Q4 2020 Hershey Co Earnings Call
Greetings and welcome to the Hershey Company fourth quarter 2020 question and answer session.
At this time all participants are in a listen only mode.
As a reminder, this conference is being recorded.
I'd now like to turn the call over to your host Ms. Melissa Poole Vice President of Investor Relations for the Hershey Company.
Thank you you may begin.
Good morning, everyone. Thank you for joining us today for the Hershey Company's fourth quarter 2020 earnings Q&A session. I Hope everyone has had the chance to read our press release and listen to our pre reported management presentation, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks at the conclusion of today's live Q&A session. We will also post the transcript and audio replay of this call.
Please note that during today's Q&A session. We may make forward looking statements that are subject to various risks and uncertainties. These.
These statements include expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic actual results could differ materially from those projected as a result of the COVID-19 pandemic as well as other factors. The company undertakes no obligation to update these statements based on subsequent events a detailed listing of such risks.
And uncertainties can be found in today's press release and the company's SEC filings.
Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP reconciliations to the GAAP results are included in this morning's press release, joining me today are Hershey as chairman and CEO, Michele Buck and Hershey Senior Vice President and.
CFO, Steve Voskuil with that I will turn it over to the operator for the first question.
Thank you. Our first question is from Nik Modi with RBC capital markets. Please proceed with your questions.
Yeah, Hi, good morning, everyone, a happy new year.
M D.
Other questions first one on just trade spend and just thinking about you know on.
Like things had been pulled back quite dramatically.
On 2020, and as we think about 2021 I'm just curious in terms of your discussions with retailers, how you're talking about trade spending you know one of the things that we've been looking at is kind of this reset of price sensitivity given that no promotions have effectively been on the market for the past nine per 10 months. So just wanted to get your thoughts on that and then the other.
If you can give us a kind of a round up on the innovation program that has already been announced just so we can get a sense.
For that program in 2021.
Sure so relative to trade spending and promotion we didn't have any meaningful shifts in promotion activity our levels for the year were pretty consistent with prior year. So we were basically flat.
The IRR data would IRI data will support that so.
A little bit of a disconnect in the Nielsen data. So we don't really expect any material changes as we go into next.
Next year as well.
And then as you look at innovation I'm, certainly I think some of the bigger items, we have kit Kat flavor, which has done exceptionally well per kit cloud on a global basis.
We have the stuck reese's products and our innovation tends to also always be quite strong for us.
We have a permissible line of products to really address that benefit of better for you that we are underdeveloped in across our portfolio and that will include kitkat spin, which is in addition to what has been on already launch of a successful platform with re spin.
We are also re launching our sugar free line to zero sugar really focusing on Hershey and reef and launching Hershey angry organic product.
So those are those are the highlights for the year.
And I would say overall, if you looked at our innovation the level of innovation is about comparable to prior year.
Excellent Thanks, Michele a hospital.
The next question is from the line of Ken Goldman with Jpmorgan. Please proceed with your question Hi.
Hi, good morning, Thank you.
Two for me if I can first I wanted to think or ask about the.
On the early holiday shipments that benefited for Q, obviously, I think over the <unk> 'twenty one period, it's overall a big benefit to you. So I don't think of it as early shipments, but I'm curious how do we look at the potential for a difficult comparison in <unk> 'twenty one should we expect.
Maybe some of these additional orders that you received this year to kind of revert to normal with your competitors or.
Maybe better able to fill demand going forward.
So Ken if you think about the Easter that we'll be shipping for in Q4 that 2022 Easter happens to be one of those incredibly long Easter and so typically we tend to ship a bit more in the Q4 prior to a long Easter. So we don't expect that there's going to be a material.
Different.
From a year to year basis because of that.
Thank you and then just for my follow up your commentary on cocoa butter costs, because I think more constructive than some observers maybe expected which is great.
Was hoping you can expand on that a bit and maybe this is for Steve just how do we think about your all in Cogs inflation this year versus 2020.
Sure Yeah, I'm happy to take that one yes, clearly facing on it on an all in basis facing more inflation this year than last year.
