Q2 2020 Hershey Co Earnings Call - Live Question And Answer Session

This time, all participants are in listen only mode.

Reminder, this conference is being recorded.

I'd now like to turn the call over to your host Ms., Melissa pool, Vice President of Investor Relations for the Hershey Company. Thank you you may begin.

Good morning, everyone. Thank you for joining us today Hershey company second quarter 2020, Ernie <unk>.

I hope everyone has had the chance to read our press release I wasn't sure Primo water management presentation, both of which are available on our website. In addition, we posted a transcript of the prerecorded remarks at the conclusion of today like you when they session. We will also be transcript an audio replay of this call.

Note that during todays <unk> session. We may make forward looking statements that are subject to various risks and uncertainties. These basically expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the cobot Nike and.

Actual results could differ materially from those protected.

As a result of the coping they seem to have done a good wells other factors. The company undertakes no obligation to update these statements.

One of them.

Do you feel the thing that's risk and uncertainties can be found in today's press release and the company's Hepc Island.

Finally, please note that we may refer to certain non-GAAP financial measures. We believe will provide useful information for investors presentation of this information is not intended to be considered in isolation or the substitute for the financial information presented in accordance with GAAP reconciliations to the GAAP results are included in this mornings press release, joining me today over she chairman and CEO Michele Buck Hershey Senior Vice.

Other than the most people would that I will turn it over to the operator for the first question.

Thank you if you'd like to ask a question. This morning. Please press star one under telephone keypad, a confirmation Tony will indicate your line is in the question Q. You me first start to if he'd like to remove your question from the Q for participants you think speaker equipment. It maybe [laughter] sorry to pick up your handset before pressing the star key.

My first question comes from the line of course growing with Stifel. Please proceed with your question.

Hi, Chris.

Mr grow your line is like perhaps your muted.

I was needed there I'm so sorry, thank you good morning.

Good morning, I hope, you're all well I just want US question, if I could just first of all on this we're looking ahead to how the second half the year you did call the seasons to be less of a or not a material effect on the performance of the business over that time I'm curious and you did some discussion your call. This morning about Halloween overall.

Can you tell based on orders, how Halloween shaping up at this point in time.

And the degree to which they have could have an effect on on on Q3 sales and you also talked last quarter about having some early seasonal a sort of fall product coming out how is that is that in the market already are going in the markets. You know how could that play into your overall seasonal sales in Q3.

Sure. So for Halloween, we do have orders for retailers, we start to get those orders way back in May in fact, we try to finalize the orders that by the end of May and we have already shipped some product the way the season on roles, we continue to ship product.

From you know really June through early October so we have pretty good visibility to those orders now it's always possible that orders could change in the coming on but that is not very common occurrence.

I'd also remind you as we listed in our in our comments.

About half of our product for Halloween is purchased for self consumption. So that's really can people get to celebrate jewelry kind of treat for the family.

That you know about 40% of it.

You know Ben fold into the back part of October which are the trick or treat sale. So we feel good based on what we see the partnering closely with our retailers we feel good about many retailers wanting to kind of lean in we also think that consumers will find creative and safe ways to trick or treat.

You know it is an outdoor event.

Yeah.

That's where a lot of masks are already worn you know there's no evidence of the virus being passed through packaging or food. So so we feel pretty good based on what we're seeing so far from consumer feedback, but if trick or treat tends to be a little lower than expectation clearly.

We'll focus even more on to treat for me and the can't people occasion. So.

You already know that we shifted some of our portfolio to more everyday packaging to protect the downside you know should Halloween sales be a little bit later to really manage that liability. So.

This point time.

Based on what we're seeing we feel pretty good.

From a holiday perspective, you know we do have an early read on the holiday. We have started producing product at this time, we don't really see seasonal participate participation being significantly impacted a lot of that is due to the fact that many holiday occasions and consumption is actually at home. So we think.

It'll be less likely to be disrupted, but obviously, we will continue to come under that closely to work closely with our retailers that we have with Halloween.

That's great. Thank you and just one quick follow if I could which isn't relation to retailer inventory levels has you ended the quarter I just want to get a sense of where they were obviously you did undershipped demand in the quarter, there's an expectation for an increase or the second half of the here and I just wanted to kind of tied into that seasonal discussion is that a component of.

The expectation fryer inventories in the second half of the year. Thank you.

Yep, So inventory was about a one and a half to two point had headwind on her first half growth and there were really a couple of factors that drove that part of it is as you recall last year, we had a build of inventory as retailers were perhaps anticipating a price increase so the last from that creates part.

With that secondly, we weren't depleting inventory as a result of consumer stocked up any acceleration that we saw in take away across our portfolio.

We've been working really hard and had very strong customer service levels versus the industry, but yet we still been continuing to replenish the kind of catch up with that accelerated demand and then the third factor that really falls into that equation is non measured channels. So yeah. Yeah, we've talked to you about owned retail location.

