HSY - Earnings call transcript Q1 2018

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Operator

Good morning, everyone, and welcome to The Hershey Company's First Quarter 2018 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 and I'll be standing by if you should need any assistance. you. Thank Ms. may you your begin Poole, conference. Melissa

Melissa A. Poole

CEO; Erica. us a session. for you, conference CFO, and President will Good President with Senior quarter our morning, joining you call results and Buck, Michele overview appreciate provide We webcast. Patricia The and Q&A earnings Little, Vice everyone. XXXX Thank and an Hershey of you first Company's by followed

of uncertainties could with those filed contained and risks involve events forward-looking of our statements actual our in begin, materially we please meaning Federal the and Before SEC and within call forward-looking in statements may make current the during These that differ course remember laws. and we XX-K from this the on today's XXXX the statements described the Securities based that are expectations release. press

not please that I for accordance Finally financial turn press GAAP. The in this Michele. most non-GAAP financial we that useful call a in information substitute provide is the today's to note to of investors. for will today's certain refer comparable refer isolation or to on to intended we of presentation for prepared financial a be GAAP. the reconciliation measures call in Please as over presented accordance the will that, the considered to with believe With non-GAAP measures information would release like measures with information to

Michele G. Buck

Melissa thank head morning, a for of Good And Relations us welcome you, Investor team. and you to everyone, and as our thank special today. you the joining

a has had and our deep with of spend yet, who the strong Melissa time acumen. business haven't those to of chance financial you For marketplace and the knowledge Melissa

given a and investment find Melissa in that approach. very those community straightforward think great of you the expertise I her will resource

for Amplify EPS EPS Now to quarter X.X% increased We expectations. of from net the X.X% a compared point Constant sales hand. last currency at first first in acquisition. to sales and delivered increased year. first XXX the basis the quarter benefit the with net line both our including quarter business $X.XX of

key in progress areas, to make capabilities. snacking, confection to investing growth reallocating focus strategic business, against driving and continue margins, core strengthen We to expand our expanding breadth resources in our

balanced Our core investment. behind grow continue and activation to brands

acquisition track, is and Amplify now as is XXXX. to $X.XX in QX $X.XX delivering to accretive Our on EPS planned be expected

Our international business we We due and of capacity growth investments sustainable margin investing and capabilities anticipated costs growth. had although differently new got first as profitable delivered logistics We quarter, there planned. quarter well for future and to higher another had as earnings strong we and freight quarter generated for originally packaging. gross in than the in we results incremental the contraction trade are in

due this as points chain expected Overall to as input contraction waste, was mix, costs. incremental basis compared unfavorable higher the However, and we period. to points via year touch margin greater supply quarter complexity first gross prior of cost XXX than well declined

As year. we a basis margin decline are prior XXX now points versus to full-year gross expecting around result,

declines the driving is central You we high for margin so is these a years company, gross us a growth. have to that focused heard priority reversing over and us are comment profitable

are We these to challenges. swift taking action mitigate

some supply We better planned believe as forecasting position are the pressures expenditure. First, will we capital investing of shifting future. for experiencing in well and by margin to tools as in SG&A are capacity increasing chain further and the from profitable our we reinvestment flexibility our improved this spend us address growth tax

efforts feel confident shelf to our the progress is long-term in optimize half, by in effort best-in-class the believe work to (XX:XX). to shelf providing growth on expanding is an opportunity SKU our turning enhance to rationalization the our margins Second, some great This sales customers. there initiative capabilities our drive to goal our impact similar portfolio cost complexity any In to level and and this assortment profitable transformation in profitable slightly right concert will retailers. ongoing think with significant complexity fastest businesses and minimize the capitalize we with will international with SKU sales. rebalance on higher priorities our a more product have our our even chosen U.S. efforts, in and line given We of organization service in is result reduce items. but for Therefore, and management category we we've U.S. rationalization we less made the our second these us to We program to and are business leverage We which initiative. reduce

As a so net sales now consistently to our low $X.XX of initiatives guidance range we of our plan expect of record result up EPS organic do for Hershey track key of bottom line to our the and our $X.XX. again this delivering towards X% reaffirming are Therefore, year. guidance XXXX. strong previously have within this we be a slightly we to without but investments communicated and of At decision, to end compromising we business

full-year offset and favorable Growth versus gross about taxes, than a and anticipated of reinvestment from expect Margin XX% our tax a lower XX% discussed SG&A from more shift specifically be accelerated and improved in We of guidance our previously. to deal of accretion half the margin headwinds previous target as to remaining a end by will synergies the Amplify for XX% about the quarter via recovery tax high approximately quarter spend from And XX%. planned delivering be to SG&A expenditures will greater from of capital the rate amortization, around

new as gross and to to improvement expand combined with ongoing enter our capabilities. begin continuous XXXX these we initiatives improve revenue expect and based strategic management margin on We

become powerhouse. favorable consumer-centric enable certain to our brand-building continue remain that discipline an continue prioritization and company as returns help taxes from We headwinds benefiting invest are to deliver to a We to which to for organization's shareholder SM&A snacking we will our and future the offset growth. solid in cost us long-term addition to innovative vision transform business will profitable fulfill stellar

an line was basis innovation This given growth XX driven benefiting CMG from an U.S. our grow provide was by Now the takeaway category me This Total this salty marketplace including Hershey growth, and CMG in grew The leading continues growth. retail XX.X%. about resulting of timing was confection, share of Easter. of loss Hershey Amplify, Hershey let early and participate advantaged and activity. remains are we expectations XX.X% X%. CMG XX.X%, a update. U.S. approximately to QX categories market category snacks, promotional up in Easter, in; snacks meat The snacking The with points. a

season, consumer approximately declined declined last with versus shorter season. Hershey behavior Easter a shorter the category last Easter plans given year. approximately Given versus sales retail our in shopping consistent XX-day XX% year, X% sales retail

April shift, takeaway expected the Given to is be retail significantly year. down prior versus

prior year-to-date be We slightly down versus retail year. takeaway to expect April

and and continue activated from Our growth, the brands drive positive delivering velocities responding renewed core showing variety the strong are previous to nicely acceleration to brands Base ROIs. trends we are investment.

