HSY - Earnings call transcript Q3 2017

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Operator

Good morning, everyone, and welcome to The Hershey Company's Third Quarter 2017 Results Conference Call. My name is Erica, and I will be your conference operator today. All participants have been placed in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please note, this call may be recorded. you. Thank Mr. may you your begin Pogharian, conference. Mark

Mark K. Pogharian

Vice Erica. The Hershey you, Buck, overview and Little, of Good you will will conference by morning, to Welcome President a Senior Patricia and be gentlemen. results, and CEO; and Company's an Michele CFO, provide ladies call. Thank President then third followed which XXXX quarter session. Q&A

are forward on everyone call uncertainty. may which which are conference current and contained listening based contain are today's looking. to that materially remind from statements Actual this the vary in of filed may me because release Let These SEC. factors press risk subject as expectations, those our in statements in listed the forward-looking XXXX for with those statements XX-K and results such morning's

a balance not posted income statements summary Relations section. of If seen is corporate in release release, press sheet accordance prepared consolidated the in press the is the copy website have a and Included Investor with our GAAP. on consolidated you of in

Note metrics These the uses pro information release, statement operations. we income the and investors measures select reconciled the believes section past performance evaluating as GAAP. items press additional adjusted quantitatively of reconciliations measures Rather, key results non-GAAP to GAAP. certain the excluding line of presentation The are forma these to the non-GAAP facilitate have company for internally. comparison present presentation to to provided not of in intended Within replace provides items, company financial the of accordance with of earnings,

earnings pre-tax These defined million, and at which derivative $X.XX is on business charges www.TheHersheyCompany.com. website discuss non-service-related primarily realignment losses morning's will third cost, release, available $X.X of in per we pension related XXXX or are quarter excluding result, expense. this Appendix are a net to results, our the charges As share-diluted, mark-to-market which of

let me future Buck. these with to over out turn of way, Michele any net also the exclude discussion that Our of projections And charges. the call of will the impact

Michele G. Buck

and sales the pleased performance. a and all Thanks, good net to and I'm the Mark, We In morning both our webcast. on phone delivered in growth, EPS, in third the environment. volatile quarter, of you with

We to strong as segments snack center continue $XXX of to billion most wheel the within CMG our snack strategy, about and U.S. feel and trends. the continue good remained outpace plate

currency EPS and currency As the at X% our constant X% high-end of And increased versus no planned, to the year. was quarter. constant full sales net There net in we $X.XX, of growth year EPS third increased sales to last X% outlook, change range. year reaffirmed X.X% our full

and about previously, some details, to growth, strategic discussed same will outlook, resulting estimated as no are Patricia growth, partially near sales to important are X.X% increased distribution, Company in quarter. up expansion be and over in was As marketing cycle. emerged marketing consumer cycle, embedded is QX. challenges, in consumer particularly expense or although these, margin consumer benefit related segment profit is to our of operating will operating profit be business Advertising change marketing by our and and strategic a costs, in the QX. have further expected deliver such continue the believe will as company the some investments supply long-term, QX We in of the course the the gross in our and long-term versus freight related that chain the and but advertising XX%, related expense America our advertising There total promotions. spend marketplace enable lower lower initiatives pressured Advertising will that planning the XXXX, well virtuous that in new XXXX over outlook as consumer higher in last International investments and business year. and offset as Hershey full Other North year to

Hershey. me summer, made partner they I before IRI as that platforms, and selected do, let are we want I capabilities in our for X.X%. moment. grocery our growth a syrup. by help items, IRI measured believe the to Hershey significant this as turn investments was more technology note provider. in But softness baking right in and offsets retail Now, will we has This analytics chips and and performance. retail platform preferred channel U.S. to QX market insights good IRI's at the channels, X%, the us driven right consumers, growth right target some than CMG Total such takeaway of

center category outpace Looking of at and the the CMG, gum, and continue edibles. Hershey candy, store to or mint

plus XX-week was and year-to-date takeaway plus CMG ending X, respectively. X.X% X.X%, plus October For X.X% year-to-date Hershey the X%. plus CMG and retail was period and and category growth QX

year-to-date Our of is driven share up market activity plus by year. half strong points, and in-store first in innovation CMG X.X the the

X.X%. non-chocolate chocolate we our segment, growth about Importantly, majority and candy where U.S. within category the combined is derive sales, QX the of

to chocolate Kit takeaway in increased growth, and particularly continue and marketplace X%. retail brands Kat their combined about Hershey's, drive with The Our Reese's, these performance. core Kisses, brands, pleased QX on I'm

the market prior combined and this non-chocolate on slightly of plus of candy overall brands non-chocolate rates Hershey's and and offset we As complexity candy share retail increase chocolate in partially chocolate off. discussed in as velocity resulted was quarters, on being improving focus takeaway select we've decline QX at retail. X.X% by reducing planned Therefore,

this lever this on brands innovation another delivers annual Hershey's good lever snacks working that and CMG ensure in the to candy look future. growth. and It's a improve sharing to are near quarter. and the sustainable on performance my meaningful, to consistently snacks of had strategic is CMG an plans with basis, non-core forward you goal We that our

sales a growth innovation to achieve as We X% X%. net target anticipate continue long-term our contributor to strong of to

distribution year given and of tracking social through velocity on expected. Crunch, level, the target the throughout Specifically, year. this Hershey's the and the Layer retail. our been online, Cookie media rest repeat earlier or has continuity CLC, supported in strongly by TV, planned is advertising year CLC We maintain the achieved at as with

