HSY - Earnings call transcript Q4 2017

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Operator

Good morning, everyone, and welcome to The Hershey Company's Fourth Quarter 2017 Results Conference Call. My name is Erica, and I will be your conference operator today. [Operator Instructions]. Please note, this call may be recorded. Thank you. Mr. begin may you Pogharian, your conference. Mark

Mark Pogharian

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

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

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

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

related gains, our pension in deferred appendix estimated on of mandatory onetime net the results which quarter on activity, at defined this These expense and subsidiaries. a www.thehersheycompany.com. of net is of of derivative morning's charges $X.XX mark-to-market discuss available are website release, earnings excluding non-service-related on earnings the previously non-U.S. tax a As will realignment result, per diluted share business we charges an impact to fourth XXXX,

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

Michele Buck

Mark. new in. Thanks, webcast, phone our who to welcome and Hershey Amplify are including of the on you to Good colleagues and the employees, listening a morning many special all

As review a strategic growth. future good business plan XXXX, I and for step year, company model back making had strengthens positions solid we that the [indiscernible] and our

Looking transform sales will we our while a during we the did core EPS back, chocolate with satisfied to we I'm achieve Amplify, acquisition portfolio with snacks this continuing position that the share target the our to market and year. EBIT strong us a slowing our expansion planning cycle. delivered And pleased long-term drove expanded competitive I'm environment. believe growth, maintained mid-single-digit with brands and in margin that ended less our of strategic business our momentum our to as enable we growth

where understand exist we our to have and plans upon opportunities Importantly, improve performance.

provide with now further color. me Let some you

market. a are profitable growing to in U.S. in operate core our We fortunate category and

data Most proposition, X.X%. and - For the or maintain need a company retail continue quad-to-quad. you Amplify's strong Nielsen-measured being marketplace us brand margin that's foundation, EBIT we of of build. to X%, evaluating margin product increased assets, that on XXXX, I our of sales mint believe scale, increased And tell snack share channel And and growth trends X%. as from candy, In and don't margin growth of business. CPG our you XXXX, the the this basis able happy plus be well regular year in choppy transforming I EPS as takeaway points to to on we basis, about which were to and environment, while gum, a to focused how off XX market by ended CMG structure growth scrutinize further our after the last and a delivered snacks several performance so years I marketplace IRI give XX.X% expansion, grew EBIT was

real U.S. increase. across growth been has will look retail consumption continue snack to believe consistent, you snacks As we and the box,

win, would the This committed right and model have to outlined we us growth enable increased our and should We portfolio in shareholder long-term deliver snacks brands CMG last and targets, to we're strategy March. value. the business to which result

solid growth, at combined And slightly savings our we estimates, drove capabilities finalized related lot billion, expansion expenses year very to full flow, due and We warehouse aisle. about to yesterday, the greater-than-expected ahead of $X.X below and opportunity and the to we acquisition management cost snack excluding category Amplify financial in October. full gives cash continue was a flexibility. us bring Net am operating of about the sales the generate growth which scale initiatives, diligence EBIT with I line to us EPS performance. the and Looking salty excited margin outlook provided as M&A with productivity year in That initiatives.

goal portfolio is more with broader capture Our consumer-snacking occasions brands. to a of

in the to of powerhouse. innovative snacking Amplify is becoming a an journey So our acquisition step

preliminary, Amplify guidance in in net the QX they While provided November. were sales ranges and EBITDA

forward the I table. more functions business and benefits tracking mindset January embedded increased the culture, to that be our synergies of conference CAGNY brands brings we to at outlook beyond. maintain out its Amplify and operate business with knowledge and a snack to between and for line leverage of gives Hershey scale plan, strategy you offices as the and for the to of is in sharing and also in standalone in weeks. a certain Additionally, look the in us as share few with insights based will Amplify our as We'll in the group. confidence well which our look current as XXXX continue entrepreneur emerging

Turning to Hershey's now performance.

snacks U.S. QX was retail and X%. Our about takeaway CMG combined

than the expected, quarter. sales greater sales last As total to quarter discussed fourth this was of due net growth timing we

sales. U.S. takeaway Hershey in with retail total increased plus XXXX, U.S. was and year full the X.X% For net line

category full increased for at Hershey, X.X% the the about CMG, and Looking year. both just

Our to hold business, flexibility invest us industry-leading puts as us a margins in leadership major the growth and enviable XX.X% it position retail with role market with in and financial CMG share an customers. provides expand

For the XX, timing points. ended was and X.X%. CMG our to with our X.X category plan, the and market programming plus December the with QX consistent performance innovation XX of category, share growth Due off lagged weeks Hershey CMG

excitement by have As Olympics, for improve, which marketplace the early and the first marketplace the Gold, an the and to expect Easter. Winter quarter will program merchandising which this tie-ins trends progresses, with begin month we driven Hershey's in

our category of growth was the full candy X.X%. nearly year related and Importantly, than U.S. sales, and chocolate Recall, softer within we which combined the of real non-chocolate derive X.X%, is includes snack to CMG plus greater gum growth plus category. performance segments of this the and category X% growth where majority mint total