We've got a hedging program, which mutes some of the cocoa cocoa impact yes.
Did flow through.
And we have some longer term contracts on things like freight and warehousing, but that said neither hedging nor contracting is going to fully cover the exposure that we have in inflation.
If I take free as an example, you know we look at things like demand planning and how important that is and to the extent our plans deviate from the way volume comes in and having to go to the spot market. For example, where we have where we have less cover on there.
There is some risk there so net net more inflation, we've got a pretty good level of cover and that's included inside of our guidance, but we're not fully covered either on the commodity side of work outside of commodities.
Great. Thanks, so much.
Yeah.
Our next question is from the line of Andrew Lazar with Barclays. Please proceed with your questions.
Morning, everybody.
Hi, Andrew.
I guess first off it seems as though Hershey is building in a fair amount of reinvestment spend for 'twenty one in both media and other capabilities, maybe can you give us a sense of the magnitude of this sort of reinvestment and maybe more importantly, the ability to sort of.
Flex up or down really depending on how things play out this year.
Do you want us I'm happy to take that one as well, yes. So on the on the media side I'll say media on FTE in EMEA in general.
By looking at something like mid single digits across those pieces on the media side, clearly, we want to defend and extend our share gains and so we were thoughtful on how we deployed media last year, we made some reductions kind of midyear, we're actually turned it off a little bit towards the end of the year and we want to make sure as we go into this year that we've got enough to do.
Offend and extend share on the SG&A side, we tend to think about it in two buckets and I'll say things like you know normal corporate expense travel will be very tight year over year and their zero based budgeting format you know what.
Head count all of that and then we talked about the investment side and the investment side. We do have some capabilities that we want to continue to fortify S. Four the ERP program drive some opex through the SG&A areas more expansion of our digital capabilities, which came into play quite a bit over the course of last year and then.
The analytics and insights that again, we talked a lot about that last year as well, but continuing to extend our capabilities in those spaces and so put it flex up or down I think as we get into the year and we see how the shape of the P&L and we see how the top line delivered.
Probably have some latitude.
And flexibility there, but I would say we are pretty firm investment plans at least in those areas as we start the year.
Great and then just lastly, I'm curious what drove the decision to take a bit of pricing on sort of one portion of the seasonal business and should we also assume I would think that this does not necessarily preclude hershey from looking at other parts of the seasonal portfolio at some point if in fact, it deems necessary to do so down the line just trying.
Get a sense of what goes into that sort of decision making process.
So if we step back and think about seasonal pricing Holistically. Let me just remind you that we had price the Halloween portion of seasons and Halloween is our biggest season. So that had occurred previously.
And that's about yeah, roughly call it 10% of our season.
And then we mentioned that with pricing holiday Valentine and Easter Yeah, we're capturing at least another 10 points. There are certain parts of season. Some of the every eight day item.
Got price along with prior instant consumable pricing action. So at this point in time with this recent pricing action, we really have priced almost all of the season.
In the past year or so here.
Great. Thank you very much.
The next question is from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Alright, Thanks for the question and congrats on a really strong year.
Hi.
You provided some helpful color on.
On your cocoa buying and cocoa liquor and butter.
But if it sounds like these hedges are protecting you. This year is there an extensive step up in 2022.
And is it possible that more pricing will be needed.
On the full effect of the delayed.
Goes comes into play not just for you, but maybe for the overall.
Industry.
Do you want to talk to yes, we have two so I don't want to get too far ahead and get into 2022, obviously, we like we said in the past our range of hedging can be anywhere from three months to 24 months and so on and that flexes across commodities and so but I don't want to get too specific in 'twenty, two but as we know hedging held smoothed impacts over time at the.
End of the day.
<unk> flow through and sticks that eventually that's going to come into play into cost and so hedging get smoothed that out but to the extent the cocoa price picks that up eventually that come through now that ties into the broader strategy Michele just talked about on pricing and looking at the overall P&L and other things like co sourcing.
And recipes and things of that nature.