As customers end Chocolate. select begin XXXX, the this Layer to the look the year. continue to we invest to Cookie Crunch with Shipments near of product we'll in launch Triple of

We have for QX on of Layer likely on should the most is year. improves Mix primarily it the In made Chocolate Cookie brands in business, packaging rollout impact progressing. as the Mix margin in against initiatives improved quicker, and packaged labor believe take-home of presence to initial lay In long-term an retail-ready quarter, one. largest shelf investment XXXX, shopability enables is support our visibility. it products from bags products less two year in stand-up Crunch platform. a large aisle. in-store before we in Snack gross the bags. product snacks packaging expanded pouches result is in and candy we Popped in right in the This The and introduce Both new Snack of select our Hershey's broader progress fourth our we'll good Snack Dipped these as it but Importantly, and at with get the this transition next with to history and in Reese's Bites retailers the launch will and our and format Pretzels, chocolate half down year receive equal did first also launch QX, Hershey's recent and shelf core on platform initiative

the is sales are similar outpacing and Dipped is is consumer the velocity of aisle. in Snack is competition. with Popped positive when Mix items Hershey-branded line plan Net ahead encouraging. are results growth in products, Pretzels brands while our merchandised early, reaction The snacks the While competing Chocolate of

progress we're about good feel making. the we So

parts Our of power chocolate share, portfolio brands we're plans are to CMG growing enable our snacks and on working in see near gains should and gaining other the and that future.

on. in are another is discussed initiative e-commerce I that July, we As strategic focusing

with their omni-channel click-and-collect related as well established to We retailers continue key and players. initiatives, e-commerce to brick-and-mortar as with work

U.S. As are a up XX%. about result, our sales year-to-date e-commerce

the sustainable team strategies and to developing and plan be solutions. dedicated in our of execution We're partners and all model. next a strategic with and QX e-commerce that cross-functional believe the a the validating have testing XXXX in we key growing impulse lead business will will of concepts We online for and generation working responsible

strong September, live solutions. alternative for the Halloween omni-channel CMG about working we results the to are portfolios, exceeding went develop our on Initial space. this e-commerce-friendly U.S., with our in potential first-ever a customer our Given fulfillment program. collaboratively digital expectations, very and in partners and are upgrades, the position excited And we business in with shelf I'm

Net This in-country we supply growth on the the in-country chain same sales model, basis, and where Mexico, solid progressive We're operating the same these and the our sales making were Now, our of in efficiency program is Brazil in seeing our China, strike for streamlining and at market net between and for an are estimate, quarter about year. we're quarter time. a we're segment, India, update the on effectiveness near-term China, markets investments to segment nicely on X%, executing on our optimizing Combined XXXX. against March constant third balance sales discussed International gains. International marketplace trends our opportunities. expected initiative as we're track. In and We're core improving X. markets currency the and Growth Margin operating and of currency measured line as currency this the increase for we investments was income net with constant in right relatively and constant Other excluding on Other and as

chocolate category flat about performance expected, show declined outpacing As roughly seasonality, is marketplace Small the to hypermarkets. China minus growth, by stores year-to-date. due the and format continued to summer X% in

on smaller Going store forward, measured penetration, have in e-commerce strategy brand's format that Hershey disciplined and we continued is messaging, focused expansion. and China a the

profitable result or in with pleased this I focus to in expect I'm our year. So results operating on segment. better break-even this our progress And growth

of environment. and well that category one business deliver growth U.S. bottom-line long-term. market, continues sustained to model the snacks that wrap over position to the the brands volatile encouraged the confections to are and I'm consumer our within up, us segments billion we snack and confident despite top Now $XXX retail broader largest and grow, is the consumer-centric

other and our strong related flexibility as us the of and capabilities marketing We're insights. optimistic lie with our that confectionery about in gives us This consumers. and position to give marketplace marketing consumer media investments smartly the solid as so us. to digital financial mix Our remain retail Hershey competitive well I presence ahead part and and is to in TV DNA edge a invest that why the U.S. at opportunities and and snacks innovation, modeling, trade, committed and of advertising,

have will early And despite combination it growth. up which the select customers continue a EBIT you'll feel to cream category. begin in and right to satisfaction. to of new flavor. creamy, of the peanuts and the shorter Triple lined to be top-line our too programming the we we brand you merchandising details; growth experience. with As look cost we features both that of results. however, a it's also flavor our I'll long-term will and Reese's Gold, stores January, believe I'm details to in preliminary bring and innovation, will type variety the Easter. level instant only via talk in buttery program pack upcoming and now to begin growth, a tied deliver Hershey's Layer Crunch financial that QX, Chocolate a We're company salty The and Hershey's delivers will a activity, also a on but Hershey's with will goal pretzels and, Hershey's it category crunchy Hershey's few Its over that distinctively increasing ship about Olympics, cream control XXXX, and We margins plans. with turn caramelize February about core a Patricia, to fourth of drive importantly, a see consumable excited who of more innovation includes good Cookie crunchy Gold with news provide sweet introduction broadly as Winter X. bits a over on margin-focused rich

Patricia A. Little

phone Good Michele. you, on morning everyone to on the the and Thank webcast.