And your world travel retail foodservice some of those businesses that don't show up in measured happened to be the same ones, where we have some of the greatest softness.

So before so the Halloween pieces, not really a factor in that inventory piece is much more around the everyday businesses and the non measured channels.

Okay. Thank you very much.

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

Hey, good morning.

Good morning Congrats.

Good morning, congratulations to up to you any organization for navigating everything so certainly right now so [noise].

Looking forward I I'm kind of curious the pricing outlook you guys mentioned that you expect pricing in North America moderates wandered off the 2%, which I believe it's pretty much singularly the effect of last year's price increases.

So said differently. It suggests you're not expecting some its trade efficiency and benefits are more promotions to sustain.

If so why not because it looks like the promotional Barbara for both you and your competitors remains pretty subdued in July why why would it come back so quickly.

So first of all as we look at the promotional pricing that you see as you look at some of the retail ski other data we do not believe that data is correct. There is a lot less auditing going on during this time than previously so the biggest issue we think there is.

As we think simply the data. It's just not correct. We are continuing to see the kind of promotional activity that we had planned in the second quarter, yeah behind some orders twizzlers or races in the in and out lover promotion.

And going forward, we feel good about the promotional plans that we have in the back half a year with our retail partners. So yes I agree you know when were again, we look at revenue management, all the time and so you know driving trade unless you see as part of the base plan.

But Michelle said the outsized impact that we saw in the second quarter was really more data issue. Yeah. We were all stalwarts Moore's route with her out so we had quite a bit of promote [laughter] interesting I haven't heard that thank you. That's that's that's good context.

Sticking on the same thing with pricing, but clashing forward as you mentioned, you're you're on the break a cyclean last year's price increases pricing has been part of your broke all growing North America last couple of years I don't think you've announced anything new and you're about to cycle. These as we think beyond this year should we expect pricing to exit part of the that they don't want to repay.

What are the algorithm for the foreseeable future and if not why though.

No. We I mean, we remain committed to the pricing strategy that we've discussed with all of you before and that's really behind smaller more frequent price increases.

Well, we have priced each of the last two years that certainly doesn't mean within our strategy that we have plans to price every single year, Yeah, we really take a strategic approach, where we look at opportunities across the portfolio right now all of our pricing initiatives remain on track and we continue to think that we're gonna see price really.

As a nation in the second half.

But as you know we have several different levers that we rely on to drive the business pricing is one of those but brand investment key retailer initiatives innovation merchandising and new capabilities, Yeah, that's balanced portfolio levers to drive growth. It's something we really believe in it we think that that's very.

Important so let's take a lot of variables into consideration when we decide what surprised when surprised how the price and we will be consistent with the stated strategy going forward.

Understood. Thank you so much.

Thank you. Our next question comes online Robert Moskow with Credit Suisse. Please proceed with your question.

Hi, Thanks for the question I guess, two two smaller ones.

A follow up to Jason's my understanding is there's over the past couple of years, you had taken pricing on about two thirds of the portfolio, which left another third.

Hi.

Likely to be raised as well I mean has something changed since the start of the year with how you're looking at.

Your your list price.

The increase plan.

At the keeping some has something changed and then just a quick follow up on Mexico, I was surprised to see Mexico down so much.

Do you put that into category.

Countries, where chocolate is just not part of that the overall embedded culture of the country.

Because I thought Mexico had been pretty resilient in the past thanks.

Yes, so relative to pricing our plan, we're not impacted or changed for the year. It is correct that we have a third of the portfolio that it wasn't priced in those actions.

But we did not change our plan throughout the year on pricing. So we just continue to look across and decide when and what and how it was the right time.

Relative to Mexico, we certainly haven't seen big disruption in that in that market and I would say I wouldn't put it as much you know certainly.

You know its <unk> there are certainly pockets of Mexico, where there are economic issues, but the biggest factor in Mexico has really been the trade the spread of the virus and then to shut down Oh key elements of the trade specifically the wholesaler network distributor network, where we.

I have about 50% of our business and so it was really the treat shutdowns that impacted our business in Mexico.

Okay, I sneak one more in.

Your your outlook.

He is very robust for third quarter and.

Based on that the strong exit rate and the visibility into Halloween is is your assumption that the other 40% like that the element that's based on sell through because your assumption that that part will be down year over year have you seen appropriately conservative on that element.

And your outlook.

Oh, Yeah, I think that we have been appropriately conservative I think we have yeah. We've partnered with our retailers that we've utilized that visibility.

We've taken into account what we think you know the category will be and importantly, we've also taken into account what we believe our market share of the category will be based on recent performance and what's happening in the marketplace right now.

So I think if we see pressures in Halloween is probably going to show up more.

Towards Q4 than Q3 as it would be at that those end period, you know post the holiday relative to sell through at that point in time.

Got it okay. Thanks.

Thank you. Our next question comes from the line of Andrew is our with Barclays. Please proceed with your question.