And Rob let me just clarify one thing so the lid is fully in play this year. So the hedges don't really impact that at all part of whats offsetting that is the hedges, we had even possibly prior to the lit going in or taking advantage of dislocations in supply and demand throughout the course of 2020. There were times. When you know the cocoa market had come down for beans, and things like that so.
That's really there just to be fully clear the latest 100 per cent and the cost base for 2021, but you have some of those hedges with the supply and demand imbalances as well is that cocoa butter dynamic, which is really where the offset is and so as you think about 'twenty two those would be the two variables to kind of keep an eye on what could cause those cost to change more so than the little that's right.
Okay I'll follow up on that maybe one follow up.
Can you give us a sense of where you think inventory levels are right now at the trade are you are you still a little bit below normal inventory are you at normal and and maybe a little more color on on I think in the prepared remarks, you say you might ship above consumption in the first half and below consumption in the second half.
<unk> can you help us a little bit more on that.
Yes, that's exactly right. We ended the year with inventories on the trade a little below historical averages. So as we look to the next year, we see that could be a bit of.
A bit of a tailwind on the first half on a headwind perhaps in the back half of the year.
Okay, alright, well thank you.
The next question is from the line of Alexia Howard with Bernstein. Please proceed with your questions.
Good morning, everyone.
Hello.
Hi, there.
No.
But it seems as though the top line, particularly came through better than expected versus the guidance you gave last quarter I'm just wondering you know.
What would favorable Buck.
Where are you on mm three months ago in terms of how the results come true in the fourth quarter and then I have a follow up.
Sure So alexia.
Most significant portion of our over delivery in Q4 with seasons.
It was probably about two thirds of our over delivery and I would call. It somewhat one time in nature. If you think about it. So there were two parts to that one was.
We did have retailers.
Requesting early shipments so that they could make sure that they have adequate supply as they came into 'twenty 'twenty. One so those shipments were incremental and then we also had exceptionally strong sell through both for Halloween and for holiday.
And that has kind of a knock on effect, where we then have less discounting required post the holiday and less cannibalization of the everyday business you kind of get back to the everyday business.
Even more quickly.
The investments and the focus that we put both in terms of media and in store merchandising to drive category growth. During the season really paid off growth, but that was the kind of the the single biggest factor that was different than we had anticipated.
Great and then as my follow up I, just wanted to dive a little bit more color on showing that you.
You talked about the change in the go to market model, there I think they're talking about using <unk>.
Local have you said to get the product out.
Is that is that just going through the retailer or is that something of interest.
Wanted to wanted it sounds a little bit faster.
Exactly what the change is all over that and also on how big is China today as a percentage of alcohol sales. Thank you and I'll pass it on.
So really the shift is.
Relying less on a large owned retail sales force and instead really focusing more on a master distributor type of arrangement, which is just more efficient and more effective clearly we will give up some level of sales there will be some slippage in taking that approach, but we think it is the most.
Efficient and effective way for us to get our product to consumers.
And then relative to the size of China, Steve do you want to hit that yet today, it's about a 60 basis, 0.6% of company sales and so I think in the past if we go back to early 'twenty, we price that it was about 1% of sales and you can think about between then and now you've got two things, obviously COVID-19 had a pretty big impact on that business for us in the first half and again, particularly because.
We were concentrated in the gifting space, which was hit early last year and then the second pieces is part of moving to the new model and some of those transition changes.
Great. Thank you very much I'll pass it on.
Thank you. Our next question is from the line of Michael Lavery with Piper Sandler. Please proceed with your questions.
Good morning, Thank you.
Just curious to get a little better sense of some of the sustainability of your share gains and just would love to understand how much you feel like it's innovation driven execution driven is it the higher marketing spending some amount.
Probably all of those but.
Is it you know how much of the marketing efficiencies you saw last year are you still seeing is that.
Piece of what's driving some of the share momentum in 'twenty, one how should we just think about all of that together.
Sure. So I think our share gains really are as you mentioned a factor of of many different components coming together first of all we do have an incredibly strong brand and very strong operating capabilities and execution capabilities.
