Q4 2023 Hershey Co Earnings Call - Q&A

Operator: Greetings and welcome to the Hershey Company fourth quarter 2023 question and answer session. At this time, all participants are in a listen only mode.

Greetings and welcome to the Hershey Company first quarter 2023 question and answer session. At this time all participants are in a listen only mode. As a reminder, this conference is being recorded.

Operator: As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Miss Melissa Poole, Vice President of Investor Relations for the Hershey Company. Thank you. You may begin. Good morning, everyone.

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.

Melissa A. Poole: Good morning, everyone. Thank you for joining us today for the Hershey Company's fourth quarter 2023 earnings Q&A session. I Hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre recorded remarks at the conclusion of today's live Q&A session. We will also post a transcript and audio replay of this call. Please.

Melissa A. Poole: Thank you for joining us today for the Hershey Company's fourth quarter 2023 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks.

Melissa A. Poole: At the conclusion of today's live Q&A session, we will also post a 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 statements include expectations and assumptions regarding the company's future operations and financial performance. However, actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events.

Melissa A. Poole: Note that during today's Q&A session. We may make forward looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance actual results could differ materially from those projected 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.

Melissa A. Poole: A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filing. 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's Chairman and CEO, Michelle Buck, and Hershey's Senior Vice President and CFO, Steve Bosco.

Melissa A. Poole: 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's, chairman and CEO, Michele Buck and Hershey.

Melissa A. Poole: Senior Vice President and CFO, Steve Oswald with that I will turn it over to the operator for the first question.

Operator: With that, I will turn it over to the operator for the first time. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Melissa A. Poole: Thank you.

Melissa A. Poole: If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys to allow for as many questions as possible. We ask that you each keep to one question and.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Speaker Change: One follow up thank you.

Speaker Change: Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Andrew Lazar: Great. Thanks, so much good morning, everybody.

Andrew Lazar: Good morning, everybody. Good morning, Andrew. Hey, maybe to start off, your guidance for 24 calls for about two to 3% net sales growth with volume flat to slightly down. So, it implies about a three point year over year benefit from price, which would seem to be mostly carryover related from actions taken last year. So I guess my question is, does the current outlook embed any additional pricing actions this year to address the currently elevated cocoa costs? And, and if not, I guess, if Hershey were to take additional pricing actions, would those benefit 24 or, with the typical timing lag and the complexity of the system's transition, would that likely really be more of a 25 benefit?

Andrew Lazar: Good morning, Andrew.

Andrew Lazar: Maybe to start off you your guidance for 'twenty four calls for about 2% to 3% net sales growth with volume flat to slightly down so implies about a three point year over year benefit from price, which which seems to be mostly carryover related from actions taken last year.

Andrew Lazar: I guess my question is does the current outlook.

Andrew Lazar: Embed any additional pricing actions this year to address the currently elevated cocoa costs and if not I guess first you were to take additional pricing actions with those benefit 'twenty four with the typical timing lag and the complexity of the systems transition with that.

Andrew Lazar: We would really be more of a <unk> 25 benefit at this stage.

Michele G. Buck: Hey Andrew, let me talk a little bit about our pricing approach and strategy, and then Steve will go into the numbers. You know, it's a dynamic environment out there, and we are taking a measured approach given historic inflation. As you know, we can't talk about future prices, but I do want to be very clear that there's no change to our pricing strategy and our commitment to use pricing to cover inflation and to support the investments that we think are critical to drive the business. So, given where COCO prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business. Steve, do you want to talk about some more of the specifics? Yeah, the way you laid it out, Andrew, is correct.

Speaker Change: Hey, Andrew let me talk a little bit about our pricing approach and strategy and then Steve will go into the numbers you know, it's a dynamic environment out there and we are taking a measured approach given historic innovation or inflation.

Andrew Lazar: As you know, we cant talk about future pricing, but I do want to be very clear that there's no change to our pricing strategy and our commitment to use pricing to cover inflation and to support the investments that we think are critical to drive the business. So given where cocoa prices are we will be using every tool.

Our toolbox, including pricing as a way to manage the business. Steve you want to talk about some more of the specific yes. The way you laid it out Andrew is correct. The pricing that we're counting on that three per center. So a lot of it is carryover some of it from 'twenty two eastern Valentines day so.

Steven Strycula: The pricing that we're counting on, that 3% or so, a lot of it's carryover, some of it from 22 for Easter and Valentine's Day, some we took mid last year on everyday chocolate, and then a small increase we announced earlier this year on grocery items and food service. And you're right, when we think about the impact of future price increases, you know, we were really challenged in the first half of this year just because of the ERP implementation. Like you said, it puts some limitations on what we can do. And you can imagine the enormous collaboration between us and retailers to execute that transformation. And so we're trying to keep things very stable during that period. And so further price increases, should they come, would benefit the back half of the year and probably more so in 20. I got it.

Andrew Lazar: We took mid last year on everyday chocolate and then a small increase we announced earlier this year on grocery items in foodservice and you're right. When we think about the impact of <unk>.

Andrew Lazar: <unk> price increase.

Steven Strycula: Were really challenged in the first half of this year, just because of the ERP implementation like you said it put some limitations on what we can do it as you can imagine enormous collaboration between us and retailers to execute that transformation. So we're trying to keep things very stable during that period and so further price increases should they come would benefit more the back half of the year and probably more so.

Steven Strycula: 25.

