Q4 2020 Hershey Co Pre-Recorded Management Discussion
[music].
Greetings and welcome to the Hershey Company fourth quarter, 'twenty, and 'twenty 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, 'twenty and 'twenty earnings Q&A session. I Hope everyone has had the chance to read our press release and listen to our prerecorded 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 and.
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.
And uncertainties can be found in today's press release, and the company's SEC filings for.
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 and 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.
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.
The co.
For questions first one on just trade spend and just thinking about you know on.
Things have been pulled back quite dramatically.
From 2020, and as we think about 'twenty 'twenty, one and I'm just curious in terms of your discussions with retailers and how you're talking about trade spending you know one of the things that we've been looking at is kind of a reset of price sensitivity given that no promotions have effectively been on the market for the past nine for 10 months. So just wanted to get your thoughts on that and then the other.
And as if you can give us a kind of a roundup on the innovation program that has already been announced just so we can get a sense.
And for that program in 'twenty and 'twenty one.
Sure so relative to trade spending and promotion, we didn't have any meaningful shifts in promotion and activity our levels for the year were pretty consistent with prior year. So we were basically flat.
The IRR data the IRI data will support that so.
And if there's a little bit of a disconnect and the Nielsen data. So we don't really expect any material changes as we go into <unk>.
Next year as well.
And then as you look at innovation.
Certainly I think some of the bigger items, we have kit Kat flavor, which has done exceptionally well for <unk> on a global basis.
We have the stuff for <unk> 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 under development across our portfolio and that will include kitkat thin, which is in addition to what has been on already lots of a successful platform with re spin.
We are also re.
Relaunching, our sugar free line to zero sugar really focusing on Hershey, and reef and launching Hershey and Greece organic profit.
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 will pass along.
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 thank our ask about.
The early holiday shipments that benefited for Q, obviously, you know I think over the for Q1 Q 'twenty one period, it's overall a big benefit to you. So I don't think of it as early shipments, but I am 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 easters 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 on material.
Different.
From a year to year basis because of that.
Thank you and then just for my follow up you know your commentary on cocoa butter cost was I think more constructive than some observers would you expect and which is great for them.
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 am happy to take that one yes, clearly facing on on at all and basis facing more inflation this year than last year.
And we've got the hedging program, which mutes some of the cocoa cocoa impact yes.
And flow through.
And we have some longer term contracts on things like freight and warehousing, but that said neither hedging north contracting is going to fully cover the exposure that we have and inflation and I think.
And if I take free as an example, we look at things like demand planning and how important that is and to the extent our planned 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.
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 or outside of commodities.
Great. Thanks, so much.
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 and a fair amount of reinvestment spend for 'twenty, one and both from 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 and we're happy to take that one as well, yes. So on the on the media side, and I'll say media and FTE and EMEA in general for <unk>.
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 and how we deployed media last year. We made some reductions kind of mid year, we 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.
And 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 and watch.
Head count all of that and then we talk about the investment side and the investment side. We do have some capabilities that we want to continue to fortify S. For 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.
And the analytics and insights that again, we've talked a lot about that and 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 topline delivered.
We have some latitude.
And flexibility there, but I would say we have pretty firm investment plans at least in those areas as we start the year.
And then just lastly, I'm curious what 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 and if in fact, it deems necessary to do so down the line just try and.
Get a sense of what goes into that sort of decision making process.
So if we step back and think about seasonal pricing Holistically and let me just remind you that we had priced the Halloween portion of season and Halloween is our biggest season. So that had occurred previously.
And that's about roughly call it 10% of our season and.
And then we mentioned that with pricing holiday Valentine and Easter Yeah, we're capturing at least another 10 points for certain parts of season and some of the every eight day items.
It got priced 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 season.
And 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.
Right.
You provided some helpful color on.
On your cocoa buying and and cocoa liquor and butter.
But it sounds like these hedges are protecting you. This year is there and extensive step up in 2022.
And is it possible that you know.
For more pricing will be needed.
And the full effect of the lid.
Goes.
And to play not just for you, but maybe for for the overall.
Industry.
And 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 think 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 and 'twenty two but as we know hedging helps smooth impacts over time.
And of the day.
<unk> flow through and sticks that eventually that's going to come into play and the cost and so hedging and smooth that out but to the extent the cocoa price picks that up eventually that come through now and then that ties into the broader strategy Michele just talked about and pricing and looking at the overall P&L and other things like cocoa sourcing and.
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 lift going in or taking advantage of dislocations and supply and demand throughout the course of 'twenty and 'twenty. There were times when you know the cocoa market had come down for beans, and things like that.