Reese's new manufacturing line is up running opportunities new capacity unlocking Our and and growth. Hershey, here for in additional

repeat Hershey's a line new great on Kit start trial are recently and broke encouraging. Pennsylvania. Hazleton, in manufacturing ground is to Gold We our off Kat and also

to additional excitement Importantly, but we growth base launch only also on this merchandising not bring are drive leveraging well. core business our to as

incremental deliver more growth. now to consumer New drive pack occasions and types on usage shipping are

Outrageous instant-consumable May Reese's innovation for launch. a track Our on is

and World of consumers time Chocolate area holiday partners and experience. this The our are a and Cup larger Bar. times The retail builds connect a is with Reese's by Pieces Our over kitchens has well on Nutrageous new is corner on to X Xth million for enthusiasts last XXth the track baking Pieces upon Times the Hershey Reese's a season. Butter the and heart for Hershey's adding new The original success half in of year that one-of-a-kind excited three and launched S'mores this the our Reese's store Hershey's twist million store hosted in Peanut store just of new a launch year. over includes Square guests to than making already the

quarter, and and move made year capabilities I activate progress at digital shared fully to around to strategy you We with accelerate digital Net the the up over trend first meaningful were we this we continue CAGNY. the have sales XX% the and in few past our strengthen through months. as commerce expect

and recently allocated have We across the physical is initiatives equity on from in and conversion investment ecosystem or any incremental touch point, awareness, track, integration drive nicely. Austin to Amplify further these business is proceeding and The digital.

There ROI These cost XXXX. sooner $XX earlier, strong by of synergies by successfully anticipated. ongoing previously our ago no end than of partially ready-to-eat As in improving planned This growth takeaway popcorn activity. grew X.X% base approximately were versus velocities synergy driven I year-to-date change SkinnyPop versus is year X.X% promotional of retail XXXX. period. estimate million to capturing sales declines by we the low mentioned base offset with sales gains are was

We have and expect talent the business. of help have second-half about place that feel to line to expansion lead growth to great sight I about distribution business drive this further we this and we great in

Now and of were million slightly for quarter segment, expectations. International for sales ahead the an Other update on our net $XXX of

to segment results. QX make am We $XX profitability proud the increase $XX of done versus the operating of really million, improvements has income work an to to with I meaningful continue QX these XXXX. of million team deliver

year, the generating at gains as continue slightly albeit We lower expect operating this a to move through segment pace. we income

Mexico, performance XX% Our currency combined sales year. remains strong QX growth net India versus of and last Brazil in with constant

currency quarter. improve several solid for We our In and Margin Our China will Year, initiative growing complex performance SKUs in with line share constant New the focus up we sales first had to continues our in summary, in continue top bottom to we time the this in our X% for environment. approximately execute a first balance as years. Chinese sequentially Growth net

growth bottom commitments. in our brands drive while capabilities We to will hitting invest our and line

needed the and will portfolio brands. controllable of details who Patricia? As focused making today achieve intently on of choices it our growth, future iconic provide to our to position and Patricia I'll further our financial on across we you are with we business look both over the managing to results. into the turn aspects us now ahead,

Patricia A. Little

and Thank everyone. you, good morning, Michele,

also volume, net favorable X.X net sales from share-diluted planned the a offset more have realization declines. have that quarter Amplify of our which at year. benefit increased section and earnings X.X are First X.X from from the Benefits, period full-year Due standard, A partially Compensation-Retirement Note as the in points, XXXX-XX EPS contributing were per percentage revised currency which points. to including in X.X point of No. earnings, Gains offset favorable same quarterly calculation benefit the results year-over-year came ASU last adoption our the to is X.X% of prior translation. XXXX due a last partially XXXX X.X% change of same restated. versus increased by we Volume positively well rate available of of $X.XX, versus margin an these gross the to point as billion was the been change results, Investors versus year, period in increase changes, XXXX of and the year. a negative foreign website. acquisition and $X.XX by non-GAAP tax acquisition Adjusted our price reconciliation restated

stated, there of our is adjusted guidance full to Michele $X.XX. year no to $X.XX As expected EPS change

trade into activity, Twizzlers. to accelerated However, in point By versus point volume prior-year America in true-up increase well a of X.X XX% due X.X adjustments X.X increased X.X XX% year. to of related the of a to consumer second retailer of Also the last and year, support recall net year of prior versus packaging now to execution and quarter second the full-year key to levels. to by offset first of some versus organic line taking was last last results, The of an that EPS first second in was resulted programming. confection some net the quarter merchandising as in changes first some retail Due programs This and first X.X% sales Amplify the promotional marketing were net of realization America our the customer of restated elevated quarter. quarter and optimization promotional sales first given same the headwind sales in of earlier summer and this brands, be In spending sales quarter shipments, point brands of increased year. quarter net spend foreign core half decline inventory pressured Net total, was relatively levels will XXXX quarter and last increased sales anticipate second versus we first Easter, we our on the acquisition XXXX. our net period sales planned the price in being rates trade year. of related emerging that spend shipped to resulting with outpaced and impact the but contribution takeaway we expected S'mores shifts including as respectively. growth. retail a distribution XXXX quarter a and X.X% currency due temporarily point expect advertising account in year. Therefore, is the North within benefit, overall non-GAAP North takeaway half exchange be Volume timing segment, to

