- Earnings call transcript Q3 2022

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Operator

Greetings and welcome to The Hershey Company Third Quarter 2021 Question-and-Answer Session. At this time, all participants are in a listen-only mode.

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

You may begin.

Melissa A. Poole

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

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

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

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

Operator

you. Thank

proceed Lazar line is coming with question Barclays. Please first the of questions. your Our Andrew from with

Andrew Lazar

Great. much. Good morning Thanks so everybody.

Michele Buck

morning, Andrew. Good

Steve Voskuil

morning. Good

Andrew Lazar

bottom like if the as I like markets off given interest you pension it prepared seems expense next will XXXX. performance strong expect that was little us might you a a for be performance of first have marks, year. guess items incremental top are least of Good bit these guess group where for at you whole the in to derail the I obviously level next set wondering year. say of be line sort discussed and help in Maybe to to where earnings do morning. enough they you I the the some on and items, headwinds sit if visibility year. are And a would of in sort kind able material

Michele Buck

a then little bit will Sure. Andrew, let I with and Steve specifics. overview of dive of start let the a an me into few more

we will Pricing So, our We algorithm that an year overall, be slightly believe sales we We be stable. will margins gross our next be to ahead believe will anticipate about year. on of comparable can deliver XXXX. algorithm.

up have spend. a as investment reinvest, of We step reinstate will we some in the DME

strong high have to think to Now capacity we we that be will at to future. sustainable earnings net will be in of to available our end invest really to capabilities secure performance more And of be and also take algorithm. profitable, that of likely all that to advantage down the that able able

a I'll of bit Steve, but kind go that's of So a you an bit let deeper. little little overview,

Steve Voskuil

Yes.

discrete any pension of summary kind see the to more terms expense. have we Just don't we in question derailers on areas, discrete items, a those your at first, will answer of

million would next $X more today probably year. be estimate Our for year-over-year

incremental side On about this expense. million the $XX up pension picked pension we've year of

needle. those to but would again, can would, next shift are enough But markets is year. probably estimate for change, I the Next today twice that year of probably that I number neither material

Michele Buck

Yes.

$X million year. the to to just moves that for Sorry, clarify first interest

Steve Voskuil

sorry. Yes,

Michele Buck

$XX the about probably then million. pension a And

Steve Voskuil

Yes.

Andrew Lazar

That's helpful. really

Steve Voskuil

Yes.

Andrew Lazar

top on mean, obviously you as I incremental but high this far, for pricing And I prudent, you're face greater is lastly, elasticity single in of delivered appreciate helpful. then volume thus you've And Very which than mentioned, digit pricing. got seen for strong just XXXX. you planning year you've the

more capacity online. coming got You've

ANC than start Dot's year. faster strong sales is next organic calculation momentum. and think, I the year expected to the think I underlying grow to obviously entering,

So shouldn't anything at sure XXXX? of the else the to minimum, side building either just a on trying potential I'm not elasticities ledger. least so at these Thanks I missing for guess much. help make mitigate in I'm

Steve Voskuil

it. right the way Yes, I I mean, about to think, that's think

at factor. the the through. but As of derailing sort things we'll positives rolled see a I lot yet in top, And of challenges, think, of Michele mentioned I'm we've sure don't got that anything is you year for the some have said story as a next we a

Andrew Lazar

much. very you Thank

Michele Buck

Thanks.

Operator

Thank you.

