorization that the Board approved in December of 2006.

As it relates to our short-term cash needs, the company is currently well positioned. Earlier in the year we lowered the short-term portion of our debt, and we have significantly improved our working capital with a focus on accounts receivable collection, inventory reduction, and accounts payable terms.

Considering the increasingly volatile credit market conditions in the third quarter, we increased our cash position to manage our seasonal capital needs. As a result, we have not encountered any difficulties with our short-term commercial paper requirements and have been able to place our CP at attractive rates.

Our CP balance usually runs in a range of $600 to $700 million this time of year due to seasonality, and we are currently within that range. Our working capital needs peak in the third quarter, and in the upcoming fourth quarter our cash conversion is higher than other quarters.

All of our $1.5 billion of long-term debt is at fixed rates.

Let me provide an update of the global supply chain transformation program which we announced back in February of 2007.

Construction in our Monterey facility in Mexico continues and about 50% of planned manufacturing lines are installed and are producing product. We're tracking to achieve the 2008 cumulative year-to-date savings of $80 million to $90 million by the end of this year. While we are satisfied with our progress, there is still a lot to accomplish over the next 12 to 15 months to complete the project and remain on schedule.

During the quarter we reported global supply chain realignment charges of $31 million pre-tax, including $16 million of accelerated depreciation, $4 million of project start up, $2 million of SM&A expenses reflecting program management costs. The total of these charges reduced earnings per share by $0.10.

In 2008 we estimate total pre-tax charges and nonrecurring project implementation costs of $135 to $145 million and total ongoing savings remain at $170 to $190 million. Our estimate of total pre-tax charges on nonrecurring [inaudible] at $550 to $575 million [inaudible] project management and start up costs of $60 million.

This forecast does include a projection for pension settlement costs which are required by FAS 88, however the projected costs could increase up to $75 million based on recent financial market declines and if employee withdrawals from pension plans exceed certain levels. Importantly, any increases in pension settlement charges would be a non-cash charge for the company given our fully funded pension status.

Let me close by providing our outlook for the remainder of 2008. For the full year we continue to anticipate net sale growth of 3% to 4%, driven by price realization, improved U.S. marketplace performance, especially in our core brands, and sales gains from our international businesses.

We expect that EBIT margin will be lower year-over-year due to higher input costs and increased investment in advertising, consumer promotion and selling expenses in the U.S. and in selected international markets. As a result, we anticipate 2008 earnings per share diluted from operations within the $1.85 to $1.90 range. As we have identified previously, we expect that full year 2008 earnings per share diluted will be toward the lower end of this range.

In 2009 we are projected lower U.S. volumes stemming from higher retail price points. In nonU.S. markets we anticipate that a stronger U.S. dollar could dampen growth in international markets. As a result, we expect total company net sales growth of 2% to 3%.

Our cost basket in 2009 includes higher commodity costs. In addition, based on today's decline in the financial markets, we will most likely incur a non-cash pension expense in our defined benefit plans. Importantly, our pension plans are already fully funded and no cash contributions are anticipated.

We will continue to focus on productivity and other initiatives to offset the cost challenges I've already described.

Considering all of these factors, we expect earnings per share diluted from operations to increase in 2009, however, at a rate lower than the long-term objective of 6% to 8% growth.

Let me now turn it back over to Dave to begin the Q&A portion of our teleconference.

David West

Before we start the Q&A, let me just reiterate that overall we are seeing improvement in our U.S. market share trends, we're making progress in international markets, and we have taken the necessary supply chain costs and pricing actions to deal with these volatile times. We have also restored support on our core brands and retail coverage. We'll continue to execute against the consumer-driven demand model we discussed with you on June 17th, and we believe that we are headed in the right direction.

And with that, we'll now open it up for your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Jonathan Feeney - Wachovia Capital Markets, LLC.

Jonathan Feeney - Wachovia Capital Markets, LLC

I wanted to ask specifically about the convenience and gas channel. It seems like a decrease - there seems to be a mix of opinion out there that the impact that a decrease in fuel prices off peak levels is having there. I've heard some say their business is accelerating; others say no impact. Could you maybe give me a sense of the trends you're seeing and are hoping for into 2009 assuming gas prices stay here, off their peak?

