HSY - Earnings call transcript Q2 2024

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Anoori Naughton

Good morning, and welcome to the prerecorded discussion of the Hershey Company's Second Quarter 2024 Earnings Results. I'm Anoori Naughton, Senior Director of Investor Relations.

Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil.

In addition to these remarks, we will host an analyst Q&A-only session at 8:30 a.m. Eastern on the morning of August 1. webcast the subsequent our Investor with corresponding this be session website, of their on available Relations transcripts. replay and Q&A our will along A section of

statements discussion, uncertainties. of differ projected. the and events. statements results operations include press regarding will today's update and various those assumptions These from of listing and risks these A company's The subsequent course subject to based the make on During could forward-looking release the that filings. expectations no can to financial are materially uncertainties company risks obligation Actual statements today's detailed management future be company's such and in undertakes found performance. SEC and

financial financial investors. we information considered measures provide useful note to presentation not Reconciliations The will morning's that we'll results in please Finally, our during non-GAAP substitute presented accordance today's believe Michele for that this a information isolation Chairman or be discussion, release. intended and It GAAP. press information included for of are in pleasure is is certain now CEO, with refer to to as my GAAP introduce the in the Buck. for this

Michele Buck

dynamic everyone. and with Anoori, environment discretionary Thank you, consumers on Today's operating back good morning, pulling remains spending.

been see our has Salty portfolio. by continued business Snacks category impacted we momentum to but in building Our growth these confection are pleased trends, and in the

and candy categories, X% and confection to the category pleased changing second health reduced year-to-date, category of confident options our plans. and gum Our we second needs retail are trips. with our the Despite challenging to long-term environment, half up meet see growth innovation drive success. In growth strategic this continued quarter, within seek and the long-term supporting sales we to the mint everyday are to is evolving energy and strategies expected our consumers bring value will consumers'

which last by in consumer the to categories, trends, it the confection affected food the in outpace strength X slowdown was in given a particularly continues other impacted months. convenience was notable these our While saw channel, category quarter. Hershey especially many the

expected weakened. Consumer second capabilities to meet seeing The category in While trade capabilities now, in current in some trends continue of leverage high trends leverage like category management consumers as confection slightly penetration club class trade growth shopping to had to where right underdeveloped we environment, which moderate e-commerce, results allowing in evolve they is to shop. and key patterns advanced quarter, consumer below of the our to an drive spaces. classes retail us came opportunity to and expectations our these presents in the

ago, For no little front example, stores. several dollar end years in to there was

to transformed have teams conversion new by increased shopper with and queuing drive creating Our store formats this space rates. lines engagement

the see This expect and second in categories teens rate receptivity programs. to earlier high these resulted to half business we are growing with to in our in fast-moving, channel the continue improve this has our dollar building, year. Given we shared years. Consistent the a what past our mid annualized of over overall X the sales year, basket we results high-margin retailer at

low we For expect continue year, the single-digit Confectionery. growth full American sales North to in net

including be and seasons, strong good continued visibility innovation of have which more have levels in higher plans us. to We strength merchandising, place, into for a

half of in into of XXXX the second All should improve this and growth XXXX.

seasonal now Patriotic gum first and with metals, ever full summer Reese's Kisses in golden including are shape Our force, mints. and pineapple Breakers Ice along summer programs our

and advertising, across Morgan. marketing social featuring We newcomer, Smith have activation campaign a media and Sofia Olympic Alex displays and Olympic in-store fresh legend,

leverages Reese and sweets, layers plans success innovation technology. including a about are item that excited also our across We our the chocolate new half of second both

in been experience hitting has will and launch Shaquille social-first new to existing growth world's with launch into are form, portfolio XXXX our leveraging and unique to portfolio will Shaquille's biggest that on segment flavors and and Jolly City York new be focused highly launch following. a and into New pop-up approach, this thrilled his launch. Later supported a supersized collaboration, shapes shelves. The persona, very visit year, of celebrate expected by occasions. strong gummy kid beyond. variety extra gummy fans we content to soon the O'Neal. capacity by additions the a also In and and a sweets supported large a gummy collaboration are and fast-growing September, These Rancher line our incremental Retailer to Shaq-a-licious, pallets and sell-in accelerate We captures will be new can diversifying our capabilities, be ecosystem fun interest and unique

later holiday Retailers and Easter prioritize this expectations celebrations prior are and of outlook. seasons as for consumer unchanged with moments goodness Halloween our from strong given our deliver more to saw continue earlier memorable to year, teams year. are affinity these Our this prepared we

performance. North segment Now Snacks our to Salty turning America

are sales reflecting see to in We in deliver Dot's environment, snacking. Hershey strong led to share QX by growth consumer for a execution XX-basis macro teams. our Snacks despite salty X% of pleased point Salty tougher a net above sales and growth gain expectations demand QX robust retail

the popcorn as we We expected SkinnyPop to category are impacted ready-to-eat last that the encouraged behavior year. changes begin lap see consumer as stabilizing sales to

across media and household and have X all in penetration merchandising performance accelerated innovation, investments brands. Our increased