I think as I look at the year, we've got a broad portfolio.
And we are able then to leverage that portfolio and pivot as needed to whatever occasions are resonating most with consumers and families right. Now. So certainly this past year. There were a lot of those at home occasions things like some wars, where people were staying on.
Being with their family at home and a smaller environment doing movie night products like Twizzlers.
And seasons were turned out to be incredibly important for consumers. During this very difficult time, where they wanted to cling to as much normalcy as possible and the seasons are really about traditions and rituals and connections with family and close friends.
You know as you mentioned, we also made strong investments over the past several years and a lot of capabilities that allows us to understand consumers' improved.
Improved our ability to forecast where consumers were going to go and then really execute well in our supply chain apply data and analytics to our sales in retail coverage data and analytics to our media.
In ways that we believe some others can't.
Early on we had discussed with all of you that we made that decision to lean in and capture opportunities as much as possible during COVID-19.
Take the opportunity to create new occasions for consumers and really partner with our retailers to make sure. We were there for them when they needed us with our retail sales folks in store stocking shelves.
And meeting their product needs when some others couldn't so clearly all of those things together, we're really important for US now as we look at that I would say we are you know in the past typically might be 10 20 basis points of share.
On a year, obviously this year 160 basis points of share and you know 130 on our chocolate business, where we already have a 45% market share so little.
We look into 2021.
We believe that the share growth will continue.
Prior to the lap, which is really you know basically up to Easter.
And post Easter we believe that the.
The share will moderate.
As we lap those 20 games, but it's going to be our goal to profitably sustain as much of the share as we can going forward.
Okay. Thank you that's helpful color and just a follow up on your portfolio shaping that you mentioned in the prepared remarks.
Interest in better for you.
Some of how you're doing that is because thins and portion sizes or organic type.
Driven but as far as M&A, how should we think about maybe in broad strokes, what to expect from any big or a bigger push into better for you there.
Yeah. If you look at our M&A strategy clearly it is focused on capturing incremental snacking occasions.
And some other ways that we look at that is you know clearly we do have a pretty sizable business in sweet indulgent type products and as we look at consumers brought a snacking needs clearly you know salty savory and better for you or opportunities where our portfolio is under developed.
And if you look at our past history of acquisition you would see.
But many of our acquisitions have been focused in that space. You know skinny pop is a great example of that so clearly that is a focus area for us within our M&A strategy.
Okay, great. Thank you very much.
The next questions come from the line of David Palmer with Evercore ISI. Please proceed with your questions.
Thanks, and congratulations on the year could you comment specifically on how much you think of your share gains this year or this last year 2020 was because of the supply chain advantages you might've had versus the competition right. If it were supply chain or at least mostly supply chain.
Would've expected diminishing share gains through the year, but the opposites seem to have been the case and I have a quick follow up.
Yeah, I mean, it is it is difficult in a year like this past year. It is precisely pinpoint.
The exact amount to any one factor just because there was so much going on I mean, clearly we know supply chain was you know it was a piece of it frankly.
Frankly, though we also believe you know, how we pivoted our portfolio and really.
Shifted spending and shifted focus to on our portfolio to the exact rate items that consumers were looking for you know the role that we were able to focus on book seasons, and how much that resonated with consumers during that time. So it is it's difficult to pinpoint there were opportunities for <unk>.
<unk> on shelf and so I guess I would say.
I think it's fair to say.
Some of that was probably short term benefit and then there are other components that have somewhat of a longer lasting effect. So for example, if you do well in a season, one year and your sell through was quite strong typically.
The pie that you get from retailers the next year tends to be pretty strong as well.
We're able to gain shelf space and get incremental items on shelf typically if they are performing well you have the opportunity to keep them on a sustained basis. So.
While some other benefits I think they're short term other we'll have that enduring effect.
Got it thank you and John just a follow up on some of the comments you made about the advertising spending.
As a percentage of sales going up to 21, clearly theres been a lot of changes out there in terms of the depth of digital marketing and the perhaps more exact return on investment you can get where calculate from those.
I'm wondering at this point.
After many years.
