HSY - Earnings call transcript Q3 2019

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Operator

Good morning, everyone, and welcome to The Hershey Company’s Third Quarter 2019 Results Conference Call. My name is Catherine, 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. [Operator Instructions] This call is scheduled to end at about 09:30 a.m.

to of so you yourself to can limit many as as please one we question, get So, possible. Please recorded. note, be this call may you. Thank

I Investor turn Poole, would may to over conference. now Melissa to begin the your Vice Ms. Relations. call of Poole, you President like

Melissa Poole

Hershey President and President Catherine. The Vice webcast. Voskuil, CFO, Chairman the morning, Board, Michele CEO; you overview us Good XXXX and with Senior quarter you, followed of We appreciate Buck, third Thank joining will provide our earnings and Steve session. you by and everyone. for Company’s conference call an Q&A a of results,

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

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

to turn would call like that, With to I the over Michele.

Michele Buck

all the webcast. Melissa. of on on and Good you Thanks, morning the to phone

well in International our our core share brands in and conception are we our results seeing the and as markets. on both pleased gains, driving execution our with and solid are We and Investments strong sales momentum U.S. third capabilities as quarter business. are

us nutrition One to and higher enables to occasions. consumer you the growth better of we Our to for Amplify against single-digit snacking broader with continues mid execute acquisition bars a continue ambition portfolio brand, our to growth capture high that incremental deliver portfolio of

employees would so thank briefly hard to deliver to our to and work who future. just of for also all like incredibly say our momentum and I pause create you to today

quarter, expectations, points headwind. in-line X.X%, by North growth net our primarily of benefits currency pricing by constant was our divestitures America net basis with acquisition, FX approximately and a and growth sales and points third the driven X.X% driven and impacts In in XX organic The net was international. with basis acquisitions Pirate's brand increased XXX was volume sales

as in overtime. share approximately investing strong growth, remain gross for expansion as reinvestment quarter well earnings consistent delivering had capabilities brand double-digit earnings We performance of adjusted growth margin per and our brands increase focused another enabled also of in on that a while We X%.

we value. believe is for us driving shareholder Something and to a critical differentiator

business are core within our Our perform strong share takeaway and accelerating well driving confection U.S. and key initiatives retail to continues performance.

For in and IRI, X.X% approximately ending Hershey retail October shared prior This sales basis points. a XX weeks Gum the of gain versus in resulted XX. Candy XX increased Mint year

incrementalality was Growth Reese's performing X%. and retail innovations, strong growth well we smart encouraged distribution across levers advertising, sustainability another seasons balanced gains, billion with packaging, $X quarter, are pricing. of had brand the outstanding sales Our brand Reese's the and multiple by We over including launch. and new of

strong. late summer, our this We under and results Reese's TakeX also early umbrella re-launched the brand are

more there Candy, thrilled couldn't XX% and more on since you my favorite Hershey be to may to capture tasting I believe TakeX to of is so see we this the over takeaway up some great opportunity know, re-launch, As is product.

and are trending our both Performance Kisses seeing home in we growth Reese's, our improved consistently on for key us the has and all driving and nice lifts are Kit of retailers. and other for from along achieving isle. our bags like these transition the brands, benchmarks been miniatures several our packaging with new of Kat Hershey up take since

is core line are brands, and start The our deliver of innovative was solid consumers. season. off enabling breath our Our successful our Halloween capacity to up and packaging season a us incremental assortment for selling strong product of a to great power and after XXXX

and an Additionally, key advertising, drive promotions movie this engagement Addams will year shopper we for partnership have that via items. we Family leverage to tech merchandising on

quarter, ecommerce driven net selling balanced all business models. sales fulfillment strong of Halloween in the confession with to perform growth well, and performance by continues Our across approximately XX% a third

points third-party gains We are the with measured Hershey’s to XXX quarter continues basis in increase to of sources. of share according category the chocolate

and expectation. initiatives pricing with on-track Our remain are performing in-line

discussed in our have us investment believe pricing an enable is we previously, for brands strategic to we lever As capabilities. and important

we such new marketplace. media in to XXXX, seasons in commerce, as chain. in have invested sustainable targeting, innovation, In and the models supply are growth driving These capabilities our in balanced, distribution investments advertising, business digital addition brand and capabilities

we we of excited to going year, with the great rest momentum are to the ahead As the some look activation. keep

merchandising with next ICE highly of is BREAKER stores high movie partnering great to opportunity cultural a anticipated month. in merchandising the on is Our This brand to the of impact the to release capitalize and packaging secure bring character opportunities momentum for and Disney Frozen store. incremental X

incremental a build continuing and to leverage consumers. we holiday to will last year’s engage item and program by this innovation Four, drive success with hero our merchandising secure our our core on year,

holiday item will new and the the is and perfect XX craves butter limited a the anticipation nationwide be the during Mystery only. peanut shape the Shapes, surprise that holidays available our it for It combines in year's time and which chocolate with consumers season. This of of first ratio Reese years, Reese's is

in we December. this be launching year, And Duos announced as Kat Kit will we earlier