Our comes Bank America. of Bryan the your Please of Spillane with proceed next question line from questions. with

Bryan Spillane

Could more thanks bit you some everyone. and seeing in and maybe maybe to you a consumer elaborate operator. Hey, Michele, how morning adjusting Hey Good changes the people prepared in on types. and Hershey behavior remarks shop, little I just channels referenced guess, is that pack that? where

Michele Buck

Yes, absolutely.

in we are seeing some of spending. those they So how are changes

them to there Fortunately, seeing but are spend, continue we reprioritization. is some

value selling well. are value channels and specifically So packs

very label we lower also particularly across sweet are across all levels. as consumer in income income presence. seeing minimal Within the consumers, trends private label we're improvements prioritize seeing continues categories performance really remained have this the obviously private really the board some snacking more strong noticeable different to but have treats. And slightly We and our with really and

to when those is trends these So treat They continue. will to also we and remain stress. relieve tough. reward we use they that that that think consumers. know are see for families products products our for of And And we times continue an to themselves want affordable part that

to trade just piece dollar. particular basis club, channel in I and relative augment have a mass, on class the in strength think to to seen we in

in certainly strong value. represent that So channels

Bryan Spillane

you. thank Okay,

Michele Buck

Sure.

Steve Voskuil

you. Thank

Operator

the Please next question. in Lavery Our your Sandler. of line question is with Piper Michael with proceed

Michael Lavery

Thank you. Good morning.

Steve Voskuil

Good morning.

Michele Buck

Good morning.

Michael Lavery

how off the think, I certainly looking is obviously longer? new even very much about when think say maybe is about unfolds? terms it over you've Can five Is have next think which bigger terms would up, be strongly Just of about ahead next given too Reese’s to year, you the in certainly pacing comes the in five-year Payday Do – just was term? typically, but hear working can we on capacity help outlook, we behind specifics don't maybe add paying you fifth wait bit capacity us there momentum of it up bump capacity. of XX% capacity some strong I a near a some because quarter give a the of and is like is in maybe it. got it a years? the more You've some adding us little

Michele Buck

against broadening capacity, we have, see would on certainly those a continuous say, So, where only I strong returns. really our we effort focused certainly

to Next manufacturing that the lines. year, for for new year up three five includes example, lines and start we throughout new are planning Reese’s

we a in So capacity. increase expect pretty do nice

However, online some of XXXX. the be XXXX until investment also production that doesn't in we come will for that have

XXXX not Is of a have continuous spend on relates to but with XXXX. helpful? incremental the So, focus big online the directly capacity into XXXX, all years coming and future that we do

Michael Lavery

up And of like. could XX% a it It's like momentum, came it more there, follow it looks That's near on very sounds little ahead helpful, just some if business. Dot's, strong bit think you in Can skewed run term yes. I that the thought had and just was the what drivers that you how momentum? the sustainability kind when bought we of to of rate of about point what are to about

Michele Buck

Yes, absolutely.

distribution. of So has been continuing to piece on Dot's, grow gains our a big

somewhat business, there the purchased we were particularly the was with we As and east on significant with underdeveloped Walmart. coast certain customers opportunity,

a and entire spend that's customer. across our starting forward. maximize So investment all think brand will give also of building the the model we beyond gainer a to which was impact Walmart same distribution. and further model on we're big drive is the Obviously which time, At consumer optimizing on portfolio, us upside to our focused distribution incremental going huge and the

The look have and entire across capacity in capacity piece be we as into on significant online well. that continued our will beyond continued while there just portfolio, – future clarify is the want other years thing you if the effort I XXXX XXXX, coming to

et look the If you at across board. cetera, confections, snacks,

Michael Lavery

you. Thank color. helpful Really

Operator

Thank you.

Suisse. in line Our proceed next the question with you Please questions. your of with Credit Moskow Robert is

Robert Moskow

being to market route XXXX. wanted very get Are My Two any questions. with thanks. to if either to different there know help also to us functions? Steve, any they understanding operating in different just try to for consolidate in efforts other made very you market initial ways. Hi, or then brands together seasonality snack that And can in is your

a half maybe First [ph]. just that's but comparison OpEx looks like tough

Michele Buck

Yes.

the we have businesses amplified had brands, integrate in relative date to So the it running just as to drive and over continuing business our ahead focus we as to snack separately also dedicated took on Dot's a we really those have business to December. been

to across across really marketing, we more leverage Supply really take much Going XXXX holistic with and capture we salty integrate forward, on we a are now everything. businesses board look into and to all those focus across go-to-market, how the go as the together scale of synergy starting et chain, cetera.