And that's really there just to be fully clear, though the latest 100 per cent and the cost base for 'twenty and 'twenty, one, but you have some of those hedges with the supply and demand and balances as well as 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 of what could cause those cost to change more so than the living 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 and in the prepared remarks, you say you might ship above consumption and the first half and below consumption and the second half.
Steve can you help us a little bit more on that.
Yeah, that's exactly right. We ended the year with inventories and the trade a little below historical averages. So as we look for the next year, we see that could be a bit of a.
A bit of a tailwind and the first half and a headwind perhaps in the back half of the year.
Okay, alright, well thank you.
And next question's from the line of Alexia Howard with Bernstein. Please proceed with your questions.
Good morning, everyone.
I left.
Hi that and so.
Okay.
It seems as though the top line, particularly came from better than expected.
And you guys last quarter.
I'm just wondering you know.
What would your favorable votes and why you are mm three months ago and terms of hamburgers on printer and the fourth quarter and then I have a follow up.
Sure So alexia.
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 and 'twenty, one and so those shipments were incremental and then we also had exceptionally strong sell through both for Halloween and for holiday and.
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 that you kind of get back to the everyday business and.
Even more quickly.
The investments and the focus that we've put both in terms of media and in store merchandising to drive category growth. During the season really paid off for us, but that was the you know kind of the the single biggest factor that was different than we had anticipated.
Great and then as my follow up I, just want to dive a little bit more color on showing that.
And you talked about the change and the go to market model, there and I think you're talking about using a local if you said to get the product out.
Is that more and they're going through the retailer or is that.
Once it once it sounds a little bit back on our exact.
Exactly what the change at all over that and north.
And how big is China today as a percentage of alcohol sales. Thank you and I'll pass it on.
Yeah.
So really the shift is relying less on a large on retail sales force and instead really focusing more on you know 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 and 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 and we go back to early 'twenty, we price that it was about 1% of sales and if you think about between then and now you've got two things, obviously COVID-19 had a pretty big impact on that business for us and the first half and again, particularly.
We were concentrated in the gifting space, which was hit early last year and and 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 for our next question is from the line of Michael <unk> 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 and execution driven is it the higher marketing spending and somewhere around.
Probably all of those but.
Is it you know how much of the marketing efficiencies you saw last year are you still seeing and does that.
And piece of what's driving some of the share momentum in 'twenty, one and how should we just think about all of that together.
Sure. So I think for share gains really are as you mentioned the factor of of many different components coming together first of all we do have an incredibly strong brands 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 occasion, and things like some wars, where people were still.
And being with their family at home and a smaller environment doing movie night products like Twizzlers.
And seasons, where it 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 our ability to forecast where consumers were going to go and then really execute well and our supply chain applying data and analytics to our sales and 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.
And we look at that I would say yeah. We are you know in the past typically might gain 10, and 20 basis points of share and.
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 as we look into 2021.
And we believe that the share growth will continue.
Prior to the lap, which is really you know basically up to Easter.
And post Easter and we believe that.
The share will moderate.
As we lap those 20 gains, 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 and better for you obviously some of how you're doing that is because spins and portion sizes or organic type.
Driven but as far as M&A, how should we think about maybe in broad strokes and what to expect from from any big and bigger.
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 and sweet indulgent type products and as we look at consumers broad.
Snacking needs and clearly you know salty savory and better for you or opportunities, where our portfolio is underdeveloped and if you look at our past history of acquisition you would see.
And that 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.
And 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 of 2020 was because of the supply chain and advantages you might've had versus the competition right. If it were supply chain or at least mostly supply chain you would have.
And have expected diminishing share gains through the year, but the opposites seem to have been the case and and I have a quick follow up.
Yeah, I mean, it is it is difficult and a year like this past year to precisely pinpoint.
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 that you know frankly, though we also believe you know how we pivoted our portfolio and really.
Shifting spending and shifted focus to on our portfolio to the exact rate items that consumers were looking for.
The role that we were able to focus on what seasons and how much that resonated with consumers during that time. So it is it's difficult to pinpoint.
There are opportunities for products 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 and a season, one year and yourself through was quite strong typically.
And the buy that you get from retailers for next year tends to be pretty strong as well.
And if you're able to gain shelf space and get incremental items on shelf.
Typically if they're performing well you have the opportunity to keep them on a sustained basis so well.
Well some of the 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.
A percentage of sales going up for 'twenty, one 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.
Hi, I'm wondering at this point and you know.
After many years.
Oh for declining not just for Hershey, but for the industry.
And Thats come down as efficiency was more of the 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 and you get a better sense of the returns on these types of Spendings.
<unk>.
Yeah.
Yeah, I mean, our approach on media spend is this is a category and we have brands that are incredibly responsive to media and.