David West

I think, Jonathan, the 12-weeks data that we quoted ending 9/7, clearly had the much higher gas prices in it. And I think during that period clearly trips were down. The category in that 12week period through the summer was up around 2.5%. It's down a little bit from what it historically had been, and that's pretty consistent with what we saw in the four weeks ending 10/5, which just came out in the last couple of days. So still around that 2.5% to 3% range.

The lower gas prices are just starting to come in, so we'll have to watch the impact of that, but overall I think trips are down a little bit. But our category seems to be kind of clipping along at that 3 percentage range. For the first time in the last four weeks we started to get some traction and gain some share back, so we're pretty pleased about that. But we obviously will continue to monitor it.

Jonathan Feeney - Wachovia Capital Markets, LLC

That 3% number, you're just taking - is that convenience or is that all channel?

David West

That's the convenience store only. That's the C-store part of our business.


Your next question comes from Judy Hong - Goldman Sachs & Company, Inc.

Judy Hong - Goldman Sachs & Company, Inc.

Just in terms of the category growth, Dave, as you look out into '09 and as we deal with the weakening economy and consumers just being more challenged, how do you think about the category growth outlook? And as you see price increases going through and consumers see higher prices there, how do you think about both from the macro perspective as well as the impact the price increases will have on the category?

David West

I think it's a good question. This is a category that historically has grown 3% to 4% over time, and that's been pretty consistent. When we look at the year-to-date, if you look at the 12 weeks ending 9/7 in FDMxC, the category grew 3%. When you think about our total business, which throws in some of the other non-measured, you know, non-releasable customers, we grew 4% for the 12 weeks. And that essentially for us was about flat in share. So the category's all in growing about 4%.

With these things that I think we'll see going forward, non-measured we think will continue to grow well. When I say non-measured, if you think about formats like clubs and Dollar and other of the non-releasable customers that tend to have more of a value format for consumers, we think that they'll continue to grow and be additive to the FDMx category growth rates that you would see reported.

Premium as a growth driver is slowing out there. Not good necessarily for the overall category, but other than our Starbucks product line and the Scharffen Berger and Dagoba we have, that's probably better for us, but not really better for the category. And we really need to continue to grow the overall category. So premium's [inaudible] trade up, particularly where we have our Hershey's Bliss position, seems to be holding up okay so far.

And then obviously the category growth rates differ as the year kind of goes back and forth. From about now until the end of the Easter period, the category tends to grow a little bit more slowly naturally because the seasonal business is pretty big and we don't get the same growth rates as we might get every day. And some of that is just controlled by us in terms of what we think we want to sell in and what we think can sell through.

So particularly in these economic times, as we head to the fourth quarter, we were cautious about what we put into the system for both Halloween and holiday, so we'd expect the category to probably slow a little bit. And then I think what you're going to see in 2009 is a new pricing architecture consumers haven't seen before, and so they'll be seeing, you know, we would expect in 2009 a shift, at least initially. There'll be less units, but more dollars per unit, obviously, and I think you'll start to see a shift between more everyday versus promoted units.

So we're monitoring those things very closely. We do think over the long term it's a 3% to 4% category. We still think that. And in the short-term, the latter part of this year and the early part of next year with the shift in the pricing going on, it might be a little slower than that. But again, for us, we're very focused on making sure that we hold onto the market share performance that we've started to gain in the last quad.

Judy Hong - Goldman Sachs & Company, Inc.

And what does your price elasticity model tell you about the sort of - if you can quantify what the model shows in terms of the impact on volume with every 10% price increase, for example?

David West

We're not going to get into the specifics of that. I think what we did say is we would expect that unit volume would be down but we would get, in our U.S. business, modest dollar growth in the next period of time as we went to the elasticity. But I won't get into the absolute specifics of it.


Your next question comes from David Driscoll - Citi Investments.

David Driscoll - Citi Investments

Dave, I just want to kind of ask you some questions here regarding the '09 outlook. Back in June and then in July you guys seemed pretty confident on the 3% to 5%. In July we had pretty much the contract highs in cocoa. By mid-August cocoa price had actually come down, and then it was at that time you guys reduced your forecast after announcing the price increase for '09. Can you just tell me, are there any other factors that went into your all's thought process on why the '09 sales outlook was weaker than you had thought just maybe a month earlier.

David West

No, David, it really was about the visibility into the commodity basket for 2009 and then, as we looked at that and got a little bit more firm on that, the need for us to really take a look at the pricing in the business and making sure that we were able to protect our margin. And that was really the only factor that changed it.