America Snacks For the year, segment growth Salty full of digits. sales we mid-single expect North

International rest return sales net the by Mexico Dot's, innovation, exciting beverage half. Reported media plans remain has track and garlic, for previously of our single driven of second right of flavor new exit hitting segment depletion parmesan business declined distribution and S/X-related inventory planned including the builds. We in in discussed the of team a high shelves digits, now. the to year, SkinnyPop Our our growth on to

up by India, LatAm. full and Excluding our Europe, growth driven declines line outlook, digits, by in mid-single in partially more in sales EMEA these were Brazil items, year double-digit with and offset

to can for ERP our the second implementation markets highly to our the positive will execution been marketplace. we our both the half in our disruption confidently speaks of accelerate transition strong say which network pipelines in across a and year, innovation success has little quarter robust with partnership, or by have planning and teams. the We Retailer growth. We no on was in feedback believe

We are connectivity enabled by synergies end-to-end better see from S/X. to starting

we changing chain, can customers of to for this people our all ship technology, example, environment, time, planning For on have truck and customers. In demand and our which improved our of elevated capabilities brands across first our now the in needs dynamic evolve the meet and single Salty investments brands, supply and service Snack ability has levels a consumers.

cocoa me are we update these over important on to to steps share an and let the Now, before I it turn taking address Steve, pressures.

volatility time. Our visibility the and gives costs us our over robust hedging to smooth of into market impact program helps

prices cocoa are last our call, have of prior While they significantly still since earnings year. improved ahead

step of Given a the pricing. with expected cover what we some have know inflation about first to taken 'XX, we

We implement and coming retail partners enable partially months closely our will architecture to including continued in growth. significant work investment with future offset pricing, our in costs, the our announced these brands to category innovation drive price pack and

more me our in brands strategy to we Our financial have cover and Steve profitability long-term investing remain our time, confident outlook. the turn to to while strong the consumption. over of provide on drive committed inflation manage long-term remain we over to results and pricing details to has grow We changed, to that, material philosophy pricing in and not it raw over and both outlook our levers let business time. With our

Steven Voskuil

good and Michele, you, Thank morning, everyone.

Second of ERP reflected inventory ahead implementation. April of quarter the the planned results reduction QX built in

XX.X% incremental similar retailers which building points line in in retailer successful and drawing QX saw pattern planned the the we some levels as ERP-related of decline, to us deplete through confection year. shipment of in inventory resume inventory noted, second execution builds, of follow service our Additionally, gave X inventory comprised as QX, levels early ERP-related for years, Michele to recent team's the impact shifts gradually half expectations. Outside retail and sales with seasonal This in confidence net changes, down QX ERP quarter. declined we our allowed contraction the to quarter. Reported a

additional levels in levels. inventory In quarter. fact, more of with year-end consistent the an to combined to in the quarter with comprised the headwind retailers timing seasonal shipments reduced This, shipments

year, Volume from lower shifted of QX in XX% about from than Halloween by volume. QX by net driven to be levels America the a the expect where of end prior inventory year. The was to approximate full declined approximately inventory of in anticipate expected year, realization retailer the decline For shipments we not at North points offset X inventory our points planned X%, to and XX.X%, approximate do sales an as price from that points material ERP of were but impact Confectionery April net depletion approximately we segment by QX. X X impacted implementation, XX

expected sales these versus Excluding convenience and declined return segment Salty of by net and in offset SkinnyPop related to low growth continued X.X% in prior the channel. North the to Pretzels the reduction a Snacks digits, merchandising category Dot's expected driven broader growth in base Booty, items, driven by consumer in weaker-than-planned strength was single year America business trends, declines Pirate's partially in softness. particularly an by

we continue growth the share moderate popcorn and declines year-end. improve of increases. trends ready-to-eat to last second volume to compared half, distribution sales, compared in to the category to year soft, second to by merchandising In second While the and return behind SkinnyPop continue QX SkinnyPop to media, and remains half and quarter the expect