Andrew Lazar: Thanks for that. And then, the EPS in 24 is expected to be sort of flat for the year. There's obviously a big discrepancy between what you're looking for in the first half versus the second half in terms of EPS growth. I guess I'm trying to get a sense of how much of this anticipated improvement is anticipated improvement in the consumer environment versus what you have maybe more visibility and control over with things such as timing of your planned system spending and timing of cost saves and productivity. Just trying to get a sense of the visibility to that, you know, to the swing, if you will, in EPS growth between the first half and second half. Thanks so much, sure yeah it's it's not banking on cocoa relief and it's not banking on some kind of surge in the consumer or really even a surge in the base business you know the biggest factor is really two things driving it one is the lapse from last year and as you know we started out really strong the first quarter last year and then ran into things like softer salty category growth and popcorn the ERP implementation and salty and then the change in strategy at a key retailer so as we think about the lapse of those that's one factor that impacts this profile because the last gets much easier in the back half and then the second thing you mentioned Andrew are things in our control so the savings on the agility and automation initiative will get more traction in the back half again because the ERP places some limitations there the same with productivity in the manufacturing areas back half loaded and so those will accumulate as we turn the corner from the first half and pivot from the ERP sort of period of stability to period of driving impacts against those savings initiatives so it's really lapse combined with the things in our control, Thank you so much. Thank you.

Speaker Change: Got it thanks for that and then.

Speaker Change: EPS in 'twenty four is expected to be sort of flat for the year. There's obviously, a big discrepancy between what youre looking for in the first half versus second half in terms of EPS growth I guess I'm trying to get a sense of how much of this.

Speaker Change: Dissipated improvement is anticipated improvement in the consumer environment versus what you have maybe more visibility and control over with things such as timing of your planned system spending and timing of cost saves in productivity, just trying to get a sense of the visibility to that.

Speaker Change: So the swing if you will an EPS growth between the first half and second half. Thanks, so much.

Speaker Change: Sure, Yes, it's it's not banking on cocoa relief and its not banking on some kind of surge in the consumer or really even a surge in the base business. You know the biggest factor is really two things driving it one is the lapse from last year and as you know we started out really strong in the first quarter last year, and then ran into things like softer a cell.

Speaker Change: <unk> category growth and popcorn.

Speaker Change: ERP implementation and salty and then the change in strategy at a key retailer. So as we think about the laps of those that's one factor that impacts this profile because the the last gets much easier in the back half and then the second thing you mentioned there are things in our control. So the savings on the agility and automation initiative will get more.

Speaker Change: <unk> in the back half again because of the ERP places some limitations there are the same with our productivity in the manufacturing areas back half loaded and so those will accumulate as we turned the corner from the first half and pivot from the ERP sort of period of stability to a period of driving impacts against those savings initiatives. So it's really lapsed <unk>.

Speaker Change: And with the things in our control.

Speaker Change: Thank you so much.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.

Ken Goldman: Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Hi, good morning.

Ken Goldman: Hi, good morning, Thank you.

Michele G. Buck: Thank you. I wanted to ask you a little bit, you know, you have more innovation coming this year, you have more capacity, and you're battling an elasticity situation that I think it's fair to say is higher than many people expected. But your media spending is only being increased by the same amount of sales growth; I realize you're focusing on some key items a little bit more, and you're kind of rebalancing some of that. But just trying to get a sense of the risk of some of your more flanker-type brands if media is pulled away from them, if that's the impression I'm getting, if that's the right one, and how to really think about, you know, your decision to maybe not raise media spending a little bit more than sales growth to kind of make sure that, you know, you're battling elasticity in the way that's Yeah, thanks, Ken.

Ken Goldman: I wanted to ask a little bit you have more innovation coming this year, you'll have more capacity.

Ken Goldman: Youre battling on elasticity situation that I think it's fair to say is higher than many people expected but.

Ken Goldman: But your media spending is only being increased by the same amount of sales growth I realize you're focusing on some key items a little bit more in your kind of rebalancing some of that but I'm just trying to get a sense of the risk of some of your more flanker type brands. If media is pulled away from them. If that's the impression I am getting if that's the right one.

Ken Goldman: And how to really to think about your decision to maybe not raise media spending a little bit more than sales growth to kind of make sure that you know.

Ken Goldman: Youre battling elasticity in a way that's appropriate.

Speaker Change: Yeah. Thanks, Ken.

Speaker Change: As you know we are big believers in our business model relies on media as a key lever to continue to drive our brands over the long term. We're constantly we feel good about media going up in line with sales. We also constantly look to try and make those dollars work harder and harder for us and we've made.

Michele G. Buck: As you know, we are big believers and our business model relies on media as a key lever to continue to drive our brands over the long term. You know, we constantly feel good about media going up in line with sales. We also constantly look to try and make those dollars work harder and harder for us.

Speaker Change: Some pivots in terms of some of our targeting that are actually going to give us expanded reach levels that will be greater than sales. So the impact we will get from that media will be more than the dollar increase but we will constantly evaluate that and if we are seeing even better than we expected, we'll revisit decisions and disc.

Michele G. Buck: And we've made some pivots in terms of some of our targeting that are actually going to give us expanded reach levels that will be greater than sales. So the impact we will get from that media will be greater than the dollar increase. But we will constantly evaluate that, and if we are seeing even better than we expected, we'll revisit decisions and decide if we should be spending more as we always do during the year. Thanks.

Speaker Change: And if we should be spending more as we always do during the year.

Speaker Change: Thanks, and then quickly it's not often we see kind of a venerable established category like popcorn, maybe slumping to this degree.

Michele G. Buck: And then quickly, you know, it's not often we see kind of a venerable established category like popcorn, maybe slumping to this degree, not really thinking about share gains or losses for Hershey in particular, but what do you see happening most recently in popcorn? And what do you think needs to happen for the category to rebound? Yeah, I mean, I think what we saw this year was we did start to see some pressure in the category related to value, the fact that popcorn didn't quite have as much satiety as some other snacks. And we saw some private label entries also get some focus. So I think what needs to happen and then compounded by that, in the back half of the year, we are, you know, we are the number one or number two player in the category, depending on the timeframe in the category. And in the back half of the year, around our ERP implementation, we pulled back on merchandising and advertising support to make sure that we didn't have issues with supply.

Speaker Change: Not really thinking about share gains or losses for Hershey in particular, but what do you see happening most recently and popcorn and what do you think needs to happen for the category to rebound.