Great. Thank you very much.

Even in Twoq, you, even with the weaker volume and elevated koby costs that you incurred a company was still able to expand operating margin by 170 basis points or so so just as we think through to the second half some of those I guess covert discrete cost would begin to dissipate volumes.

It's to pick up based on some of the comments you made about exit rate and things of that nature. So perhaps investment spending I guess picks up as well. So I guess as we think about margins in the in the second half what would be maybe the key points to consider.

Versus let's say, where her she came out into Q in other words would you expect margins to be up you know similarly to what you saw in Twoq you are or what are some of the discrete factors that could change that one way or the other. Thank you do you want to have done well be happy to take that you're quite right Q2 turned out to be more favorable from a margin standpoint that mix.

I think going in and while we had in [laughter].

Some of those incentives were less than what we had expected for the quarter insurance costs that we had expected for the second quarter chemo more favorably we talked on the last call about productivity and productivity being arrested order and in fact, the productivity goals and manufacturing we're still a cheap.

Probably the lingering pieces P.P.E. and Weve cost that will continue so they kind of take Q2 and look to the future. Obviously the incentive based on everything we don't today are not returning productivity. We expect to continue along with our full year plan a p. any it's not a big cost in a quarter. So thank you.

Three $4 million a quarter of though as a benchmark well continue to drive after getting savings both at the corporate level of travel and meeting as well is that the division level and then as you said, we're going to spend a little bit more back from of the any standpoint. So while we had an opportunity in Q2 to optimize probably optimize a little bit more than we had.

We are going to invest back more behind the brand we get to the back happened here. So it's a little bit less pricing benefits as well you had a lot of placing benefit across the personnel as we lap now that will also start to come off. So those are the big driver. That's the reason you know again, not giving specific guidance, but expecting some margin accelerate.

In the back half.

Very helpful. There and then just one last one to show you know a the market share gains that that her she's been seeing right have been pretty pretty phenomenal and an unprecedented in many ways and it's certainly a big part of that as has been you know the company's execution right, particularly at the point of sale in in store and.

Leveraging the you know the advantage that distribution model that you have I.

I know there's been some issues that competitors lets say around let's say supply chain resiliency and things like that so I'm just trying to get a sense as you as you think through you know how market share can sometimes be pretty sticky you know both when when its gained and when it's lost.

How do you think about the share of the Hershey's picked up a you know would assume that at some point you know as things normalize.

And competitors get back you know there whatever supply chain resiliency there'll be some additional pressure on that front, but I'm trying to get a sense of how much do you think of share can kinda structurally remain or be sticky versus let's say something that might be more transitory. If you get what I'm asking yeah no absolutely.

I guess I'd start by saying you know even pre coated we had very good momentum in both take away and market share starting last year, and we really attribute that to the balance activation plan and great execution that we had even then which was a good I think the right balance across advertising distribution pricing seasons in India.

Asian kind of that suite of levers that we have obviously since cove. It as you mentioned you know our teams really stepped up relative to execution keeping product on show while there were some struggles amongst some other competitors in the marketplace and certainly we do know some competitors also began to.

To rationalize SK used to to simplify their portfolios. So.

We do believe that the recent share performance is likely to persist for several more months.

And while we do think that that huge game that we're saying is likely to revert next year as we lap the strength, we do believe that some of the gains will remain in the long term insisting.

Thanks, so much.

Thank you. Our next question comes from the line of Ken Goldman with JP Morgan. Please proceed with your question.

Hi, Thank you.

I also wanted to follow up on on Jason English is question really just to make sure I understood. Your response, because you did say in the prepared remarks price realization contributed 4.2 points in the quarter slightly ahead of expectations due to incremental trade efficiencies realized revenue management and selective programming choices related to cope with 19.

So sorry for reading all of that but I did interpret this quote, especially the part about selective programming choices to mean that you did reduce your reliance on discounting in the second quarter. So.

I guess given that you're not changing your guidance for the back half of the year doesn't that imply that you're going from a period of less discounting to a period of sort of more normal discounting or what am I missing there I'm just still not sure I understand exactly sure I'm you know what that means maybe.

We did pull back a little bit in the second quarter and that was primarily around refreshment given what was going on with refreshment being so incredibly soft and you know the functional demand just not being there as much for that product, especially given its presence in convenience stores and that's also a bit on grocery.

Just because that that's not part of the business was doing so incredibly well on its own no a little bit Alex Morris made really strong demand on some wars, but what I would say is the trends are now stabilizing you know as has the most of your declines in certain parts or most of your accelerations on parts the ports.

So in Q2, yeah, we saw the wild swings and those tend to be stabilizing a bit now. So we are kind of going back to Oh I'm more normalizing approach. It wasn't a huge pull back in Q2. It was very selective against those ports the portfolio does that help.

Yeah, I know that is that's clear thank you.