Of a declining not just for Hershey, but for the industry. Our AD spend has come down as efficiency was more of a focus do you think that you can get to a point where.
You can get a flywheel going where you spend as much or maybe even lean in on advertising as a percentage of sales as you get a better sense of the returns on these types of spendings. Thanks.
Yeah, I mean, our approach on media spend is you know this is a category and we have brands that are incredibly responsive to media.
And if you look at Rois on media being driven by you know scale profit margin and lift slashed responsiveness.
We you know we went on all three of those so you know we are one of the highest spenders on advertising as a percentage of net sales.
Within the industry and we really believe in that at the same time, we challenge ourselves constantly to get more from our money and so over the years, we have transitioned from a 100% TV advertising, probably 12 years ago to we're now down to probably 40% I think about 60 65 per cent of our spending.
Is digital.
Now the other factor that kind of plays in in addition to being more efficient through digital which has enabled us to do a lot of very targeted things such as targeting media based on how sell through with during the season or targeting ZIP codes et cetera, you have the other factor going on which is you know media on the cost of media.
We're in the marketplace and inflation and kind of playing through that if you think about 2020.
Our spending was down a little bit because we pulled back on some parts of the portfolio that we thought.
Just work relevant like refreshment this year.
So part of our increase is restoring some spend levels in some of those areas and that's part of what's driving up some of our spending as well.
Got it thank you very much.
The next question is from the line of John Baumgartner with Wells Fargo. Please proceed with your questions.
Good morning, Thanks for the question.
Yeah, I guess first off Michele I wanted to go back to the zero sugar product can you share a bit in terms of whats, enabling that relaunch is there anything very recipe wise, that's different and then where do you expect it to price relative to the baseline portfolio and is it fair to think that it's I guess at least gross margin relative to the base.
Yeah. So a lot of the proposition is kind of relaunch rebranding.
To think about this is a product that we launched many many years ago.
On more as sugar free for diabetics, which is what you know what that was about I don't know call. It 20 years ago, probably and really the bulk of the relaunch is about repositioning sugar free in a way that is more contemporary you know you look at you know look at beverages and zero sugar.
And you know lots of other categories. I mean, those products are just positioned entirely differently in a much more contemporary way and that's really our goal.
We actually think that the products are pretty good tasting to what we're getting good response from consumers, but but it is a lot about the repositioning of them.
And I'm sorry, what was the latter part of your question.
Terms of the profit contribution as it is it's sort of.
Neutral from a gross margin perspective relative to the base.
See I didn't the same in the same ZIP code that started and then say the repositioning isn't going to be a you know a whole new P&L there.
Okay, Great and then just a follow up in terms of retail Assortments and I think part of the strategy has been smarter execution that allows for some muscling out of shelf space to front end from lower velocity lower profit categories for retailers, but I think since COVID-19, we've seen some pretty sharp declines in distribution points for mints and gum has anything.
Change in that environment, whether its uptake in your hand, sanitizers or anything else that maybe forces you to pivot in terms of how you're thinking about shelf schemes at the front end in a in a COVID-19 world. Thank you.
No I mean, I would say mint and gum.
You know clearly there was pressure on mint and gum relative to Covid as a segment.
But part of what you might be seeing is how frequently something scan and versus high frequency, which get some impact sometimes impact what distribution actually looks like but.
You know, sometimes it's there and not scanning so oh, we don't haven't had any kind of material changes in our brands and portfolio broadly we feel.
Pretty good about our portfolio largely focused on ice breakers as a key brand, which has strong points of competitive differentiation in the product and does well on the brand. So we aren't yep, we're feeling pretty good about where we are in distribution overall growth in our brands.
Okay. Thanks Michele.
The next question comes from the line of Chris Growe with Stifel. Please proceed with your question.
Hi, good morning.
I had two follow on questions for you if I could I'm just curious.
And I asked earlier about the incremental shipments that occurred in the fourth quarter is it as simple as looking at your consumption and compare that to what you reported to understand like how much that seasonal shipment pattern change or were there other factors that inventory replenishment that kind of thing and then I think you mentioned that some non measured channels that may have affected your shipments in the fourth quarter.