Speaker Change: Yeah, I mean, I think what we saw this year was we did start to see some pressure in the category related to value. The fact that popcorn wasn't quite have as much satiety as some other snacks and we saw some private label entries also get some focus so I think what needs to happen and then compounded by.

Speaker Change: That in the back half of the year. We are you know we are the number one or number two player depending on the time frame in the category and in the back half of the year around our ERP implementation, we pulled back on merchandising and advertising support to make sure that we didnt have issues with supply so that certainly had an impact as well.

Speaker Change: So as we've gone into this year, what we think needs to happen and we have done so we have made.

Michele G. Buck: So that certainly had an impact as well. So as we've gone into this year, what we think needs to happen, we have done. So we have made some improvements in the value proposition, introduced a value size, a bigger pack, we've sharpened some of our merchandising price points, and also increased merchandising. And we are back to a much heavier investment in advertising and innovation that we had over time. So we think we'll continue to see some of that weakness through the first five months of the year and then really rebound to nice growth and market share gains in the second half. Thank you. Our next question comes from the line of Max Gumport with BNP Powerbar.

Speaker Change: Made some improvements in the value proposition are.

Speaker Change: Introduced a value sides, a bigger pack, we've sharpened some of her merchandising price points and also increased merchandising and we are back to a much heavier investment in advertising and innovation that we've had over time. So we think we'll continue to see some of that lap through the first five months of the year and then.

Speaker Change: Really rebound to nice growth and market share gains in the back half.

Speaker Change: Thank you. Our next question comes from the line of Max <unk> with BNP Powerbar. Please proceed with your question.

Max Gumport: Please proceed with your question. Hi, thanks for the question. With regard to cocoa prices, you've previously talked about how there is a divergence between fundamentals and current market prices. I'm assuming you're looking at underlying supply and demand and the stock to grinding ratio, but I'm curious for an update on that front and how that informs your visibility into cocoa for 2024. Sure. Yeah, we look at a variety of things, as you can imagine. You know, I'll say the fundamentals first.

Max: Hi, Thanks for the question with regards to cocoa prices, you've previously talked about how they're sort of diverging between fundamentals and current market prices.

Max: I'm, assuming you're looking at underlying supply demand and the stop grinding ratio, but I'm curious Gordon.

Speaker Change: Update on that front and how that informs your.

Speaker Change: Visibility into cocoa for 2024.

Gordon: Sure, Yes, we look at a variety of things that you can imagine you know I'll say the fundamental then it when I say look at we have our internal team of experts in this domain, but we also have outside folks who also give his point of view from you know to make sure. We're not myopic in the way, we look at the market and what's happening.

Steven Strycula: And when I say look at, we have an internal team of experts in this domain, but we also have outside folks who also give us points of view from, you know, to make sure we're not myopic in the way we look at the market and what it is. But it is, we look at the fundamentals, we look at grind data, we look at crop yields, we look at weather, we look at all of those fundamentals and, of course But at the same time, you know, there's a lot of financial activity, a transactional sort of activity, and speculation that overlays the fundamentals. And it's been difficult, certainly, to untangle those two pieces.

Gordon: But it is we look at the fundamentals we look at grind data when we look at crop yields we look at whether we look at all of those fundamentals and of course demand but.

Gordon: But at the same time, you know, there's a lot of financial activity transactional sort of activity and speculation that overlays the fundamentals.

Gordon: And it's been difficult certainly to untangle those two pieces and so that's part of the reason that we have a hedging program is that we're not here to try to outsmart the market and beat the speculators birthday, we want to make sure that we have visibility and had the opportunity to reduce volatility to the extent we can in the P&L.

Bryan D. Spillane: And so, you know, that's part of the reason that we have an edging program is that, you know, we're not here to try to outsmart the market and beat the speculators per se; we want to make sure that we have visibility and have the opportunity to reduce volatility to the extent we can in the P&L. But it's certainly a very dynamic business. Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Hey, thanks, operator. Good morning, everyone.

Gordon: But it's certainly a very dynamic market.

Gordon: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question.

Bryan D. Spillane: Thanks, operator, and good morning, everyone.

Bryan D. Spillane: Good morning, Good morning, Hey, So I've got two questions and the first one is just I don't know if it was actually in the press release or not but Steve did you have given us a sense of just what your overall inflation is or maybe what cocoa inflation is I've got that question. A few times. This morning, so what what's the inflation rate I guess in the.

Bryan D. Spillane: Morning, morning. Hey, so I've got two questions. And the first one is, I don't know if it was actually in the press release or not, but Steve, have you given us a sense of just what your overall inflation is? Or maybe what cocoa inflation is? I've asked that question a few times this morning.

Bryan D. Spillane: And the guide.

Steven Strycula: Sure. If you look at it kind of break it into two pieces I'll, just say commodities up which helps the cocoa and sugar are the two most inflationary.

Steven Strycula: Low double digit inflation, if you look at other parts of the P&L, it's more mid single digits. So if you sort of average it over everything is high single digit, okay, and thats pretty well locked in rate I am assuming that.

Steven Strycula: So what's the inflation rate, I guess, in the guide? Sure, if you look at it, kind of break it into two pieces, I'll just say commodities, of which I'll say cocoa and sugar are the two most inflationary. Low double digit inflation; if you look at other parts of the P&L, it's more mid single digit. So if you sort of average it over everything, it's high single digit. Okay, and that's pretty well locked in, right? I'm assuming that, you know, like, you've got coverage on commodities for the year. Should we?

Steven Strycula: You've got coverage on commodities for the year should we is that a good expectation yes.

Speaker Change: Yes, that's correct, Okay cool and then Michelle just a I guess a bigger question or a broader question is just on the cost savings the incremental savings this morning.

Michelle: Can you talk a little bit about maybe how you came how as an organization you came to that end.

Michelle: I think the question that some folks are asking this morning is just you know are the cost savings a reaction right to inflation you are trying to preserve as much earnings as you can.