our with Growth which currency X.X% with and success point last benefit net by acquisition Third our Volume price the lapped we was was points. foreign unfavorable. on from a By America net in driven plans. sales of the is operating QX, net X.X foreign were same growth, sales quarter and which Gains last a of X.X% In per higher including currency about year, Volume net the of and year period for Reese's increased price and America was year. favorable benefit. pleased share-diluted Chocolate points contribution translation. translation of brand Cookie realization, including were savings Margin point primarily favorable the North segment X.X by to driven versus of new for core a impact point last net currency and barkTHINS, and Layer year, with increased Total line as X.X% segment, the X.X program We positive Hershey's Innovation, well sales the track $X.XX, Adjusted segment Other contribution, the of earnings $X.XXX includes and of our Hershey's third realization and improvements. products. as sales International growth. came increase X.X X.X% Crunch, benefited sales America X.X versus North versus related Constant segment X.X sales Popped Pretzels. performance, an last versus Dipped increased Snack billion net point to Mix a of International estimate. income quarter launch from Other in North X% sales growth was at the and

point segment off impact due of the point period. in X.X realization Volume X.X% X.X declined X.X declines sales price versus currency foreign was and favorable to exchange, points a China, net and International benefit. net was Other Excluding year-ago planned the

and offset margins, about and that to packaging adjusted at quarter year. the service Turning primarily costs productivity adjusted of input more cost on gross chain distribution were XX customers. the supply higher and to initiatives in XX.X%, gross and a margin than of retail company's focus Michele versus savings initiatives last decline and sales related manufacturing profit mentioned by points third the costs, X%, of mix faster-growing basis resulting of levels Lower increased increased maintaining unfavorable freight targets and

costs. gross our expect about supply previous versus basis we XX points. to of our this The in XX year, was operating driven half freight, Adjusted a points. increase customer primarily new packaging chain customers, change of adjusted million margin margin about decline profit strategic the service third gross margin about year-ago full and is structure XXXX. XX%, of And the points higher the basis For the same outlook given our quarter by in and $XXX.X basis be the of XX profit headwind in resulting the on could of operating a first as period, focus

increase advertising third increased expenses lower productivity planned as the go-to-market costs. by were related consumer versus SG&A And, level, advertising quarter, XXXX, the the as profit, of gross and consumer discussed and Michele partially marketing as in XX%, X.X% savings quarter expected, As and at mentioned, as offset well the as investments by employee-related corporate in as the cost expense business increased well higher expense offset promotions. last

expense The advertising North third quarter line was X.X% forecast. increase in in America our and related consumer marketing with

a is constant the within of income. progressing. which track, majority segment be supply of this complete work end began quarter, the by provide was reorganization is benefit and work sales with declined me and X.X% on operating expected from the let in last The Now, with SG&A the in XXXX. evident segment. improvement a to transformation functions, our in on The update our chain line On is Other net relatively China forecast. basis, International brief currency The

look bottom-line and leverage forward improve on this that going and five SKU efforts track, should are Our initiatives to on trends. focus we'll as analysis work we top our strategic and optimization

looking to our the focusing to: strategic focus Hershey SKU Hershey innovation; drive e-commerce. Specifically, optimize channel small formats; brands' on on and team growth, key conversion; accounts; is and

is e-commerce flat XX%. the We for expect to be year full in XXXX, China forecasted sales category slightly chocolate around grow while to up brick-and-mortar to

performance lagged retail year-to-date expected, up As our SKU chocolate however, the optimization, our has given our is for takeaway online period. brick-and-mortar; in

Mexico, with where sales X%. net countries at these India, our markets, in constant continue combined increased other focus and be three in our we please Looking Brazil to efforts currency

was of expenses. segment Growth be the Third and we the this driven quarter results Other in for operating the QX of and year. and implementation increased program Margin investments last to nicely. by timing It $XX.X select of million to similar income operating International expect segment Therefore,

and and we takeaway. to stated double-digit trend bottom-line year. with strong continues, International breakeven see this mentality a retail are previously, at beginning other expect segment income and the we be segment driving solid to are chocolate Mexico, improve, As progress least operating this In profit-focused in we

and volume we Sales a box. slightly and increased and drink across strong were particularly period, year-to-date net category about sales outpaced Mexico share. driven Hershey's the Kisses brands, pricing. XX%, key constant QX For by by in growth of gained currency milk combination

Our in net We X.X%. to sales Hershey's trial, category new year-to-date XX%. repeat operating chocolate with line despite continues gain currency Brazil, choco-yogo is that product focused estimate about our expectations. constant on In environment. with profitable team QX challenging is in Brazil growth, growth increased our the

growth of was higher plan. Constant our category slightly about a to exceeded continues the and net gain increased solid. market retail India we're velocities, both times in X.X currency gains behind takeaway resulting investing Our distribution XX% the rate, point. in brands by sales fueled two be Growth about in and share

higher marketplace Our on are gross This track portfolio result transition the sustainable here by India that adjustments should in local the XXXX. of a enabling is we in basis margin to is a in points margins X,XXX model. enabling expand business, operating and