TV bring national and chocolate merchandising, chain Our launch cream they supported The allows by and to incremental the capabilities supply media. bottom production new investments digital capacity mint on love and the light be crispy surrounded wafer dark and on us consumers will top. with to

share in retail sales acquisitions. in for to ready-to-eat basis very update gain our up outpaced Now category. a XXX well a in marketplace, in significantly with XX% over of growth this weeks, recent latest on popcorn XX an the competition, perform the the SkinnyPop continues points resulting has

and grown the Both frequency strength this household underlying has testament of consistently a to this brand. penetration year,

will We well facings on strength shelves, and to space placements optimizing secure leverage meet new occasions. consumer as continue that different incremental as this types for pack

Pirate’s as Booty the in Well, and lost are maintained. want we and strength reset. year of been where performance it the remain first be, where is stabilize our planograms brand is improving half weeks, performance has strong latest we yet to XX expectations. into of recapturing confident In distribution has trends distribution with versus the begun the the the not to our business visibility in-line

month, high on a more family. One is bars of we net sugar, a for and Now low details million. Brand, to closed few with most our One I'm venture of acquisition of welcome the the excited investments. portfolio recent Last protein and sales acquisitions team Hershey our $XXX to nutrition approximately

know, category As many its bar and high the you billion growing single-digits. to approximately $X of mid is nutrition

of portfolio One robust a XX% business. has The channels, outside growing is ecommerce to measured and strong a including XX% presence

in slightly the to to expect existing our be highly and incremental We accretive year to earnings one, portfolio. acquisition

Fulfill one Blue bars Stripes experiential in emerging protein Ireland. combines offers in with coco experience. snacking August. of two businesses tasting UK town And leading makers in vitamin retail fortified, goodness the a Fulfill the and Blue of nutrition unique We the also minority great announced was Holdings of shop Stripes that and investments high customer the

focused This platforms investments sensor model new on provides in emerging technologies new through for new the new small of growth disruptive avenues go and or market capital Company opportunities. with the to deployment occasions,

markets. international on sizing our quarter, increasing segment we X.X% growth currency on gross in and update continue Constant brand sales almost income XX% of grew see strong margins an focus for and the we Now investment. an third as SG&A right our organic to operating

innovation Our expand and increased Hershey business of single-digit continue to XXXX. remains gains growth distribution to brands. our XX% and our on-track of and continues plan Kisses. behind additional see launch Rico we The Mexico and Pelo and In high in we strong over India, of Hershey’s growth launch to behind cities to Kisses robust show in distribution

And innovation, driving reason high bars, velocity by an our driven also is is Hershey improved incremental China growing growth. flavor and our on currency single-digits basis, organic specific which constant business on

performance by In increased environment competition. macroeconomic been our and difficult Brazil, has challenged

trades as we remain investment we on competitive, invested both look are to we additional While also the top to our returns have and balance the being about disciplined line. bottom

about the delivering. In strategies summary, good continue we feel property are a the we momentum to business we have results and

the our bottom and brands in take and to level to growth. capabilities top to and drive the will sustainable next business We line continue invest

I details on will to with will who provide over it financial results. our Steve, turn you

Steve Voskuil

and everyone. good morning, Thank you, Michelle,

acquisitions of points foreign same billion basis was increase $X.X XXX Third a last quarter net a net headwinds. X.X% translation divestitures sales year. benefits period The impact the versus points basis was and currency XX of and

of contributed by X.X% driven Organic of pricing, growth, XX of constant growth. currency was sale net which points X.X volume while basis contributed points growth

increase price related remains in-line price period in as XXXX versus pricing to executed the expectations. impact anticipated, our with third half. first July on-track offset This was and the the XXXX increased quarter increase, transition Our by our which

most full-year minimal sales from impacts earnings We to recent action. continue our and expect pricing

brand increase continued versus last Adjusted year. period were investments, gains, compensation partially versus gross This earnings by prior per incentive of higher shares margin was an X.X% increased driven by $X.XX diluted same year. the and offset

versus foreign XX X.X% same period was was was points XXX a By year. acquisitions and segment, impact headwind basis divestitures net currency benefit. a basis and North exchange point a increased XX realization of last a the and benefit was net the XXX headwind. sales basis American point Price Volume basis point also

higher commodities cost This margins and price quarter the logistics gross North benefit related points increase. second to our net we our experienced the the both was favorable incremental offset to in expectations. mix price external XX fixed inventory quarter, July basis expanded and America realization, related gross in margin slightly costs. as absorption, Recall than

of third in we fourth this we benefits majority the to to inventory now most normalize, impact of reverse in quarter. expect the occur quarter, While expected as the the levels

period, than the more QX Given third the gross and quarter. be this shift, we margin timing the year lag expect less difficult to expansion from ago