net constant and point International Other India, We're growth Margin continue X.X% quarter as the of we exchange. benefit and execute solid XX% a marketing investments basis. X%, XX.X% increased by advertising a China more First improve basis X.X% X.X sales China we right-size fourth Volume profitable to in total growth. from expected, net on Brazil our which grew quarter International that our sales up driven line Mexico, currency was in a for grew on expectations, we our as favorable pleased X.X to our continued a year. drive constant sales Growth as and compared sales related declined net consumer decline optimize and with foreign combined currency including segment in currency portfolio. a points, Other and last to initiative growth to in

the X.X%, Now profit gross year. to points XX.X%, last gross in of adjusted first a turning of quarter margin gross XXX adjusted basis of margins, versus decline declined resulting

on trade call, to to freight we pressured costs well as earnings to our sales be the higher the and anticipate of drive growth and As half at retail. and last logistics in competitive did first at margin CAGNY communicated gross year we packaging to in due incremental as remain investments and

decline our XXX full-year However, expectations points expect first basis gross quarter around prior we now was as to year. margin below versus discussed, Michele gross and margins

pressures, in Given to of the year-over-year of pattern the last we improvements expect margin a on year's year half inflationary second see gross basis. the

margin. profit addition First million a offset the shifts operating margin basis of of SG&A $XXX and mentioned, optimization quarter partially in operating adjusted I to profit an discipline, The in continued marketing XX.X%, of XXX spend resulted points. decline gross decline in

debt Amplify to principal in bonds times with Moving amounts down to structure, of targeted S&P and are from $XX to have increased ratio. aligned X year expense the We by de-lever fund secured plan ratings the maturities debt, maintained driven respectively. and rapidly we P&L, times additional million finance the commercial of versus consistent QX Even million the last $X Moody's interest company, to additional acquisition. Bond with paper May permanently debt issue our our capital maintaining AX A the acquisitions. to this a debt-to-EBITDA and X.X early strong

in adjusted generation upon bonds to to We in is our with year as line in healthy range, XXXX, cash will our first tax the million utilize repay existing the and XX.X% previously our as the expected by XXXX tax period $XXX XX.X% stated XXXX quarter for be bonds U.S. was driven expense interest reform. due maturity. to versus million these rate $XXX well in ago Full-year coming estimates. The

XX% the we've to are full-year to With the XX% in previous to Act tax tax the evaluate with of rate Tax XXXX additional XX% planning, to be impact approximately prudent and Cuts our U.S. our we of approximately had time expected XXXX, versus of updating estimate combination XX%. Jobs

other $X.X First was and income quarter million. expense

expect increase approximately was credit full-year we million tax versus continue expense as strategy. This estimate. our to our investment a $XX XXXX be slight million We initial $XX to

XXXX $XXX were share on million the This authorization. in quarter. authorization a basis million. The first diluted $XX company common on shares of million XXXX $XXX the XXX XXXX, remains January shares average outstanding October completes million quarter approximately million of For first the repurchased weighted while repurchase $XXX the

were We shares $XX with also software exercise connection repurchased million million. additions Total of options. in including common capital $XX stock the of

CapEx supply further to expect and now go we range. which discussed, $XX million increase well XXXX, $XXX to quarter be for we year capacity the the million enhancing chain updated as of estimate in the reflects lower as all planned will than This that full flexibility, will the Michele For $XXX versus to Total million depreciation address which was help margin gross was slightly Amplify first of tools, amortization estimates. for amortization $XX driven level million. initial our believe pressures. by forecasting This and approximately favorable

strategic are We making progress our of international Amplify business. the on review

will included this with as will reported not in we're is operating that still sale certain quarter. your point the business reached now it now and believe occur. as in To in is we held this see a the We next if filing you we're when XX-Q income sale The for month approximately XX an likely months. million have where XX the modeling, Therefore, $XXX immaterial. asset sell will sales a is and our guidance business are assist we

our cash to consumers. where us great and return And to to that youth, build pressures, addresses to Good return cocoa brands most recent into holistic billion deliver announced natural the quarterly generate our pressing business children, first to transform a we We We close, with to to facing way we Despite while prosperous common a and advantaged was and shareholders balance sustainable flow to model by we XXXrd business. preserve strong structure This We to earnings half continue elevate will a and $XXX address communities buybacks. our remain long-term good our to taking cash our our comprehensive and visibility difficult million. consumers, on products our in Most investing we our headwinds the a and we value have environment. steps through and value ecosystems. do plans our delight in issues investing in shareholders enables We're margin communities. that deliver deliver have dividends stock. cost we our support recently, dollars are of quarter dividend remains believe healthy sheet enable model. consecutive communities. to tasting We us outlook communities we To believe our on for shareholders, continue aggressively view Cocoa we growing the committed strategy, take to nourish a these that XXXX dividends business

the on the some I let quarter. year, summarize Before thoughts provide me next

expect QX This, earlier, I such lower be EBIT capability ERP, of result we As profits timing in of expected QX our investments some as with mentioned the gross combined pressured. year. to versus is last to

increase X% X% complexity DMEs the now rate $XXX program to to high we We'll Thank building increase versus we revised time now be Our to the an XXXX an will of versus $XXX estimates. estimates around reduce and at lower margin also spending the million the reflect be EPS and target. million, accretion XXX in initiatives. million now estimates versus $X.XX of summarize EPS be full basis our deliver approximately increased The The over and rate has QX estimated of from year. to to it savings prior is program offset Full-year $X.XX, XX% to initial approximately year, overall initial to accretive of to are adjusted $XX business versus is initiatives adjusted to for the are $XXX To to estimated end remarks. earnings We're and continue an for expect improve estimate for points is previously of to this now of XX% estimated tax growth. million closing you we decline XXXX the to effective I'll as reaffirming to increase net Amplify range full-year our million communicated somewhat $X.XX year. full reported of are of to $XX your year. morning. last back to CapEx refining invest to margins. turn implementing for $X.XX share-diluted gross we million XX% $XXX per Growth end Michele for $XX million toward and new some an nominal initial XX% estimated million, the is expect tax sales adjusted in $XX Margin