Kit to power particularly chocolate drive periods. I'm increased growth, Kat X% both marketplace brands, in with Hershey's, full the brands about combined and with and and core for in respectively, The and Reese's, Kisses, performance brands up their on of these pleased share combined year. takeaway QX these year, this continue Our retail market X%,

improving velocity brands quarters, we declines non-chocolate this select partially and as at overall and on in rates reducing As complexity planned retail. prior discussed we offset candy by on focus was chocolate

and plans year. this to expect marketplace them in to of contribute the select performance We to have variety performance improve positively candy XXXX, brands

early of snack products. and our year, brand, was Snack this the large-format, Cookie bags. Bites particularly QX and as take-home on innovation Dipped our Hershey's Snack retail For primarily with example, I Mix up results and our the year. More mix way We promising Chocolate and are the we work X.X%. already Crunch launch Layer started this on work with and Hershey's Pretzels, as Twizzlers pleased through takeaway our Popped was snack Reese's expanded in products

results is are our and early, in Trial The chocolate repeat is and merchandised in While pouches to candy aisle. our are snacks brands line transition encouraging. stand-up positive for the progressing. bags reaction when are products core consumer lay-down expectations on with our

quarter, enables of get XXXX. shelf product the began select in less largest expansion with the shopability the packaging improved to customers one aisle. will on retail-ready labor shipping New our in and in initiative to in-store This occur fourth quicker and

gross While as long-term should XXXX, shelf impact brand business it presence investments XXXX. in our for these and on the and is believe improved this in packaging initiatives about right result have margin we good visibility. an feel We

key progress made against and multiyear solid ERP such capabilities, as program e-commerce. We have our

We a to digital group e-commerce have the deep that business concepts our be a next and with in has dedicated of e-commerce plans impulse we validating and plans, for cross-functional the strategic working is our We're of testing developing key new generation team solutions. a XXXX sector of who senior strategies model. responsible in all for will This a execution partners believe and the lead strategies CPG experience. by execution we'll headed responsible executive online and the e-commerce sustainable

packaging innovation, level brand as Additionally, such the as Hershey's Hershey's Reese's stand-up newness well right retail-ready as Chocolate Layer variety Triple bring and Cookie the Crunch of Outrageous, and category. to and Gold,

that new in should net these merchandising believe and and innovation portfolio objectives. that and sales We a we of us campaigns about growth core our our brands marketplace puts our well as excited chocolate to on advertising are platforms, deliver position across as engagement drive in-store and consumer

line Now segment. relatively with our quarter Net in update Other an on for estimates. the and sales International for were our

In high continue as constant pleased eclipsing India operating income performance in marketplace execution sales XXXX increased China, result XXXX, of we Growth that the the chain is sights XXXX our progressing We're being both optimizing executing growth as XX% net efficiency on now million is segment. in-country operating strike our X in QX enabled right This I business and discussed and with and model have and near-term the the year us initiative in opportunities. After in business. effectiveness streamlining to to model. for we Brazil investments this full be strategy in and $XX.X operating our in Our on in these the full program between we year nicely March the in and generate a Mexico, currency Margin in combined sustainable XXXX from and red periods. market ongoing should against this income supply on in-country and markets balance track. we're

pleased XXXX. that declined China income in making about with we in result I'm XX%, declines As net operating by to focus this and marketplace and growth related velocity the our are quarter fourth focus profitable optimization in sales expect types progress continued segment volume on improvement driven SKU thresholds. on pack meet to our expected,

the Now the to of the market, largest snack salty participation wrap acquisition the and Confections U.S. growing snacks, one sub one segments. of up. Amplify $XXX of in billion is fastest segments our broadens within

that areas of line as year capabilities Our continuing financial salty analytical set in a in the growth other to in investments refreshed snacks, continued in flexibility should processes the this to share smartly at the consumers. will strong have the business and approach well enterprise and competitive XXXX us next us the differentiator position with gains. U.S. give and give operational are that such believe and and us marketplace the and solid retail edge system make few we resource enable be and to the over presence warehouse planning the Investments as years we're up a that as invest growth. a top and set We for confectionery in efficiency market marketplace foundation effectiveness drives

shareholder the reform With value. the the will cover I via both importantly, cash focused the of over in snacks. and combination growth, confectionery while growth, goal who complement as building details opportunity for strategies, top cost our anticipate when I'll double and priorities. XXXX. in increase will savings brand line presence of we're control, of and benefit it in X% long-term, believe confident in new and you process sales about evaluating X% growth and of well salty that I'm to on remain usage turn within target will on business but our and for continue growth we'll digits Patricia tax our our existing incremental accounting our details, EPS excited will driving to the increasing rate. our expanding provide to tax am margins cash model We it over the I the results. with Growth business Margin our as business, Amplify financial generate in solid now accretion Patricia core believe I base long-term

