HSY - Earnings call transcript Q2 2022

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Operator

Greetings, and welcome to The Hershey Company Second Quarter 2022 Question-and-answer session. At this time, all participants are on a listen-only mode.

As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. you. Thank

begin. may You

Melissa Poole

press Thank on second joining session. quarter had of read everyone everyone. prerecorded to The remarks, website. management I today Hershey has both our to chance Company's XXXX are the and you morning, listen us our available for which for hope release our Good earnings Q&A

those transcript of Q&A the uncertainties. regarding the operations conclusion listing no At call. company's the future addition, undertakes have can session, will company's SEC assumptions statements that Actual obligation Q&A press and to In we remarks. during and we replay risks in that update include posted results risks make session, and pre-reported on a such subject the and also be note Please detailed The we materially A and projected. locate found today's to subsequent statements various this events. today's forward-looking transcript these live company audio are performance. of expectations uncertainties today's from and These based of of financial statements could filings. differ may release

GAAP Finally, please non-GAAP will measures The in with as release. or certain the useful are information refer note for may in financial results believe the intended investors. included information GAAP. we presented presentation accordance considered we information for this is in isolation to provide of this Reconciliations that morning's not financial be that to a press to substitute

will over the first today Hershey's that, Buck; CFO, the Voskuil. and Senior it question. are Vice CEO, to I and me Hershey's Steve Michele for Joining President With operator and Chairman turn

Operator

[Operator question-and-answer be now you. the Thank you. session. Instructions] Thank We’ll conducting

proceed with question from is your question. Our Lazar Barclays. first Please Andrew with

Andrew Lazar

morning Good much. everybody. so Thanks Great.

Michele Buck

morning. Good

Andrew Lazar

seems you a I nicely volume additive As this you year. guess, more do of be this in how been Where through remarks, first half remarks, half has inventory behind benefit, to the just prepared maybe discussed the refill it that are the growth volume of it So you there retailers stage? to maybe some offset And think right, no point longer is would are clarity much necessarily suggest from second the at the be you prepared certainly this seeing? elasticity and bulk inventory at if the of I'm in can to enough what helpful. reading refill

Steve Voskuil

of Andrew. We inventory right, exactly second from replenishment as a quarter the pull-forward a a that's strong move. so second half, Yeah, portion in timing pretty that saw we commented. the was A really

replenishment look additional really as not half, at half any the we're meaningful So second we guidance. seeing back inventory in the

Andrew Lazar

Thank Michelle, I you traffic was in think we're might the hoping, that slowly volume and from, much. following surprisingly, to and back and Hershey Right. you why time more and some to protect to And you not business, that getting right, back but and to come to slowly for retailer guess, I a spending cases, activity really in this commodities of while, more as that's maybe so and ease. as of I be, drive normal all others others I merchandising looking with many ramp position, that, volumes of comment a that constraints pricing up drive I if back I you this kind then of given sort roll some And guess, be to better of from first think inventory the start the I see bit supply in could that, industry incremental in to little to see through in just cadence you and concessions, still on simply the elasticity’s to position on the they'll kind hear get a assume begin and starting to understand can as maybe environment, could. can better a traffic. starting over. a

Michele Buck

absolutely. Yeah,

have we that always to enables and investment strongly model the with our top our drive about on we our strong in line. As line running or us the talked believe investing model bottom the businesses, and margins

investments those So that we look those forward always just some But earlier, a the because we of want as bit constraints, to to having constraints. did very look to re-upping given off at didn't of supply the those right the to our advertising the to on of brands, sense it consumer levels we be make mentioned half. spending as promotion, And second pull levels we make right much some have we given the innovation. of investments

have planned coming back an We online. incremental well in merchandising DMEs as as always increase both

Andrew Lazar

Thank you.

Operator

Thank you.

next proceed Bernstein. your Please Howard with Our with question. Alexia

Alexia Howard

morning, Good everyone.

Michele Buck

Alexia. Hi,

Steve Voskuil

Good morning.