David Driscoll - Citi Investments

The second question, also related to the commodities, is now that they have come off so substantially from those contract highs - this is a question about your competitors, and I know you may not know the answer - but what historically has happened when Hershey has - Hershey's historically, to my mind, always been a hedger and been wanting to lock in that commodity outlook, but in terms of the other players in the space, let's assume they didn't do that; maybe that's right, maybe that's not right - does that put Hershey in a very tough competitive position in '09 if they literally are realizing substantially lower commodity costs than Hershey would be? Is that a true statement? How worried should we be about something like that?

David West

Well, I mean, clearly we have our own marketplace intelligence about what our competitors may or may not do in terms of their own strategies, but obviously it's an educated guess and supposition on our part. We have to make sure that we take care of our business first and foremost. Most of the folks who are in the confectionary business are buying the same inputs  you're buying dairy, you're buying cocoa, you're buying sweeteners.

So while the prices have certainly fallen from what would be all-time highs, if you look at the ranges of cocoa over the last 24 months, it ranges anywhere from $1,400 a metric ton to $3,200 a metric ton. So really you have to know entry points and exit points and how much cover people had coming in. So what we have to do is make sure we take care of our business going forward.

We think that within the category we can remain competitive, and clearly we'll monitor what's going on, both with our business and with the category. But we feel we've done the right things for the business long term. And we have already had those conversations with our retail customers, and the consumer's going to start to see it and we'll monitor our progress.


Your next question comes from Chris Growe - Stifel Nicolaus.

Chris Growe - Stifel Nicolaus

I just have a couple questions for you. The first one was, just to be clear on the EPS guidance for the year, you are forecasting growth in the fourth quarter and I guess what I was thinking here is that, is it possible you have marketing costs up at a slower rate given you've had pretty rampant growth in marketing to date?

And maybe you could also talk about the cost savings in the fourth quarter, [inaudible] those could be helping - you mentioned those [inaudible] to the fourth quarter.

David West

Yes, I would tell you that yes, we are anticipating, as you rightly indicated, some improvement in the fourth quarter. I would tell you that our investment behind the business, advertising, consumer investment and the like, are approximately at levels that we've maintained during the year in that sort of low 20s to mid 20s range. So really not a dramatic change from the investment levels we've had throughout the year.

In terms of the savings that come from supply chain transformation, they are more accentuated in the fourth quarter. I think David mentioned that. And they're within that cumulative, since we announced the program, $80 to $90 million.

Chris Growe - Stifel Nicolaus

And then you'd also mentioned a slowdown - I guess you made the mention in relation to Starbucks and premium products. Can you talk about that? Are you seeing that, for example, affecting Bliss or is just more you saw it on the really high end chocolate part of the market?

David West

Yes, so far it seems to be much more on the very high end. The Bliss, Hershey's Bliss, product line and some of the other things that are a slight trade up for the consumer, they're still getting merchandising. The very premium higher end generally would not get discounted and price promoted and merchandised.

So as long as the trade up is - when we're talking trade up in today's marketplace terms, a regular, promoted, everyday bag of packaged candy might get promoted at two for $5 and Hershey's Bliss might be at two for $5, so it's a slight trade up and the consumer perception of that is that the product quality and the experience is much better. And we're not asking them to pay a huge amount more, so trade up seems to be holding up okay. It's really on the much higher end where we've really seen a slowdown.

Chris Growe - Stifel Nicolaus

And then just one follow up. I think you essentially answered this but in relation to your cost inflation and for '09, the fact that costs have come off their highs but you kind of held your guidance for next year indicates you have pretty good visibility into '09; therefore, you're pretty well hedged in '09. I'm sure you're not going to give a percentage on that, but is that a fair statement, that you're pretty well hedged throughout '09 now?

Bert Alfonso

At this time of the year, given our practices and I think we explain it in the K, our policy is to be within 3 to 24 months. So yes, given this time of year, we would have some hedges in place.

I would not want to give you a percentage in terms of just for competitive reasons. What I would say is that the reduction of commodity prices in general is good for the industry, but we have taken our pricing decisions based on what we see in terms of the total year coming forward and how we manage our margins.


Your next question comes from Robert Moskow - Credit Suisse.