P&L, Moving with was million $XX.X quarter in down third last line interest year. of expense the

the For million in versus the the year-ago million range. XXXX tax we in full XX.X% $XX third expense XX.X% be in to to The adjusted period. rate the was year, continue quarter to interest expect of $XXX

the our to XXXX, high we year, discussed tax effective related full end of XX.X% be $XX and million versus million. last tax to quarter. previous income to about rate outlook be credits other expect anticipate the For the of that will we In towards $XX we estimate XX% the expense

of additions, and quarter X.X% including $XXX $X.XX, year average a third year-to-date earnings period, XXXX, Total million, software, a approximately or the in weighted in shares, respectively. third and $XX million capital million were were an basis ago. shares share-diluted the XXX.X outstanding versus of of on increase diluted quarter per For adjusted resulting

year, versus CapEx expect full the the in will range million For million $XXX $XXX to $XXX the million previous $XXX we million. be that of estimate to

This and shares of quarter, shares Board purchased any $XXX $XX Company third The depreciation million not $XXX or was on we repurchase $XXX $XXX the that share million morning, the current Directors we repurchase result the XXXX. authorization company's million X%. after million the commence adjusted amortization There This deliver that its Directors common in X.X per $XXX that this earnings company company approved confidence in stock the additional strong program and Trust is program paid remaining completed. million, from we'll per that common approved of XX, a the is it During the January an $XXX growth authorization. share. of approved the million, repurchase dividends. million authorization did On is X% Hershey sheet will and August approximately of to share for balance against of Board announced long-term and share-diluted announced

$XX the of and in quarter options. of third the million common year-to-date with million, repurchased Additionally, replace shares company period, issued in shares stock $XXX to and connection exercise respectively, the

Gold and these across XXXX fourth of Layer are Now level now outlook sales previous fluctuate, right Hershey's the We Exchange target our and quarter however, to sales model markets business QX Crunch believe, not continue and around unfavorable. enable margin consumer-centric some several we're launch the of export focused XX summarize, growth be And the We're are minimal pushing constant on as to have year on the the great uncertainty with our year expected such of where while the points stated, Consumer in driving be investment. and as Chocolate, persists on Caribbean, expansion, geographies. to sell-in. that achieve as we the hard of we have basis Cookie Michele Triple about Cookie Layer full we excited of plans products full X.XX%. place cropped Asia will currency in to expect challenges to sales as and us impact rates our versus up. QX Crunch

costs be progressing, about year; Therefore, same higher expected earnings continue prior advertising about and and however, have towards as share-diluted per discussed year, be end lower tax margin should estimate. top adjusted costs the we implied $XX expansion slightly to The gross continue million. the we the a last the input we our adjusted earlier expect to growth previous supply of for As around full I you to chain it program in of about are back XXXX range, XXXX rate our are high Thank with and than Michele time is I'll for this some morning. turn greater this marketing, end now year X% over it expect is savings Combined for comments. related Margin of closing target. X% And points. Growth the XX basis to consumer your calls, to

Michele G. Buck

Patricia. QX by thanking Thanks, I for results want our employees just solid we delivered. to those of start that all

optimistic our say see As before, you've accelerating about of me environment And I heard in an future. change, opportunity. I'm

are to We on to focused need do succeed. what we

and sheet remain balance Our flow strong. cash

build Our Board all are team Directors and Hershey for shareholders. value executive the that we'll confident management of to continue

So thank may up it you. And now, for we have. will you that questions any open

Operator

to go Please you. the ahead. We'll line Ken go Thank first of Goldman.

Kenneth B. Goldman

Hi. you. Good morning. Thank

Mark K. Pogharian

Ken. Hey,

Michele G. Buck

Good morning.

Kenneth B. Goldman

on your that some a on make the about You Can talked about elaborate and more meeting you U.S. hearing is we're spending with are their asking reason Kroger out-of-stocks of targets. food really service And I'm limited. customers sure for to this companies Walmart had bit? maintaining

know customer don't your perspective, pressure, really, service with this broad-based to there Hershey? you other some do food guess of? food if aware happening I maintain more is specific pressure I and be that we targets, to these the you think I'm do any know you what's is necessarily but curious pressure, something Or from around think So should companies, is

Michele G. Buck

Yeah.

So particular. let talk me Hershey and about little a also I'll talk in broadly, bit

I certainly, there And can. capture sale retail to possibly to in So that all, marketplace we consumer right environment, critically think, as rates customer all a want pressured customers first is we of yeah, service are the important our every now.

fill really additional around moving that, a decision So, meant us product as a was even performance it bit higher, for even up and more. it on believe if customer investments to some result of we a in strategically-good focus our

all if speak say the between are working that overall industry Hershey that to that pressures in are you, together. had. is tell would I manufacturers retailers and on we that theme there couple I'll an a I also we jointly So specifically,

So actually we the all core decisions to And on more have manufacturing put our around system. have any continued long, growth to don't product invest we sure pressure you a and in brands. can brands activity bit make of year across to as that on have see strong our have has move made to capabilities capacity we lose expand in sales we those those our (XX:XX)

Some of the innovation more that we've shipments had has on our a a for more us. additional necessitated few business drove and cost as that few some well touches

Some forward, some we and issues. believe truckers given Snack across a pressures of there initiatives on are multiple going changes packaging I capacity on there like the and freight, then of additional you're temporary And some over regulatory that, going are some I basis, trucker well. are are the important products. weather-related also system. others about make There to inventory to for that across Mix, the products where as multi-component pressure believe issues think our were the that as emerging availability as well some of new is just in availability starting create capacity talk to some some that then impact, in the And tightening which, example, short-term. the create trucking-related, longer-term, critically moving heard marketplace, probably the aware, you're And we additional you've ingredients think