Patricia Little

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

year, and last As point anticipated, billion $X.X was sales currency including Volume versus quarter net fourth realization X.X% of a benefit translation. favorable foreign X.X net up point price a declined X.X X.X was benefit. from points,

shipments of net in sales the the quarter of last Hershey's in to decline the due period. Layer As was year-ago expected previously partially Cookie and discussed, timing launch the Crunch

last points. diluted in that including year at were earnings merger our an quarter, estimate. Versus and For sales net outlook decline our primarily corporate share to versus costs $X.XX, of than of acquisition X.X due X%, increased per Adjusted a FX sales. benefit year-over-year lower greater last about year, the XXXX, due full came XX% initiatives diligence to note related

year, provided as Excluding year-ago the as to would've growth segment offset EPS the were quarter delivered benefit. was softness of we and the net sales we X.X the as this, in to period. The guidance we Other able full and closer comp year last discussed Total for lower timing with SG&A savings. By decline segment, due to October, gross partially net favorable points tough X.X same foreign was margin the in point realization International the the of QX well shipments declined translation currency driven and points. decline fourth Volume X.X% with net line sales including point was X.X price by benefit Volume North exchange. declined up a foreign planned last X.X% the America a versus quarter China. was currency versus points year, from our period volume X.X including up X.X from in last estimates,

volumes, X.X% to initiatives, XXX cost of XX.X%, the - resulting chain Supply of quarter Adjusted points margins. decline chain and input unexpected unfavorable and offset and savings basis fourth overhead than adjusted adjusted year. as higher costs supply of versus slightly productivity margin other declined well lower distribution cost and increases, which costs, gross gross Turning margin variances, profit mix gross as given last of a expenses. lower in absorption and more manufacturing by included cost sales freight fixed were

in margin less last year Given with a our point increase. basis QX of expectation results, was and XXXX gross full XX year line about than

cost inflation. have our input basket XXXX expect good We don't into and visibility

place have that productivity the in unfavorable offset cost costs packaging should and and that mix. Additionally, discussed we quarter savings we initiative higher last

profile margin gross result, in of be of fourth resulted we the has a margin about Amplify, expect margin includes to Adjusted As Hershey. similar decline same which year. in profit of XX.X%, the points. to million as last operating adjusted profit $XXX.X in XXX operating a gross XXXX quarter This a basis

North productivity advertising SG&A corporate-related were gross cost more offset decline in as expected, expenses and as related costs. As and profit go-to-market In the savings than well by QX, and higher America by Other with decline estimate. segment, consumer marketing our increased about X%, decline advertising and planned in in line consolidated resulting and the offset of This in International was the marketing X%.

the at that Hershey looked about our will as on advertising excluding Total down As focus we related XXXX, highest CMG slightly our brands ROIs. on will have we be and as year. be marketing, spend brands Amplify, advertising last same consumer the

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

driving certain and by marketplace market Our net or on efforts operators types driven Michele and about will focused in share. pack The SKU negatively slightly XXXX. sales in full we're that gross In meet work volume impacted within year core analysis that XXXX, four our XX%, China thresholds. continue QX, this referenced, SKUs as grew provinces focus declined sales velocity our

up on last in to versus is category while brick-and-mortar Importantly, percentage preliminary a low expected to will indicate that digits e-commerce around year, results single XX%. grow sales be China chocolate basis

and marketplace were income investments of Fourth loss was quarter operating million solid. International and expenses. more $XX category growth and segment program in Other as with [indiscernible] the in rates for similar in expect the about was of improvements operating period and margin in select Combined Mexico, offset India year-ago forecast. same Growth Margin timing and the Brazil line our XXXX. We China with savings than Performance estimate by

more As markets. a combined than income in result, our international results operating in China operating other the offset

strong to savings. plan growth continue Our driven drive Margin by to sales mentality Growth is for this in XXXX and program measured a profit-focused segment,

versus Moving million million increased down the $X.X P&L, interest expense last $XX.X of year.

This in due full in interest decline with in acquisition estimate. the The and the earnings differential. XXXX, favorable impact of favorable adjusted was tax most interest and legislation. was diluted Act foreign million related on clearly the to the effective $XX.X with The income, the of passed will But to line rate in the flow. year-ago resulted cash share to Amplify. rate. U.S. in rate versus our XX.X% continue recently estimate. the versus Jobs per we of our quarter $XXX companies, XXXX XX.X% that primarily details tax tax investment was For Like for line and and million The year, to year be timing net $XXX period. have expense favorable rate this XX.X% our fourth Cuts tax credits expected full was In evaluate expense to a of is a tax million our it Tax is within debt including range, XXXX

its rate debt growth, reform expense was indicates share million strategy should cash primarily of estimate company credit and effective to and in preliminary benefit XX%. priorities, continue that building the quarter including credits. included dividend, XX% it $XX.X we'll be The such both with expenditures XXXX, as was is lower brand reduction. Our million and capital driven and investment, investment outlook. that will year be tax evaluating existing range. In that that to tax the $XX fourth tax believes $XX.X tax The $XX expense business in estimate and cash by around income million, investment will and The XXXX XXXX complement the brand building usage buybacks Hershey's tax rate the in is and other full and in million respectively, result reinvestment

shares per XXX.X For $X.XX, quarter and $XXX the respectively. million XXXX, adjusted earnings year the shares, on of of million, for capital in a fourth outstanding year were a Total average fourth and software, XX% versus full $XXX.X million approximately resulting diluted additions, diluted including quarter share a ago. basis decline were

digits, million, $XX $XXX the full against needs the core year authorization in share we be range, growing authorization. and capabilities remaining Total our million of approved that For company to repurchase of CapEx fourth million repurchase repurchase exercise against implementation. connection million U.S. to multiyear depreciation fourth in approved and and quarter, options. Dividends that or will the related the million ERP in in the not any $XX XXXX. respectively. quarter brands $XXX Furthermore, common to for for share amortization in the year. the $XXX $XX.X the and XXXX $XXX in year the million, of capacity are mid-single authorization with common including increased quarter million shares October is the XXXX million XXXX, million for $XXX million chocolate did repurchase There estimate adjusted $XXX in million did January Amplify on not The fourth were $XXX stock company full any the $XXX shares supporting and paid were January full