Alexia Howard

Hi there.

are packaging, So exactly general the still can across at little are the light at wrestling the a you you -- then you're talked ask as the things Can you're talk a And chain tunnel with point? about where follow-up. about at supply the labor, though have moment? really easier. points sounds of It that things getting you where the materials, end about I are the that experiencing. are? seeing thinking And And disruption this raw I'm pain I

Michele Buck

chain. continue it we evolved. have struggles I characterize what see to I'd are I'd across is supply mean How say, those generally, the

Ukraine-Russia suppliers. our on an relative a created on, additional the production environment issue been to there concerns as in business. ingredients. issue would So where of largely many strains different where scarcity supplies, and from with see to ingredients, issues bigger costs be have relative the it the Germany as has leverage now, also we And will more impacted. lot certain scarcity then Russia higher I'd recently, of gas. say, put do Certainly, needing to on That's some starting area restrictions natural to source early evolved, the logistics the now equipment, geopolitical we EU of we've price we're of some at secure and say, basic labor. was suppliers order I to points by driven are And and

say So add I of you evolved. would Steve, that? that's kind to would that anything

Steve Voskuil

from to more lot facing co-manufacturers, and cost contract, they're under that those see flow thing cost it -- renew would so we're of are a also those only we're happens The through pressures third and so same the I contracts facing. as but disruptions add parties, starting co-packers, those is and that

And more to well. of as see so impact we're starting the P&L that

Michele Buck

capacity, investments I progress have guess investments. I'd in significant we also made just add, in significant

once so and to place. running And actually those lines was you it investments, to them get time takes short-term in up our get the of make some part pain to

the those capabilities helpful. coming of as so we're of of And which is some well, gradual relief part is seeing the online

Alexia Howard

much That's And so how India super Thank follow-up, color all you there. big is helpful. the a for just days. these as

I I China different know up much off had I’ll that years Why backed haven't you China work you've over And days, news You out on that the moved problems pass can I'm Thank and a wondering, in do how -- is same while. term? more India it prepared for several in longer ago? it India you called doing the a remarks, coming you just on. from these seen arms market? the why avoid length it and

Michele Buck

China back different. doing business But decisions cost is relatively the very difference me, India double that very for and key in on us, we in market India, digits. small still of is made really for when is high growing India our the

labor costs, costs. media So

And that had we potential at But and of line. drive we a so really feel markets, India is our assessment thought already Frankly, of a the the we did we our China. were to in are we're on looked to in prospects about top both where NPV that where investment, as market growth. in we that than getting profitable good we very to business, different like relative gross margins ever place

Alexia Howard

appreciate color. pass Thank you. much. it on. very you the Thank I Great. I'll

Operator

Thank you.

Moskow next Suisse. your Robert question proceed question. Please with Our with is from Credit

Robert Moskow

Hi, Hi, Michele. Steve.

Michele Buck

Hi.

Steve Voskuil

Good morning.

Robert Moskow

pretty I albeit morning. were comments stage. thought encouraging, a XXXX Good early pretty about the at

pricing actions offset You said you high and inflation by productivity. be single-digit also expect that then partially you have to your

offset -- is you've pricing in you to in because the cost XXXX So inflation lags had do XXXX. inflation, that lap expect

thinking advertising much increase needed? so then need much that you you're think is talk do. I is to a do So you And could maybe how of And lagged guess what's restoring about positive. how that's you just investment far? the about that How

Steve Voskuil

as fully recent And impacts, say again that how for like picture off see to and the peel reinvest price to for Michele it's more XXXX, some the the the third-party whether said, that consumers that brands, level. still we we of have We'll as we're still a at But soon as prices going But talking and minutes elasticity’s see the we about as continue once still as pretty to level it's in able favorable advertising And of And When out we year. investment and times. were of into look watch more as faster more still end expectation supportability. quarter wise, in seeing increase mean, through We hedges impact more digits. high lot all a we single third and are quarter I through. making impacts in have sales. inflationary growing sure you get fine-tuned the do some struck remarks. get of that too said, that price third overall next come into be in yet healthy get seeing out than inflation, to be is Yeah. get know more cost towards see -- logistics single-digit we Sure. those offset Volume we a really, year. We as I and we'll through we'll ago, think the year. that, is called high we'll rolling we'll commodity of said expect rate this have you there. we high to we're you consumers hedges I the more come to at want reinvest to know

Robert Moskow

that your next be you Okay. to say pricing up digit Did year single that, of expect you because flow-through? the high Steve,

Steve Voskuil

correct. That's

Robert Moskow

all Thank you. Okay, right.

Michele Buck

You bet.

Operator

Thank you.