We lap double year's behind expect moderate digits to distribution. last grow incremental we Dot's flavor new but to continue club as innovation,

in depletion EMEA by X.X% on built of net timing-related segment was items, ahead driven Adjusting the reported cost for International was business digits XX.X% also QX. year net expectations, in beverage ERP-related strength completed margin mid-single Our last of affected planned sales which driven gross increased sales India. Adjusted of decline margin. the and largely QX of Europe, gross favorability, by inventory and exit in in input these of of Mexico

We expect outlook. the is no full margin change second in reverse there our to this half, and largely gross year to

offset We to reduced related declines quarter, realization with more in points chain second supply cocoa decreased sales and continue price and as of inflation sugar productivity. Advertising XXX Confectionery driven than in International. net by marketing the XX% North and expect basis declines and America consumer approximately

We elevated continue to and advertising to see prior consumers operating consumer an year technology the compensation spend as and deliver in However, this division track versus be of in incentive X% our declined $XXX reduced capabilities up the AAA to initiative, costs. realized by as presence and excluding offset XX% marketplace incremental savings year. Adjusted expenses, part remain corporate with million expenses. were related in in on our marketing investments strong impressions largely

tax renewable previously, adjusted increase an prior XX.X%, tax of savings in to driven levels the second period, we the expect credits the the in shared of points quarter rate XX.X we half by of year-ago higher was realized the of be As period. majority the year. The year these for versus

continue we in $XX other to with tax million expense a of $XXX supporting million expect discussed year XX% rate million million to implementation. approximately $XXX continue were line previously expense $XXX in expectations, full $XXX expansion and million. Capital projects was We software, with approximately capacity of expense including expect of and to $XXX additions, full year our to QX, of million. Interest ERP

half. and dividends at capital time. $XXX to pace expect XX.X% strength paid We to years more and the of reflects over year second to a investments return to of full past our totaled now year We $XXX commitment the shareholders the $XXX period. levels quarter, several an payout over this company's versus million. In the least historical dividend second moderate million increase This the of ratio million, in expect performance to XX% prior of the

under Additionally, half. repurchases authorization. first the December is $XXX buybacks the of share $XXX There completed for XXXX million completed year, planned the our remaining in company million the

sales in discuss help impacts. I updated let provide reported some half the half. net on company with the context visibility X.X% the first ERP Total first year Before to full through me outlook, the transition declined

planned, Excluding in well our slightly, from Confection below slowed saw of timing expectations. had more outperformance and points the shipments a impact Easter, up point we QX approximately QX. of approximately inventory as expectations we base in than consumption X versus business slight X.X offsetting shorter was as the retailer headwinds seasonal the

year, across as our we adjust net our full we trends recently. the approximately For observed are sales outlook category narrowing outlook to for snacking X% softer the

X second However, an in with we the our prior segments. across our in outlook, consistent all expect performance half acceleration

well discussed, as this strong from and as reflects Michele As contribution seasons. plans greater our merchandising innovation

reductions merchandising are retailer, from lapping business the of several at We including category the ready-to-eat the headwinds and planned summer, also popcorn the onset exit softness key a of in last in Mexico. dairy

timing net half of have to approximately we X strong and that Lastly, shipment on relates second a X sales extra visibility growth days. points shipping

XX.X% Our lower pricing earnings per declined margin investments rate benefit reduced higher year-over-year XXXX. Adjusted SG&A primarily as in and and first tax lower and on recently capability is to sales, have reduced technology related higher to announced by share impact offset partially gross declines, half and a incentive expected the XXXX sales minimal costs. were

expected in I reduction EPS Michele be to down of back slightly, it low that, the outlook top will to our by Our line full is to turn now for range. With year the previous closing driven our remarks. end

Michele Buck

Thanks, Steve.

long-term consumers many a management we to We over remain categories, to webcast, meet positioned and for media, manage track morning. I X:XX when support changes business for grow We With sales, you a your and chain, begin this which at strong changing agile to will come. environment be confident time the will to the today you outlook levers are question-and-answer your to continued have growing category have of succeeding strong in our in efficient our available Eastern business invite analytics, long thehersheycompany.com. for there highly you Time needs the and our time. Thank in and advanced Thank record at years both well and supply our adapting are we capabilities in brands Hershey. live term. interest and of and profitability listen in a.m.

The Hershey Company (HSY) 1 Aug 242024 Q2 Earnings call transcript