Now wrap to up.

launches pack launches to for off should summarized, a which holds benefit variety, The good the and true of Gold, Hershey's Michele the take-home both also same news had XXXX, consumable half in innovation net place. and in to later QX. sales be The second instant type, late year lot we takeaway. an Outrageous, in a and in Reese's As retail QX in is in package a of start.

continued Easter will the However, Other season International in headwinds sales segment, such and shorter as XXXX our optimization pressure and in growth. SKU a

net to in in XXXX, As are a last sales X% expected increase up versus range of year. the result, to organic slightly

in five-point the currency acquisition negligible, expected about Additionally, net of sales of benefit about growth X% to exchange will foreign reported resulting Amplify a be to X%. is be and

businesses to we'll improve gross industry-leading I discussed investments margin as about same March we on our expect and believe make go-to-market And X, continue we capabilities adjusted that stated As to year. we knowledge will last insights. as earlier, be the and in the

reinvesting we're tax to benefit Additionally, a of portion reform. related the EPS

share program us estimate tax accretion may EBIT XX% the savings of $X.XX adjusted XXXX Amplify Margin in have. time XXXX. to $X.XX increase XX% and However, in Growth Thank enable rate last including now margin diluted should for be and versus lower we to you your discussed earnings this Therefore, for the earlier, we'll maintain any take an range, year. to you morning, to per questions

Operator

Crédit go first Instructions]. Robert to line [Operator Moskow of the Suisse. from We'll

Robert Moskow

the that operating that kind you headwinds also you're the reinvestment, freight then core about is of me Easter then portion think guess, kind SKU SKU because And understand, I the not? fair and think you're of the to or talking would you the the theme core be about? of cost just guidance for just just your call for business, business the you Easter I maybe Reinvesting business? weren't higher closer the growth here algorithm is help core and I also. it of higher benefit, and XXXX, on for the of if do and for things, those costs tax normal optimization? So could And to a shorter here guess confectionery income flat your guiding When is the say core to

Michele Buck

handle I'm going to one. let that Patricia

Patricia Little

Yes.

thanks. So

think that's into expect margin the core on it. On will income, good But growth out us. category, I to think with will that a because income translate in we that have not I dollar - for it'll you do going I be drive that the obviously, take side, higher point our

Michele Buck

Easter certainly, And shorter a Certainly, takeaway the well at our on pressure share. our question longer do and impact only top look your total to the as as the SKU asking you're we top delivery as benefits on Easter on not I some those the create assume, rep, Relative line. Rob, line.

digits, to on that As have on we we we've activate around really start some of brands, which our part doing. look portfolio variety [indiscernible] core not the low of growth at mid-single we're our focused plans what the is brand been to 'XX, seen really for

emerging those. started doing in results our So brands we're started that activated. going we activate a the that the about where to have SKU headwind lot in to particularly then creates a of we one see to real around leaks optimize on nice of and brands. the the been, a definitely But spending focus And stabilizing combination for And of point and some Easter the QX us.

Robert Moskow

when can in I your a plans follow-up? share. just issue Layer competitor? And a that seeing And data was us ago had launch. the that factored competitor versus regained ask of your it 'XX seen shows biggest lot has comparison Mars, has whether Cookie A U.S., have your year market to biggest are Crunch all? I that that a you determine found What from a at hard the lot for of differently into you

Michele Buck

Yes.

a I first by start that feel share about hey, part us of big activity. that share the to to better in where, Certainly, heavy always Layer despite the gains I'd competitive saw the you're for able we generate our share saying, it's driver maintain to year in the So year. really gain was we goal part of and right, pleased were Cookie Crunch helping of terms we're

that our always it basis we'd and on in like As doesn't programming, performance out to shake based a much our consistent be as programming quarter-to-quarter way. competitive

our right all from do of think the trips. the activation on and have to execution an at winning really need to what always are So same piece with right invest marketing, have which drive who portfolio displays the that especially of advertising key drive consumer the we is I focusing on, - the to brands we focus levers each those the superior that competitors the focus customers category drive and we winning innovation is levers do and are back

really as competitors' So that's our probably focus I well. focus, that's think and our

Operator

go with to next Baumgartner line Fargo. the Wells of John We'll

John Baumgartner

Michele, the just change. packaging of in terms

it's long-term a gross drag it's mentioned margin. You also that on a but investment,

appreciable it is in about way real XXXX conversions? in of how So in-store at shelf through? beyond? think an seen And any packaging in still sell you you making thus drag Is a retail benefits and there far have these to far to are or placement along terms