Michele G. Buck

Thank you, leader with snacking compelling Patricia. category Hershey tailwinds. is a

focus domestic and margins available advantage, value. business our markets, deliver in-store and growth, we to both expanding transform help and cash continued and relentless shareholder questions. remarks. our we your our in and capabilities, This international concludes brands As Melissa our will flow insights, innovation, competitive fuel strong long on portfolio, Patricia, maintain core I and and proprietary our believe us prepared now earnings take our term are

Operator

the go Please first And of line Goldman you. to go from ahead. Ken Thank we'll JPMorgan.

Kenneth B. Goldman

Thank Hi. you. morning, Good everybody.

Michele G. Buck

Hi, Ken.

Kenneth B. Goldman

we was I really about think most for that I think enter us if get lot improve to whole would outlook can't pricing environment gross XXXX better us headwinds the in think I begins. but doesn't your XXXX. I expand talk think you right as are expand, right modeling said margin of cocoa I year heard correctly, you some now, as most and I in a you detail the know now. of And that assume

realize you really been rises gross on but tailwinds, some has behind what matter the going is I Hershey's when So scene. else historically pressured margin no cocoa have

that maybe you I XXXX gross progresses XXXX? to So if more confidence as I margin seeing what gives bit in get in or improvement little comfort that can wanted a into

Michele G. Buck

start me to I'll ask well. – add some this I'll It's also and let off. Patricia commentary on as So Michele,

address the actions some all, things that leaned think We our that that. we that and some First towards we're we within had as unfavorable as working customer-specific mentioned, hit very to value-oriented address and of forward that fix mix, of are some to some we specific we packs go are and us created taking control. programming

rationalization those us. at mix address for the focus core help look to to tremendously real opportunities a of is our on us we going plan, As SKU some

of cocoa we turn to against And got also going it say Patricia. are a crop, a is so high the outside in know (XX:XX:XX) I'm cocoa fundamentals. has all particular healthy, we and the are input just at we've comments plan then fundamentals some about volatility it relatively demand as to we commodity I'd but that good think that and things supply given some the that over that. weather, look costs Certainly

So recovery with a more the you if bit on margin. of little in about turn Patricia just of recovery gross margin. let about me in it think macro to to But at very level, detail prior-year there's think lapping it talk a grounded just that, over a the I lot gross that's

Patricia A. Little

Yeah, I think summary. that's good a

and of pressures year, XXXX. on we go-to-market, where experience into relief things want don't providing So we are then focus time we the give supply really improve like rationalization we're Michele the at our this to that do believe cocoa very – way of half on which exit some some as some of started to reducing those the the that seen of cost right chain overcomplicates us right a getting in some making you the some and at team we a that's other the pressures, of and value, so that the controllable. that year. not right on like our a things about, inflationary comps XXXX, we some the and sure in know, in the and we've we some customer see we looking is costs the of some other as And to in can freight of inflationary we're control, the focused packaging really things will complexity to package changes. pressures as while lot that are mix inflation doing those, back where issue talked last that right system, half as of lap in back that that just our And of are come logistics And easier that SKU we but then with really our the this

Michele G. Buck

Remember, Reese's this the some of line coming Kat Ken, quarter, the have the we at online a our came of line end and new Kit capacity investments, quarter. Yes. online

were to to mix a profitable as able quite help sell, that's as what driving constrained some on at that bit look on we've So of in lot most we of business. us we we addressed mix been of going get the terms a items, the our and

Kenneth B. Goldman

so much. Great. Thanks

Patricia A. Little

you. Thank

Operator

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

Kanika Goyal

for bit question. is Good more was coming guidance the know for in little what Like Considering how for to line expected? X%, is Goyal still neutral, the taken where for Rob. you organic unchanged the is about at guidance This actually top sales Amplify currency on QX little the wanted a bit and the I strong thank ask profound morning. end? just SKU Thanks to sales period why and down Easter Kanika was a to could trends. from? shorter full-year expected came pressure that on initially impact the I And than is by rationalization but more the you. lower X%, you explain

Michele G. Buck

perspective on innovation a expected expected for promotional the and always of our bit the by the half first – We timing we primarily driven a pressured, all, had (XX:XX) full bit little year. primarily in of first so be plan Easter. but shorter Yeah, to

in plans. So that was our

for thus mix. it's though, we there to really will and think and to drive reduction really remain bullish launching, really key sell-in to focus behind do (XX:XX) Outrageous, drive of the back difference the Reese's is the As shift We do continued we make be that thing right very half, we the short-term the know, look and to May, look in balance at including work the which is Outrageous and Gold P&L And at as we impact and this second Halloween half – strong growth the as holiday. year some last we The success, at us profitable program. changes. SKU for those

that all we as of relative impact low just initiate end be what that really the of So want it. choice to give program us that the is could you of the guidance. to driver the led call the primary We heads-up, to

Kanika Goyal

Okay. Great. Thank you.

Operator

you. our Driscoll will next ahead. question And David Thank go come Please from from Citi.