Michele G. Buck: Is that a good expectation? Yes, that's correct. Okay, cool. And then Michelle, just a bigger question or a broader question is just on the cost savings, the incremental savings this morning. Can you talk a little bit about maybe how you came to that and, you know, I think the question that some folks are asking this morning is just, you know, are the cost savings a reaction to inflation, you know, you're trying to preserve as much earnings as you can, which maybe implies cutting too much, you know, you've got a lot of stuff going on, an ERP system transition, like, is it really burdening the organization too much So I would say, you know, a year to 18 months ago, we started working on some initiatives that we thought could create some real opportunities and value for the company. And executing those was dependent on two things.

Michelle: Which maybe implies cutting too much.

Michelle: You've got a lot of stuff going on in ERP system transition like is.

Michelle: Is it really burdening the organization too much to try to focus so much on cost when there's so much other stuff going on.

Michelle: So just your perspective on.

Michelle: On that I think would be helpful for folks.

Speaker Change: Yeah sure. So I would say in a year to 18 months ago. We had started working on some initiatives that we select could create some real opportunity and value for the company and executing those was dependent on two things it was dependent on us getting through the S. Four implementation, which as you know.

Speaker Change: We will be through Q2 of this year and it was also dependent on us doing the unification of our salty snacks business, taking those disparate acquisitions, we had and combining them together, which obviously we did this past year and also put in place as for across that platform across that business unit.

Speaker Change: That then can.

Michele G. Buck: It was dependent on us getting through the S4 implementation, which, as you know, we will be through Q2 of this year. And it was also dependent on us doing the unification of our Salty Snacks business, taking those disparate acquisitions we had and combining them together, which, obviously, we did this past year and also put in place S4 across that platform across that business unit. That, then, can become an accelerator for us to really go after what we saw as some opportunities, both in terms of creating greater end-to-end connectivity and also using technology for automation and efficiency. So this is really where we expected that we would be.

Speaker Change: Can become an accelerator for us to really go after what we saw some opportunities both in terms of creating greater end to end connectivity and also using technology for automation and efficiency. So this is really where we expected that we would be.

Speaker Change: Certainly with some of the pressure in cocoa prices, we accelerated that work a bit.

Speaker Change: [noise] versus our original timeline, but the work was with planned and underway accordingly, and we're trying to be very joyful about.

Speaker Change: There were other choices that we're making across those initiatives and certainly making sure that a lot of that implementation won't happen until S.

Michele G. Buck: Certainly, with some of the pressure on COCA prices, we accelerated that work a bit versus our original timeline, but the work was planned and underway accordingly. So we're trying to be very choiceful about... Where are the choices that we are making across those initiatives and certainly making sure that a lot of that implementation won't happen till post S4, till we get through implementation. So really measuring out when we do what to match with organizational capacity. Steve, anything you would add to that? We're excited.

Speaker Change: Fast forward till we get through the implementation so really measuring out when we do what to match with the organizational capacity do you have anything you would add to that.

Speaker Change: We're excited we're going to get through ERP will have 95% of our business all on one platform and the opportunities that will unlock and then as Michelle said you know thinking ahead to things like integrated demand planning and bringing more automation to supply chain. These were things we had in the vision before but now we're much closer to being able to make them real.

Steven Strycula: We're going to get through ERP. We'll have 95% of our business all on one platform, and the opportunities that will unlock. And then, as Michele said, thinking ahead, things like integrated demand planning and bringing more automation to the supply chain. These were things we had in the vision before, but now we're much closer to being able to make them real. Steve, you may be the first person that used excited and ERP in the same sentence. I look forward to seeing you guys in Florida.

Speaker Change: Lives.

Speaker Change: Steve you may be the first person that use excited in ERP in the same sentence.

Speaker Change: [laughter].

Speaker Change: Look forward to seeing you guys in Florida Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Alexia Jane Howard: Good morning, everyone.

Alexia Jane Howard: Good morning can I ask about honing in on the chocolate category in the U S. You've obviously seen some nice recovery in volume and market share over the last two or three months its been fairly shop can you talk about what the dry the main drivers of that are I imagine the innovation with the races Caramels law.

Steven Strycula: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Good morning, everyone.

Alexia Jane Howard: Good morning. Can I ask about honing in on the chocolate category in the US? You've obviously seen some nice recovery in volume and market share over the last two or three months. It's been fairly sharp.

Alexia Jane Howard: It might be a piece of that.

Speaker Change: I'm, just giving you.

Alexia Jane Howard: Some idea of what's driving that and whether that trend is expected to continue.

Michele G. Buck: Can you talk about what the main drivers of that are? I imagine that innovation with the Reese's Caramels launch might be a piece of that. Just giving us some idea of what's driving that and whether that trend is expected to continue. Yeah, absolutely. I'd say there are two things that have really created some nice momentum for the business. One was that we saw consumers have a huge affinity for the seasonal traditions. And we had very strong growth in the category for both Halloween and holiday, and we also won share.

Speaker Change: Yeah, absolutely I'd say there are two things that have really created some nice momentum on the business. One was we saw consumers have a huge affinity to the seasonal traditions and we had very strong growth in the category in both Halloween and holiday and we also one chair.

Speaker Change: So that was certainly a key driver and as you mentioned, we had talked about earlier this year the opportunity for us in 'twenty four to really dial up innovation. We had a later year in 'twenty three our innovation for 'twenty four is up about a third versus where it was in 'twenty three and we're really excited that we have some big innovations Research Council.

Michele G. Buck: So that was certainly a key driver. And as you mentioned, we had talked about earlier this year, the opportunity for us in 24 to really dial up innovation, because we had a lighter year in 23.

Speaker Change: We believe will be a very nice addition, and that's doing well in Q4 continues to will be featured.

Michele G. Buck: Our innovation for 24 is up about a third versus where it was in 23. And we're really excited that we have some big innovations. Reese's Caramel, we believe will be a very nice addition and that's doing well in Q4, continues to be featured at the Super Bowl. So you can look for that as well.

Speaker Change: On the Super Bowl. So you can look for that as well and then we have some exciting suites innovation later in the year.