Robert Moskow - Credit Suisse

You mentioned pension expense as probably being a headwind in 2009. Can you separate that for us? I mean, in the Appendix of your release you mention the relationship with the restructuring program, but to what extent will your expense go up for existing employees and will you have to absorb higher pension expense?

Bert Alfonso

Yes, I will separate that into two pieces because they are quite different.

We did provide pretty extensive documentation around the settlement charges, which are more involved with our global supply chain transformation. And the way FAS 88 works, there are certain trigger points, depending on the level of withdrawal. And this is done on an every calendar year basis, so it's a pretty discrete exercise.

And to the extent that those exceed certain trigger points, then the accounting policies would ask you to report certain settlement charges, and those settlement charges would go against the global supply chain transformation program. We already have some in there that we've anticipated and we're just putting out more information because of the markets being down and the fact that we could incur more of them. So that's one piece.

The other is our normal pension expenses, which are part of FAS 87, and in that regard I think I'd like to highlight two points. One is that the good news for us is that we do have fully funded pension plans, and so from that perspective an expense in '09 would not require a cash contribution. We've also converted out of defined contribution and so we're capped to some extent in terms of new entries there, and that helps us going forward.

But as we look at the market performance where it is today - and again, this is a discrete exercise at a point in time, so it's not that we have an exact number today - but as we look at where the markets are today and where they could end up the year, we have made certain assumptions around what the market decline could be this year. And based on FAS 87 we believe right now that we would probably incur a pension expense next year.

Robert Moskow - Credit Suisse

But it's not enough to make you reassess your guidance for '09?

David West

Rob, when we look at the total basket of input costs - we've talked pretty clearly about the $200 to $225 million of commodity costs but then there are other input costs in the basket; you talk about benefit costs, pension being one, wage inflation, we would see that as being higher, there's utilities, freight, a number of other things - those are always in the algorithms for the overall basket and the pricing, that action that we would have looked at.

Now clearly a few things have happened in the last - in the volatile times over the last few weeks here. Maybe commodities have come down a little bit, but certainly the market returns have come a little bit. So I think that there's always puts and takes in there. We just want to make sure that we call it out that, given the market returns - and obviously this is unfortunately one of those things that's a point in time calculation on 12/31 based on how you're portfolio's done in the prior year and what the Moody's bond rates are - you have to kind of assess that pension expenses.

But given the falloff in the equity markets, there's going to be more pension expense coming through our P&L next year, and that's already in our algorithm when we talk about the look forward in guidance for next year.

Robert Moskow - Credit Suisse

Can you give me one more time your category growth number for the 12 weeks for FDMx and then your performance? You said you were at 4% and the category was around 4% also?

David West

I think overall, all in - you know, 80% of the business, which would include food, drug, all of mass, convenience - that was up 4%. When you just do FDMx, mass ex Wal-Mart and convenience, the category was up 3.1% for the 12 weeks and we were up 2.7%. So it's about a 10 basis point share loss in those 12 weeks ending 9/7.

Robert Moskow - Credit Suisse

And all in you're about flat?

David West

Well, we're down 10 basis points, so pretty much that's what I'd look at. We don't have the WalMart share but, I mean, all in. And then if you look at the period, the next four weeks ending 10/5, FDMxC, we gained share.


Your next question comes from Eric Katzman - Deutsche Bank Securities.

Eric Katzman - Deutsche Bank Securities

I have a few questions going back to kind of the events of over the summer. Your second quarter gross margins were surprisingly flat, and I think you tied that to milk costs or dairy costs. And it seems like that cost, which is I guess material, has continued to trend lower, and yet within the space of a few weeks you had to, it seems like, completely reassess where your hedges stood and the impact of that going forward.

I know for competitive reasons it's difficult to talk in specifics, but was it a situation where you didn't, I don't know, realize that some of these hedges were higher than you thought or you just decided to lock in and it seems like the lock in was above spot now? Maybe if you can just kind of go through that a little bit.

David West

Yes, let me take you back to the second quarter, Eric. When you remember in the second quarter when we mentioned that dairy was a significant favorability, part of the reason was we had to go back to 2007 when there was a correction in the dairy pricing complex that was noted in April and May of 2007. We booked in the second quarter of 2007 essentially six months of dairy unfavorability, so when we got into the second quarter of 2008 we had one quarter of dairy unfavorability versus two quarter the year ago. So there was an artificial favorability in the dairy pricing that we recognized in the second quarter. We were pretty clear about that.