Yeah non measured was the other piece seasons was the you know what's the biggest component.
Non measured channel, which we believe was driven by inventory replenishment. There was also the minor area of there we're more shipping days in Q4 versus the prior year and so that contributed as well.
Okay.
Thank you then just the follow on was in relation to the International Division do you expect international sales growth. This year, you talked about achieving market stability in 2021, and I guess I'm curious also on that question, excluding China, so to understand kind of how the other markets are faring and given the uniqueness of China.
So yes, we do expect modest.
International sales growth.
Which ex China would be even higher as we discussed will be living through some changes the impact of some other changes in the model, but we do expect modest growth internationally.
You know each market is a little bit different you know we continue to feel good on a long term basis about international as an important part of our business. It drives incrementals on incrementals source of growth for us.
And then as I said each market is a bit different you know, India. We saw some nice rebound and a strong finish to the year well certainly you know earlier in the year, India suffered through a lot of COVID-19 related pressure in Brazil constant currency sales were good are they.
We're double digits, but FX has been a challenge Mexico really is the market that contended or has tended to have continued COVID-19 pressure where the.
The category sales have remained soft even though that they are improving and a lot of that is driven by two factors you know store decline a traditional trade store closures and less of those family celebrations, where chocolate has traditionally played such an important role so it's a little.
Bit of a tale of multiple multiple cities as we look at each piece around the world, but in totality will lead to modest growth.
Okay. Thanks for all the color.
The next question is from the line of Jason English with Goldman Sachs. Please proceed with your questions.
Hey, good morning folks. Thank you for slipping me in and congrats on a strong finish to the year.
A couple of quick follow up questions. We've obviously already covered a lot of ground.
First in response to one question that I forget who asked it.
In terms of glide path for market share you mentioned strength up to the period would be its about Covid and then stayed from there just for clarification are you talking about a fading gains or do you expect your market share to flip into net losses as you give back some of the outsized gains from this past year.
Yeah, So I would say our our goal.
We expect we will continue to gain share through the lap and then once the lap hit we are gonna be focused relentlessly on track to profitably sustain as much of the share gain that we can obviously, it's hard to predict.
What will happen what will be going on in the marketplace competitively.
Federer category mix alone could pressure our share a little bit.
As gum will likely rebound versus 'twenty, and we are underdeveloped and so that mix shift alone puts a little bit of pressure.
And I guess, that's probably the only specific thing I'd call out we will be executing and it's one of the reasons that as Steve mentioned earlier that we are really making sure. We have significant investment. This year, so that we invest into trying to maintain those share gains.
That's helpful. Thanks.
And one more related follow on.
I think in response to Mr. <unk> question, you mentioned that you held your trade spend flat for the year.
Our understanding that some of your competitors did not do the same but they actually pulled back on some trade a pullback on some merchandising activity.
Adjusting that you'd likely gain share of trade spend share of merchandising share of activity in marketplace.
Is that understanding well placed are misplaced and if it is if it is sort of the reality of what happened last year any indication that some of those folks who pulled back maybe we get back to you.
Yeah. So it is a it is a fair statement that some of our we won some competitive merchandising absolutely as we had good product to deliver to really deliver for retailers and free for consumers, but we really won share in every aspect of the business.
You know velocity.
On promotion shelf space season, so pretty much across the board our share gains were pretty pervasive.
Yeah, well done thanks, a lot I'll pass it on.
Thank you. The next question is from coming from the line of Bryan Spillane with Bank of America. Please proceed with your questions Hey, good morning, everyone.
I guess, just two quick ones on capital allocation first share repurchases.
I think in the prepared remarks, you talked about 'twenty, one kind of being a more normal year or so on.
Our share repurchases or reducing the share count.
Part of the build to the earnings growth for 'twenty, one or.
Well, maybe that's it.
So are we at the share repurchases create any of the earnings leverage.
They do again more going back to a historic level in our recent history last year was unusual on capital allocation by a number of fronts just being cautious on.