Speaker Change: Perfect and just continuing on the theme of innovation you mentioned that the increase.

Michele G. Buck: And then we have some exciting sweets innovation later in the year. Perfect. And just continuing on the theme of innovation, you mentioned a third increase. Are you able to quantify where you are in terms of the percentage of sales from new products introduced over the last three years? I imagine that that would have come down significantly since the pandemic started.

Speaker Change: Are you able to quantify where you're at in terms of percentage of sales from new products introduced over the last three years I imagine that that would have come down significantly since the pandemic started.

Speaker Change: Yes, so we are up about 35% higher in terms of innovation versus prior year and were up slightly versus pre pandemic as well.

Michele G. Buck: Yeah, so you know, we are up about 35% higher in terms of innovation versus the prior year, and we are up slightly versus pre-pandemic as well. I think we've chosen not to talk about innovation as a percent of net sales. Okay, perfect. I'll pass it on.

Speaker Change: I think we've chosen not to talk about innovation as a percent of net sales.

Speaker Change: Okay perfect I'll pass it on thank you.

Speaker Change: Thank you. Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your question.

Pamela Kauffman: Thank you. Thank you. Our next question comes from the line of Pamela Kauffman with Morgan Stanley. Please proceed with your question. Hi, good morning. Good morning.

Pamela Kaufman: Hi, good morning.

Pamela Kaufman: Good morning.

Pamela Kauffman: A question on your capacity expansion plans. I think you previously mentioned you had a 15% increase in capacity coming online this year. Can you just give an update on that? And do your cost savings initiatives impact these plans at all? And then maybe you can remind us what products the capacity is going to be used for. So I'll cover some of that and let Steve cover some of it.

Pamela Kaufman: A question on your capacity expansion plans are I think you previously mentioned you had a 15% increase in capacity coming online. This year can you just give an update on that and your cost savings initiatives impact. These plans at all and then maybe you can remind us what.

Speaker Change: The capacity is going to be used for.

Speaker Change: So I'll cover some of that and let Steve cover some of it you know we've continued to invest in capacity in brands and businesses across the portfolio that have growth and opportunity ahead over the past couple of years, we've focused on Greece's, where we were short on capacity. So that we could fulfill consumer demand and then the other big areas.

Michele G. Buck: You know, we've continued to invest in capacity in brands and businesses across the portfolio that have growth and opportunity ahead. Over the past couple years, we focused on Reese's where we were, you know, short of capacity so that we could fulfill consumer demand. And then the other big area of focus we had was on the gummy side of the business in sweets.

Speaker Change: Because we had was on the gummy side of the business and suites.

Steven Strycula: And in the first part of this year, we completed and have capacity coming online for that business that we will be able to leverage to better participate in that segment in the back half of the year. Yeah, the only thing I would add is that everything is on track. We're proceeding per plan, and the cost savings project that we talked about doesn't have any direct impact on those plans.

Speaker Change: And the first part of this year, we complete and have capacity coming online for that business that we will be able to leverage to better participate in that segment in the back half of the year, Steve Yes. The only thing I would add is everything is on track.

Steven Strycula: Receding per plan and the cost savings project that we talked about doesn't have any direct impact on those plan other than as we look to the future of more opportunities to automate and create some agility and supply chain beyond those projects. So.

Pamela Kauffman: Other than as we look to the future, more opportunities to automate and create some agility and supply chain beyond those projects. Great, thank you. And in the prepared remarks, you pointed to 200 basis points of gross margin contraction this year. Can you walk us through how you're thinking about the puts and takes around gross margins in 24? And if you could give some color on the cadence of gross margin progression this year? Sure.

Speaker Change: Okay. Thank you.

Speaker Change: In the prepared remarks viewpoint to 200 basis points of gross margin contraction. This year can you walk us through how you're thinking about the puts and takes around gross margin and 24 and if you could give some color on the cadence of gross margin progression this year.

Speaker Change: Sure, Yes, I will give the highlights.

Steven Strycula: Yeah, I'll highlight that the prepared remarks actually have a good section on that. So whatever I missed here, refer back to that. But with overall full-year basis down 200 basis points, as you said, we're going to see more of that in the first half than the second half for some of the reasons we talked about even earlier in this Q&A session. We will have higher commodity inflation in the second half, but in the second half, we'll begin to see more benefits from continuous improvement. So manufacturing cost savings, the agility and automation program that we talked about, will kick into higher gear in the second half as we get past the ERP process. And then we're lapping some one-time costs in the back half related to SALTI and the ERP program. So those laps plus the accumulated benefits that pick up on the savings side are what drive the biggest inflection from a gross margin standpoint as we look at the second half having more – less drag than the first half. Thank you. And just one more quick question.

Speaker Change: Paired remarks actually have a good section on that so whatever I Miss here refer back to that but with overall full year basis down 200 basis points that he said, we're going to see more of that in the first half.

Speaker Change: And then the second half for some of the reasons, we talked about even earlier in the Q&A session and we will have in the second half higher commodity inflation, but in the second half, we'll begin to see more benefits from continuous improvements on manufacturing cost savings.

Speaker Change: Agility and automation program that we talked about will kick into more gear in the second half as we get past the ERP process a.

Speaker Change: And then we're lapping some one time costs in the back half related to salt in the ERP program. So those labs plus the accumulated benefits that pick up on the savings side are what drive the biggest inflection from a gross margin standpoint, as we look at the second half having more.

Speaker Change: Less dragged in the first half.

Speaker Change: Okay. Thank you.

Speaker Change: One more quick question, how are you thinking about the outlook for our cocoa prices from here and how is that influencing your hedging strategy.

Pamela Kauffman: How What are you thinking about the outlook for cocoa prices from here? And how is that affecting your hedging strategy? Yeah, our hedging strategy has not changed. Our kind of principles around how we manage commodities haven't changed. It's a dynamic market, and we're not going to comment too much about future pricing. You know, our business, as Michelle said, we've seen cycles like this before, we've got a lot of tools at our disposal to manage the impact of cocoa, and we plan to use all of them. Thank you. Thank you.