think the gross will go the that's now, Steve? some on and how also that to we after of So that's we entering believe margin that that phase to we we I business. are begin really unlock need expansion

Steve Voskuil

there. good. Yes, very Nothing to add

and a think helpful. nuance don't if to story. big On that's got half full thinking laugh, don't big there – so half. don’t second first I right first big I half, second think and the now, we're seasonality, a a about is not versus I stop know year We've

Robert Moskow

It's simple. it. Thank I'll you. take

Steve Voskuil

Thank you.

Operator

the line proceed questions. with The with of J.P. Morgan. next Goldman Ken from comes question your Please

Ken Goldman

Hi, very clarification. just a quick

if assume think, similar you Andrew's pricing heard meant be question, Unless in to correctly, that I similar response I XXXX. XXXX. will you in wrong. XXXX Michele, I heard to First to said you I

Michele Buck

Yes.

Sorry about that.

Ken Goldman

time lost meeting all has me I've okay. That's post-COVID. to lost

Steve Voskuil

understand. I

Ken Goldman

And you year summary make just quick I to sure of there. next correctly then really a heard

strong. talking you're growth very being sales about So

EPS is assume, of I I closer EBIT higher EPS little a turn correctly? guess range EBIT don't think. small But in to to expecting an a You is a organic with, algorithm, I maybe that growth, growth, little it FX? just maybe growth, very fair summarize to than that kind bit sales that which bit Am you're than strong but haircut still have higher X% from growth summarizing

Steve Voskuil

think you're I in Yes, Yes. right code. zip the

Ken Goldman

all That's Thank have. you. Perfect. I

Steve Voskuil

All right.

Michele Buck

Thanks.

Operator

Alexia Bernstein. your with Howard line from is with question of Please next question. proceed just the The

Alexia Howard

morning Good everyone.

Steve Voskuil

morning. Good

Michele Buck

Good morning.

Alexia Howard

digit Can little over. I things in easier. bit hurdle pretty a I ask the big what might cost a than but to get easier is we've that been in still expecting we've XXXX, high-single Obviously think that XXXX? it's in increase get about generally seen

hiring maybe How that? into the And have visibility first Specifically, is versus is points? in? half. locked of you. to good the likely I'll year? course where continuing So you Thank pass moderate of much And it up? it pain it the through What's are go the to half second the Do on.

Steve Voskuil

position coming to costs, in Sure. high-single-digit I Yes, logistics, to is still not On don't be you And commodities And some still extent one to technology we this energy bigger nonetheless, be another It's a margins we also would give commodity in we hedging some probably year side, it sort component. high said, that's have seeing have expecting like is pressure gross of still starting more But to inflation costs, for high. as guidance some we're packaging where the stabilizing complete people costs. from? a I say commodity say coverage, in it's when next as as overall. where year. that inflation.

seeing time of of next a to high-single-digit And expecting we again, significant to still still more so the those more back to starting but costs, half the pretty would see you're across start lap basket, that as get list year, I hope year. inflationary inflation. next we moderation we're by

our do Our pretty that number hedging term today. think, good. good is I longer perspective contracts, visibility have pretty With and on we

Alexia Howard

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

Operator

the line Please with with of questions. Morgan Stanley. Our Kaufman from your next Pamela question is proceed

Pamela Kaufman

morning. Good

Michele Buck

Good morning.

Melissa A. Poole

Good morning.