And in the second quarter of the year we also had - which is basically almost - there's no seasonal business, really, in that second quarter of the year so most of our price increases had been on standard bars, so we got much more price realization in the second quarter than we were going to in any other quarter for the year at that time. I think we were pretty clear about that.

So we did say that the margin performance, while very good in the second quarter given the seasonal skew the rest of the way and the more normalized commodity trends, that we wouldn't have expected it to be quite as good going forward. So that kind of takes you back to the second quarter.

At that time we also had said we really did not have the full visibility to 2009. And over the subsequent time, we did take a look at where we wanted to be and where the markets were. And it was an extremely volatile time and, as Bert said, given our posture to try and really get visibility into the cost inputs and make sure we ensured supply, we did make some hedging decisions and some strategy decisions in that second and third quarter timeframe. And that's where we wound up recognizing an additional $12 million of expense for 2008 as we started to get those things online.

So in the third quarter margin there is a catch up from those hedging strategies that we recognized in the quarter.

Eric Katzman - Deutsche Bank Securities

And then from, I guess, a longer-term perspective, you've obviously been increasing advertising and promotional spending well above sales. To date the volume response has been, I supposed, mixed in that your volumes are basically flattish. How do you think about kind of where you need to get to on advertising to kind of get to the growth response that you want? I mean how, as you've done this over the last, I guess, six months now to a year, have you learned anything more about kind of where you're going with that bucket of spending?

David West

Eric, I think we're encouraged on several of the brands where we've made the investment. The Reese's brand has responded very well to the Reese's Perfect. That investment has really gone on the core. We're pleased with the initial distribution and trial and repeat on Hershey's Bliss, which we've advertised.

We started advertising on the core Hershey franchise with the Hershey's Pure campaign in the quarter, and we were very pleased with pleased with that. And then where we've been tactical with some advertising, much more radio than it is TV, with Kit Kat and with Twizzlers, we've been feeling pretty good about the brand responses there.

We do have some things; we have some things left in the tail of the portfolio we're working our way through. Our refreshment business hasn't done that well, and we have really yet to deploy the kind of consumer investment and insight into the Kisses brand that we would like. And that's the one brand where I think we haven't gotten to the response as quickly as we would like.

But I think overall we're talking about mid single digits plus takeaway on those core businesses that we've invested in. We feel good about that. And as we go forward we'll continue to invest and make sure that we get the continuity levels across all the core brands. And that's really our goal in 2009 with the increase, and then I think once we get to the latter part of 2009 we'll take a look at how the brands are responding. But until then I would say we've given you as much visibility as we can about the level of increase required in '09.

Eric Katzman - Deutsche Bank Securities

And then one quick follow up. Bert, did you say that excluding the buy in, volumes were up in the quarter?

Bert Alfonso

No. What we said was that, of the 6.4%, if you eliminate the 2%, the remainder of that was largely international growth and U.S. price realization.

Eric Katzman - Deutsche Bank Securities

And so core volumes were down a little bit?

Bert Alfonso

Core volumes were about flat.


Your next question comes from Terry Bivens - J.P. Morgan.

Terry Bivens - J.P. Morgan

Dave, a question for you here. We were just looking at some updated Nielsen data as well, and granted it applies only to certain channels, but it looks like you are getting good distribution on your two lead items on Bliss; they seem to be growing. But if you look at the Dove stuff, that's growing pretty quickly, too, so the question we were looking at is where do you think Bliss is sourcing the volume from? Obviously, the concern there would be possible cannibalization, but I don't know about that. I wanted to ask you that.

David West

Yes. We go into one of these things with a modeling exercise, Terry, where you think you're going to take your volume. And I don't want to get into specifics, but we've actually been pleased as to where the Bliss volume, Hershey's Bliss volume, is coming from. And as I said earlier, with the slowdown in premium, I think within the category dynamics, trade up has held up reasonably well while premium has been slowing, so you can make a supposition that some of that is coming from the more premium items in the category.

Terry Bivens - J.P. Morgan

And just a quick follow up on the Lotte agreement over in China. I think the last time I checked obviously you guys had the manufacturing agreement, but I think at one time you were trying to work something out on distribution. Could you update us on anything that may have developed with Lotte recently?

David West

Yes, Terry. We do have a distribution agreement that started within the quarter. Lotte is our distributor for Hershey products in Korea - and we have enjoyed pretty good success over the years in Korea, and we believe that that will help our business - and also are the distributor for certain of our products in Japan.