Please Ken Goldman is next Our question your with with question. proceed JPMorgan. from

Ken Goldman

to you. a if salty the some We've just North possible, one and seen America there. quick one One for then a going Hi, sense, business, Halloween. forward. longer snacks the I thank on wanted margin get volatility

model wanted that on couple quarters, at cloudiness least given of Just next how model or in for kind model our our of to some get we one? in that have the to of sense the a

Steve Voskuil

that be happy one. take I'd to Sure.

as like saw So looks in QX. you lot a QX

these We offsetting quarters said, the more that price That the than price quarter. see costs are material we've so far. taken we've logistics in continue higher that and second two to costs increase more raw for announced

roll see back the in costs relief half quarters, we to also So we logistics forward through some We're of to next some that do talking expect there. stability higher lap begin and going we've been as the about. two to the

And well. we we as longer there advance relief of last that on bit division. term, about little the quarter's a as then continue for call, that to provide will we that need to changes so And talked do structural

or the kind of the term, that So and to and place. efficiencies more things But setting between of now, And the drive will back-office supply it's up chain, commodities put some like right longer improvement. we in pricing costs. structural inflation formalizing need fighting balance that

Ken Goldman

early. in guidance deck I And is. rather holiday less Thank But bit an high expected you to of guided Halloween. to growth. Maybe constrained, capacity a for Maybe maybe It's right was view would ask given I issue last an bit said of a to early as you capacity it's you as little could maybe that. facing difficult important And possible. higher? little hands-on was just very be simplistic I still of be seasonal it's wanted candy curious part higher. just a reason wasn't to you're your wasn't mode chain. why guidance how and is still from And was about have or But there year. single-digit of the it's why you're producing that sales be maybe then curious just much that precise, overly but just supply because you But all that's the a a conservatism comp just -- an I difficult comp little the

Michele Buck

look day availability. was really on-shelf the with that of had the So tough that every but a was at strategy balance seasons, prioritizing important. Ken, business, we as we a we decision It thought to

weren't into was also really but the going feel capacity single-digit more were And that key more were to needed the out these producing. so choice really needed producing we deliver that. demand Halloween we we future We trade we of to we spring. have we we that's supply began that feel in to produce, on about that We to season. We the really to good the And decisions to really had see as tough what back to we so a Halloween, And being during make. get more but about opportunity able make. make having growth, good to fulfill high able when

Steve Voskuil

hands definitely all It's deck. on

mistake. make You

Ken Goldman

much. Understood. you Thank so

Operator

Thank you.

question next with is Our Please English Sachs. proceed Goldman question. from Jason your with

Jason English

letting Thanks good for folks. me in. morning Hi,

Michele Buck

Hi, Jason.

Jason English

I because bit capacity guess messages here. there's on I want a to of start little conflicting

retailer be me other you I enough meet things think on help got the of line side, you've enough and put where bottlenecks? those and are, inventory two to bottlenecks is what one bit refilling to me understanding on But pathway don't Can relieve you the products. a capacity some side, those capacity for and conflicting demand to levels. give also the better little time have

Michele Buck

Yeah.

certain in the obviously So more others. parts of capacity constrained, than portfolio, is but

we that one places periods and constrained. that Reese's very shared where areas the It's of more of have constraints high time. We've extended are seen double-digit growth brand. certain are other there we no there is our have we places for are previously So largest

and So we've that's a parts prioritize been in needed other of trade-offs pressure to portfolio. point. pressure have order points are where some a the then places to few there And that been make certainly

plan So online. capacity are the areas capacity continue bring work to investment we through a address to where and soft

softness. mixed ramped after that Refreshment had as not are specifically constrained places area we COVID up there the the we production So one where Mint we're is be others some is part back messaging Icebreakers might we of difficulties production that are. certain

as help? And place that we're so well one supply continuing to more available. get that to Does work that's

Jason English

you issues understanding are. It doesn't in shed but on when does. lot you, certainly where be light will issues It a behind of think helps the the it

Michele Buck

are, get meet So that as gradual able -- we our demand. constrained see it would we feel as fully we I say, quite characterize get this I XXXX, through to We improvement. I through gradually Certainly, be about would much better would as the as And say we issues, get to year. we're we XXXX. improving ability to making

I So that's would how characterize Steve, it. anything…

Steve Voskuil

color on just of the the core. we've around last mostly order the invested the in capacity three Yeah, $XXX on in years, million

more XX new in and Michele capacity significant lines coming we're as next available. And the XX to so see we've or got so to refurbished year said, place two, online. We've going over start

Michele Buck

in investments increase about catch production The that to will should but If to made allow result future volume That of it helps. deliver in also up us XX% we capability. a that our internal some growth.