Kenneth B. Goldman

for little mix across about you quick How gross maybe much that sales you And detail. bit. very C-store if related board? the Very hurting seeing, the for not one necessarily talked thank all, to margin that, of me, some but at was you for a weak much trends we're your

Michele G. Buck

the has stores that I some would about the in like we've they pressures Yes. being mean, talked their seen to felt of not them they that where community trips retail be. certainly, C-store and

certainly sell lot instant So consumables there. of a we

we have that always So strong environment. anxious are to into trips

margin our pressure very that a that a I an impact. create a the also than like things snacking places has expanding across have would core and mix certainly, other the think items. successful say And on which well. have lower marketplace, little where Snack we're portfolio So in Mix, few there's I viable certainly as

Mark K. Pogharian

to did in one in reflected the had top-line Ken, point and would more trends C-store quarter And, remember, we second we time. about at were that Yes. seeing the just talk the the

Kenneth B. Goldman

Great. much. Thanks so

Operator

Rob you. to of go We'll ahead. Thank next Please go Moskow. the line

Mark K. Pogharian

Suisse could to I'm Securities (USA) I guidance if got bit Yeah, there? rate for but income figure modeling this It tax be down thanks. I implies LLC right. Oh, trying sorry. Rob, you fourth operating Credit - the looks off, out to double-digit, Robert a be in Moskow your what quarter.

is last Cookie specific So quarter caused tough did I had that? you there I get that right? Thanks. a anything launch. Layer And the fourth about on comparisons to know that Crunch comp year's

Patricia A. Little

we have. thanks. impact. that Yeah, biggest you're that the (XX:XX) think last year That's I really the Yeah, that's impact biggest driver really seeing is tough comp to

quarter product Suisse in also when Securities fourth China a fair we're typically of in quarter's - performance our our advertising new LLC time well. to we advertising that related strong Robert Credit as drag That's Okay. our amount And fourth really we fourth performance. quarter on expecting U.S. our a have business do (XX:XX) have Moskow innovation. – We in spend always (USA) the

So it's the higher That's what quarters? from different this advertising? makes quarter other

Patricia A. Little

Well, and LLC Moskow the Crunch. sell-in - Cookie Securities (USA) on Layer Suisse Credit Robert Okay.

Mark K. Pogharian

gross third We fourth in in fourth quarter. pressures going remarks, your in you obviously the it model. some of implication the margin way, the quarter. have certainly, we you'll these stated all to July, that down the quarter, back of as Sales the have for in planned are Rob, That's

Robert you fourth costs the benefiting And hopefully, cocoa whether about early business. You'll commodity Suisse third, be follow-up seeing those Securities I deflation, Maybe as weighted, us margin more can ask give expansion Halloween. that in that XXXX? seeing third me talking about watching drags more of in I about mix. broadly, obviously, and could more benefit early, thinking it's still to the towards it's know things, all the It talk your quarter a the packaging talked could on that freight about than XXXX. we're all is ship - to LLC Credit you're but we highly (USA) seems quite a Moskow this just to but sense of, on gross be bigger you're a than bit and

Michele G. Buck

Patricia, about bit? do you to a little that talk want

Patricia A. Little

our Yeah. to margin. expand We always want gross

commodities, of remind out to you, hedge terms general, X we in we to like months. In XX as

we ever on had this already going So completely us year. we over going years. had not market that And, we're We're bleed in the that see the to to costs next in said couple follow lower cocoa. fact, input

reduction of we've in that reduction Credit up, some - continue to that mix the Suisse Okay. already prices. other moderating cocoa. commodities basket (USA) certainly Thank in cocoa We you. captured that So Moskow be Securities so Robert is actually see LLC

Operator

the Thank next David We'll line go Please ahead. of Driscoll. you. go to

David Cristopher Driscoll

Great, morning. and good you thank

Michele G. Buck

Hi, David.

David Cristopher Driscoll

a on to about that about second more Wanted coming little last in ask levels. the I ahead inventory the retail of quarter call, talked consumption. shipments bit believe you

like consumption. I percentage think a points. and In as we something difference it between estimated two quarter, big look that there the like was doesn't shipments

Just at expect just impact the about wondering your inventories retail. it quarter negative to to Do fourth do things the in where you stand? I'm a shipments? So have relative

Michele G. Buck

and that expect to our will our aligned. continue at retail of be year, the we inventory David, takeaway the So, end

of also seasons. weather Third quarter or feel IRI quarter and little cetera, all bit the the messy really et stores of from been down, given those a to get data relative then being that with available that occurred. even an And some to to have confident, Nielsen a been has closed a actually, impacts able

about of think So anticipate the I fully them think way the the be is aligned end best by to that year. it to we

Mark K. Pogharian

the look quarter. at to fourth top quarter, at won't in for third takeaway be to on your quarter it looking the And positive things all while make, expect (XX:XX) we David, the line, like Yeah. the fourth

David Cristopher Driscoll

All develop right. data C-stores, A just That's on curious could actually really weakening Hershey. And that bit follow-up I'm helpful. been the why. for have a our you more if little does C-stores show just

trip I specific just you think then, any...? products have Is issues before. do your talking just or anything you about C-stores? were And it to there in trips is

Michele G. Buck

David. Yeah,

C-store, Kat we on are the strong Pieces front-loaded. when at Kit you year the And as our lapping we if period as look you Big ago unusually If consumable bit an Cup. particularly, innovation well our plan, a was at more Kat plan and instant Reese's looked had full year

consumable the third because biggest the so year-ago good lap, in us. category particularly instant in a And we And that's innovation have impacting and looking of quarter. thing the though, was tough

David Cristopher Driscoll

Very helpful. you. Thank

Michele G. Buck

You're welcome.