Michele Buck

Yes.

great question. So that's a

a in packaging So the we in upgrade improving shelf. on is way And momentum for is the packaging did that versus the marketplace. believe I packaging would that the lever we us created we packaging had certainly lay-down about some are nice we think on focused

the packaging that to to as you're we view do packaging really [indiscernible] make And an upon it. And [indiscernible]. try that even to evolution. is out total really, improve what going P&L optimize see as continue us we around impact of the to it that, However, stronger

from out to but it is you'll it drag more there, margin. So now see on come gross us. Certainly, a is right

John Baumgartner

to in that just XX% coincided on a follow-up absolute over in it's spend. peaked ad And period. Hershey's And Okay. relative ad both and promotion spend dollars sales. XXXX, trade also with the increase in

trends the like seems is here clear. pretty it So

strike ceiling how spend? time? mean, ad about balance you evolving, on does does kind promo how do a category structurally, promo the think place that of between As gross kind over that is I increase just and you margin of

Michele Buck

are and get I think right both think we're always and critical. advertising balance between trade, that we striving to

doing we're marketing optimize work of on trying mix. lot So to a

what going As spending to our going on at see you're optimize to you even we're XXXX, look more. DMEs is

DMEs about in and brands but between kind variety some emerging lines the You'll our SG&A. core, see of of rebalancing us highly profitable; of support of probably be advertising the in and rest smaller optimizing on on across investing investment really the which brands, the portfolio; of the rightsizing and flat are terms our our

really more the that to benefit that So - we're based get some example, to from of on than build of the look feet snack brands, advertising. we've we for we're street brands, on emerging going displays trade. those at everything trade, the On on seen on some

it's much just that as we really drives activity. can drive As display display, that

are So already to a nimble - get giving a management not we subsidize away doesn't that deflationary appropriate drive sure to constantly pressure that that's price try and being and revenue strategic through just planned we creating be but make product an that purchase. to optimizing display to

there. balance to way that's So the

Operator

to We'll with go Andrew the next Lazar Barclays. line of

Andrew Lazar

for of in Hershey with laid XXXX. the pretty and it last Day by at of to it Growth was much points and coming Investor 'XX expected I evenly the it SG&A, And 'XX. I basis Margin and of the years think improvement think, between your cost of be targets year, I was, margin think XXX out split at goods time operating

flat sort So given will, get are gross 'XX? a in context, guess, the by to benchmarks those just of to the you basis still I'm what's the difference, And if up if making points trying 'XX, sense for I so, those gross expectation the right? guess, get I of piece, XXX of margin margin

Michele Buck

us one Andrew, comment, that just we expectations. to performance will delivered I'll the into for look start over a that work. for it. I'm we going to And found that But a a deliver we difficult was those to of and as I Patricia We thought did we as to expected culture going we even Margin you we of it more Growth, bit be tell actually were decisions, Patricia made to enabled really at really do over little piece our have about dig SG&A numbers. turn our there. on with component than to able let more talk - step-back holistically a to really the some [indiscernible] tough some I'll

Patricia Little

Yes.

as coming to of you although goods think piece So, lot the savings in the of of it's piece U.S. would goods, us is you're as improvement we forward, well come cost as through against weighted functions. look it In the looking that there's leverage SG&A look we're to a a need In little SG&A. as A really the that through well that, right, see SG&A, we both corporate I the sales - an commercial forward. well. especially we more our cost the as we to I at the of driving do functions general, business, International that investment say as deliver as help expect both

Operator

to the Steven We'll Strycula line from go UBS. next of

Steven Strycula

that opportunity do the to monetizing that longer sense, what actually. premium do brand scale guys Cadbury months. the the in, - about I'll follow-up. some And license, question Then start for awareness market? call doesn't you how over of little of think you And here put is last a a it you I in over what term? XX the Wanted is wanted bit if to I it? a U.S. with XX it, have think to on mass money - have make brand like the see see, to

Michele Buck

I'd mean, or in I Cadbury piece marketplace. of Cadbury our unique us tell at whether the it's strongest seasonal component. business The a the is Eggs piece you the of seasonal phenomenal Halloween Easter, that are that portfolio, they're for

there. And so is our focus really

premium nature are there's building value right the We so that's that brand. mass believe not tremendous seasonal the of the everyday But piece, in we prioritizing focus.

Steven Strycula

to Okay. And on question. then follow-up just Andrew's

was happened the all the about, targets, what's pressures are Day, the since higher industry margin a your you've muted spring. maybe just just think it a XXXX reinvestment last than the of that just Analyst little it given maybe so little should in - is For bit net we announced held effect more bit

Michele Buck

of longer path we with a path laid see there. bit the getting we in to that think I out constant the We us a that might we're get of of March. the mean, end take to those do low I range fair. we getting to the going right the that's And making it decisions think on business. see decisions a just balancing But yes, think there to range. make I

Mark Pogharian

Yes, Steve.

a mean, time increasing maintaining over good margin, been very I think, company. been we've and of of I always hallmark certainly a focus it's the EBIT and

But progress to of talk make think little we'll we'll in a and continue being there's alluded to to about think leverage get I sales bit path there. little to more lost a I Patricia there, CAGNY. But lighter, continue bit bit little XXXX a still in that So certainly progress. as We'll a earlier, make there.