And then for my follow up there's some some of your.

Peers in the broader sort of food and beverage industry as I've talked about making some pretty full pretty meaningful reductions to there.

Got it portfolios in terms of skews, we haven't heard quite as much from Hershey on that I'm, just trying to or I'm, hoping to get an update from you in terms of how you think the breadth of your portfolio is right now in a postcode world and was there any plans I guess sort of make major reductions or miners to some of the products that you might have.

Yeah. So we had already really embarked upon an S.K. you rationalization program really over the past two two and a half years. So we had pretty aggressively taking a look across our portfolio and made a lot of those cuts. So at this point in time, we're feeling pretty good about where we are I don't see a major program obviously.

It's always an ongoing focus to optimize and to some of the small things, but the biggest steps we had already taken a previously and Meanwhile, some of the new innovations that we brought to market. This year have done quite well, so where we brought in you can.

<unk> birthday or stay pot so.

Great. Thank you.

Thank you. Our next question comes on line of Nik Modi with RBC capital markets. Please proceed with your question.

Yeah. Thanks, good morning, everyone.

So just a kind of two parter on innovation, it's nice to see retailers picking on new products. We've been seeing that trend now you know obviously people worry a little doubtful loans, how much and you probably could actually get into retail getting the focus on a level skews, but ive Michel I was wondering if you can just a pine on you know have had been a philosophical dip.

In fact me tell that you can shine in terms of what products. They are actually picking on the shelf and I'm really trying to get out you know our large companies like Hershey advantage thing and this could situation in terms of new product given well known brands et cetera, and then on the second piece of that just you know some of the work we've done looking at numerator data would suggest there's there.

Any degree interaction between Hershey portfolio and that snack cake category and I know you dabbled in that area. Some degree eyewitnesses freshly, but can you just give us impulse and how you're thinking about that Jason see kind of opportunity a little bit more broadly.

Yeah, So starting with your first question.

Yeah, we definitely have seen retailers, especially during the cold that situation dial up their focus on power SK use must have SK use.

I'm really because of the huge consumer demand and needing to make sure that they were in stock on the most important items.

And and also just because oh labor needs and all of that just focus on what's really going to deliver the business I think that's what why you're seeing many three of the manufacturers also now start to really rethink their portfolios to do the same so I would say yeah, I think I think the retail trade.

Is saying Hey, right now this is a time, where we need to focus on those biggest most important items. So I think you're right about that and then I'm sorry to remind me again your second question.

Last Saturday to back.

Yeah, no promise not get connected category.

Yeah. So so we have seen some similarities some crossover in terms of candy and snack cake consumption you know they both have some similar traits in terms of you know really hitting the.

I'm kind of the treat suite to and.

Filling certain needs for consumers that are similar so I think we have seen some of that crossover certainly from consumers.

Great. Thanks.

Thank you. Our next question comes from line of Brian's blame with Bank of America. Please proceed with your question Hey, Good morning, everyone.

Or just just two quick ones for me one you gave some color in the press release about performance in June. So just curious of July is continued to progress the same way.

And then the second question is more around distribution gains.

I think you referenced in and response to Andrew's question, you know that some of the issues that some your competitors. It had so I guess, if they're reducing skews and.

Maybe having trouble keeping some things in stock have you actually gain shelf space or gain distribution at this time period and if so kind of it if you could give some color in terms of which channels is it more convenience and gas more in grocery just just some more color there would be helpful. Thanks.

So we haven't really seen any material changes in July versus our trend.

So there are some geographic differences just given the big differential across geography or.

As a result of coded so.

So no I would say a we're feeling good about what we continue to see.

And Ah, Yes, Marketshare, you know is pretty it's pretty consistent though in terms of our market share performance I would say you know.

We're feeling pretty good in terms of a continuation of that trend and I think where everyone that opportunity to take advantage of getting shelf space, where a broader distribution I see a crossover all crack off what the tree.

Yeah, and we certainly you know those are some of the benefits that they think you doing all we see immediately because you have planned a gram timing its et cetera to to relax those benefits. So some of the some of those benefits I think we started to see in June and that might be what's driving some of our continued trends are positive trends in July.

Okay. So you have seen some shelf space gains or some some distribution gains.

Yeah, Yeah, Okay perfect. Thank you.

Thank you. Our next question comes from line of David Driscoll with de de research. Please proceed with your question.

Great. Thank you and good morning, I wanted I think.

Good morning, I wanted to ask about a little bit on on the seasonal candy and mint a specific question on Halloween, but the related so I know through the full year roughly a third of the portfolio was seasonal candy, but didn't just the second half of the year did you give you give us to break down between your seasonal sales in your everyday.

He feels what percent of the second half is actual seasonal.

Well Halloween, we've said previously is about 10% of our full year business.

Certainly seasons are higher in the second half then they are in the first half because valentines as our smallest holiday. So you really have Easter as a big one in the first time.