Speaker Change: Yeah, our hedging strategy has not changed our kind of principles around how we manage our commodities hasn't hasn't changed.

Speaker Change: A dynamic market and were not going to comment too much about future pricing our business as Michelle said, we've seen cycles like this before we've got a lot of tools at our disposal.

Speaker Change: To manage the impact of cocoa and we plan to use all of those so.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.

Robert Moskow: Hi, Thanks, I guess I have two questions. The first is our market share assumptions in the U S. For 2024 is it fair to say that you think you can.

Robert Moskow: Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question. Hi, thanks.

Robert Moskow: I guess I have two questions. The first is market share assumptions in the US for 2024. Is it fair to say that you think you can grow market share in confectionery? And the second thing on the pricing strategy. You know, Michele, nothing's changed. But this is a different strategy than what you've had in the past.

Robert Moskow: Grow share.

Speaker Change: And confectionery and the second thing on the pricing strategy, Michelle Nothing's changed.

Robert Moskow: But this is a different strategy than what you've had in the past. The idea is to kind of squeeze out the pricing and maybe more frequently and in smaller increments and I guess is that still possible to do in an environment like this when when the input costs spike so significantly.

Michele G. Buck: You know, the idea is to kind of squeeze out the pricing maybe more frequently and in smaller increments. And I guess is that still possible to do in an environment like this when the input costs spike so significantly? It sounds like that, you know, it sounds like you're doing it this year. But, you know, is it more difficult to execute when you see this much volatility in the inputs or not? Okay, so I'll take the first question.

Robert Moskow: It sounds like that it sounds like Youre doing it this year, but.

Robert Moskow: Is it more difficult to execute when you see this much volatility in the inputs or not.

Speaker Change: Okay. So I'll take the first question first relative to market share, we expect to see sequential improvement as we go throughout the year. The first half will be pressured by a shorter Easter Easter comes much earlier this year.

Michele G. Buck: First, relative to market share, we expect to see sequential improvement as we go throughout the year. The first half will be pressured by a shorter Easter, because Easter comes much earlier this year.

Michele G. Buck: And also, we will have about five, roughly five months in the first half of lapping the reduced merchandising and distribution at that one key retailer. And we know from this past year, the impact of that was about two points in total; we offset about one point of that on a takeaway basis. So that will that will pressure share. In the second half, we are then past those laps of the shorter Easter and retail merchandise. And so we expect to see sequential improvement and to end the year in a much better place than where we're starting. As I think about our pricing strategy, I'd say what is consistent is our goal to cover inflation with price over time. Within that, how exactly we do that relative to, you know, smaller, shorter, more frequent, or bigger, the timing and the magnitude are heavily influenced by other factors, such as where, you know, our input costs and general inflation are.

Speaker Change: And also we will have about five.

Robert Moskow: Roughly five months in the first half of lapping the reduced merchandising and distribution at that one key retailer and we know from this past year the impact of of that was about two points in total we offset about one point of that on a takeaway basis, so that will that will pressure.

Robert Moskow: Sure in the second half we than our past those laps of the shorter Easter and the retail merch and so we expect to see sequential improvement.

Robert Moskow: And to end the year in a much better place than where we're starting as.

Robert Moskow: As I think about our pricing strategy.

Robert Moskow: I'd say what is consistent is our goal to cover inflation with price over time.

Robert Moskow: Within that how exactly we do that relative to you know smaller shorter more frequent who were bigger you know the timing and the magnitude to me are heavily influenced by other factors, such as where our input costs and general inflation.

Robert Moskow: Our.

Michele G. Buck: So I think, yes, that overall, we have a strategy to expand growth margins to prices to cover inflation and allow reinvestment. That hasn't changed. But how we go about doing that will be a bit different. Yeah, we're also very much focused on price pack architecture as an opportunity, you know, all the tools in the lever. Got it.

Robert Moskow: So I think yes. The overall, we have a strategy to expand gross margins to price to cover inflation and allow reinvestment that hasn't changed but how we go about doing that.

Robert Moskow: A bit different you know we're also very much focused price pack architecture as an opportunity you know all the tools and the lever.

Speaker Change: Got it so you can be flexible depending on the.

Robert Moskow: So you can be flexible depending on the cost condition. Yeah. Yeah. Okay. Thank you so much.

Robert Moskow: Cost conditions.

Robert Moskow: Yes, yes.

Speaker Change: Okay. Thank you so much.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Michael Scott Lavery: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Thank you. Good morning.

Michael Scott Lavery: Thank you and good morning.

Michael Scott Lavery: Good morning.

Michael Scott Lavery: I just wanted to come back to Easter and the ERP transition you'd you'd mentioned with salt.

Michael Scott Lavery: I just wanted to come back to Easter and the ERP transition. You mentioned with Salty in 4Q how you cut back on some of the merchandising and even, I think, a little bit of the marketing spend. You mentioned Easter being a little bit shorter, but is there sort of an amplified headwind from timing that, you know? Would you be doing a similar approach to promotions or marketing in conjunction with the transition to dial that back a little bit? Or is there a reason that they wouldn't apply the same way as the Salty transition did?

Michael Scott Lavery: <unk>, how you cut back on some of the merchandising and even I think a little bit of the marketing spend with you you've mentioned Easter being a little bit shorter, but is there sort of amplified headwind from.

Speaker Change: The timing that you know would you be doing a similar approach to it.

Robert Moskow: Promotions or marketing.

Robert Moskow: Conjunction with the transition.

Robert Moskow: Dialed that back a little bit or is there a reason that they would not apply the same way as the sell through transition.

Speaker Change: Yeah, we're not applying the same.

Steven Strycula: Yeah, we're not applying the same approach we did with Salty in that respect, you know, we'll still be building inventory in the first quarter, we'll still be draining that inventory in the second quarter, just to de-risk the transition, but we are not going the extra step of like freezing all activity in store, merchandising promotion. We have full merchandising and promotion plans, those are going to proceed, they were planned So that is a big difference. Yeah, we felt like we got really good learning through the Salty, and this was our plan to do Mexico first, then Salty, and then, you know, the mothership.