Michele Buck

our And we still is And we'll Right. goal be industry-leading margin. EBIT there. confident feel

Operator

We'll go next RBC with Capital of the Palmer David Markets. to line

David Palmer

of mix a is it category and XXXX. or quarter, on of per drag or Just you you pack in detail mentioned in unfavorable much with the a also volume, that a revenue - little you degrees type? this? margins about to are the regard couple channel regard the release earnings to times talking How Could this sales comes but give from

Michele Buck

the the we which consumable then consumables, as lower did certainly instant than we of year core. And on lapping margin would innovation weaker instant snacks year. - than half the drivers So the biggest prior the second that in as were our particularly is be had portfolio,

David Palmer

on And reinvestment. building just the brand previous to follow up about comments

But was that how said about You rate from EPS perspective is that was included guidance. going to unclear your your in EPS tax I in much an offset 'XX? of be an to benefit

Mark Pogharian

you're EPS disclose I on we're always put trying to with apples-to-apples the certainly that, competitive for look, business, I looking an mean, if Yes. I get to base X% basis, reasons. start would Dave, everything to I mean, mean, X% to But - didn't growth. we

normalize use sensitivity and a get you whatever kind from back you'll last way. to So rate want it of get it, that year and into tax

Michele Buck

Yes.

Operator

next David to line of Citi. go Driscoll the from We'll

David Driscoll

fourth growth quarter here minus And quarter? the trend a the revenue that us that of second trends XXXX? quarter, that give QX about the half two. to talk weak. is is ended soft be sales kind really the little guidance of Organic, you On guidance just does fourth Can weighted going to first and also

Michele Buck

Yes.

half then the of and in in long out we So the which innovation. the some is really more of it's Easter, our performance. the performance be get as our pacing see which And first Outrageous, think lapping coming that got Reese's half, the will midyear. the a half sequential say the alone the improvement be first pretty the innovation, blocks that'll be that back then terms other versus year fair creates that gold strongest the very We've expect of second strong; differential But is we'll the I we year. half into will year. to Certainly, of QX

accurate. thinking you're way the about think I it So is

David Driscoll

term guidance, of And organic, do revenue then, light the Michele, in to is of on 'XX objective long think the X% X% valid? long-term that objective still you

Michele Buck

I do.

brought in like really that building leader, be big the strong some seeing to That's transforming to tremendously. progress some model capabilities around - to respond enablers going experienced are in that I a our process digital the on us leader of to really marketplace. business space. we've going changes those help commerce in in really of business we're making We good where we're feel the the are

capacity, a that have core a of over constrained in. bit months with been We're We online we brands we making line butting we've in year. capacity. our Amplify against some on lot investments have a confidence got and that have the now of the on past online We've comes key Reese [indiscernible] the came up investments, later XX demand that just

long-term feel get our guidance to about our strategic continue to we planning So that sales to ability over good horizon.

David Driscoll

Yes. for quick Patricia, of items. follow-ups just clean up two to you a couple

plan at was reform brand On tax so into clear. advertising. you're I just reinvestment reinvested building. be to want in the saying reform, Day out for benefit the But was always the back of that I laid some tax Analyst believe

so EBIT is going of flat one That's So even that reinvestments against And tax one. Margin are advertising to literally I margins. the right? million we're the costs, second part you to the That because saying that 'XX. for greater the has go is see have benefits there $XX reform? kind just higher of of Do first Growth, in

Patricia Little

Yes.

sales things focus in that that improvements, and want make around e-commerce thing And Less part right. piece, say really our in, comes potentially more is pull around capacity as one advertising you're like mentioned, You technology on. tax that's good on I the just those reform reform And on to the marketing would tax give and evaluate we I that clear sure really investment opportunity, capabilities, to areas. Michele do where our improvements them we direct focusing have see is ahead. ideas the that to the some would

Operator

Bank to Bryan from next of go We'll America. Spillane

Bryan Spillane

Just of couple from quick ones a me.

sure just was clear. want First, I to I make

part repurchases that are build, earnings EPS the the of growth terms In is build of correct? not for share XXXX,

Michele Buck

want to Patricia, cover do you that?

Patricia Little

we make normalized. of look we as repurchase EPS that's at program build our share assumption really a Yes,

look big several to have standard our option equity you make of you assumption not we of piece. a at years, EPS. that always related nominal the If of sort sort past our we that also It's programs remind and we an as repurchase I'll other a planning And share grants. shares around repurchase driver

Bryan Spillane

you did it. and And missed depreciation I then, Okay. if mean, I But XXXX don't give know I amortization?