We don't really want to get into some of the specifics like quarter, but I would say that the seasons impact is definitely bigger in the second half than the first half.

And then I just to be clear I think what you're saying, it's I think he said this in the release that you don't expect Halloween to have a material impacts what sounds like it's flat and if it's if seasons are you know, 40% or or something like out of the second half or in the seasonal numbers are expected to be roughly.

Flattish in your everyday is running up nine I think Thats. What you also said in the release then is that not a decent way to think about how to model North America in the second half.

Yeah, I think your math is generally correct.

I can't argue with the math I'm. The one thing I would say is you're speaking specifically to measured channel and you need to remember the impact of non measured channels. You know owned retail foodservice air travel World travel retail, which is airline and you know the trends on.

Those businesses as that does that has been as we've shared the biggest hit in our business. So while there was channels or certainly not shut down like they were in Q2, there in the recovery mode and the recovery mode is definitely going to be a slow you know slow uptick.

Okay. So that there's a little adjustment to maybe the everyday 9% that I quoted because of those on measured channels and then seasonally as well the expectation is roughly flattish given what you know today, obviously, there's there's plenty of caveats and what could change. So I think I'm understanding you my follow up question.

One is just on your marketing in your in your overall expenses. So a tremendous job give you guys huge kudos on what you did in the second quarter to get your margins, where they where they came out I'm just curious that.

Is there a worsening here that you can actually run off of a significantly tighter expense budget on a go forward basis, you only that I'm guessing that did koby made you do certain things that you normally wouldn't know well done and the results your market share gains are fantastic. When you think your forward too.

Years forward can some of these cost reductions be very sticky because it's it's proving that you didn't need to spend some of those monies in order to produce.

I think excellent results at retail.

I mean, I think F G and H is clearly an area that we're expecting that you know how much we need to spend you know will change permanently overtime. So I think that piece, yes, I think on the marketing expenses, it's a little bit different.

You know certainly some of our pullbacks, whereas the result of certain businesses like refreshment that were down 40%. We just didn't think it made sense to be spending into that that part of it's part of what we were able to do was to leverage the fact that a lot of advertisers dropped out of the marketplace and as a result the.

Cost of media were less than we had planned them to be and so we were able to two you don't have.

A nice outcome there as as advertisers come back into the marketplace. Some of that you don't pricing benefit is not gonna be available anymore. So well there maybe some ongoing efficiencies and we're always looking to tighten.

Our data knowledge and the capabilities around to media since we are big spenders to get more for money and we're always building capability you take it to the next level. There were some unique circumstances, there as well yeah I agree I certainly on the pricing or for some of the media exposure that came down that was a big benefit I think we did benefit from tools.

Investments, we made around marketing efficiencies and driving ROI and optimizing Ah we haven't talked as much about some of those tools to about one trade efficiency, but also marketing spend efficiency and those tools allowed us off what are the more agile as things evolve quickly and so that part it's something we'll look to leverage further in the future.

I really appreciate it those are helpful comments. Thank you.

Thank you. Our next question comes from line of David Palmer with Evercore ISI. Please proceed with your question.

Thanks, just wanted to follow up on that Halloween comment you in your prepared remarks, you mentioned that the seasonal performance would not have immaterial impact to second half results. That's it that's an interesting comment I mean, we're not doing the official guidance here you would think that.

That would be a big variable you might be 20% of your second half revenue.

So.

Yes is there is there something that's giving you confidence there I know that you wouldn't be making such a comment without perhaps orders in hand or some sites around the E.

The ability for you to something that even if it doesn't happen to trick or treaters and I have a follow up.

Yeah, I mean, I think the confidence driver or orders in hand.

Some of the dynamic that exist around the fact that only half of that you know Halloween volume is trick or treat the fact that the trick or treat behavior is outdoor people do wear masks.

So as we get closer you know we're feeling good about that now obviously you know certainly we didnt provide official guidance into back half of the year and you know there there is uncertainty and volatility overall, given the virus, but based on everything that we know.

And the visibility, we have and with everyday we get closer.

You know we feel that we've taken an appropriate look at what we think can happen and have really factored that into our outlook as best possible. You know we've mitigated some of the downside risks with the everyday portfolio versus all Halloween packaging, Steve anything you would.

I agree I think for the things, we can see and yeah, certainly the things we can control we're optimistic but part of the reason for not providing more specific guidance is there are things, we can't control and probably can't see and for those reasons. You know there still is a potential variability in the back half, but everything we see a discipline confidence.

Yeah, that's helpful and.

With regard to covert related costs, you mentioned, that's where a gross margin headwind in the second quarter.

Could you give some color as to how much that might have been and how much of gross margin headwind do you think it's going to beat for the year. Thanks.

In terms of just cobot related costs.

Just covered related costs, yes.

Yeah, probably on the order of you know we absorbed in gross margin somewhere between 15 $20 million of coded related costs like yeah, we had predicted it might be more than that.