We the in margin enabling. underlying expansion our to the it continue is pleased be momentum with and business reinvestment initiatives

margin with related quarter, advertising. we gain the prioritize our reinvesting and primarily increased This brands spend North gross XX.X% marketing in America consumer expansion to into in-line as driven advertising increase growth. drive back is expectations by

previously, dollar half is the half. have the more meaningful As versus of first we XXXX spend increase in second shared the

efficiency gains are media we year significant ago period. As in lapping the

point international our net total key markets. X.X driven sales organic benefit focus quarter volume X.X%, Third by a was and increased others growth segment in

was in more as points realization XXX price headwinds competitive response a we activity. increase invested Net basis to

points were a basis exchange headwind. Foreign point XXX and was basis headwind divestitures currency XX a

X.X% regional versus ROI consumer XXXX. grew constant third China XX% organic size investment sales advertising other China quarter to and Mexico, in versus and the we of continue markets. in marketing Brazil, in as increase year our and related Combined currency net decreased and India right International prior

Total increased XXXX. of XX This Hershey driven resulting adjusted gross realization. an the price versus and of profit gross adjusted XX.X% quarter margin commodities basis an net favorable points increase third of was by in X.X%,

operating versus profit points basis compensation. Third XX.X% quarter investments quarter margin million as of XX XXXX, adjusted operating a incentive profit brand in margin higher offset resulting by of $XXX the gains were incremental third of gross decrease and of

interest QX million lower P&L, interest million versus year decreased rates. down due expense short-term the $X.X of Moving to $XX last

of due of interest to range the expense Brand. full-year approximately million, ONE high $XXX expect acquisition previous of end our recent We our

adjusted for based were credits. excess higher XX.X% third driven tax The period. year investment primarily was benefits quarter gains ago along tax tax These the stock by versus compensation, with in from XX.X% rate the

rate the of approximately tax XX.X%. we For full-year, an expect adjusted

$XX an expense. of by driven expense Third prior pension million was other versus million quarter unfavorable year $X.X increase primarily

previous expect plan $XX is we previous the million changes versus slightly and tax two million. is investment offset to exercise Then these approximately our our net is rate credits impact estimates, For fewer below full-year, of expense higher year. a tax we $XX estimates. of for the by other negligible This as to whole

XXX the on due outstanding a versus option second quarter increase million, For basis exercises the weighted in number of slight stock quarter were a of the diluted increased XXXX, shares reflecting third to quarter. a average

third the shares repurchase the XXXX and quarter stock The $XXX with $XXX Company the exercise in in July million did The Company of in repurchased shares not connection million $XXX million of against third remaining. any common our authorization options. quarter

third capital quarter. were Total including software the additions, in million $XX

For the estimate CapEx full-year around XXXX, million. we continue of to $XXX

strong to return a We to sheet cash testament This $XXX dividend cash continue flow quarter our was with dividends stock, common shareholders our to XXXth our on generation. the consecutive balance million. third and strong quarterly of

Before ONE recent I our some close, let additional information me of on provide Brands. acquisition

net sales $XXX approximately As are million. mentioned, Michelle

for we the one. slightly expect it The September we year fourth and mid in million on in margin to is of this sales expect acquisition. to our quarter profile attractive, approximately $XX portfolio close, Given be earnings accretive this

it acquisition slightly and quarter costs, to Given fourth the dilutive QX. negligible be related to to impact in adjusted earnings we expect in have earnings recorded a

brand Our capturing chain focus momentum, supply will current distribution incremental built the have secure synergies. to equity on maintaining and be and [indiscernible] brand's links procurement and

for approximately summarize the increases full-year To sales the to point. acquisition benefit Brands. full-year, The around by to increase the an increase One and divestitures previous recorded to of from we X.X%, expect net net acquisitions guidance versus one driven

the are to flat expected earnings negative impact prior XXXX. Brands exchange Full-year Full-year are of be to negligible FX based Full-year share adjusted anticipated expected outlook earnings $X.XX earnings diluted per reported year. around to a with on slightly current X% relatively share as diluted to rates. acquisition impact is the One impact X% in grow previous consistent per on has our be

will concludes to That financial Michelle. I turn discussions, my back it and

Michele Buck

Thanks, year. to our for ability remain deliver commitments our the Steve. confident and in our strategies We in financial

operate even have are drives the over we further. that to But We business past elevate to the years. and dissatisfaction push two made progress the a with we us healthy continue pleased with

to I to environment this new remarkable be opportunities by presented and future. brands to our people power for the of opportunities the amazing this rapidly the continue changing capitalize change and on energized by unlock

focus to building that a values available and I our and to and your way consistent purpose. questions. are the today continue Steve, We for with delivering in on future Melissa take will is now

Operator

Barclays. come ahead. from [Operator will Instructions] Lazar Please Andrew Our with first today question go

Andrew Lazar

morning, everybody. Good

Michele Buck

Good morning, Andrew.

Steve Voskuil

Good morning, Andrew.