Patricia Little

don't give piece. We We give that. the CapEx

a and You're if call you - on welcome details more that. to Mark need give

Bryan Spillane

one. Okay. the then And last just

this executing the you've In business. terms to Would just you in I'm savings. actually the to needs the things you're didn't these if spend would've this same have or these investments tax anyway? because more the spending on savings sounds made And like some decision year of just curious savings? have you It things or know done had are had reinvest tax the you're you you sort because if of

Michele Buck

enacting to investments in it at I really, And important the accelerate looking think are them, our project that gives the and therefore, these to us we're way goals. it progress an is our business. strategic opportunity accelerate

Operator

to next of the Bernstein. Alexia go line we'll And Howard from

Alexia Howard

ask XXXX. the things profit of in as XXXX. general about the though back in the I business It wise year Can for deteriorated International looks at the outlook China and end

can least XXXX. to course business, give particular, get whole I'll we that at just you some China So I'm if of back on. breakeven wondering in pass us And during when whether the expect color about - to it

Michele Buck

Yes.

Chinese associated trade the was some to deterioration due that of largely New So with Year. spending the

of as at trend that profitability made wouldn't the I really a feel good that look forward. about that We So we've sector International. in all carrying improvements across

of that mentioned, mark we've really high think terms the expecting previous that with And as $XX significant we're high in we've able XXXX year. million OI As had hit deliver of income to sector. here this what last improvement in of of kind OI we we eclipse said, for we year operating that a terms we'll that, we're

Operator

Bank. of line go next Rob the Dickerson we'll to Deutsche from And

Robert Dickerson

brands I referenced fairly and this your to within just on continue set brands. do noncore brands to core core that - in on a the what We had question kind the relative could strategy the the morning, well data of chocolate.

a some drag. the of seem or let's So brands to category, you as what even more out - the they But your if they're same also category say, that and they within be other above chocolate, especially at then of we've have all be Reese's. seen shares, growing, the might taking would rate

spending So marketing lift. brands ROI chocolate? you'd years, say Like are curious, go more or thinking non-power larger, of of - a we say, are your then as probably higher how a you look in to if I'm just brands U.S. few other within better you in kind out 'XX, get the perhaps let's would that about

Michele Buck

as Yes, the up I'm glad that you question one actually see because priorities we our in key XXXX. brought of

year. So grew those all of brands the throughout chocolate on absolutely share we core

in the think easy with performance of scale the and And because because brands, pleased the a brands brand. brands spending. excited our have you're tremendous are DME of believe really where unique are certain those product better that owns seen really to balance we're have have investments we're we But select the like on big opportunity Joy, there. that variety ROIs Twizzlers, we've we the So Almond right, space. really the for marketplace so a we opportunity And we an

we of you package because fully then do of of to you actually And we level velocity, distribution advertise going losses. against breadth some avoid only or look the have you an opportunity the portfolio. from where it's so and variety drag as to And get lift you into XXXX, focus. you think of absolutely we where greater you we're from look for distribution that taken but That get in advertising, that's continuing not us benefits if of a And have have brands. that's there's support holistic advantage some a us future, that those haven't

a for core, the variety definitely actually emerging declining. the then that's So focus Continue had and been 'XX. those us which activate in growth stabilize in brands,

Robert Dickerson

- obviously you quick the but great. not you purchase did it, Okay, not, sure show or Nestle didn't then I'm question. And just assets. to Obviously, you not a didn't if

et thought progressed, in you kind saw Just cetera. and them, didn't see how that what you around of any

Michele Buck

versus say, brands - in company, would I in we So will think drive not focus happen that and obviously, about year, competed that we this the we we at what space. life And and the we've how M&A those no or of the so we're any on marketplace, talk we business activity can't over I looking and the be in portfolio. well our we've marketplace as do what familiar with also that done the might always every different. done

in driving continue business. So playbook run own will to terms we our our of

Operator

we'll And of next line Matthew the Grainger. to go

Matthew Grainger

of two flat I might terms be to with margin free give, to solely detail might follow-ups. I puts from you shoot of I offset asking mixed more any respect guess, Patricia, and headwinds. to packaging want those any, costs I productivity than in deflation and the cost tried cost packaging a feel to and weren't margin input takes both mix if decompose to please where investors and directionals through have negative there of assistance this, on we so then here guess, costs. the gross basis But I gross and also be and dimensionalize guess, there? down. guess, Is me working us you flow-through quick I trying the higher these for input can there's think and expectation, lot deflation in you moving productivity, have you parts, positive but give

Patricia Little

pieces with little get Yes, help numbers, won't the I probably but into can certainly you a bit. I

or excluding the beat commodities, inflation, Over to I'll productivity expect equal, run, supply say, long we offset base it. chain

headwinds. year. have about a some me be next them bit. would our hit looking goal We had every that every year. that and that say forward And let to talk don't So year, year I'll we little this just

mix. But to freight we the hit shelf will pressures of sort are extra terms in or the in some on - the we I'll people seeing having ever-higher our we them product and we cost many same also the of goals, industry onto either the two getting say I'll prioritize that are that strive means mentioned distribution that, that of network. if service even You packaging and manufacturing delivery as that also say in as

bit And in very on our effect on capacity And of sales is seen, the our this adding issues. capacity, can And Michele we're that's new opposite is hit to been of we of plans, that. the side better I think that our all tight on be of we've when help that mentioned, the been manufacturing year planning and terms working 'XX. best So or opportunity this and better. also, also we we'll and that's estimate actual an a I add deviate a together, that, us manage it's one complexity pressure our network. some will we full flat. you think takeaway drive or that distribution on in those also that from about the are are improvements And really piece - us have because been have little a of as think, I importantly,