Pamela Kaufman

dynamics line Can you quarter. and top pointed discuss to in shipment replenishment QX You the impacted earlier that inventory benefiting timing the shipments results? seasonal

dynamics And implied over of points inventory growth, we QX outlook? and to there guidance, are there levels coming that other that retailer quarters? are just factors additional contributing reflection of which are shifts deceleration inventory on is largely the then to should where be So any the to aware low-single the or the now digit timing

Steve Voskuil

Sure.

saw as factors talked build the didn't little inventory in seasonal benefit expect seasons some and two inventory timing also about but we as that the – wasn't QX continues big in that. quarter and in earlier we we On the And build see factor it were third bit retailers we much Again, we what as some the about and bottom was saw pulling a big did one, we a year this mentioned, saw of inventory as saw a we a QX. point. two-point as from pull in then saw of earlier earlier of forward, we trend for

really to guided elasticity As the some and maybe we've assumptions again, fourth expect impact we in as But about a the with with the the some also bit so see QX the biggest and Easter, as quarter seasonal aggressive being little just being consumer Valentine's and seen. forward will not we'll – the QX. think around we elasticity look as have quite probably potentially what's we factor prudent on pull more recent that happening

Pamela Kaufman

how address and what do levels? you're step they're continue higher promotions You of up to Great. indicated to constraints? that And promotions normalized you're you the levels. with more balancing promotions And to year? on can current implementing Can capacity types next expect then you back you comment promotional

Michele Buck

Yes.

line promotion of impulse. we are promotions to a – display historical. pretty our So because can this lot much it's drive our in this category with first get drive category, can always in these When do objective

feature a big focus always usual and on focus our possible and display, on brands. a where as display core put So we

some So that's be. mover bulk we to the excitement brands core a and may really will of the that create focus use our where but the are display, we strongest know news on

some been. at where same across it's might think we've the be we in line. year the promotion. pretty So we'll think we about quarters, much on a next shifts but bit There as we If are level be about

Pamela Kaufman

Great, thanks. on. pass I'll it

Operator

from RBC. Please is questions. Modi line question with proceed next of The the Nick with your

Nick Modi

you. Good Thank Yes. morning everyone.

Michele Buck

Nick. Hi,

Nick Modi

Michele. Hi,

a strong then where could that And bit has you been your hoping little going just the of good pockets thoughts alternate what feedback I insights on would you in to FDM of and measured. of a that getting and and the pack opportunity about maybe we've a obviously just for other move just but on saying, especially wondering lot channels second channel, Hershey, just wanted And So can was your area forward? not you was online on take of very on I a be I thing strategy mean to – in so drivers, terms growth the are talk seems as I channels. forward? there be been get lot that pantry how strategy

Michele Buck

absolutely. Yes,

love big to So at as evolved continue provide provide we've to also strategy we really consumers which our news, pantry tends and powerful occasion us pack very a approach to because but over that's to packaging product time brands, core that innovation our and what really unlock enables look with packaging in as a be the a they different new packaging sustainable but and very open to up format can did. that really

desire. are dispenser almost they own consumers refrigerator to As at their more pantry or in it's if single-serve spending so have their home in time the ability their

it's what is how packaging are a distribution were have further aggressively products everywhere trying Relative we'll and the focus occasions. COVID a non to some possibly we we continue can. we little focus would been a capacity capture for really channels, say always I done upside opportunity alternate and to but to focused to bit in its got team us. but little with to date. really get back during now leaning for they pleased has and de-prioritized bit, we're it's new really our doing on pulled tight, that measured yes, on still hoping this So We to back

Nick Modi

Thank on. pass it you. I'll

Operator

proceed Sachs. with line of Our English question. your next with the question Goldman Please Jason comes from

Jason English

morning. good Thanks in. folks, me slotting for Hey

Michele Buck

morning. Good

Jason English

A couple questions. of

you you remarks; to expecting bit how much products push to you moderate. or prepare guess on on be every think trends and you're everyday I you you're layer looking I seeing And on more so of price whether your a day first to Can this what noted promotion have you're how influences trend seeing? capacity not growth more elaborate on that and to whatever should comment counter on view in also