Andrew Lazar

Hi there.

already pricing on guess I thinking X% So some for incremental XXXX little bit, roughly in ahead discussed a average. Hershey’s

elasticity And this you up elasticity quite investment In a there volume is behind drag at behind largely about SKU be partial will stepped the pricing offset I bit. previous recognize little bit new have talked on volume, as terms The point. going rationalization the you volume a on the of you. some think brand forward. think volume do from Hershey's I a is increase, I could pricing, a be

volume we was are flattish how high or at least about volume in maybe seem Thanks you maybe volumes I the these At takes we not lines? like aware it's So, expected things to or of maybe just on comment come together be of just maybe given even could headwinds so a discrete and the those of if Easter more it be level of terms better, hoping or forward. factors sort could along think puts should how broadly do a all other much. bit timing moving

Michele Buck

and - is we seeing the are back trends of we think I Yes, our that and half seeing expect I wouldn't retail if to forward, year. revenue in been takeaway with to that think think there about going what similar this have the reason no be trends here

pretty from steady that think behind of lose SKU gain us. in XXXX will and bit net, think from But you shorter are single about continues a Easter. are going terms pace. changes We wrap of into XXXX, of right, clearly, biggest at a going being As pricing through a Easter we net, kind little a you I little the those two bit

roughly of assume similar it's been year. during So trends I back fair to think have the that seeing would to the the we be what half

Andrew Lazar

consumption. And the Got half those trends been back around in it. have

Xish that what more you little it's Xish been, fair? a today think guess less? around or or say I Is above I

Michele Buck

fair. is That exactly. Yes,

North I growth we is X.X around America of we yes, trend get and would from takeaway to two X%. always retail said have think

Andrew Lazar

much. Great. Thank you so

Michele Buck

Thanks.

Operator

Ken Our next ahead. Goldman Morgan. Please with question comes go JP from

Ken Goldman

Hi. Thank and congrats you responsibilities. and added Michelle, on title the

Michele Buck

you. Thank

Ken Goldman

absorption XQ, mentioning mechanics you few delayed me, is I impact. impact a of of timing ask two gross I benefit and of more on you walk mechanics expected questions. I into reverberate was that to a wanted don't then be how bigger now a because the a One, helpful? follow-up. by originally XQ have the hit got Can that just the you're that, would of understand sort as to margin to the XQ benefit, fixed a and through so it months and was cost

Steve Voskuil

take happy that Sure, yes, to one.

talked Ken benefit then and quarter, for we as our As build third-party quarter said instant both and you really for second inventories. and a mix about the inventory the selling the second pieces there, was a one consumable two richer we that of were build in mix inventory us driven, us

a benefit third of and of more see inventory third got little about what the come quarter down that a probably that expected. bit to expected we We of we back in

more really got into inventory bleed in took the that and reduction delay. the inventories quarter, both expect quarter and more it third We it in reason for the fourth third-party to With we out. is the ours, longer

Ken Goldman

there. XX issue have lowest Okay, my capital for look on but at in on months thank for and that. basis for exciting capital, I if inventory working have a follow-up, of I then a the of working because timing your payables you topic been last know few forget is decreasing always second, a a years. COGS they at But Steve, they been you there percentage look And is

highest a months last Your XX percentage of been decades. a receivables they in is over as sales have at

these what is it least you you what at through can going I around? a items on is So that look for bit favorably them us little opportunity at with maybe to turn running and is just walk less as the

Steve Voskuil

great a question. it's Yes,

across nine-months is If capital phase cash and those about components. at think the sheet $XX networking you three of through for today, flow say drag million balance all the year-over-year look I

little just so one efficient a there, but we cash generator bit. a on And be year-over-year, inside capital. It's more if that slight up right sort opportunities clouds one strap the you're exactly positive of numbers have to you stick working

one and our years think about the future. in inventory I think cross particular within is

But in want sources be we working funding funding do the other feel they efficient the with thing investments we that helps of to to the of capital as need one do and business.

expect you about as that talk will beyond. we think XXXX about and try So to plans we more can

Ken Goldman

Thank you.

Operator

Jason to go Sachs. Please Goldman now go will We with ahead. English

Jason English

asking contribution that morning the thanks I me I to for back direction of Hey appreciate Lazar Mr. terms sliding was year. folks Do of wanted first bps next expect it. still price XXX as the this question fiscal good in, you guess come kind see contributions close into and price look for to year, North out of I this but year? we to roughly of America in in

Michele Buck

quarter, for fourth was - build. pricing because takes always the yes, the full-year not time in No, the it more X.X%, for around of to

basis we we to hits even of X.X% X.X year the like price as till the more fully year. So mentioned the took we out that annual timing on through expected because protection

Jason English

that And for, does timing. not price it is behind protection longer much run now? How it us

Steve Voskuil

us behind still quarter, getting which into be still as is will say that of some fourth I was we the there would price Largely run protected, inventory third but exit behind quarter, down us. largely

Jason English

Right.

see inventory benefit. out that see component bracket have single us to we of reduction, sugar cetera expect So hard weighed would muted, protection gum, pricing start we albeit to I come and some bridging because time got of through. that the got what is changes the volumes guess XX bps, having have serve price we confection, I'm the should just the a what because et And to I behind

quarter. just maybe that in above am the XXX in If investment I'm What reinvest math, of a chunk the line than in type and or up well. bigger there is it's reinvestment the reinvestment, all sort SG&A, missing is maybe you missing much bps I fourth what as say in add and