David Cristopher Driscoll

you Thank morning. good Great. and

Michele G. Buck

David. Hi,

David Cristopher Driscoll

Okay.

just margins. gross I to about wanted little a bit the So more ask

you Can as under down, used with and cocoa you I a much it pressure planned remarks. in mean, kind pricing I So it counterintuitive word kind prepared margins that pricing more is feels gross about talk this down pricing and as planned the of is the is believe higher. little screaming bit reduction? the of much

So there is are pressures down? under Or explanations? good this is why other are retailer and you pricing

Michele G. Buck

the investment between as shifts but really we trade, maximize We're and we in our year behind of necessarily we and that the did looked trade is make not advertising certain balancing do major going some be the competitive, business. and we And thought rather mix additional business our this see what to business pressure up between of parts to as of continued we all needed always wouldn't on I say optimization price. showing that that to forward. advertising

investment that you about is retail. as at merchandising that things Merchandising, with think about also with racks, customers fall like line. trade, into really So investment our

David Cristopher Driscoll

Can talking lower a you margins in what guys half what that to gross complexity? us "complexity" so And want the the than to was to margin seems you're a it if bit kind explain of as a Could really this the just And meant? was just perhaps you really surprise on something in gross you quarter more I'm like because drive the little not the surprise, you about? drive the much a on call tell drive I what within miss? today's of second this that's initially little spend SKU year. that comes time rationalization trying still understanding to why expected. on that how more this quarter And to will, feel then it the you're

Michele G. Buck

I'd say couple David, a things. So

we for a First impact anticipated, a and of a little mix really of all, were us. trends C-store than had bit lighter bit that

– so piece. as at address I'm the going looked as we well complexity As to mix

did of customer-specific had, some created areas packs, of Some of bigger the more that mix. we the best of some programming were the unfavorable business that and our the some value-oriented

two didn't are gross hit those things we anticipate So that margin.

some in Patricia, we added created we've these what of to have obviously, control that And but the biggest revenue this to incremental some what some the into would is given think add our growth at investments of As else gives kind are our the with capacity I that? we those. leaned sales supply opportunity and get environment us created some to in we have business selling. look difficult you we touches to constraints, a say we drive complexity. They to have businesses, they better complexity anything areas just that of piece, also And in chain. want after capacity

Patricia A. Little

much The SKUs, puts other thing a gets add just the that is demand just system. with it we've And it how that really planning much on as explored we stretch our for Things and extra the things harder our that of chain SKU level, like too, that to drives touches plan that. some supply like added cost, the or freight. in at or frankly complexity

that's So of is the one we for a real think forward. areas going us opportunity that

Michele G. Buck

– of dynamics like those out bit think say would control. I things some a mix were marketplace the of David, our And, obviously, of some I

I think the caught knew complexity little than We bit caught we it us a bit a us more more. was It thought would. there little complexity.

that, and fix take can are so is actions to focused the what we are. And on we we

David Cristopher Driscoll

pass it along. you comments. I'll Thank for the

Operator

Hi. Thank Robert Suisse. next from go you. Credit LLC Moskow you. Please go to Suisse Robert Thank And ahead. Securities (USA) - Moskow we'll Credit

Michele G. Buck

heard - Robert say thought to only Credit focus Moskow for I Suisse a I Securities morning. (USA) Rob. up that I you about sales versus were LLC Hi, Good Hi. second. X%. year-ago on Amplify wanted

that. SkinnyPop SkinnyPop? two those the tracking is us the Our more popcorn U.S. help growth Nielsen overstating up reconcile data Can than things? Nielsen data in you indicates the Like, rate that of was

Patricia A. Little

that to remarks, opening contributed (USA) given quarter? - your Suisse partial and that which year, Patricia. sales you Robert us Securities misunderstood I Maybe LLC a Are had basis it XXX just Amplify Moskow the zero referencing is amount Credit our in was last for points the we

what's tell growth versus basis? year-ago retail rate maybe a like, SkinnyPop's on So us, just

Patricia A. Little

Securities Hang Robert - (USA) Okay. Credit on. Suisse LLC Moskow X.X%.

So it's a versus up decelerating about like X.X%. growth kind used this remember Is of rate that brand? because normal be its to double-digit I

Michele G. Buck

promotion may which have it's the look and back had little basis, bit had those lower in have at bit you. is believe, of to, we if to larger, Robert team of go but have feeling Hold the some category we growth on the some But frankly, I with Moskow sight plans There Certainly happy deserved a (USA) be an some events Thank business, And on expansion here. latest rate. Yeah, had. you in year, I'll they that the deceleration remove - well if ROI offset quarter, the Suisse which it's full-year the the some of Yeah, the year mid-single-digit we line causing with good. we If I Securities – trade thought follow can growth to going weeks, X.X%. they as did. reaccelerate so we we numbers a really first to about of LLC prior that's on. we're and of to growth. we're is, part to built see look Okay. that up the Credit of as there's that. little XX pretty momentum that the the at gotten distribution we tremendous

Operator

go to next from Please Thank you. Baumgartner go And John Wells Fargo. we'll ahead.