And if you look at Rois on media being driven by scale profit margin and lift flashed responsiveness.
We went on all three of those so we are one of the highest spenders on advertising as a percent of net sales.
Within the industry and we really believe and that at the same time, we challenge ourselves constantly to get more from our money and so over the years, we have transitioned from 100% TV advertising, probably 12 years ago.
We're now down to probably 40% I think about 60 65 per cent of our spending is digital.
And now the other factor that kind of plays in and in addition to being more efficient through digital which has enabled us to do a lot of very targeted things such as targeting and 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 cost of media.
And the marketplace and inflation and kind of.
And through that if you think about 'twenty and 'twenty.
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 and.
So part of our increase is restoring some spend levels and 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 for John Baumgartner with Wells Fargo. Please proceed with your questions.
Good morning, Thanks for the question.
Yeah, I guess first off Michele and I wanted to go back to the zero sugar product can you share a bit in terms of what's 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.
And 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 and a way that is more contemporary you know you look at you know look at beverages and zero sugar.
And lots of other categories. I mean, those products are just positioned entirely differently and a much more contemporary way and and that's really our goal.
And we actually think that the products are pretty good tasting to what we're getting good response from consumers, but it is a lot about the repositioning of them.
And I'm sorry, what was the latter part of your question.
The profit contribution and just sort of.
And you feel from a gross margin perspective relative to the base.
And the same and the same ZIP code that started and then 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 for front end and from lower velocity lower profit categories for retailers, but I think since COVID-19, you've seen some pretty sharp declines and 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 for the front end and a in a COVID-19 world. Thank you.
No I mean, I would say you know mint and gum.
And clearly there was pressure on net.
And mint and gum relative to Covid.
As a segment.
But part of what you might be seeing is how frequently something's scan and versus high frequency, which could have some impact sometimes impact what distribution and actually looks like.
But.
You know, sometimes it's there and not scanning so.
Yeah, we don't haven't had any kind of material changes in our brands and portfolio.
Broadly and we feel pretty good about our portfolio largely focused on ice breakers as a key brand, which has strong points of competitive differentiation and the product and does well and the brand. So we are yes, we're feeling pretty good about where we are and distribution overall for us and our brand.
Okay. Thanks Michele.
The next question comes from the line of Chris Growe with Stifel. Please proceed with your question.
Hi, good morning.
Two follow on questions for you if I could I'm just curious.
Ken 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 and were there other factors.
Inventory replenishment that kind of thing and the Covid.
And that's in non measured channels that may have affected your shipments and the fourth quarter.
Yeah, and non measured was the other piece seasons was the was the biggest component.
Non measured channel, which we believe was driven by inventory replenishment.
And 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 on the phone.
And one was in relation to the International Division do you expect international sales growth this year.
You talked about achieving market stability and 2021 and I guess I'm curious also on the question, excluding China, and so I 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.
Each market is a little bit different you know we continue to feel good on long term basis about international and important part of our business it drives incrementals and incremental 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 and the year, India suffered through a lot of COVID-19 related pressure.
And Brazil constant currency sales were good and they were double digits, but FX has been a challenge Mexico really is the market.
<unk> ore has tended to have continued COVID-19 pressure where the.
And 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 declined 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 and response to one question and I forget who asked it.
In terms of glide path for market share you mentioned strength opposite to the period will be and talk Covid and then stay and 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 pit, we're gonna be focused relentlessly on track to profitably sustain as much of the share gain that we can obviously, it's hard to predict.
And what will happen and what will be going on and the marketplace competitively.
Etc, and category mix alone could pressure our share a little bit.
And as gum will likely rebound versus 'twenty, and we are underdeveloped and go 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.
And this year, so that we invest into trying to maintain those share gains.
That's helpful. Thanks and.
And one more related follow on.
And our response to Mr. <unk> question, you mentioned that you held your trade spend flat for the year, it's our understanding that some of your competitors did not do the same but they actually pulled back on some trade and pull back on some merchandising activity on suggests.
Suggesting that you'd likely gain share of trade spend share of merchandize and the share of activity and marketplace.
And is that understanding and well placed are misplaced and if.
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 moving back yet.
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 for for consumers, but we really won share in every aspect of the business.
Velocity.
Promotion and shelf space either.
And so pretty much across the board our share gains were pretty pervasive.
Yeah, well done thanks, a lot and 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 and the prepared remarks, you talked about 'twenty, one kind of being a more normal year. So on.
And our share repurchases or reducing the share count.
And part of the build to the earnings growth for for 'twenty, one or.
Well I mean, that's it or is it. So are we is our share repurchases create any of the earnings leverage.