If appreciate me understand that you I could it. really would help

Steve Voskuil

side I be mentioned couple drag a the that third we line. got on will in P&L have will to in at the quarter we fourth call, talk in also a bigger the the if take on is you growth look fourth When wants quarter, impact - and an the Melissa was headwinds. about total, the of P&L can the total quarter. One that then you - incentives the add

was drag We the our quarter. had year have tax a in got fourth first year, planning of a across fourth tax lot we quarter the planning three a big Last the quarters. benefit tax quarter, this

$X.XX And of drag. so itself that by is order an magnitude

from more those So some working we will against, That you And quarter. investments quarter, just that the to in two similar talked Ken few we a saw what then reversal ago. second minutes margin, the gross have have about fourth pieces here. DME roughly

the a drivers say sales, deceleration P&L. some driving the in total those standpoint below So are P&L fourth big I quarter of would from the

anything the Melissa, you specifically? top-line want on to add

Melissa Poole

pricing the Yes, just piece. from

of you third You're the right of I compounding Business two about thinking most year's have last pieces I this in we builds you're the our in quarter. to than of guess how would is Halloween the year's shifts it. did kind point

jolt we the us. get that So from mostly that behind is

So just the ship because don't have pricing quarter. fourth in we don't the fourth we too quarter really Halloween much in

is still And of some price of piece on then for most protection, activities increase. price there little promotional the the bit recent price of protection a our last

fourth of base new we back. kind little everything. that give would on the more the volume, the we third bit quarter of that of quarter, a transition have will been to to there deal around gets also in everybody is activity In time promotional prices kind So

enough that should trip So kind given far it's it it I in the had that through. be all the a don't in absolutely of But walked year-to-date a to higher was you significant know you so that points than pop into of and right pretty quarter. Steve what third earning

Jason English

elevated the and in persist helpful is to next the that expect year? trade into quarter, would fourth That we

Melissa Poole

No.

Jason English

much. Great. Thank you so

Operator

with Please Howard Alexia to go ahead. go Bernstein. now will We

Alexia Howard

Good morning everyone.

Michele Buck

Alexia. Hi,

Steve Voskuil

Good morning.

Alexia Howard

X.X morning. chocolate is of meaningfully pretty that that This channel you the but again the price America, on growth pricing the numbers sort this question, obviously particularly higher probably sharply pricing portfolio quite but time in the I to is single-digit on focusing guess whole reported up than was linked this measured on there. mid Jason’s and around North Hi

all retailers were a the just that or are the because because measured pricing timing upcoming similarly and seeing reported in channels. mid down effect, lot the product that single-digit numbers the that markups the shipments on X.X% timing of than of you volumes only this of increasing morning a better temporarily the the we the And is declines in Is increases.

whether trying inventory, Thank just channels figure to I'm much. a whether maybe you are out that there something very that? if shifts that on out is So going non-measured backed speak some inventory the to you or recycling were could

Michele Buck

Sure.

it is So not a measured different are factors channel a non-measured There couple channel. on. going

So is you expected is is trending the retail we a takeaways first in shipments this North contraction rationalization with little and of and of tied of bit inventory SKU program. of right, all that America our ahead to associated part some that

that there of bit be were we will and drag have takeaway. a would little So knew a shipments lighter shipments

increases kind of go our and again price those up that increases, in prices from the higher just we We prices two of know And prices. data that manage slightly retail do see new some the you there the is increase, retail our than that as take retailer up also is then we go Hershey new and price, one because price have that buy-in as we the know period. tied from you price allow some increase, we a one, where before margin the last so see hit, of to how expansion then of price will timing because year that got

Steve Voskuil

by shipments expect the I add take tighten those away. all we end Yes. I and would year would two is of And up the - between say to

Alexia Howard

I Great. very pass Thank will it you on. much.

Operator

Growe with go We will Please Stifel. to now go Chris ahead.

Chris Growe

good morning. Hi

Michele Buck

Hi, Chris.

Steve Voskuil

morning. Good

Chris Growe

Hi.

of - And so seeing we because the performance in an as channels and we or seeing equally volume actually are level price a follow-on measured related there, the to realization, to are weakening question Alexia's increased what well.

a should So playing from but are we just right - a how want higher performance obviously in pricing, and level maybe much to overall? for is off a in weaker again which is read elasticity now channel seeing we understand then measured data, you I the what that volume increasing how how

Michele Buck

would Yes, what goes we so of seeing retail volume of volume one much timeframe, at retail what take see our conversion very programming do obviously see more declines we up, down, prices to indicate. that of is of timeframe model elasticity normally even work models. with bring consistent are we and with conversion the a they in-line lot We with when a do some we all those in increase, we during our of declines pretty quickly, but to that price volume mitigate are volume periods see typically our back