John Joseph Baumgartner

Michele, morning. into it because in the the broken bit upstream more, the are Good Thanks down. indicators seems of U.S., question. as dig category wanted the to for health commodity a the though of CMG some

rising also prices, which have be gas for can't helpful You C-stores.

have to And everyday performance your a think you if I since January? share bit was a XXXX versus you QX your for in become follow-up, speak So in the straight more CMG. loss that category seasonal, could cautious more third given as in

Michele G. Buck

Sure.

shared changed haven't versus the we CAGNY. category our outlook we in So really at what

believe category outlook to we the X.X% had the So long-term that shared was we around X%. for

Easter between probably at year year. X% is this believe look drives we Easter X.X X.X% year, to a because we long point the As and short a long year this a swing Easter

be non-chocolate continue really about chocolate of also to bullish the and part the category. We

accelerated it grow to points will out, take X continues points refreshment and have be If to anticipate at rate for – you that X.X year. we an of this growth

at our year part be that we gaining previously we plan but year the for of in first As anticipated be expect look the our year, back-half we we the loaded saw had would share softer share, that to the share. we and shared to end

I programming the we we of as on track of own to tied timing be feel year, certainly programming. good competitive competitive be as some our of And that doing will always as that. So to the end share. our timing that's It's gain goal to well

John Joseph Baumgartner

Thank you. great. Okay,

Operator

of Thank Feeney Jonathan you. We'll Edge. Consumer go go next from the ahead. Please line to

Jonathan Feeney

very for Thanks much morning. the Good question.

Michele G. Buck

Jon. Hi,

Jonathan Feeney

anything, One innovation me, able of lot grow innovation one everybody. talk more and the become complexity. question. not to bit complexity recently, about You've great of to always necessary, necessarily revenues that broad but leads and maybe little more A micro some world's amount more question, necessarily than it's by it and for is fragmented been If detailed been right? complexity, a probably on profits targeting to a and rational for the trade-off, and call seems you

the going two, movement you the reducing tax two a quarterly it the line So with understand that right tax to the the And calculations phenomenon? does future, tax more very push kind we rate, cetera, it lowers you that et wind other in question with another credit all you we new my basis – go on when feel how can changed question. a I'm your this narrow after opportunity in we SkinnyPop, these or the rate there this your to that what with the trying brands those have? much. down three are innovation quarter-to-quarter, road And up and is with now? broad is benefit the expense? do if – to is So that Patricia, of if Thank between to buy my just complexity, case That's is ever up inter-quarter credits, complex great business years want we much

Michele G. Buck

multiple category locations right? store. high the first SKU-driven broad It's a certainly question, your complex, So in this on is is a that category with

adds though, complexity, is of adds complexity, can as good it, profitable think of really And at excess value. incremental be complexity, that. most one keep have growth. that important and but where driving I always is think we profitable adds strategic track also is that there look do items the we And growth to there I bad there not things

balance and important think to I that, think that. a we we on bit really out got address of little it's

units, merchandising We be system. So, tweaks, really example. at might with when for of XXX complexity example, close number look could have the I'll couple it you that them, massive and out in generate take that half give efficiency and could get we one that we takes a a

new of when is add on we types some On to the comes to pack core hand, it going we other items. innovation are SKUs that or to continue incrementality our think driving

stay to balancing that Patricia, a the going but to a keeping I'm just it's on to good So question. we turn focused. complexity. it's and act, complexity over it and of that nonprofitable, shedding non-incremental it's the have And you for category tax top really the stay

Patricia A. Little

the We two income that do put two together. those of other tax you with tend rates. see credits together terms in go the Those the the with of impacts cost to

Jonathan Feeney

basis? So a they or on basically don't quarterly, go yearly together move quarter-to-quarter

Patricia A. Little

quarterly basis. They on go together a

Jonathan Feeney

very Appreciate you much. it. Thank

Operator

go Thank ahead. Barclays. from Lazar to We'll Please next you. Andrew go

Andrew Lazar

Good morning, everybody.

Michele G. Buck

Hi, Andrew.

Andrew Lazar

more or If taking in into that SKU specifically broader non-chocolate couple getting core/noncore type other incremental wanted that want works, it activities dig actions been focused sort where latter, just franchise? I after get sure on the the more involved make I is at the snacking to Is just you're to focused? within a rationalization guess. primarily broader growth? to briefly environment years? it's you've go rationalization in Is trying Hi. understand chocolate that you're the the I with whether to is to to sense get that odds of of I primarily that that of last this I'm doing over of snacking it the

Michele G. Buck

Yeah.

is this So not to snacking is This (XX:XX). the Andrew, really really initiative. tied

we a confection, brands, all line all the good well. much the portfolio have snacking. actually think is smaller as and types broad of we focused looking frankly, SKUs the sight all This in pretty core really merchandising pack at of the number have I and, the on units in

as optimizing the more making core, have that, we focused to on that we on and decisions are making possible really velocity everywhere on the the it's sure focused the shelf highest items as possibly driving can. So

want the to that? add that of within business. core Patricia, really it's anything So to piece you

Patricia A. Little

year different I'll of give where another happy. designed did that's And we over core this our to to well out, what be we customer assortments. things that we've approaches complexity makes we units. the that's about the can merchandising and assortments. you to to gave We the customer-specific to is have that then Michele really those example And so one happy, some tend time and Halloween optimized really a consumer of we levels, have us, assortments. migrated like the but proved makes takes great that, eliminate just customer-specific lot a base do five Yeah,

adding where So creep the the or we customer see in is think we complexity of ourselves, that consumer. to that's an the value don't example

Andrew Lazar

Thank you.

Operator

And you. Spillane the of next America. to Bryan from Bank we'll of line go Thank

Michele G. Buck

Hi, Bryan.