Speaker Change: <unk> treated with <unk> in that respect we will still be building inventory in the first quarter will still be draining that inventory in the second quarter.

Speaker Change: Just a derisked the transition, but we are not going the extra step of like freezing.

Speaker Change: All activity in store merchandising promotion we have.

Speaker Change: Merchandising and promotion plant those are Gonna proceed they were planned well in advance and we have full confidence in being able to support them. So that is a difference yeah. We felt like we got really good learning through the salty and this was our plan to do Mexico. First then salty and then the you know the mothership and we got really good learning that we've been able to just incorporate and fine tune along the way.

Michele G. Buck: And we got really good learning that we've been able to just incorporate and fine-tune along the way. We also don't have the complexity of quite as many different systems that we have to bring together with our business as we did with all of the acquisitions. Okay, that's a great color. And then can you just give us a sense of the elasticities, maybe both?

Speaker Change: We also don't have the complexity as quite as many different systems that we have to bring together with our business as we did with all of the acquisitions.

Speaker Change: Okay. That's great color and then can you just give us a sense on elasticities.

Michael Scott Lavery: How they currently look versus history and then also what your assumptions are in the guidance as far as how they might progress over the rest of the year. Yes, so we're expanding. We're expecting our elasticities to be similar to historic levels. So that's our key assumption. Okay, great. Thanks so much.

Speaker Change: Maybe both.

Speaker Change: How they currently look versus history, and then also what your assumptions are in the guidance as far as how they might progress.

Speaker Change: Rest of the year.

Speaker Change: Yes, so we're expanding that we're expecting or elasticity to be similar to the historic levels. So that's our key assumptions.

Speaker Change: Okay, great. Thanks, so much.

David Palmer: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question. Good morning.

Speaker Change: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.

David Palmer: Good morning, Thanks for the questions.

David Palmer: Thanks for the question. Maybe just first off, on the pull-forward of the productivity and cost savings, I just wanted to follow up on the earlier question. Are there newfound savings embedded in this? Or are these largely initiatives that would have been done in future years?

David Palmer: Maybe just first off on the pull forward of the.

David Palmer: Productivity question I, just wanted to follow up from an earlier question are there new films saving embedded in this or are these largely initiatives that would have been done in future years, just maybe clarify that piece of it.

Steven Strycula: Just maybe clarify that piece of it. Sure, so when we did our investor conference back in March, we talked about incremental productivity savings in the manufacturing area, so this is incremental to that, to start with. But this is beyond that.

Speaker Change: Sure. So when we did our Investor conference back in March we talked about incremental productivity savings in the manufacturing area. So this is incremental to that just to start with this this is beyond that.

Steven Strycula: As Michele said, in the longer term view, we saw these as opportunities, but it's new opportunities really built off the back of some of the technology now coming to fruition, is the way to think about it. And we've really beefed up or are beefing up our capabilities in technology. We hired a CDTO in the fourth quarter who's really bringing us capability and further expanding what we can do as a company, we believe. Okay, thank you. And I know there are some questions that kind of dance around this, but maybe I'll be a little more direct about it.

Speaker Change: As Michelle said in the longer term view, we saw these as opportunities.

Speaker Change: But it's it's new opportunities really built off the back of some of the technology now coming to fruition is the way to think about it.

Speaker Change: And we've really beefed up our end are beefing up our capabilities and technology, we hired.

Speaker Change: A C D T O <unk> in the fourth quarter, who's really bringing us capability and further expanding what we can do as a company we believe.

Speaker Change: Okay. Thank you.

Speaker Change: I know, there's some questions you've kind of danced around this but it'll be a little more directly just on pricing what exactly is flowing through as we think about 2024 or so kind of what pieces of the portfolio are being touched are there incremental pricing actions embedded at all in guidance or kind of what we start out in the first quarter is the run rate.

Steven Strycula: Just on pricing, what exactly is flowing through as we think about 2024? So, kind of what pieces of the portfolio are being touched? Are there incremental pricing actions embedded at all in guidance or kind of what we start out with in the first quarter as the run rate is kind of the full magnitude? Sure, yeah, so we have sort of three pricing components that are embedded into the Outlook. I touched on a couple of these earlier. There's the Easter Valentine's Day action that was taken in 22.

Speaker Change: It's kind of the full magnitude.

Speaker Change: Sure Yeah. So we have sort of three pricing components that are embedded into the outlook that Mike touched on a couple of these earlier, there's the Easter Valentine's day action that was taken in 'twenty two that's reflected this year.

Steven Strycula: That's reflected this year. There was an everyday chocolate increase that we executed mid last year. That's reflected

Speaker Change: There's everyday chocolate increase that we executed mid last year, that's reflected and then there was a small new price increase on some grocery and foodservice items that really went just into effect. This month. So that's happening right now those are the only assumptions that are embedded in the outlook right now.

Steven Strycula: And then there's a small new price increase on some grocery and food service items that really went into effect this month. So that's happening right now. Those are the only assumptions that are embedded in the Outlook right now. Right, thank you. Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed. Hi, good morning, everyone.

Speaker Change: Alright, thank you.

Speaker Change: Okay.

Okay.

Michele G. Buck: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.

Chris Carey: Hi, good morning, everyone. So just a few follow ups if I could just on gross margin.

Chris Carey: So just a few follow-ups, if I could, just on gross margin. You know, again, just kind of put a fine point on this one. Do you expect expansion in the back half of the year? Or are you saying that there is just going to be less contraction in the front half? It's going to be less contraction. Yeah, the contraction will be more significant in the first half, less in the back. Okay, understood. That's what I thought.

Chris Carey: I guess kind of put a fine point on this one do you expect expansion in the back half of the year or are you, saying that it's just going to be less contraction.