Melissa Poole

of expectations. And Chris some in is this into with of you but to pieces, build increase, think more last with in-line bit that extra year's third just to and price we price point and offline, there little break a the them because can noise on retailer quarter, talk that if the are kind about Michele’s pretty much

expanding nothing ahead margins, little bound out by they bit of us are any So of retailers but as are stretch. a

place on the there in where through they a that higher in quarter, of a noise those are lot activity timing is think quarter in there noise some I promotion seeing were some this some losses are pretty prices of elevated what year-to-date seeing and P&L, why for promotional bit bit prices the retail we on more are with quarter. but in-line the in little the the you're of much little a

big this and price see timing P&L the recent a of as pretty away. don't that our the disconnect protection increase they especially then right rising in start And causes we to most prices

is there is little more expected, feeling they we quarter. So noise bit in this a where it are good overall really just

Chris Growe

gross gross what the mean you then that imply today, in have about we the to could of would fourth in your input that of kind the comparison that think of relation for on cost for margin And follow-on how down inflation, being and full-year given fourth quarter, a bit and a kind quarter. of how terms terms then Okay. about pricing a it you relates just cost margin, quick have in indication of can stands you talk easy an what mean to I the as gross margin,

Steve Voskuil

out unchanging. of to price, isn't to there guidance We margin I'd gross sort the say XXX nothing are said of basis versus full-year our expected, order kind commodities playing again the a we year-over-year, of smooths I and we there. just that. in change mean visibility, new the some not relative tracking if don't I Yes. have lot points that of of commodities is question. forward know hedging give because that answers we we and way so are program out got against your the some

Chris Growe

does. Thank it you. Yes,

Operator

Suisse. go Credit We will now Moskow to go ahead. Please with Robert

Robert Moskow

will second I your Michelle, Thank you. And remarks TakeX. on

Michele Buck

Thanks.

Robert Moskow

e-commerce is what actual are hearing I expect Yes. to you stores positive saw rise, then on think distribution points not channel shopping purchases. is are keep the And, which And on in like your more and physical impulse for growth of that rising. trips your that looks the would I of what I checks, my it with that data is business, the a secondly,

You remarks. didn't prepared not? your comment those two things or on in confirm Can and really talk about you you would those

Michele Buck

bags. down because where I the standup in an bit from stand packaging it at inventories year, we that a lay think there the the little noise Yes, as this you transitioning be had is bag of of to look the bags IRI old transition - can up of data overlap

primarily. getting drive we always distribution, distribution So against additional of actually points in-store are placements additional and disruptive pushing to

where distribution did little distribution expanding are points because we specific in probably than in numbers it’s - little retailers of a at is program actually around customer stand data bags. IRI but bit expanded it big the up both, end, but there of So higher one the of the programs, some have some front significantly just a looks a with on our that we conversion is got we also

Robert Moskow

up. Thanks, you try see to

higher, is be but -. it or it net-net it's little a a So temporary might

Michele Buck

numbers not say No, I would higher, kind would but the high it's as as of show.

growth, not So but there the is looks. high as it's total IRI as just

Robert Moskow

Okay, and to stores, physical more IRI stores indicates shopping also think people fixed that are I frequently. going

Michele Buck

in-stores, shift. a retailers Yes, consumers them signs so I looking more omni-channel consumers seeing we we in-store, the good we are basis on relatives that are some of shopping also think a are websites, while lot seeing as versus are and net see there, they at

Robert Moskow

you. good. Okay. Thank Alright. Very

Michele Buck

Thanks.

Operator

Please ahead. RBC. go with question next Our from comes [indiscernible]

Unidentified Analyst

box you're just can on inflation channel. channel just Steve, milk convenience good dynamics, maybe maybe could maybe about sugar morning, no seeing Michelle us And and some a everyone. talk if then in and prices. talk Yes, what one per about the just give sided address, some you perspective you and recently big

guys So get and thoughts that I to you you. you what wanted Thank your of if kind around just are hedged XXXX. are for seeing

Steve Voskuil

Sure.

Michele Buck

focus we channel the be the particularly growth little for for drug all class a but taken in pretty and actions in much exception particular from with perspective, really except class sure. big trade, of across dollar some look strength that soft, to of Yes, seeing growth I box, of classes which of in a strategies most everything if we given say are In of tends trade. across would and bit trade, stores club the drug. so

Steve Voskuil

closely us And we our side. Nick commodity together commodity very on gives visibility. the we prices for Obviously some Hedging are put watching as plans XXXX.

about have talked we is got group tailwind that across takeaway as a this biggest the Coco. probably that we prepared on in remarks, the year think I

But at Hedging the commodities a we on able months general that enjoy are year will have XXXX if XX to will this prices to the and help we closer last get likely we to we they higher get so minimum, versus smooth and today Coco. look that you more guidance have transition XXXX. to in are XX out at Coco tailwind in to been on as not

Unidentified Analyst

Thank Great. you.

Operator

to ahead. We Please John Baumgartner with will Wells go now Fargo. go

John Baumgartner

thank Good morning for question. the

Michele Buck

Good morning.