Jason English

it's real to I question are Don't was like why? but guess, For to Moskow's hey, sure. price want I guess Rob I margins but It to come one quick. way showed you have of, it. above one inflation, I color it. your worry It's gross come That's you. you question back helpful. weak interpretation now, interpret And next back year. early? begs they'll growth And this of of XXXX that uncharacteristic -- Rob on it the offering surprised was to were

next your line. how so The we're out don't flow your of terms margin think to on be we Which going two tips bottom you in to interpretations going is spending emphasis the should get do over through into leaning year, is were towards? lean to other drop those much

Steve Voskuil

the month we I say could to share broad would goes have inflation. the that to we'll That's on as part still it's early. some share. year. top every get of movements the trying really say and a the to more that just we're end lot We're just line by, we learning and pretty more give I quarter

see just color not trying of skis ahead we some extending of now. right get the to So really our

Michele Buck

was into in as XXXX that understanding of perspective trying to well. help to and the just come, the related make how of if see I would bit choice marketplace XXXX the that little and to inflation perspective coming in And expecting some to everybody in a pricing that some add just that factored trying in that we some put put to sure of pricing that's was Jason, just much around

Jason English

sure, you. For sure. Thank for

Operator

you. Thank

with next question Please Bank with Bryan Our question. from is your Spillane proceed America. of

Bryan Spillane

everyone. Thanks, operator. Good morning,

Michele Buck

morning. Good

Steve Voskuil

Bryan. Hi,

Bryan Spillane

it's how market-based the trying and guess there's I you things, like was guess, much ingredients, in of as to I disinflation what is you're trying just on, a now kind things, And current maybe type do permanent is like point to guess in there understand the this mentioned right? higher you environment, more that some do and than much more in still is is be of disinflation the will One, -- mentioned So wanted to this you the just more I be been like And maybe call at around really how is relief some some there of of the could just increase you follow-up shift? just, think inflation. function some two just much permanently of hey, the -- Just future? Steve. or that a is how and it scarcity now or the time? our look, pressure I -- it's costs, of just think rebased in variable So get understand of COGS experiencing commentary some

Steve Voskuil

Yeah.

issues, as really a would it's it's question, see all pressures clearly Europe, are there with that. hopefully, we being that temporary. are influenced hard at by as like answer in events and one the some So the that you commodities precision pieces moving look to Eastern some that the things The good of scarcity

and to side, other things On that structural. labor be the inflation could we've other prove seen more more

it is end we to color year, probably some a the guidance and give I'll year, mix. next on But we as the again, of so get for some And more that. get

year longer that program is we also on focus offset of at to extend least of the costs. potential and goal structural temporary every the able Some to than lasting. time and said, be be continuous improvement to more productivity have and are those over some That some

to And so to that continue also has advance.

Bryan Spillane

right. Right, right,

That's Okay. all you. I Thank had. All right.

Michele Buck

Thanks.

Steve Voskuil

Thank you.

Operator

you. Thank

question with is from Please your Michael next Our Lavery Piper with proceed question. Sandler.

Michael Lavery

Thank you. Good morning.

Michele Buck

Good morning.

Steve Voskuil

Morning.

Michael Lavery

I distribution little to I to strongly. distribution have do much importantly, is the how runway driven? just much more to And bit come maybe How there. very left? you love understand wanted a still is some obviously Dot's, up which back would of more upside dynamics

Michele Buck

Sure.

and absolutely are we the Dot's So performance in marketplace that pleased we momentum very see. with the

are And to we continue challenge gain is accounts. broaden what we're as sometimes broaden continue a continue can be that maintaining of really reach. to we think do smaller I to but the we as happy our into distribution, velocities reach to about you some

all up So share over line in are past with the trends sales XX% about points. expectations. the our growing XXX basis Retail weeks, XX about

We distribution some right are now year. large prior lapping from increases

really East the So and the little do but a have to we're as distribution drive placement making business, in that, course, to still the country softening importantly, consumer to right center we was primarily we and which really upside overlap stores filling over trend sure and continued the West. help then, velocities. market brand, and in in in the we see messaging have out distribution we upside do the further just will think actually concentrated expect we beginning of And the of drive took the as that we of bit

Michael Lavery

go or the of And just that's if maybe helpful. sort door? and is Thank most there ready Is you've That's on of of least out it or all all any just on announced. be to negotiated, you. at of the pricing, and a I it a got know you've cloud not quick question to the follow-up loaded TBD locked said Okay. that's

Michele Buck

being pricing for to is consumer in announced starting reset approach points. really we already. we're price the right that executed. points, of some We we're a promotional to focused beginning is as good retails It see of action feel the retail some the took market and recent and also going Our new planned, the

allow right are in to the we and growth. to are about programming And and really recommendations of us prices want consumer to all the do the with and overall, will this that as spending, pleased line new our ranges. expected investments with capacity move drive that So further our capabilities business category and ahead we moving profitable and in

Michael Lavery

Okay, great. Thanks so much.