Michele Buck

we certainly have through takeaway. really everyday pretty seasonal retail at So the been the and trying the we've we've And to with that sell on look seen trends strong happy the somewhat two balance been year throughout holistically. with business

some a which up will mentioned provide been for we excited also as going think bit back open reinstate capacity. some I year a allows momentum forward. back bit that held you we little capacity, We're we've to spending pulled us on, we then which the of through next more had think that us

Jason English

Switching record pretty of been M&A, late Okay. gears; has your successful. track

more all have not you structure you those snacks bandwidth synergies integrating it certainly suggests addressing and capacity on just do sounds anytime detention dots as you but discussed? for organizational more. salty dots, is focused of have also the to of soon Your leverage look balance integrating to sheet combine you whole or and eyes Do like businesses those

Michele Buck

I mean, portfolio. for of say certainly growth one us entire would is the the integration continued acceleration and I salty and job

there of So to really us. lot structure; we That balance scale could we the and a Great the are improve and that margin believe scale given now for have leverage evaluating momentum to opportunity made and the opportunity so then clearly job looking sense our always that's we sheet, would line something do we top of us we health that consider of that said execute and marketplace well. certainly one. ahead

Jason English

Understood.

Michele Buck

Yes.

Jason English

it Thank Understood. on. I'll pass you.

Operator

proceed The from questions. Growe line question your the comes Chris with of Stifel. Please next with

Chris Growe

Hi, good morning.

Michele Buck

Good morning.

Steve Voskuil

Good morning.

Chris Growe

near-term quarter. little ask to just fourth question I a Hi. more of a wanted around the

a shipping easy comparison days previous sense the I fourth it forward get and have from we wanted And further year's extra have little think shipping pull to seasons? less just XXXX or factor? a some you You with seasons then I sounds had volume a for quarter then like of an year that benefit season shipping means had the in in with extra next little you XXXX. – what quarter also the the day fourth of

Steve Voskuil

Yes.

On benefit that into a because the terms season, for not of at pull forward got probably shipping XXXX pulled partly biggest really of seasons, season by side, up piece; a days. net bit potentially the a calendar-days a deficit so we it the factor some will QX QX not it's we've big of that's be little made in

Chris Growe

no? compare beneficially year that You had of on quarter XXXX. two less days fourth shipping this the to not Does

Steve Voskuil

Not.

Michele Buck

a I impact. think it the calendar only shouldn't have so shift one-day material year, maybe this by

Chris Growe

– gross as I margin margin kind versus offset it. shortfall at salty more the or cost a confectionary, pricing the lag sense of Okay. confectionary. at shortfall the look therefore a around that of snacks decline overall inflation a quick is snacks more Got of gross coming I'm a benefit pricing would in did that the more needs And question the should division, margins look so? gross here is benefit gross get by there trying just the curious that margin year-over-year versus I margin and in basically margin to I'm inflation? and pricing salty it Or the through just to

Steve Voskuil

Yes.

in a So lot there. there's

margins business we'll year-over-year, like the look time at hasn't the strengthening market progression I'm think what with fast businesses salty line that for in and we we a all On come it'll to our pleased of it – have basis at this a pricing and magnitude, the year. in we'd sequentially rapid margins that is as quarter. first look big down price, and of And in obviously even lever think is pricing same the plan. again expect see improved top approve quarter growth on is full factor Michelle at. quite the I be We XXXX that of and the see on outlook. fourth the out salty confectionary started the that's order points the continue to effect it I that X,XXX look and continuing fourth We'll said, is gross the as great at the we'll we as taken the to in probably the quarter

improvement going So in year as to we get all – be to a as levers to priority. that we drive business to available through high is margin the continuing get next

Chris Growe

you. Thank

Operator

is Please with of your question. next from The with question Ross Cody the line UBS. proceed

Cody Ross

expectations? Is Good like did the morning. prepared Thank that compare you for it Based was that seasonal inventory underlying sounds taking excluding your the remarks, our down. replenishment retailer shipments and to correct? how volume on And questions. your

Steve Voskuil

on line QX in would overall little and roughly more was than was expectations. we line expected, I put Like flat probably less or what I with more a we landed expected. volume we where base but it say in said, is inventory with we

Cody Ross

market share that comment for was Can think I Can your up versus assume volume that. compares on you then I just Thank Thank mentioned And dollar you. a share pre share? chocolate from how pandemic. you you that's perspective?