Bryan D. Spillane

Hi.

to want So follow just I up.

shift had a there You made advertising of a or was made spend. earlier, comment earlier, sort the comment between about trade and the just

to trying chocolate other within this response they're to And so your confections sort type franchise? trade is categories more like better your competitive core cross-category more spend just against bit to more near-in? the can snack elasticity? activity that some core near-in of elaborate chocolate a maybe bit it of where to year, that on bars, little a Or a Maybe response just the of little a leaning thing? So some you type of is position

Michele G. Buck

that sense. brands areas that we I and view core pack year. the say made that near-in even total, Yeah. I just QX, and at be of also take up it's good chocolate would up want really a reinforce it to advertising certain expect our with in on specific couple of to customers was certain more business types that wanted shift full and to in much a we for chocolate franchise on advantage opportunity at looking

from were within strategically portfolio. less that important the shifted away So advertising the we've places

Bryan D. Spillane

had guess out – the you've promotions, distribution? it, done has I for noticed the price you've incremental impulse it display. had convenience and you've some of where come I've instance, with And where the like in aisle also channels, what of also gas,

display sort had it. You've of to some attached

or fair So you're get to better it's to to not also the some say merchandising it? but it's on placement price spending just trade attached when

Michele G. Buck

obviously by say to the entirely Yeah, goal is is is would drove merchandising trade get category what This a with impulse, (XX:XX) I driven that investment. primary our display. and

goal secondary is Our price.

very accurate think it. a I to way think about that's

Bryan D. Spillane

Okay, Thank great. you.

Operator

we'll And Please to Robert go Credit (USA) Wow, LLC daily Moskow from Suisse. Moskow Suisse Securities you. - go Credit Thank ahead. double. Robert a

Okay.

the unchanged, guidance, Just have but is EPS rate. your lowered guidance you also tax regarding the

So I year. reallocate think to the alone lower you're implies $XX that of a income But about cut and towards you what also said kind then SG&A the for million. that going operating is it CapEx

operating our on of being way So SG&A of million, reallocated? a this a in saying another it's is reduced maybe okay, that's even though like, income kind is million $XX I $XX basis? So thought kind don't that, lower what of and there's than just we for example, kind of know, fundamental

Michele G. Buck

Yeah, Patricia, go ahead, you can take that.

Patricia A. Little

it well Yeah, Growth rate. again on talking tax the that quarter the for as target from, I comes a that of is And accretion. Margin Amplify of where it about job recovery SG&A a good and did as about then think half of Michele improved is

our quarter at if you're the beginning and P&L So the going where that the think in rate, leakage. of had the year, about see moved shift we've yes, tax reinvestment to where then you we to is earmarked some of that's sort remaining above some that And from CapEx.

total that's So help. a

Suisse Okay. Securities if and So not. being think Moskow Credit is offset about Robert three-quarters above taxes, quarter you about a of it, about LLC it it is - of (USA)

Okay. a it is rate? being offset So by of tax the quarter not

Patricia A. Little

offset it offset the get about be a to the of at full it tax you About sorry. offset. quarter is EBIT I is to line three-quarters at I'm operating No, the clear. super line, of income want and

Credit Robert All Thank right. Moskow LLC (USA) Just Securities super Suisse it. Got clear. you. -

Operator

Thank Strycula UBS. Please from you. We'll Steven go ahead. to go next

Steven Strycula

morning. Hi. Good

break you kind we versus Thank conceptually versus initially of to coming the Just up you down want Just it boil where of to point if necessarily few versus to basis how break XXX so you. follow would freight three Patricia, understand had from. between trade guided margin where materials to of we today, you questions. had if and that a kind buckets? of the it on those kind down the raw from is logistics gross delta or segment down weakness

Patricia A. Little

We're big and all of Michele of and is are level what important those all not but pieces, getting we've with that going pressure It's called those think that the (XX:XX) be specificity, buckets. the out the should about things all done the to we're that as mentioned. tackling into to you initiatives

Steven Strycula

Is that first insinuate? in of rate expect be margin vein, quarter? Is you're to that quarter trying kind to what the comparable gross to should of And that we second fair? decline the

Patricia A. Little

Yeah.

Steven Strycula

what and that did the ERP pass go what the it kind piece to path? from you capitalized? along, switch made Okay. accounting was last in spending was the you the And to expensed decision logic the At of point that you. Thank – I'll that down think

Patricia A. Little

those separate things. two to I want

And program And So in bit the quarter, out, are more that did tax benefit, do we versus of Act the expecting on overall like the separately CapEx. way all, called had Jobs was spending. the first we normal focus earmarked the ERP from business. really And at. we kind I that that's that that. a of of what second that's is something savings running best we've What we just some decided little that been timing to tax benefit, any of reinvest in to from our to

answer not well or system. that ERP programming, as question? to the Some DC capacity related as of initiatives, some the but Does your

Steven Strycula

much. so Thank you that it. Yeah, clarifies

Patricia A. Little

Okay.

Operator

go go Alexia We'll Please to Bernstein. you. next from Thank Howard ahead.

Alexia Jane Howard

everyone. morning, Good

Patricia A. Little

Good morning.

Michele G. Buck

Alexia. Hi,

Alexia Jane Howard

Hi.

what you. new to be deterioration issue? follow-up two? or putting the year-on-year for forward, like is, next on. i.e., the Thank in are likely going could So year, e-commerce, e-commerce asking question into in territory do is And this that And guess investment complexity quarter channels is into example, North get going to rebound I money in then back it forward? of area you're pass big pricing, actually you this really positive particularly we that I'll America part a the expect I'm

Michele G. Buck

and So, question. part let Alexia, talk of I'll hit your Patricia I'll your one then the e-commerce about first

be complexity of efficiency We good that be a an would we're e-commerce, we'd asked because looking strategic would there's a that complexity. we made think you place are I be mean, continuing as about certainly our example but mention, growth that. when perhaps, certainly in you to investing a about build e-commerce. tremendous That for increase investment I there. in (XX:XX) opportunity And

there investments little price outlook? nice want bit you getting So the we're our about talk we Patricia, increase continuing are a really because trade to growth. to

Patricia A. Little

Yeah.