On share repurchase among other areas as we look to 'twenty, one and plan. This year, we're expecting share repurchase to revert to a more normal level and again our goal is not to warehouse cash at the end of the day, even though we want to deploy it for profitable growth and share repurchase becomes one lever and creating some good constructive tension in that equation.
We will warehouse some cash for you on our living room, if you'd like.
[laughter] the other just capital spending I think we're gonna be at $550 million for this year and.
Maybe can you remind us I know, it's been elevated because <unk> been investing in some capabilities and some manufacturing capacity.
Kind of where we are in this capex cycle and it is $5 50 kind of a good number to run run out going forward or are we still is that still kind of reflective of a more elevated capital spending yes, it's more elevated it the answer is somewhere in between so you remember last year, we started targeting $4 50 to 500 per Capex, you know well get on one of the.
The areas, we were a little bit cautious on was projects last year and with Covid and pressure on resources, we had to re prioritize some things last year and the net effect of that was a little bit less capex in 'twenty and that capex pushing into 'twenty, one and for the main project. There are two of the biggest ERP being one and work on supply chain. The total project cost didn't.
And so it's shifted more into 'twenty, one and therefore, you can imagine some shifted into 'twenty, two as well and so but this year is unusually high I think we're gonna see elevated capex sort of above our long term algorithm probably through 'twenty three 'twenty four and we're going to talk a little bit more about that in cagny in a few weeks, we'll give some more color on capital.
And where it's headed but I would expect an elevated level for the next couple of years before we get back down to what's inside of our algorithm. Okay. And then just last one tied into capital allocation.
Maybe a bit of a follow on to the question that was asked earlier about M&A.
With interest rates being so low.
You know it sort of changes the deal dynamics, a little bit right. We've seen a couple of acquisitions.
Either rumored or on the tape in the last few months that.
You know are very accretive because we're borrowing at under 2% in some cases, it's under one so.
Would that kind of backdrop does that at all.
Impact maybe the appetite.
Both in terms of just doing deals, but also size.
Got this unusual opportunity there's plenty of liquidity.
Does that at all kind of change maybe the way youre thinking about M&A today versus.
It might have been a year or two ago in a different environment.
Sure I'll start on the Michele can add on I think from an appetite standpoint, we have the appetite and the second piece, we have a great balance sheet and so we generate a lot of cash we got flexibility, we like where we're at and so we're poised for the environment that we're in and I think Michelle did a great job earlier kind of pointed to where those hunting grounds orange, we're aware of the external environment and we're going to.
Rates are and what may or may not be hitting the market and we want to be able to participate in that growth just like everybody else.
And then Michele I think well said.
Great. Thanks, everyone.
The next question is coming from the line of Ken Zaslow with Bank of Montreal. Please proceed with your questions.
Hey, good morning, everyone.
Good morning, good morning, Luke.
Yeah go ahead, where you can talk about your pipe.
Can you talk about your pipeline for packaging innovation, how that should impact pricing not just in 2021, but also 2022 and how deep it is.
The thought process on your packaging innovation and the pricing that's assigned to that.
Yeah, So when we think about packaging innovation.
How can we think about pack types, which are designed to meet specific consumer occasions. So this isn't for me I would I would.
Composite as part of kind of price pack architecture, which is as we look to capture incremental consumer occasions, how do we have certain packs that that enable that so that there's a value to the consumer that you know our products now better meet on occasion or need you know if you go back and look at you know what.
He went on to lay down to stand up bags, not only was it easier to shop on shelf, but it was also once it got into the home in the pantry much easier to use much easier to see less messy those types of things we will look at pack configurations in terms of.
You know size like is there a smaller size that is used for certain occasions or certain demographics versus a larger pack and we'll look we'll do that on a brand by brand basis. So I would say that our pipeline is largely kind of focused on what we would say.
Price pack architecture.
And so as as such what we try and do from a strategic perspective is make sure that we are you know at least margin neutral I mean that would be our goal. We can get price realization. Obviously, that's you know that's that's the focus but short of that.
We want to be margin neutral.