Operator

go Thank you. Steve we'll And line next of to the Please go Strycula. ahead.

line open. Your is

Steven Strycula

just morning. you. similar a about like be margins, trending of persisting when benefit related year, Thank muted think commented we headwinds next clarify, to still the want into also cocoa chain of incremental Good of that gross we net half question just should lower you pressure margin mention facing, to type gains? next against will more expect together, should margins for for Quick you first guys you year. two the When supply gross gross we or the

Patricia A. Little

Patricia. is This

year with giving that we guidance our more but, more think as based I them you always specificity. on points being made. we be (XX:XX) see muted want next more gross be margin, the We'll that to do yeah,

Mark K. Pogharian

Steve?

Steven Strycula

Oh, that me. for was it

Patricia A. Little

you. Thank Okay.

Mark K. Pogharian

you. Thank Okay.

Operator

line And Jonathan you. to ahead. Feeney. go the go Please Thank we'll next of

Your line is open.

Jonathan Feeney

Thanks morning. much. Good very

us factors, as approximate mix on your more Patricia, year far going what the by gross detail are and as their this maybe either in forward? both Just called could that product, one; commentary you some you. their magnitude, impact Thank on margin, channel you give or and out

Patricia A. Little

Yeah.

them a call. already in I think few we've of the touched

portfolio. expected that, seeing our we always Nothing margin. of products, are or our are So, impacts from expand some we've the that Mix instant other profitable, types, and say, as as of consumable products. all, also some between is and we core then, similar products need core Snack pressured a And we pressure consumable mix successful as on first things general touched gross that on between of do bit a very like around little of is already But seasons, our instant the us to our well. also,

Jonathan Feeney

other And about C-store, channels? and it is versus impacts to in Dave that other any underperforming, order Is as you magnitude? there channel are going which mentioned, from of presumably

Patricia A. Little

it channel-driven an instant I as frankly, consumable more think impact, than one. a of

Jonathan Feeney

Understood. Thanks much. very

Operator

Please you. go Andrew go Thank to line We'll of ahead. next Lazar. the

Andrew Lazar

everybody. Hi, good morning

Michele G. Buck

Hi, Andrew.

Andrew Lazar

are packaging, of that I maybe could might negative you you the little XXXX, service a of about, the there And can versus as their with quantify freight, ones mix, a bit into a little the if dimensionalize we impact play persistent others. some larger quarter, little was in think gross impacts way impact those to the hoping us bit help margin, targets, some way are you there's some can any of Of bit, help maybe bit it a this of talked that if can XXXX how about out.

Mark K. Pogharian

sure different customers all we these. magnitude how mean, we each one reasons, We Andrew, investments I'm competitive to into for of various want of levels the and Yeah, them. not of get have service I with

look XXXX, quarter. the you're here the certainly, initiative seeing started to you As we in third

up So obviously, this a margin. down six XXXX. half of saying see have you the gross in Commodities, for year. XXXX, deflation pressure give we We'll will in gross I'm months or specificity, first on in margin's not the more January. first

going are are next as up to all You know to there even time, the some it that be year. relates

going margin-focused to are year. that need the We're the company. that referred cycle get in Some virtuous Michele to and investing be a work to. relates gross to We that next model down to as it keep

So I long-term our outlook. mean, pretty we think, feel good about I overall,

Andrew Lazar

Was what a lack it drag? maybe been why issues bit or are candy you. going just around of Got can non-core innovation? other brands. effective those bit Michele, Or a have issues forward. maybe the innovation of mentioned into had be of what more little But chocolate you some you'll more some some little with are a ones some appropriate the it. about insight of have Thank brands that those of and maybe been And the you a us talking give of the then,

Michele G. Buck

No, absolutely.

stabilize of really it comes if total brands. you some us store relative pressure the brands right-size chips so other those We categories, been consumer communication call baking we approach, So so of focus precision I similar chocolate portfolio, some we've some if saw having out as in think investments and sweets, a and syrup, more portfolio growth get the a earlier and think of to variety our piece our with there. this on about our snacking we've that some spoke to working right-sizing. and there of you optimizing focus of what think, to And the year to our seen portfolio, and about trends that center then,

Andrew Lazar

Thank you.

Michele G. Buck

You're welcome.

Operator

you. Thank of English. next to Jason go line the And we'll

Your line is open.