Your next question comes from Eric Serotta - Merrill Lynch.

Eric Serotta - Merrill Lynch

A couple quick questions here. If I remember correctly, on the second quarter call you mentioned something about the timing of Halloween shipments, that they were lower than normal or they were lower than previous year in the second quarter and you expected some pickup or benefit in the third quarter. I'm wondering whether you could quantify that, as to what the actual impact was in terms of sales or volumes this quarter.

Bert Alfonso

You're correct in terms of your second quarter conference call comment. We did mention that we'd shipped less Halloween this year's second quarter versus last year's second quarter, and so you're seeing more of that in our third quarter results.

We're also seeing a little bit of a shift in the quarter, obviously excluding the buy in, which we've already talked about, of holiday, which we shipped a little more last year third quarter, into the fourth quarter. I'm not going to talk about specific levels. I mean, we're pretty happy. We do write the orders for Halloween in many of our customers, and so we're pretty with what we're putting out there.

Dave already mentioned that given the marketplace we're focused on a good sell through and that's been reflected in our orders for Q3.

Eric Serotta - Merrill Lynch

Did I understand you correctly that perhaps the holiday was a little bit lower in the third quarter than - holiday orders booked in the third quarter were a little bit lower than the year ago period, so maybe the net impact of the benefit from Halloween in the third quarter and the headwind from the holiday would be about a wash or did I misunderstand you on the part about the holiday?

Bert Alfonso

No, you got it right.

Eric Serotta - Merrill Lynch

And then, Dave, in response to Judy's question you made a comment in terms of pricing architecture that you expected to see a shift next year to more everyday price point - more product sold at everyday price point versus promoted in terms of units. It seems somewhat counterintuitive for most categories if you're raising list prices to such a substantial degree that you'd see more of a shift to everyday full price versus promoted.

I know that you're making significant changes in your overall pricing strategy, but could you go into that in a little bit more detail as to why you expect that positive mix in terms of everyday versus promoted next year?

David West

Sure, I'm happy to do so. I don't want to get into a lot of specifics around price points, etc., but I think the important thing to take away from our comments is that the consumer would expect to see higher everyday prices. They'll also expect to see higher promoted prices. And historically in the category, while we have taken a number of list price increases over the last three or four or five years, we really haven't moved promoted price points up nearly as significantly.

And so what will happen is a balancing - or what we hope to happen, obviously; I think every category in the world would hope to have it happen - a rebalancing of everyday price versus promoted units. And I think that we would expect to see some of that happening because promoted price points will change.


Your next question comes from Alexia Howard - Sanford Bernstein Research.

Alexia Howard - Sanford Bernstein Research

I just wanted to continue on the international theme, particularly the joint ventures in India and China. I know that over the summer that you were talking about a big priority being getting more exposure to international markets and clearly those activities are contributing to that, but you did mention that those things are going to take time to generate earnings contributions.

Can you talk a little bit about those two joint ventures are going right now, maybe any detail on how much they're contributing to sales growth at this point, when you expect them to maybe reach breakeven, and even how much you're actually having to invest in those businesses this year and next?

Bert Alfonso

I'll give you just kind of a brief overview of China and India particularly.

In China the business tends to be very seasonal. It starts up in the fall months after summer, and it really goes at a peak through Chinese New Year in the early part of next year. That is just really starting. The sell in for that has just started so, when you look at year-over-year, the business in China would not have contributed much in the third quarter differently than the prior year because the sell in just really has started.

We are looking to expand our distribution there and have improved our portfolio particularly with respect to gifting for Chinese New Year. And generating trial and brand awareness is key for us in this current upcoming year, but right now it's really not much of a growth contributor. There was a lot of blocking and tackling to get the portfolio and the product line right for this coming year.

In India our business there is largely non-chocolate, a sugar confectionary business. We do have some syrup and milk mix there, but it is still largely that. And we have seen some improvement in the Nutrine business, which is that sugar business, particularly behind the big core brand there, which is [Mahawato]. And that has picked up in the quarter, and it has contributed some growth year-over-year.

Overall I think we're pleased with where we're headed there, and we continue to look at what we would do with our portfolio there going forward.