Great I appreciate it thank you very much.
The next question is from the line of Rob Dickerson with Jefferies. Please proceed with your questions.
Great. Thanks, so much.
Just starting to have some good questions what's the net.
I guess in the prepared the.
On the prepared remarks, you had mentioned the bar business I guess name and one brand.
You had stated that it seems like some maybe retailers shifted space to protein drinks and powders right through just to meet the COVID-19 demand shifts, but then also same kind of given those discussions with retailers you know the expectation.
Is that kind of that bar business would come back so.
So just I'm, just asking kind of broadly speaking.
As you look at that bar category relative.
Relative to protein shakes powders are those conversations with retailers like fairly.
<unk> pointed such that you know, they're suggesting Oh. This is what we're doing for this period of time, but as we get through let's say Q2 or what have you. We would look to reallocate back to certain brands and certain bars or is this kind of more buck.
Yeah, it's going to probably come back, let's kind of wait and see how everything develops and that's kind of a question I guess for bars, but then also more holistically for the entire store.
Yeah, I mean, I think all retailers.
Yeah, they're always looking to try and optimize their space. According to what the current consumer demand is and so Oh, hey, nobody knows how long the what the curve of the pandemic is going to look like so I can't tell you a specific time when you know when it was shipped and obviously it will shift at different times with different <unk>.
Retailers to based on who their consumers are so I would say, it's less we have a definitive timeline.
And we are focused on one on.
How do we make sure that we've got the right support behind the brand and the right innovation relative to many of which we think is a big idea on also plant based which are on trend. So that as the category does come back we are well positioned to capture that.
Okay fair enough.
And then you know what.
No.
I'm truly impressed with all the different.
Areas that you're focused on on 'twenty, one rather than kind of on the go forward right.
Talking about more a little bit more sugar free potentially right. Obviously, there's yes G angle and you got some plant based innovation maybe on more on the bar side.
As mentioned before touching potentially increasingly into baked snacks.
So I guess Michele you know the question is if you step back it seems like Hershey continues to evolve right.
More of a broader snacking business, obviously outside of the core chocolate infection.
So as we get through 'twenty, one when you think about 'twenty two.
Simplistically you know would you argue that you know the point here is to kind of get Hershey bigger in the store.
On a bunch of different areas such that you are increasing overall distribution points on the go forward.
For broader Hershey or do you feel like as you step back for the whole company, Yes, obviously youre looking for a price distribution, but maybe there's a little bit of infill on a SKU maybe on on sugar free and maybe you'd take one out in the kitchen. So I'm just trying to right size kind of that increased distribution opportunity given all the different space.
You said you're focused on but that's it.
Yeah. So I guess I would say first and foremost you know our number one priority is always our core confection business because it is the mothership. It's our profit engine, we have tremendous strength.
Growing you know within consumer demand and so we always start there and then with that is the foundation, we really looked across all of the capabilities that we have as a company relative to consumer insight to taste science ubiquitous distribution.
All of that and say, how can we leverage that to capture more and more incremental consumer occasions, and so I think that's where you know you see us with a targeted focus on okay, something like better for you should capture on incremental occasion and incremental consumer and so.
So I would think about that as kind of more incremental and then if I look at you know flavor variety on the core to me, that's a little bit more where we rotate and we rotate out you know we have one slot for that but it's not a permanent incremental.
On some of our expansion into other categories I E better for you and savory, Yeah, I look at those as gaining incremental distribution points more broadly in the store by meeting you know incremental consumer occasions. So I think incremental occasion is important for us leveraging the capabilities and then importantly, making sure that we do a very measured.
Expansion you know we want to focus on confection added area and then really play to win there and make sure we don't spread ourselves too thin similarly to what I would say we would do on international where we have focused the last set of markets that we've prioritized that we really want to play play to win.
As opposed to spreading ourselves too thin.
Alright, great. Thanks, so much.
Thank you at this time on I'll turn the floor back to Melissa Poole for closing remarks.
Thank you so much for joining us this morning, I will be available throughout the day to answer any follow up questions. You may have.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.