So but year. an impact through we in the in down the in outsized were to we hit first the a to that We're on the at trade the true-ups harder, do be second that the point Alexia, we an annually fourth quarters. of pricing prior impact And because the quarter. won't not did about little in quarter giving related specifics quarter first the level, first guidance have of bit

Alexia Jane Howard

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

Operator

Thank English from you. Jason Sachs. We'll Goldman go next to

Jason English

Hello, everyone.

Michele G. Buck

Jason. Hi,

Jason English

advertising impulse to point in, Those to questions the decade be transpiring now, tactics they're more a you of I growth, so it. seems end ask suffering the for shifting was trade still we're allowing to I Thank seems far. It asked and were build a And Adding portfolio that well they on didn't purchase. trade like you're either. guess want back reminiscent more happening over Hey, putting to know market I with to ago. today you portfolio a to what also back share And at about not feels a complexity lot well still drive me ago. of talking of appreciate decade losses. maybe to working worked and come what to little question. the I of until a drive off few A that. of the very that

your as could you've ultimately going clearly resilient line diversification. path that Why wrong see this the same the a feels that shouldn't plate is we anew. then, the input given a a of stuff quite last business path got do category time, more thinking? with lot to with it to up base you like And be on you us rebase ultimately to intensity reinvest led back stalling cost not even it Where that of concerned a to as rebase worse. Now, growth? set to was the be The path, to out, grow competitive It kind on of is off of reaccelerate time we're needing curve other way. elevated. maybe seems And

Michele G. Buck

very strong have say of we first So from I advertising would shifting advertising. a all, in investment to trade,

sales years XX as advertising of X%. was net ago, XX, So percent a

shift. industry-leading minor with at are trade minor a at a We now are like levels a and about couple still of to tenths. was we X% that, This even shift

very, very have advertising strong we So still levels.

that not even say So whatsoever. comparability I on piece, there's just would

strategy think an I we to focused from the core. our when address the have to business, we complexity very We driving And with always it. perspective, ekes SKU on have be continue been. into

a on So needs where may I core think that it the on a significant basis done. addressing of point the in I think result be were the say in business focus to and the time, think past, similar to creates that be done we from SKUs, tends much of profitable go-forward in might most that as some on because some I that opportunity benefit drove usually for us. complexity, growth perspective, greater you but some is something that that we've to at And

Jason English

and the you snacks pricing it this in degree in array have the you of face that industry. regards that. feel has you able that and – of you been And exceptional pricing pressure, same when competitors the to I look or In Okay. facing do one or through. if And where equation of we of may to you're have unrelated do relationship of pass a context the ability at food. of is believe sort cost curve, that you you're that sort relative broader follow-up, greater over have power in still changed of discipline past? proliferation the today, it rest has power appreciate all, cost been to history, the back the Great category the

Michele G. Buck

a company that to brands at different. category we dynamics talked as every penetration continue are grow. private just good really what industry-leading the and in advertising, differentiated confection Well, we I What and pricing. we of to somewhat We feel make categories category, within can't obviously category. investment about would our about the directly relative have levels, The is label and the terms of say to our in are we very to speak still category significant low that in we continues

benefit the long the and with right pricing make product right news, work looking to to So right we're the and retail for investment, our of collaboratively health always partners have us marketplace all look the at of we term the sure the and category.

Jason English

so for Thank I it. much time. appreciate you your

Michele G. Buck

we Operator, one have time for question. more

Operator

Thank go with SIG. Pablo you. We'll Zuanic to

Aatish Shah

This morning. Pablo. Good is Shah Hi. on for Aatish

question chocolate you And an second a this opportunity seasonal Hershey's And on for half tell under-indexed to there? then, percentage that what Hershey's does have there percent Just half? sales given specifically is? could from of if the us total in chocolates, first vary much this, this is

Michele G. Buck

holidays does seasons about instant as little bit of business be and There breaks So we good about the our have size together, in that part Halloween a feel Valentine's chocolate Easter the Day so marketplace. third to tend consumables, than home. and the about to one-third, combined, third our a sales which is business about given out take a of seasons, a a back larger we categories and third half about of seasonal continue focus are and

Patricia A. Little

Yeah.

We strength are It's marketplace. clearly of in not under-indexed a seasonal. in ours the

Aatish Shah

just hedging know practices? follow-up. comment if I'm your if And of not that just it. on don't one quick I of kind release detail? Could on this. level cocoa Got sure you you you touched

Michele G. Buck

that? do to talk about want Patricia, you

Patricia A. Little

those our Yeah. We and out months look X We our into of disruptions. sort a We and hedge months for for hedging have We easing any layers. longstanding hedge can't hedge commodities. visibility of a ingredients, but in all effective we XX market number price getting we of program. can, that to

Aatish Shah

you. Thank Great.

Melissa A. Poole

for everyone, today. Thank us you, joining

available throughout be questions for further day any you will the that We have.

Operator

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

Melissa A. Poole	The Hershey Co.
Michele G. Buck	The Hershey Co.
Patricia A. Little	The Hershey Co.
Kenneth B. Goldman	JPMorgan Securities LLC
Kanika Goyal	Deutsche Bank Securities, Inc.
David Cristopher Driscoll	Citigroup Global Markets, Inc.
Robert Moskow	Credit Suisse Securities (NYSE:USA) LLC
John Joseph Baumgartner	Wells Fargo Securities LLC
Jonathan Feeney	Consumer Edge Research LLC
Andrew Lazar	Barclays Capital, Inc.
Bryan D. Spillane	Bank of America Merrill Lynch
Steven Strycula	UBS Securities LLC
Alexia Jane Howard	Sanford C. Bernstein & Co. LLC
Jason English	Goldman Sachs & Co. LLC
Aatish Shah	Susquehanna Financial Group LLLP

The Hershey Company (HSY) 26 Apr 182018 Q1 Earnings call transcript