Matthew Grainger

rough follow-up. perspective there Okay, worse yet, But not cost guess, freight I'll unclear I it's give clearly, range? Can fall us getting sense, a transportation costs percent and leave more of your you better of so Just great. ultimately it issues maybe sort of a your cost a specifically, how at could shipping? of goods cost what just be. operating And specifically of are goods as percent a into that sold, or one - of the from cost bucket

Patricia Little

specific Matt. goods give that of sold. the don't cost our Yes, We breakdowns of of pieces

Mark Pogharian

little March in There bit Matt. give was was - packaging, a materials there. of then overhead breakdown there and pie slide and think and a chart Yes, or a on little for distribution of kind I of that

chart pie that and it you at look bit. a may take little out help So a

Operator

Feeney Consumer Jonathan the take from we'll of line And our next question from Edge.

Jonathan Feeney

and just through the of rationalization, SKU kind of of one cycle I expansion contraction few us SKUs the least a natural On please. been think have questions, Two of at around edges.

- was assortment planning just XXXX understand before to you count up what much you're things roughly, that, get just, you early of that just they what my And knew get improve And of taking wondering, velocity, going to rationalize say, level, I'm how at to years? total so is right, is now right want? Hershey, planning we at how revenue? it were within the causing this, is guess optimizing And balance What's opportunity December Congress much much going of a after that's to how as do? doing tax of age-old I kind on your So retailers trying far what past your couple always over SKU of can to things the of as make you're result a rate second that but you process on for SKUs? new trying kind find you is, between question the sense

Michele Buck

throw I comments comment on few bit I'll Patricia, about do Patricia little around ask a you then tax? to SKUs, out a want to as well. and talk can that

are we're we trying and SKUs. sure of productivity As being the focused of really to customer are very [indiscernible] these make on we that prioritizing the entire business service,

SKUs And but what so also think lower as both but you think simplify happening about our not you business we that business. you also out in that and those. International in complexity we're And about the U.S. how how also SKUs, should create should really merchandising looking we think is less vehicles at take - about just do velocity our

efficiency then there's to deliver the and greater of areas even both focus business, maximize sure real in that make to we're customer service. and So a that develop able really on

SKUs work SKUs rationalize into you over back hey, think that I process you So constant need really and way then up. clean I I'd a time, the do say add of their sure and on that, we're because it's little to what And to system, tighter sometimes about think too become part anything making it you accommodating. are customer-by-customer, each-by-each we basis that willing you'd is that? just to Patricia, a

Patricia Little

SKU as right. No, our it drives. complexity I count managing and are think really the We that it thinking managing that's about

say long I it number tended that tax, to tax us we honestly, we've XX% always strategies. think I XX% along have came tax important as of that's got 'XX figuring term. think reform and but well, to beat On set instead on model at that the beat I planning We've focused that. takeaway. tax to out more the might've

year. part last quickly became our the focus that of So last in

Operator

Ryan And the we'll of with line to Berenberg. Fintan go next

Fintan Ryan

a few Just questions, please.

costs? structural are be mentioned But sugar But confectionery think get Or as you and mention Firstly, of I weakness signs softness has with of can it is from to or This secondly, think be of on should gum preferences, of pricing deflationary activity your one what those result seeing And input potentially increase those promotional to done more sort the ultimately? competitors, any and and sugar, raw consumer just - a cyclical increased - then competitors putting you the benefit. a quite this of of do also growth? or environment you did in lower your materials perspective, any of back you're down cocoa, downturn? seeing gum, is confectioneries recently. change more sugar that a

Michele Buck

of I this say start I'd would would I a seen the competitors maybe generally increase see. cost we that's to the with that using we've you or that's relative over category, it particularly competitors to in little there, raw kind area mean, behavior sweet, bit of here not big tell we see. tend something But promotion, some category of smaller a deflationary any in I the usually material to not time. time, that, with sugar over more that

do than any So changes I'm changes. there more any of year in not seeing promotional we terms

Patricia Little

is others And that of see are year. well, down, what some we that deflation said up. just that, we are add don't also And next for input costs our

Michele Buck

I'm What second sorry? was question, your

Fintan Ryan

And confectionery think visibility you the of the do sort sort softness do more categories? you in cyclical what this the on gum improvement is factors play? of have sugar Or of and structural Just there's at category?

Michele Buck

would performance at our business, segment gained we've look own that seen And confectionery, of as well the on gum, strong I exceptionally on share. and done pretty sugar say category. marketplace the we've in we have

that strengthening segment - and segment. it years see having have when [indiscernible] to of about that right those for segments think lot right happens, brands those news. think chocolate, think, in segments, the the I of done like the of are a I I And each a category, tend new the within you'd those that growth. tend And that having tend the seeing just be to segments, So the - innovation

Mark Pogharian

a and for we will few you time you all Thank of weeks. in your CAGNY see Great. today, in

Operator

their We'd disconnect time. everybody Please feel to any conference for tell. to today's like on free thank participation at

The Hershey Company (HSY) 1 Feb 182017 Q4 Earnings call transcript