Michele Buck

volume it share Yes. That and from perspective. was dollar share similar is a

Cody Ross

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

Operator

from The line Jonathan your next Edge. with Feeney question Please proceed Consumer is with question. the of

Jonathan Feeney

if behavior there's remarks if an couple happening? lot accompanied you. concern food stress prior of bringing you you rising this think just it Thank about quite past and mentioned was inflation it's I down numbers you a trade morning. in by nothing dived say And true don't that's think but think the where was like seeing sense data that, know about I good into impact consumer where mentioned Michele, while how, Good in prepared Is And consumers. periods concern the of, the certainly about you about your leaders distress have pretty like retailers, of anywhere? reporting period, to weeks. certainly but I or have that if A are I on industry inflation.

environment tougher had by does think how behave costs; did look some go compare? this dynamic like other reacting out forward How driven the in this consumer with consumers factor you as to we and I around something how is crowding XXXX. that a

Michele Buck

Yes.

a degree. in and aware more signs impacting in could But seeing want purchasing but when certainly be seeing to as business. and of then really said, that to aren't it it they terms What consumer focused say I up. going buying on we overall has date of point, to the So is going and private has very breaking be things. where remain it the affordable are really certainly historically we focused there total consumers we don't our on product dialed look that of on to consumers value performance our to would we overall tended pressures a hit in overall we trend. our category large well not want That on when because continue an categories at consumer of other don't would a our I miss other we're channels, a say to forward fare can't has Yes, value them. the we performance are elasticity – need very pretty to shifts label I say focused afford because we during would and some to lot these is packs, are times impacted indulgence always

Jonathan Feeney

Very clear. Thank you.

Operator

Our with the next with question. question Palmer is line ISI. Please your proceed from Evercore David of

David Palmer

morning. Good Thanks.

a increase Reese's prepared this of the for that was that? growth? just in XQ. constrained much this you before any And capacity and in or is in capacity on way ongoing these platforms of Gummies You mentioned was How added remarks simply anticipatory were

Michele Buck

et us not we this to did allow distribution, spend on of of our upping capacity just were reinstating around yes, specifics and competitive for broader selectively cetera. the get We're a brand reasons. was unlock marketing lot whether to Yes. into it capacity overall going But specific constrained both promotions,

David Palmer

quickly heard that. stronger convenience of is packaging, like have Understood you your I retail store, other is channels versus on wanted your of is back that all where in wonder you ask way service food packaging? convenience single-serve too; If look checkout to I've and at measures on pre-COVID? how gotten certain Are single-serve I and food that Yes. – packaging? lately. compare some volume more the ramping counters convenience than service does

Michele Buck

store with growing not say some stores have particularly confection trends that for overall in are our overall total business, regard to say they would outpace the double continued specific products the digits. to snacking though of unit purchase, convenience moderated I'd and and I

had back. So are mobile not significant were seen now more really they decline previously, when certainly we consumers seen come pretty a mobile consumers were business we've that and much that than

David Palmer

or Is that not deal? to going mix to profitability be it is help meaningful a a big

Michele Buck

really. not we sell well. mean, channels I other in other single-serve or units No, in as overall

no. So

David Palmer

Thank you.

Operator

time this for the I'll At Poole you. Thank turn remarks. closing back Melissa call to

Melissa A. Poole

day may Thank you forward us you for up answer have. catching any that you to great We to look Have a questions joining throughout other with day. this morning.

Operator

conclude conference. Thank will you. today's This

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

The Hershey Company (HSY) 4 Nov 222022 Q3 Earnings call transcript