Alexia Howard - Sanford Bernstein Research

And can I just follow up on the - we've had a couple of questions about the sales outlook for next year and the 2% to 3% that you're currently looking at and why that is slowing down from this year. Is it a concern about category growth or is it primarily the concerns about price elasticity with the major price increase that you took this summer? Is it anything to do with the innovation pipeline, that you're expecting to see this slowdown in the top line next year? Could you maybe just give a little bit more color on that?

Bert Alfonso

When we made the announcement of the change from - that we would be slightly below that 3% to 5% long-term goal that we have, it was about the price increase that we announced on August 15th, and that's really what the driver of it is. We're going to take a fairly significant price increase, both everyday and promoted, across the entire line, and therefore we would expect to see some shifting between units and dollars and between promoted and everyday.

And, you know, our read on that is that those elasticity things are obviously always a lot more severe in the early part of the process and then we'll see how the consumer works its way through.

So that's why we looked at 2% to 3%. You know, foreign exchange is going to be a bit of a headwind next year for us, although we certainly don't have nearly the emerging market exposure that others do, so it's kind of a double-edged sword. We wish we had the emerging market exposure, but on some level we're glad we probably don't have nearly the same concerns about some of the FX issues.


Your next question comes from David Palmer - UBS Investment Research.

David Palmer - UBS Investment Research

There really isn't much of a private label presence in chocolate and while we could call Hershey Chocolate and Reese's premium brands, and they are, perhaps they are the trade down option as we're seeing unemployment rise in the U.S. Do you think there is potential for that trade down from super premium or just people looking for value in general to diminish price elasticity as we get deeper into '09? Are there steps that you can take to perhaps point to price value and actually benefit from what's going on in the U.S. economy in '09?

David West

David, I think the category has generally performed better than most categories in times of difficult economic times and/or recession. It is still a relatively approachable price point on a category that is kind of a simple indulgence, almost a comfort on some level. So the category tends to perform fairly well within those kind of economic times, so we think we'll hold our own and probably be better than a lot of other categories.

That said, I think what we will continue to do is a very much an impulse-oriented category, and we need to make sure that we get the right execution and merchandising so that we continue to win in the marketplace.

But I do believe there may be something there, and I just am, as I said, hopeful that the economy doesn't stay down for too long because we are all in the same situation in terms of watching the consumer sentiment. You know, right now we seem to be doing okay from a category standpoint. We hope to continue to be there.

David Palmer - UBS Investment Research

You might be limited what you can say on this, but separately, with your stock multiple at a premium to many other names globally these days and the dollar strengthening lately, does this begin to open the door, do you think, some time over the next year, year and a half, to Hershey becoming a little bit more active doing bolt-on international acquisitions?

David West

You're right, David, I can't comment on it because I won't comment on it. Good try. Thank you.


Your next question comes from Andrew Lazar - Barclays Capital.

Andrew Lazar - Barclays Capital

A quick one on gross margins as we think out to 2009. You've taken some obviously pretty dramatic pricing actions. You seem now to have a bit better visibility around where the cost basket comes in in '09 as well. Is '09 a year where, based on the algorithm you've kind of laid out, where gross margins can stabilize or expand a bit relative to what you've seen in the past couple quarters, leaving any upside to come from if the elasticity isn't as severe as you're budgeting for?

Bert Alfonso

Andrew, we don't typically provide guidance on gross margin. I think you're right about the comments that you've made in terms of our visibility and, without a doubt, if the elasticity model benefits from better volume than we anticipated, that certainly would help us at the gross margin level.

There are a couple things which we are counting on and which we have confidence in in terms of gross margin. Next year is a particularly important year for the global supply chain transformation. And at that point all of our plants that we've planned to shut down will be shut down, so we'll be operating with a lower overhead base and Monterey up and running at a pretty good clip. Price realization from the recent increase is obviously going to play a big role in that.

So we think we'll have, you know, [states] a good gross margin next year, but we're not going to provide any particular forecast at this point.

Andrew Lazar - Barclays Capital

And then just a very quick one, just based on the benchmarking that you do, Dave. The additional retail coverage in food and C-store and what have you, is there any way to sort of benchmark where does that put you relative to your more significant competitors in sort of the front end in that space? Are you advantaged now where you weren't before? Are you at parity now where you weren't before? How do you think about it?