Jason English

balance now? CMG sit core your innovation. that space. back Hey, of it with questions; just have good morning, tactical. Analyst the to folks. beyond you've see Michele, And little initiatives Thank a to we expect strategy. you the I progress? you've Patricia, I for bit one terms And do you diversification mentioned bit Could allowing sheet. of to Where in your sit I utilize strategic two more to Day, portfolio you you me a many we try of there your question. trying quite times, a we spread done go if your then core and, first, space? And and focus was to referenced to of on ask more bit do referenced some the bit those outside of accelerate that wings think ambition, on a CMG actually a Where your clean

Michele G. Buck

Yeah.

more And pleased I And yes, a priorities think, against piece year, with always that within us execute strategies we're in to powerhouse and innovative a remain like on couple up, the that seen overall, this the a been we've over we results; nice M&A Mix, which addition. is our against relative is which look really Snack we at stated think that. as years. has And, the key XX% snacking of out I barkTHINS, core you've we're past to really new which also capturing laid appealing to and brands innovation, areas we've of an focus our users occasions our committed to execute So snacking. snacking being that continuing strategy leveraging

expect how we continue that I a expansion. to look piece of that be that to would deliver So would

Jason English

Okay. Thank you.

So portfolio question, sort cetera. yet. don't the SKU rationalization, you evidence in the some second turning to of We drag et really mentioned clean-up, top-line data from quickly optimization, see

distribution As They're fact, overall. non-chocolate in They're up candy. baking, a up of They're total your up matter points gum. up in chocolate. are

a the likely go-forward? and up the in one Has been of So I to that this is going maybe on there data, question recent drag cadence. shown be guess therefore, hasn't yet the is of thrust sort a

Mark K. Pogharian

SKUs Yes. four, will the always four have or Jason, seeing selective three, Mark. of this doing on piece think of matter five you is Not out. well. in come X I we're we this years. mean, practice, be us mean, think this I reference and of a shelf as I every March as that I heard some you're for innovation

to look some here always, may of So the the always, over always the off, versus see you that what's have equal. CMG. of some at there that replace of next of or year the what the And there some in of coming velocity time cycle think... out this is to play it's When stuff you sometimes, you two, offset when in as a we (XX:XX) But something is, isn't replacing comes of it. so velocity velocity snack

Michele G. Buck

total at I to noise was distribution be I might because so look those distribution in just think hard going points. it much to say, points is there

are are very put place, time, in SKUs, an the initiative SKUs our in we the SKU active At smaller merchandising which eliminating think which stand-up we've same marketplace, new program where have many we we had So SKUs. rationalization things. productive packaging

both is bit total those And too. so things of the time a the there's muted at getting same think in numbers, that on going little – I

Jason English

thank you, Okay, on. pass guys. I'll it

Operator

line We'll go go Please you. to of Thank next Dickerson. the Rob ahead.

Unknown Speaker

Kiniko is recent retailer a there a I that been has This for morning. earnings Good recently of result you. question Rob. for ahead their U.S. state We quick just a push on player confection Halloween. (XX:XX) large had heard in

And make of year, more this this particularly of QX? drive what a get do backdrop? more expect Was of you into was So candy? sense to even you do the promotional promotional that so I activity? terms traffic just persist branded trying to guess, to overall, I Are in trying with retailers going there

Michele G. Buck

past environments. several compression say, the continued have retailers the as to around that holidays. we And of seasons perspective. to over you into would think try that bring see think is leverage that remind I I always we their a and no a destination consumers I So years see different, year really that from this I lot store would

what collaboration as the retailers, the seeing I have But So with very Tuesday, total being we think like. get that merchandising, hard we're past. season Halloween a to will in strong with on shake overall it's out for feel

So I can't say a really change we've there. seen big

as continuing the we retailer think have. they seasons to see the use I

Unknown Speaker

great. pass I'll on. Okay, Thank you. it

Operator

you. go of line to ahead. we'll Please the Thank next go And Alexia Howard.

Your is line open.

Alexia Jane Howard

morning, Good everyone.

Michele G. Buck

morning. Good

Alexia Jane Howard

on I mix being I on dynamics ask pricing X.X% I region that's We've in the imagine even just effect hearing on out here, or Could challenging are maybe and going can't competitive pricing. year-on-year. Thank how with about develop this the comment how more tweaking things it exactly think, you down, that a comment activity back you America? if of pricing forward? pricing about there to either promotional out been is Your that expect quarter. from retailers Can maybe you in the you. pushing shape North strategy there,

Michele G. Buck

about a building focus, have strategic had we to management talked before, revenue know, continuous you capabilities. we've You as

our efficient being been continuously Our dollars. big effective focus has more and promotional even with

environment, really I think has that bring in of focus think the can it's no price market But that are deflation to incrementality, whether about and really And points programs Certainly, maximize price driving most think in price a us I best looking that so, for in balanced us. top-line, I that way, would which in promotional to the you I is around get the at some us, very the the consumers. deflation, benefit. using looking that profitable to at maximize everybody's levels, be that be we're revenue. from think unless a that but so then marketplace, getting price And least tighter not but continues would also is trying movement elements at we're driving a at see pressured ineffective more

drives about performance. in smarter making So, is And I we're really seeing count, our dollar the clearly, the what think marketplace. that's getting what really focus, every on

Alexia Jane Howard

much. very I'll on. it you Thank pass

Operator

Please we'll Thank John go ahead. you. And line Baumgartner. to the next of go

John Joseph Baumgartner

the for Thanks question. morning. Good

Michele G. Buck

Good morning.

John Joseph Baumgartner

in snack section the you merchandised that in some aisle. landscape, of just being Michele, snacks of the curious mentioned is terms the retail

for retail are first of have from So make work where do kind I this sense sourced off, being from snack segmentation or share your the a you observations, guess categories section? is consumer to snacks way salty

Michele G. Buck

broad wheel. do I snacking to that the source say incrementally to expanding how yes, understand will we and more look is And, our we we to analytics broadly purchase strategy, occasions of snacking do try would can that portfolio. propositions to as incremental add drive So our across best and and research clearly, goal at develop

a definitely that's So for focus key area of us.