John Baumgartner

nutrition Brands because a how into you're out ONE envisioning that speak went acquisition whether thinking you the growing maybe crowded. one how to into stands it's different in diligence that that bar and the think and competitive how dig bit you're the business, about formats? you Can increasingly channels that tension don’t there, bit, is a distribution product Why or space

Michele Buck

Absolutely.

real with sweet seeing where So sugar. particularly bar you protein that that spot we snack has continue low that you market, if that are particularly total the and the high growth that the segment growth and protein, you see look be across high in dissect bars, to that strongest snack we is excited with and really

brands think other dissect couple and that really certainly my would we with category spot sweet the think categories. to we the where a there there be room think marketplace kind that is within in in I that say direction consistent growth So to that that have where is first is to play of space

morning it's assets us for on occasion liked gives provides really a underdeveloped. growing we go categories stated attractive to sugar is, where play it fits that about are and right convenience, in desire our in the What incremental also to we the low protein, consistent it very into access scale snacking us give occasions. it snacking High

nice that growth some a again where and channels, the add We presence and on can for we e-commerce business. that has in certainly opportunity. like that we and think value, a of still provides us fits We us are there seeing growth business distribution in like lot for which a because we in is incrementalality sweet it a this non-traditional spot rates strong terms

on synergy. at So incremental I'd as the job that look to measured with Hershey that we like business been continuing this fact to good chain growing and us always businesses one, we the then is has and and any asset distribution securing say the kind for that procurement important best, has build will expansion, the opportunities course margins supply that we is of are that brands of one in-line run to that equity, margins we capture thing

the next for we has platform be driving close the focus in it least growth years - the a So for close around in see at that as against our will core. - to primary several

of in other unlike of where that maybe their is assets some perhaps other expanding categories. a to So space of focus lot the some

But platform terms later is expanding that to broadly in lot for. a snack upside the within more bars. one of some there take of stands it then I trademark think opportunity

John Baumgartner

fair that in Is this internally know already it bar just think business you the overtime you to how given repatriate could in-house? something is

Michele Buck

a certainly of do kind well. bars that and technology slip of we I and make mean, something slab is of we lot certainly

approach repatriating how leverage at and we we business then looking arms our appropriate. is if So around it take the getting always of an for opportunity and whenever

John Baumgartner

for Thanks time. your Okay.

Operator

Strycula UBS. We will Please Steven to go with ahead. go now

Steven Strycula

good Hi, morning.

Michele Buck

Hi, Steve.

Steven Strycula

brands Brazil, Michelle, of Hershey as is versus dynamics local, feel more key the but question, a China or then some how because versus and I you're Brazil, us globe, the have competitive Mexico internationally markets understand just be for to performing give whether seeing you specifically out dynamics Mexico, macro helpful I could us a you or called such across deceleration, the and acceleration, walk have multinational a around Brazil, and your So competition follow-up? China

Michele Buck

feeling of say well, most good performing we all markets, across international of those markets and our would I gaining in are are Yes, we share.

real growth are some feel Mexico For good in in my have in Pelo seeing particularly a Hershey’s India strong, China. very my highlights strong of about we but focus we opening comments, on with where growth Rico, we

all Brazil other is of very discounting really but given good I made around the deep challenged top well growth good where Investing the have in around. we some markets. share is macroeconomic bottom competitive combination been line. market activity balance being about rational as as just that still and that progress additionally, some choices feel But and

Steven Strycula

competition? Brazil more clarify, of Okay, and a was just or to local multinational a

Michele Buck

more Yes, Brazil is multinational competition.

Steven Strycula

pulled phasing question we then announced to the increase the know you another guys kind year you I this for in of And or have cascading are Okay. levers price and throughout this have year three pricing then a on from that summer. piece out pricing, close

can help us year on next top first of we as how fourth do pricing half go understand the So from we of quarters pricing. stack into

does more when a you. versus when of basically, normalize to starts like does out moderate rate? peek to it it Thank So kind

Michele Buck

see start pricing into come we QX to and mostly there. flow So as our P&L into will we the get from

on increase see to a X%. around That higher, would will we I we with basis, little but QX an saw price So what you're of basis annual build going be year. any see should But expect bit the to year. the annual similar we our as will price an in next get from will And second this year, won't build on into we that you go increase it next marketplace. impact see last

Steven Strycula

Thank you much. very

Michele Buck

answer that, your Does question?

Steven Strycula

you. Thank does. It

Operator

Palmer now will We ISI. Please with Evercore go go David to ahead.

David Palmer

the to up in what XXXX terms complexion of on the here. Difficulty] be a you think will you end How is this versus growth [Technical year think an growth. shape do year typical of your coming for will

On up gains pricing of looks the weighed relative been some pricing to phase a bags way there. with like it nice out even clever that inflation, of you doing has some and pretty had input there stand

your your trademark Reese's in advertising, getting of heavily is out year. you're reinvesting are of trademark, some which You growth very of sort growth nice the of

ways different feels what in there thinking reinvestment and your type reinvestment some unusual it might growth like there you an and behind be some best thoughts would a might going be be of Any helpful? room trademark in ways about in of So period terms forward.