Yeah, They do again more going back to historic levels and our recent history last year was unusual on capital allocation and number of from just being cautious.
On share repurchase among other areas and we looked at '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, we want to own and deploy it for profitable growth and share repurchase becomes one lever and creating some good constructive tension in that equation.
We will warehouse and cash for you and our living room, if you'd like.
[laughter] and the other just capital spending and I think we're gonna be at $550 million for this year and.
And maybe can you remind us I know, it's been elevated because you've been investing and some capabilities and some manufacturing capacity just 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 and you remember last year. We started targeting for 50 to 500 for Capex, you know well get on one of 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 net capex.
Pushing into 'twenty, one and.
For the main projects are two of the biggest ERP being one and work on supply chain. The total project cost Didnt change 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 going to see elevated capex sort of above our long term algorithm and probably through two.
'twenty three 'twenty for and we're going to talk a little bit more about that and kidney and a few weeks, we'll give some more color on capital and where it's headed but I would expect and 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.
And with interest rates being so low.
And 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 and the last few months.
You know are very accretive because we're borrowing at under 2% and some cases under one so.
With 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've been a year or two ago and a different environment.
For all started and Michele can add on I think from and 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 are and yet we are aware of the external environment and we're going to.
Just rates are and what may or may not be hitting the market and we want to be able to participate and that growth just like everybody else and.
And then Michele.
Well said.
Alright, 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 here and he can talk about your pipe.
Can you talk about your pipeline for packaging innovation, how's that shouldn't impact pricing and not just in 2021, but also 2022 and how deep it is and you.
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 is for me I would and.
Encompass is 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 our products now better meet and occasion or need you know if you go back and look at.
We went through and lay down the stand up bags and 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 Murphy and those types of things.
We will look at pack configurations in terms of 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 credit focused on what we would say price pack architecture.
And so as and such what we try and do from a strategic perspective is make sure that we are.
At least margin neutral I mean that would be our goal if we can get price realization obviously that.
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 question glad for that.
I guess and the prepared and are.
The prepared remarks, you had mentioned the bar business I guess the name and one brand.
And you had stated that it seems like some maybe retailers shifted space to protein drinks and powders right just to meet the COVID-19 demand shifts.
And then also same kind of given those discussions with retailers and the expectation.
Is that kind of that bar business would come back.
So just I'm, just asking kind of broadly speaking as you look at that bar category.
And the protein shakes powders are those conversations with retailers like fairly.
And I 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.
And would look to reallocate back for certain brands and certain bars or is this kind of more of a.
Yeah, it's going to probably come back with kind of wait and see how everything develops and that's kind of my 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 Ah 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 and when it was shipped and obviously it will shift at different times with different REIT.
Taylor's to based on who their consumers are so I would say, it's west we have a definitive timeline and.
And we are focused on one on.
And how 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 and 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.
It's really a press for all the different.
Areas that you're focused on on 'twenty, one right and kind of on the go forward right.
Talking about more a little bit more sugar free and potentially right. Obviously, there's ESG angle and you got some purpose intubation and they know more on that.
And our side.
And as mentioned before touching potentially increasingly into big snacks.
And I guess Michele you know the question is you know as you step back it seems like Hershey continue to evolve right and you know more of a broader snacking business, obviously outside of the core chocolate infection.
So as we get through 'twenty, one and we think about 'twenty two.
Very simplistically would you argue that the point here is to kind of get Hershey bigger and the store and.
A bunch of different areas such that you are increasing overall distribution points on the go forward for <unk>.
Hershey.
Or do you feel like I, just step back for the whole company, Yes, obviously youre looking quickly at distribution, but maybe there's a little bit and Phil on the Skus, maybe on on sugar free and maybe you'd take one out and kids and so I'm just trying to right size kind of that increased distribution opportunity given all the different states and said you're focused on.
Is 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 mother ship. It's our profit engine, we have tremendous strength it's growing.
And within consumer demand and so we always start there and then with that is the foundation, we really look across all the capabilities that we have as a company relative to consumer insight to taste science and 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 see us with a targeted focus on okay, something like better for you should capture and incremental occasion and incremental consumer.
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.
Some of our expansion into other categories I E better for you and savory, Yeah, I look at those as gaining incremental distribution points and more broadly in the store by meeting incremental consumer occasions. So I think incremental occasions important for us leveraging the capabilities and then importantly, making sure that we do a very measured it.
Expansion, we want to focus on confection and added area and then really play to win there and make sure we don't spread ourselves too thin and similarly to what I would say, we would do on international where we've focused select set of markets that we've prioritized that we really want to play play to win.
Opposed to spreading ourselves too thin.
Alright, great. Thanks, so much.
Thank you at this time and 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 and this will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yeah.