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Some of the main concerns for FY09 stem from the company’s significant price increase in August (up an average of 10% in U.S. business). In FY09, HSY is raising both its everyday price points and its promotional price points. In the past, when HSY has raised its prices, it has typically not raised its promotion price points. Management’s lowered FY09 2%-3% revenue growth (from long-term 3%-5% range) is based primarily on the fact that they could see lower volumes as a result of the higher prices and some shift in mix between products sold at everyday price points versus promotion price points. Management is also expecting revenues to be hurt slightly by currency in FY09, but HSY does not have much emerging market exposure, which they said is a good and bad thing (only good because they won’t be as hurt by FX YOY).
There were also a lot of questions around commodity costs in 2009 because the company recently hedged a lot of its costs (management won’t specify what % of costs are hedged), and cocoa and sweetener prices have since come down. Commodity cost increases are expected to be higher in FY09 versus FY08. Management really won’t give too many details on this front except to say that from where they sit they are comfortable having greater visibility on 2009 as a result of their hedging strategy.

HSY is seeing improvements in volumes in the core brands it has increased advertising behind. Hershey’s Milk, Kit-Kat, Reese’s, Twizzlers were all up mid single digits. Refreshment, snacks and the Kisses brand are still all underperforming.

In FDM, ex convenience, market share was flat for the quarter. In the last 4 weeks (first month of 4Q), HSY gained share in the c-store category for the first time in 2 years. Management attributes these improved share trends to HSY’s increased retail coverage efforts.

HSY is seeing some slowdown in the overall premium chocolate category, but the company has little exposure so although it is bad for the category, it is somewhat of a positive for HSY’s overall core brands.