John Joseph Baumgartner

aisle? And merchandising and from that protocols It confectionery? lot I the with and fragmented. a the of the some are to can in you retailers mean, snacking that seems more speak that salty promotion different the how snack consumers interactions is space

Michele G. Buck

we gaining think around one the the approach built trying are to I certainly, leverage management more where that that some help placement, an that's So area we've of years do is the to retailers as propositions the some fragmented. strengths news as shoppers bring bring it over the in and new exciting category And we're to to and to segment category known and to in confection innovation provide productive possible there. that section for we've great that generate that interest make been is

in and category focus that established. think If players I I bring there those the pressure our within I how is really, confection, think be think about players So strong to regional competition, as do just it is And we drive sometimes the incrementality. it they're wherever the tend pretty experience national scenarios. always more

John Joseph Baumgartner

mix shelf and margin the finding a part the snacks section space expensive that's more is in business? you the that negative of aisle snacks are of So bit

Mark K. Pogharian

candy bar, Patricia looking has you're its margin. if to a ever as always as absolute at said, going profitable be nothing is

as to that profitable relates probably is nothing But everything I would portfolio, I to say as as candy it obviously, no. our as in it else aisle, So, mean, right? bar, a relates

Patricia A. Little

It's a that not chain. it's mix way just shelf value space. through around the issue. more It's proposition all So the than shelf fundamental space a our

Michele G. Buck

Yes.

John Joseph Baumgartner

time. your for Thanks Understood.

Operator

next the ahead. And Zaslow. of Please go Ken you. Thank go line we'll to

Mark K. Pogharian

Hi, Ken.

Ken Zaslow

And some CapEx, just you to the want Is have? think morning, projects talk year? a Is then, a that there? there capital putting next everyone. the have something it answered. just key bit. you about Most refinement? my reduced questions it Was into Hey, I of understand about you little good been just projects to of can it

Patricia A. Little

I'll This that is Yeah. take one. Patricia.

we're So, and as a we you, associated embarking system on projects. our of told multi-year replacement some ERP

biggest just that. against the right best As the in really do That's moved that to some on CapEx we're way out days related early reduction. and refining is of that, is fine-tuning those sure to money really It of the that. systems the impact making the typical we putting resources

Ken Zaslow

Okay.

I to you. appreciate into read Thank it. there's So nothing it.

Patricia A. Little

adjustments of normal big systems I projects, the would say. Just

Ken Zaslow

Perfect. Thank you very much.

Mark K. Pogharian

Ken. thanks, Okay,

Operator

take we'll Erin from our question And you. Thank last Lash.

Erin Lash

the their cash in player capital I want taking offerings strategic U.S. priorities, on confectionery confectionery to for a kind particularly you alternatives of pursuing question. Thank light priorities, I for touch and just of appetite sense. that you overall the that in a but sense just are multiples the comment environment, acquisition sellers specifically your major know your to kind transaction, for on won't the your do looking basically for get and deal.

Michele G. Buck

Patricia, just would either companies interested growth, snack particularly we've that revenue piece M&A anything with portfolio, that of to confectionery go-to-market. say our in are capital that? I billion companies a our accelerating our you interested complement U.S. primarily the our in want We're before is add business stated certainly, to $XXX And or snacks wheel. strategy. within

Patricia A. Little

shareholders capital investing through dividends approach. our really been business, of There's No. buybacks. from change that we sure share There's the really in and priorities perspective cash been making to in (XX:XX) no change a return in in our terms no and

Michele G. Buck

looking are propositions value, everything whether is M&A. or our always on business think it's I do base shareholder And that around – we creating for just we're

our that's lens. So always

Erin Lash

looked do at be inflated? now, Any up To there the deals proposed or feel you sense sellers extent till that would by reasonable you premiums being helpful. have the like are

Michele G. Buck

it's You from say, perspective. competitive M&A to a an I continues right, there and be would know, about all that's marketplace competitive out marketplace

Erin Lash

it. I Thank you very much. appreciate

Mark K. Pogharian

Thank you follow-ups call. be for third available you group for may joining The Investor us any today conference quarter will Relations for the have.

Operator

their line time. participation. free feel at thank to We'd Please any everybody like to for disconnect the

Mark K. Pogharian	The Hershey Co.
Michele G. Buck	The Hershey Co.
Patricia A. Little	The Hershey Co.
Kenneth B. Goldman	JPMorgan Securities LLC
Robert Moskow	Credit Suisse Securities (NYSE:USA) LLC
David Cristopher Driscoll	Citigroup Global Markets, Inc.
Steven Strycula	UBS Securities LLC
Jonathan Feeney	Consumer Edge Research LLC
Andrew Lazar	Barclays Capital, Inc.
Jason English	Goldman Sachs & Co. LLC
Alexia Jane Howard	Sanford C. Bernstein & Co. LLC
John Joseph Baumgartner	Wells Fargo Securities LLC
Ken Zaslow	BMO Capital Markets (United States)
Erin Lash	Morningstar, Inc. (Research)

The Hershey Company (HSY) 26 Oct 172017 Q3 Earnings call transcript