"Input costs were significantly higher in the first quarter. Despite this increase, adjusted gross margin expanded slightly due to net supply chain efficiencies, some of which were related to fixed cost absorption as sales volume was greater than year ago, as well as higher levels of supply chain productivity. Selling, marketing and administrative expenses, excluding advertising, declined as a percentage of sales versus last year resulting in an expansion of adjusted EBIT margin.
"Given the Company's strong cash flow generation and balance sheet flexibility, in the first quarter we repurchased $100 million of our shares, completing the 2006 authorization. We continue to focus on working capital and operating cash flow and are pleased to announce a new $250 million share repurchase authorization. This decision reflects our confidence in Hershey's marketplace position, long-term growth potential and our ability to create value for all stockholders.
"We're very pleased with the start to 2011. The U.S. launches of Hershey's Drops and Reese's Minis are on track. Distribution of the Hershey's and Hershey's Kisses brands in select key emerging markets is progressing. In June we will launch Hershey's Air Delight, an aerated milk chocolate in both an instant consumable bar and Kisses format. The price increase announced about a month ago will not materially impact our results in 2011. Given the timing of the announcement, net price increase benefits generated this year will partially mitigate higher than initially anticipated input costs. Additionally, direct buying customers will be able to purchase transitional amounts of product into May and we do not expect seasonal net price realization until Easter 2012. Therefore, we expect the majority of the financial benefit from this pricing action to impact our earnings in 2012. We will work with our retail customers this year, and into 2012, to ensure that the implementation of the price increase is supported with customer trade promotions and merchandising that continues to grow the category. As stated earlier, in 2011 we expect advertising expense to increase mid-single digits, on a percentage basis versus last year, supporting new product launches and core brands in both the U.S. and international markets. Despite commodity market volatility, we have visibility into our cost structure this year. While we anticipate meaningfully higher input costs, productivity and cost savings initiatives, as well as the pricing action we recently announced, are in place and we estimate that full-year adjusted gross margin will be about the same as last year. We expect 2011 net sales, including the impact of foreign currency exchange rates, and adjusted earnings per share-diluted growth to be around the top of the Company's long-term 3 to 5 percent and 6 to 8 percent objectives, respectively," West concluded.