Michele Buck

say Yes, model differences. call year think there are I can I some growth model then similarities few next about the as I the guess and this growth of and year, a would for that I

year. terms So similarities a pricing will next think of in pricing key role year, this certainly play

platform can basis. even is differently you a on taking of So though I that a year-to-year is think think little that one comparable kind bit

specific and as our reinvest this capabilities us be next into brands priority to get it for year. certainly, for While invest will guidance, that and continue we are don't in to we and continuing to strategy year look a was

core brands the driving on everyday driving focus balance to brands. always that We between and our really trying achieve

in So you when have a programming should support continue Reese strong around see to expect that and built brand is revenue. billion to you $X

that always because be a have certainly next brand brands. will a portfolio other and also We it just how lot is that our support some There of focus the a well. at of Kit pieces of about focus by year on talked Kit will a Kat will Kat as but brand big be Duos big

called then benefit of those to wrapped about terms of of in the lot differences a point you that which of help. are I heard So is I the around a next is some growth cycling where perspective? biggest around of is elements provides think little half SKU timing a out, a commonality think relative the bit but Does Easter, which year, for that a more

David Palmer

Yes. No that is That is. Thank helpful. you.

Operator

[Operator question instructions] next Jaffray. Michael with go And Please from Piper Lavery ahead. comes our

Michael Lavery

of it X%, a But increase level of X.X% quarter. Should in marketing this expect little get the just been this your or were where us or is you optimal spending? what the it's Can the obviously of might the be. a last above are range of how off. up was strongly and maybe where there cutbacks and year coming just one the more were looking typically sticky very back you is Good sales few some in on to sense just you're are X% the bit some at related and a thinking things are on morning. the Thank year changed X%. that you. how the that little your spending then of of year to Could things years that some touch just a what give XXXX it back deploying last we And consumer of terms

Michele Buck

marketing our stated is ahead growth. strategy of or to around So of sales investment grow in-line our kind slightly

can we grow the impressions some are investment to ahead. to buying can able around efficiencies greater noise and actually budget. be than the how slightly so are get we dollar dollar or There we sometimes So that, in in-line get because

So think say it's always about it. you that is I not overall how should would perfect, but

And there the start two spends X% that places that of, capabilities. of some and spend were was also then back also gaining where did some one started targeting what should. back key some X.X% frankly emerging took some really down our strengthen efficiencies were in-house brands we beyond creative on we developing over as the from X%, investing of When we we very smaller from media efficiencies we out cut we believe came we our to

like of brands very can amount in As around are of but been terms reinstatement unleash have then also the certainly strength slight brands, drive and some really you brands of spend, look at the that a into tapping you where will some see we in advertising of stable core and that that now behind are HEATH a increase we with growth. forever, bands ROLO, significant our smaller

biggest is I has say that So where been. would of the reinvestment priorities

Michael Lavery

talk about what those you of examples could of Just the have give been? brands, any might emerging you when some cuts on

Michele Buck

KRAVE let’s of emerging brands would say Amplify portfolio. be have some we Yes, the our I example, would that an say, in

isle the in were that mixes snack our like warehouse trademark, of things that. Hershey under Some the or Reese

Michael Lavery

helpful. Thank That you is much. very

Operator

Please Bank ahead. of We will now Zaslow with Montreal. to got with Ken go

Kenneth Zaslow

morning, good Hey, everyone.

Michele Buck

Hi Ken.

Steve Voskuil

morning. Good

Kenneth Zaslow

follow-up one Just question a here.

that platforms become products, have like that could about that? On expansion be. similar big something to the talk to product you offerings. thin the how opportunity how just you very It bigger think you this products is be actually real seems could other about of can other that a broad you other and can that that Can talk

Michele Buck

Yes, absolutely.

it first So, the incrementality. is signs seeing about sustainability great, Reese’s our of marketplace, all on-track and performance feel we in expectations, are with of we

develop we brands look and does certainly cut could always develop see is the innovation evaluating? are if certainly we that that we to platform and as to like this So there an feel one certainly opportunity multiple across opportunity an that

Kenneth Zaslow

like there which this. leave just kind some can go a think about like seems there? put of It and put it can with be you parameters that it you be, can I do the parameters will it around Can to? can is you happening to big platforms any it brands lot How

Michele Buck

too its what given it be I go far. have the on in the Yes, it history always I brands not our size, just built a beside I I largest think we focused that. and that is believe spreading Reese having be clearly, And the platform couple definitely do growth platforms how can you it if that focus think of of to, mean, look other brands at sense. beyond But past and multiple there the but with opportunities, try the brands, will can there makes most are on we where really

Kenneth Zaslow

Great. you. Thank

Operator

further this like at the to time. to turn remarks. have any call our speakers back additional would questions I now We no for

Melissa Poole

Thanks much you Hey questions so joining The for for any so team week and today next all morning. of available this be have. follow-up us thanks will may much.

Operator

This you your for today's program. does Thank participation. conclude

may at You anytime. disconnect

The Hershey Company (HSY) 24 Oct 192019 Q3 Earnings call transcript