In fact, it came out less as we go forward and the rest of the here. The biggest piece that will stick around is gonna be that personal protective equipment cleaning costs and so I take that 15 to 20, I'm thinking about maybe a third or a quarter becomes sticky to the back half.

Thank you.

Thank you. Our next question comes from the line of robbed a person with Jefferies. Please proceed with your question.

Oh, great. Thanks, so much I sort of question, a and C store traffic you momentum there or is that Weve, obviously seen convenience store channel crew right throughout the quarter overall seems like hopefully that momentum.

Sustainable or as long as.

People are using their homes more going to the channel, but also the channel is the more relevant for use in a lot of other companies in the space and usually I would think there's a little bit more of a margin benefit there just given the single serve.

Markets are sold there that you sell there, but you know over the remarks, you said the thinner margin mix really didn't have much of a headwind it doesn't sound like you're really speaking to that as a risk going forward.

Looks great I'm, just kind of curious where where I'd be wrong in thinking that some of that sort of product for you know usually have a better price per pound.

Actually better margin impact and why you didnt want it might not.

Yeah, I mean, I think that generally correct, we are seeing a rebound and convenient stores as people are out in about more and I think also as some people are choosing not to travel via air but you know do vacations that are more driving vacation. So I think that's helping as well so yes I think.

Certainly instant consumable and that class of trade are helping the business. We're also seeing instant consumable strong and strength in other classes of trade as people have returned more now to a grocery stores and and you know trips and shopping so.

The strike is not just in convenience stores, so that is helping or or margin.

So it sounds like even though.

If I think about.

Movie theater, but even though consumers might not be going movie theaters by.

Personally product there you know in a single serve format as long as profits up and C stores that maybe I'll, just say in grocery stores a bit that could still trying to get their fits right. So they might not be buying the big bag, but they go to check out it sounds like was saying is maybe some of your check album not them in traditional mattson grocery is doing.

Better than maybe it had no I go back a couple of years that.

One one point in time that was a focus of yours is that that's there.

Yeah. It definitely is fair it has definitely we're seeing growth on the instant consumable piece of the business and again I think a lot of that due to more traffic in those channels.

Right and it just lastly, just keep it simple summarize that you did say different consumable growing right. So yes. There is it has to be doing very well to sort of has to be doing very well into the snow mass and grocery I checked out and that's more setting up the pressure away from home other child.

Yes, Yep Yep. Thank you pass it all.

Thank you Sir our next question comes from the line of Alexia Howard with Bernstein. Please proceed your question.

Good morning, everyone.

Good morning.

Hi that so watch your question for me Chatzky, we could you maybe just.

Talk a little bit about what's going on in in the E. Commerce channel. Other companies have talked about you know real sajid I jumped to click and collect and home delivery I'm wondering why the maybe the melt you build your chocolate didn't Miss hot season means that delivery option isn't quite as available to you but just.

That's not what's going on back I've got my second question is more about your marketing strategy in the second cost we know that out in the TV channels on the production isn't gonna be ads.

<unk> as much new production in the full on backlog the effectiveness of marketing on T.V.'s may drop off.

So I know Youve announced that you're pulling back on Facebook I'm spending in the second half as well. So I'm, just wondering whether or not spends gonna go if you're going to be into altitude digital channels or how you're thinking about mix I cannot talk to them.

Yes. So we have continued to see our category and our business performed really well and ecommerce and seen that growth accelerate so in the second quarter, we saw growth of 200% on our ecommerce business and that was really driven by strength both in the.

Click and collect kind of pick up and in delivery fulfillment model. So we saw growth across the board there you're right that we tend to have a little bit of a softer business during the hottest months into summer, but we're continuing to see that pretty strong growth even throughout June. So I think just the trends are you know are both strike.

And that growth importantly, we're seeing across every piece of the business Isa season to take and instant consumables. So in the past we've spoken about ecommerce being roughly 2% of our business and yeah. We believe that this channel by end of year could approximate about 5% of our total company sales so.

Definitely seeing a lot of strikes there.

When it comes to marketing mix.

Certainly we're seeing efficiencies that we're going to realize in the back half in that TV Classic trade. So you know it continues to be a really viable for a place for us to put money given the very high household penetration on our business and the sheer number of eyeballs that you can reach on TV, it's very efficient.

We look to digital led the pullback on Facebook, we see I'm, taking those funds that were in Facebook and redirecting them still back into other digital media venues. So that those dollars will stay in digital but just on other platforms like you to for example.

Great very helpful off it on thank you.

Thank you.

Our next question.

It would be deep powers with Deutsche Bank. Please proceed with your question.

Great. Thanks, everybody.

First internationally I appreciate the category itself was under pressure and many of your key market said you called out but can you talk a bit about your market share trends in those markets and maybe a little color as to how you're thinking about relative prioritization of investments in those markets is hopefully they begin to improve in the months in quarters ahead I guess it.