Operator

you. Thank

with question next question. Our from Stifel. is Growe Chris proceed Please with your

Chris Growe

Good you. morning. Thank

Michele Buck

morning. Good

Chris Growe

seem I question would Good you place price recent morning. through elasticity to come a on this just first the little. you your very that build that's like get feel year. for that. guess, half a particular, I -- but through your just I of assumption? some of second then what guess want coming to a would see you caused in across confectionery. I And to It had put to in very degree degree just into increases better understand, higher little into

Steve Voskuil

impact right. mean Most will Yeah. it's Sure. next year. of I it

quarter. merchandising We with benefit, and will we're next the the a of most benefit of trade in forth. a in fourth get will and But it – portion to so impact even year. reinvesting that But drive

first if there. do a then, a have quarter, half down the back range terms volume adjusted from up of is assumption saw half. goes the actually level than In the but we've And what second the elasticity kind replenishment, and we for for in lot of on the looks in like of that what elasticity little bit seen in the back guidance historically, assumptions, a course, is of the you It than little better bit elasticity that half. we worse

Chris Growe

you coming one sorry, to the confectionery do volume to Okay. volume be, trends – question the pricing maybe sequentially accelerate second second the second related expect date. had do from I'm the year? can And through? to would quarter with in or QX the You've then pricing in you the really believe quarter And in that some then quarter you of more grow half strong third

Steve Voskuil

Yeah.

the second we third Again, do increase. price quarter. expect when of quarter, defined into second And impact effects elasticity growth. don't the the forward volume beginning the the fourth half and in see replenishment see improvement that quarter. in inventory we'll sequential the with that's the So to from of we don't with see pull We the

Chris Growe

I have. Thanks so all That's much. it. Got

Steve Voskuil

you. Thank

Operator

you. Thank

question with question. UBS. your Cody proceed Ross is Our from Please with next

Simon Negin

Could give only capacity Good year? much filling next in Ross. for is how impact into in detail Simon And online the morning. is This additional lease? expected? Cody an Negin delays impacting coming some of you Is this

Steve Voskuil

– most component how the to going will I of that one of online coming focus is core that. focused specific the on be is so capacity. Reese's don't exactly be coming much on The about we're the of when, is that significant capacity think but the

Simon Negin

Got you. Obviously, And one smaller incredible just question. largely demonstrating distribution is dots gains. growth

expect Moving trialing do in brands and products perhaps new change environment, consumer's budgets this forward, when you with? sticking a are they're squeezed comfortable in more what to

Michele Buck

good question. a It's

is across think what their I see very we snacking, like to brands. tend consumers much

if So brands food, grown label total private have consumers to you with snacking, budgets across share look across as private their and has versus certainly, like tighter, tend brands. are not label

that to focus new on brands, that brands will try So they a I real continue consumers within think snacking. given have

of will we that. trial that. any concerns a But closely point, monitor So the at result slowdown as in we around this haven't seen

Simon Negin

much. Thanks so Great.

Operator

you. Thank

Jonathan Feeney question. Our from next with Please Consumer is with Edge. question proceed your

Jonathan Feeney

And the taking for great Thanks quarter. morning. Good question.

out – far pricing so work environment, months, does you XX handle through of cost for significant gross margin? decreased in of off – if that costs typically as in it's – in so we does much the costs in there's If impact far, it ups have in people changes have, do least X and if cost that? so driven. Like at list moderating just to downs if if direction? peak? much in how their lived example, cost As that Thanks. – a do they increased assuming it acceleration in did promotion? a Do other conversation conversation, moderate, we move a how about How Do did prices, you sharply the see much this How you been pricing, play increase what business. do headline over see lot the the grains, next or no you

Michele Buck

our growth on mean Yeah. at is can focus driving looking always invest how profitable to do so. we I and category

is growth investments support, whether and innovation, consumer that us promotions, right impactful investment is really whether driving whether opportunities is in that of more enables in to deep that to We cetera. so and list capacity, believe have marketing the that a invest we priorities unlock et technology, in this in

like back business. strategy we approach and would the the And that's invest So, to we I say overall that take. in

Jonathan Feeney

Okay. Thank you.

Steve Voskuil

Thank you.

Operator

are Thank Buck at for you. comments. time. pass any floor further no over to I this the questions closing to Michele back like There would

Michele Buck

your much time We you very the questions, with day. Thank many know have appreciate all that Melissa of you I the and will today. for throughout follow-ups

So thanks.

Operator

concludes today's This conference.

your disconnect lines your may You Thank time. at you this for participation.

The Hershey Company (HSY) 28 Jul 222022 Q2 Earnings call transcript