David West

Yes, I think it falls into - it's really a class of trade specific question. We have historically had the opportunity - given category leadership, size and scale, particularly in some of the nonimpulse oriented channels - to have retail resources dedicated to our business. And, given the breadth of our portfolio, that's worked well for us. As we've reinstated those folks into the food class of trade, it clear has paid benefits and we're very pleased with the performance of our associates.

On the front end, we have added back some, if you think about convenience stores specifically, we've added back. The dynamic in convenience stores has changed a little bit in the last couple of years. As some of the oil companies have moved out of the space of owning stores, it's become much more of a franchisee model. And there we think the coverage and the way we're going at it, it's particularly important to impact someone who might own eight to 10 or 12 stores.

And there's a number of different models, anywhere from the guys who are going in DSD to us, who have some intensity to other people who farm it out via broker. I think we're competitive with where we are. And the dynamics have changed somewhat, but we're pleased with what we're doing on our core brands in convenience stores and we hope that we can continue to put some of the traction that we just got in the last four to 12 weeks.


Your next question comes from Ken Zaslow - BMO Capital Markets.

Ken Zaslow - BMO Capital Markets

I just have two questions. One is can you talk about your product mix? Have you seen a shift from single serve to bagged items and do you see that going forward?

David West

I can't actually, you know, there's obviously a mix shift as we get into the latter part of the year because we wind up with a much more seasonal skew, so you're by the very nature selling less in the way of instant consumable versus the aisle.

Ken Zaslow - BMO Capital Markets

Taking that out.

David West

That's a natural part of the business. And nothing else has really changed.

Ken Zaslow - BMO Capital Markets

So you don't think that changing consumer behaviors at all has changed? You know, people moving more to bagged items versus single serve?

David West

We haven't seen anything that I would call out as significant. I think there's been a little bit of a shift between standard and king bars as the prices have moved up a little bit, but that's about it.

Ken Zaslow - BMO Capital Markets

And then I didn't know if you said this or not. What is the major commodity that you cannot hedge?

Bert Alfonso


David West

Yes, there is not a well-formulated forward market for dairy.

Ken Zaslow - BMO Capital Markets

So if we look into 2009 and dairy prices change one way or the other way, that's would be the factor that might help your numbers or hurt your numbers, depending on how dairy plays out? Is that fair?

David West

I don't want to get into anything specific about what we may or may not be covered on on specific commodities, but dairy is one where it's much more difficult to hedge.


Your next question comes from Vincent Andrews - Morgan Stanley.

Vincent Andrews - Morgan Stanley

I just have one quick one and it's a follow up on Ken's. Can you give us any sense that $200 or $225 million of cost for next year, what percentage of that is actually hedgeable? I'm not asking where you are, unless you want to tell us.

David West

Yes, we're not going to get into the specifics of what is and isn't, is or is not hedgeable. It's just not something we want to talk about for competitive reasons.


Your next question comes from Christine McCracken - Cleveland Research.

Christine McCracken - Cleveland Research

Just on your strategy on Bliss relative to the earlier question I think Terry had, it seems like you're going out again with kind of special edition or these flavors in raspberry and mint over the holidays. I'm wondering, isn't this just creating the same type of situation you ran into with Kisses? I mean, why go forward with just these one-time flavors rather than kind of a broader, maybe more sustainable approach?

David West

Let me give you this. There's going to be a core number of flavor, variety on the shelf every day. And we went out with three initial flavors - a milk, a dark and a meltaway. There's something that we all do which we call turf analysis, and it'll tell you essentially how many skews is optimal in a lineup. More than three for a brand that we think of this size is optimal. The raspberry flavor will become permanent after we saw it in trials. So that's four flavors.

What we will then do in order to gain trial is to use some of the in and out flavor at the holiday as well as the ability to get the brand in and out of gifting to get trials at a time when there are lighter users in the category. That's not to say that those things are going to be permanent or that that's a strategy we'll go with on an ongoing basis, but in the initial opportunity for us to generate awareness and trial on the brand, we think that those are two windows of opportunity that we wanted to take advantage of.

Christine McCracken - Cleveland Research

You would generally, though, keep the number of Bliss products to some optimal number then?

David West

Absolutely. We've learned a rather painful lesson over the last several years on some of our brands about proliferation and line extension and, believe me, we are well aware of where the limits are.


At this time there are no further questions.

David West

Thank you for joining us today on today's call. [Mark Pogharian] and I will be available the rest of the day to answer any follow up questions any of you may have. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!