Thinking three was.

You know should we expect to exit the crisis with similar levels of strategic emphasis in standing in those emerging markets.

<unk> run rate going in or is there are risks that you you spoke a bit to home navigating the U.S. landscape takes precedence.

Yeah. So we are gaining market share across most of our international markets. So we feel great about that you know the weakness that we're seeing is really driven you know up either by the coded related you know shutdowns in most of the markets government.

Government restricted shutdowns and especially in a lot of the developing markets.

And in some markets the economic impact of that that impacts the category, but we feel great that we're winning share across most of those markets. So I don't think that we will slip relative to our strategic emphasis we're still committed to what we want to get achieved in those markets. We still believe in the long term.

Potential in those markets.

So we are pulling back on a temporary basis, just consistent with where the businesses, but continuing our focus and all of our key initiatives to win long term in those markets.

Okay, that's helpful and.

And then like I guess, if I could just to clean up back on the afford pricing outlook you know your core category exceptionally rational in recent years and.

So I guess you know just given given your share gains success and I guess, some also just the economic pressures that that might build in the back half and into 21.

How do you size up the tail risk, but some of that price rationality like Mike can come under challenge or at least make incremental pricing tougher to come by and at least the near term I guess harkening back to Jason English. This question earlier.

You know, we just we consider a lot of factors as we try and decide how to think about how and when to price. So as it comes to recessionary times, you know over over the past we've seen that our category tends to have less of the highs and lows that some other categories have because we are an affordable luxury so a time.

So when people need to cut back on other categories.

So I you know we will continue to just evaluate all the different factors for when you know when how on what we will take pricing, but we aren't you know we aren't particularly concerned that you know we can't price in recessionary times, we haven't done.

At point in the path.

Okay. Thank you very much.

Thank you. Our next question comes from line of John Baumgartner with Wells Fargo. Please proceed with your question.

Good morning, Thanks for the question.

Michele just in light of your general sense of optimism for Halloween and I guess sticking with the brand investment plans. It sounds as though there will be some shift of March madness Olympic spending into each too but could you also talk a little bit about in store merchandising activity are you expecting an up tick in retailer support for the season this year and I guess increase display space.

Thanks for your portfolio broadly.

Yeah, I mean, we are expecting based on our partnerships with retailers very strong in store support for Halloween with most of our retailers yeah. We partner with every retailer and each retailer has their own strategy in terms of you know how much they support the holiday.

And so I think in general most of them are continuing to lean in to anticipate and drive to a very strong Halloween and we believe that given our ability to execute during this time and some of the you know you've seen the results of that on the share in the marketplace. We certainly think that you know.

Even our performance within the category for Halloween should be quite strong.

Okay, and then just coming back to international and the sales weakness there I would guess presumed review of the cost structure.

Given the success you had in Rightsizing, China, which was sort of a damn on its own right to what extent as qubic stress sort of identifying new opportunities in other geographies, where you can use this downturn to maybe you will further strengthen your global cost structure more sustainably.

Yeah, I want to talk about though the our international team does a great job of looking to optimize their PNM and cost structure in an ongoing basis and certainly the new opportunity gear as that business and think curtailed in some markets has shown even further potential there, but I think the michelle's earlier point the strategic priority of international has.

In changed and so we want to continue to appropriately invest behind those businesses to unlock the long term growth that we believe is there but to your point certainly will never waste the crisis in terms of looking at every possible way to be efficient with you know.

Great. Thanks for your time.

Thank you. My next question comes from the line of Michael asked me with Piper Sandler. Please proceed with your question.

[laughter] good morning, Thank you.

Good morning.

Oh I can you just talk about corporate costs, a little bit <unk>. It looks like it's the lowest they've been in at least about seven years, certainly declined sequentially you called out the travel and meeting savings.

How much of that should we expect to continue as there are other savings there that that might revert back in the second half we should watch out for how do we think about looking ahead on how that lie might unfold.

Yeah, the progress that we made in the second quarter than set from the traveling meeting standpoint, it was actually better than we expected going into the quarter and given everything we see today you know business is not returned to whatever normal was and so we expect in the back half were going to see those savings continue.

I think about the second quarter, we saw probably $20 million $15 million to $20 million of opportunity across all of those areas and I expect to see something like that maybe a little bit less but something like that in the back half as well and beyond that that was really the biggest driver from us.

<unk> cost standpoint.

Okay, great. Thanks, and just following up on Halloween again can you give us a sense of what some of your options may be I know you recognize there's a little bit of the uncertainty still on how the consumer sell through goes if that disappoints me do you just have to battle back can you buy some down because it depends on.

The magnitude of inventory that may be left can you just let us know what the options are and how you might be preparing for any of those.

Yeah. So the first thing were doing is trying to make sure that we ensure sell through which is something we always do which is having the right merchandising getting product on the floor as early as possible and leveraging media investment to remind consumers excite consumers about the holiday [laughter] then.

