As stated in October, gross margin is expected to increase in 2013, driven by productivity, cost savings initiatives and overall input cost deflation. Therefore, the company expects 2013 adjusted gross margin expansion of 180 to 200 basis points. Given this financial flexibility, in 2013 the company will accelerate some SM&A investments. Advertising is expected to increase approximately 20 percent versus last year resulting in an advertising-to-sales ratio of about 8 percent. Advertising spending on core U.S. brands is expected to be about in line with last year’s increase. Incremental advertising in 2013 will support the Brookside launch and innovation in both the U.S. and international markets, including a broader advertising campaign of the Hershey’s brand in China. SM&A expenses, excluding advertising, are expected to increase at a rate greater than net sales. These investments will build on the go-to-market capabilities established over the last few years, as well as the consumer insights work underway in key international markets for the five global brands - Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice Breakers – that the company believes can transcend borders around the world. Additionally, the company will continue to support its Insights Driven Performance initiative, invest in international selling and marketing functions and support new products with increased levels of consumer promotion and sampling to drive trial and repeat. As a result, the company anticipates adjusted earnings per share-diluted growth for the full year to be in the 10 to 12 percent range. This is greater than the previous estimate of an 8 to 10 percent increase.
“Hershey had a solid 2012 and we expect to build on our success in 2013,” continued Bilbrey. “In 2012 we opened one of the most technologically advanced chocolate manufacturing facilities in our hometown of Hershey, Pa., initiated and completed construction of a new innovation center in Shanghai, successfully integrated the Brookside business and increased market share in key geographies as well as across all channels in our U.S. business. While the macroeconomic environment remains challenging, we are well positioned to succeed in the marketplace and deliver on our commitments in 2013,” Bilbrey concluded.