[laughter] sell through there's always a mark down period that occurs based on how much product actually sell through you know both in total as well as you have to get the mix right you know across each piece of the portfolio and so every year as we build our plan we plan for that and this year is no different you know we planned for.

Or for that so we tried to mitigate our risk by as we look at the you know trick or treat portion of the portfolio.

Pulling back on seasonal packaging, having more everyday so that's one another lever we used and then you know really working through the the markdown plan.

Okay, great. Thank you very much.

[noise] thinking our last questions mine comes from Atlanta, Ken Zaslow with Bank of Montreal. Please proceed with your question.

Hey, good morning, everyone.

Good morning.

So two questions one is.

Have you at all kinds of change your innovation plans for I don't mean for the next two months, you're pretty much but for the longer term. There's been a lot of companies have said look at 150, its new innovation, we're not going to do anymore. So has there been a refinement of the innovation program for the next call. It one to two years.

So I would say we already did that a few years back we took a look at our innovation strategy and really streamlined and focused on sustainability and that really did lead to not having that hundred 50, new innovation, but really being very real about a focus on sustainability that would.

Lead to the greatest you know profitability and top line for us. So we're not really make any changes related to cope with it but I feel really good about the work that we did a couple of years ago changing our innovation strategy to make sure that we really did have that focus and across the balance levers innovation is one of five or six levers.

It's not de lever.

Okay, and then when I think about the longer term and obviously coordinating is evolving for sure but are there certain milestones are there certain things that would have to happen for you to rethink it seems like as of now let me start with this as of now it doesn't seem like you've been meeting structural changes to your business model.

Changed a little bit of investment here, there, but nothing.

That would be longer term are there anything that you would see in that covert 19 implications that caused you to have to do something and what would that thing be that you would have to do to change your business model that makes sense.

Yeah. So I guess I would say you know there's nothing that I would say is a big fundamental shifts to our business model. There are some changes. So for example E commerce the acceleration in E. Commerce is here to stay where consumers are in terms of household penetration of people buying online is where we thought it would be maybe five years from now.

So to some degree that is a shift because E. Commerce is a little more than a channel what some of the business model as well. So you know Fortunately a few years back we had invested to build capability in E Commerce and I feel really good that we were set up to be able to take advantage of that but we are taking some further steps internally.

To develop ecommerce to really now being one of our mainstream channels versus before it was kinda, but I'd say in D. gross development phase there are other consumer trends things like cocooning and people staying at home and the importance of value on the short term.

You know some of those trends that you know we are making some changes to adapt to but we always changed you know adapt to ever changing consumer trends I wouldn't really called those out as business model changes.

And then certainly you know there wouldn't be some changes in terms of how we work in terms of you know some people working more from home the ability to have people working remotely potentially a shift to suburban and rural setting, which actually can be a strength for us.

But I would say E commerce is probably what I would put into one of the bigger ships like that Steve is there anything you know I'm just if I turn the question around I would say cobot has also shown as places where we have strength through this and having the agility in our supply chain the retail execution capability as Michelle said the digital investments.

[noise] agile investment approach I think those are things that we've learned our you know even stronger is kind of environment.

What is it safe or refresh me like everybody is working from home a little bit more people don't need to have the meetings and so you're refreshment category may change dramatically or maybe the size of Halloween or the size of Easter me kind of contract are their thoughts on those two potential out.

Homes or at this point, you'd say not really something that we'd be worried about it and I'll leave it there and I. Appreciate your time I mean first of all based on seasons I would say not something that I'd be worried about at this point in time given the results that we saw on Easter, which was really in a peak period of people being told not to go to grocery stores and we see.

Phil had a pretty decent Easter I mean, obviously, we will learn more as we go through every one of these but at this point in time.

I don't see a major business model shift needing to to come from that and I would say from refreshment perspective, yes people will be working from home, but people are also going to be going out and they're gonna be out in about doing things you know I think more so yes, there could be some I'm gonna say more shifts as there always are in portfolio relative.

They have to people baking more people doing one thing or the other more but not that I think I really think about as a massive business model shift.

Great I really appreciated stay safe.

Thank you.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Miss pool for any final comments.

All right. So its Michelle I just want to thank you all for joining US. This morning. As you know this was a new format for us and I hope that you found that helpful. Let me close with some very brief remarks over the years, our great brands are advantaged margin structure, and our consumer centric strategies have enabled us to navigate.

Eight volatile environment and consistently deliver strong stockholder returns.

We take great pride in our passion to create new ideas innovation and ways to connect consumers to continue to make moments of goodness in their lives.

With our relentless focus on the consumer and adaptive operating model and our remarkable team of people. We are confident that we can once again respond to the changes in the marketplace to deliver growth and unlock a long term value for our stockholders Melissa will be available apt.

The call to answer any additional questions. You may have thank you very much stay safe and have a great that.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.