Speaker Change: Got it.

Chris Carey: The house.

Speaker Change: It's gonna be less contraction the contraction will be more significant in the first half less in the back half.

Speaker Change: Okay, that's what I thought.

Steven Strycula: Thanks. And then just on a segment basis, right, there's this dynamic where most of the inflation clearly is hitting you on the confection side, but probably some of the more fundamental category dynamics are more pressured on the SNAC side, clearly because you're expecting a low algorithm for next year. And so just from a margin dynamic between the segments themselves, is there a dynamic where, and this quarter is so hard to assess with SNACs because of the impact of VRP, but will SNACs require more investment in a strange way? It'll have more margin contraction than what we're going to see in confection. Is there any way you can just kind of frame investment needs and sort of fundamental margin pressure on SNACs versus, versus, you know, just inflationary driven?

Speaker Change: Thanks.

Speaker Change: And then just on a segment basis right. There is this dynamic where.

Speaker Change: Most of the inflation clearly its hitting you on the on the confection side, but probably some of the more fundamental.

Steven Strycula: Category dynamics are are more pressured on the snack side, clearly because you're expecting what algorithm for next year.

Speaker Change: Just from a from a margin.

Steven Strycula: Dynamic between the segments themselves is there a dynamic where.

Speaker Change: This quarter, so hard to assess with snacks because of the because of ERP, but.

Steven Strycula: Well snacks require more investment.

Michele Buck: Each way you'll have more margin contraction on what we're going to see a confection is there any way you can just kind of frame it.

Steven Strycula: Investment needs.

Steven Strycula: Fundamental margin pressure and stacks versus <unk>.

Michael Scott Lavery: Versus just I guess inflationary driven.

Steven Strycula: Places that we would say confection and then I apologize for just.

Steven Strycula: I apologize for one more cleanup in a way, but I think that Bryan's question on SM&A, percentage of sales, we're probably implying a roughly 15-year low for this year, maybe just help us contextualize why we're not getting too low from that standpoint, and maybe that 15-year journey is just about increasing efficiency relative to the sales base. It's come up a couple times, so any added context there would maybe

Steve Bosco: Just.

Steven Strycula: One more cleanup in a way, but I think to Brian's question on SG&A as a percentage of sales it.

Speaker Change: Probably implying a roughly 15 year low for this year, maybe just help us contextualize why.

Steven Strycula: We're not getting too low from that standpoint, it may be that 15 year journey is just about increasing efficiency relative to the sales space. So it's come up a couple of times so.

Steven Strycula: Any context, there would be helpful. Thanks.

Chris Carey: Thanks. Sure, on the segment margins, you're right; the confection business is going to bear the brunt of the margin impact due to cocoa. Salty margins are up for 2024 year over year, and that's even on the back of some pretty heavy investment. And so, you know, we feel good about the journey that we're on there. It's not impacted, obviously, by the cocoa component in the second question. Could you just say the question again? I want to make sure I heard that one.

Speaker Change: Sure on the segment margins, but you are right. The confection business is going to bear the brunt of the margin impact due to cocoa.

Chris Carey: <unk> margins are up for 2024 year over year, and that's even on the back of some pretty heavy investment and so we feel good about the journey that we're on there.

Speaker Change: It's not impacted obviously by the cocoa component on.

Speaker Change: On the on the second question could you just say the question again I wanted to make sure I heard that one.

Speaker Change: It's effectively that operating cost as a percentage of sales.

Chris Carey: Look to be imply that Oh, roughly 15 your low end.

Speaker Change: Four and it's really just.

Chris Carey: Understanding why that's not.

Steven Strycula: It's effectively that, you know, operating costs as a percentage of sales look to be implied at a roughly 15-year, year low in 2024. And it's really just understanding why that's not true when you look back over time, definitely getting more fixed cost leverage, you know, the business is bigger. Even with a little bit slower growth here in 24 than we've seen in the last couple of years, we get significant leverage because we have efficiencies elsewhere in the P&L. Driving efficiencies through the P&L is an every-year activity, and that's not new.

Chris Carey: Cutting to the bone or going too low relative to where we're just getting more efficient relative to the sales base over time and that's what we're doing next year that'd be you're after there was that kind of stuff, but maybe just contextualize that history would be helpful.

Steven Strycula: Putting the 'twenty 'twenty four and context, thanks sure, yes, well, let me first say, we're not cutting to the bone that's not the intent of the program at all you know we want to continue to protect the brands and the capabilities that give us differentiated opportunities in market. When you look at operating expenses. If you look at back overtime definitely getting more fixed.

Steven Strycula: Leveraging on the business is bigger.

Steven Strycula: Even if even with a little bit slower growth year in 'twenty for that we've seen the last couple of years, we get significant leverage we have efficiencies elsewhere in the P&L efficient driving efficiencies through the P&L as in every year activity and that's not new and we've also seen more efficiencies in the international business, even if you think back.

Chris Carey: And we've also seen more efficiency in the international business. You know, if you think back, the margins were quite a bit lower a couple of years ago before we made some of the transformational moves there. So a combination of all of those things has led to the improvements that we're seeing, but we're not cutting so far that we feel we're putting in jeopardy any of our key capabilities or growth. Okay, thank you. Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your order. Great, thanks so much.

Rob Dickerson: Margins were quite a bit lower a couple of years ago before we made some of the transformational moves there. So a combination of all of those things have led to the improvements that we're seeing.

Rob Dickerson: Not cutting so far that we feel we're putting in jeopardy any of our key capabilities our growth potential.

Rob Dickerson: Okay. Thank you.

Chris Carey: Hmm.

Chris Carey: Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Rob Dickerson: Great. Thanks, so much.

Rob Dickerson: Michele, I just wanted to come back to your, I guess, brief commentary today. And I think you mentioned it on the prior couple of calls just around, you know, consumer shopping for products with maybe a bit more satiation. Because, you know, clearly, the conversation today seems a little bit more focused on cocoa costs, inflation, salty snacks, and then also pricing potential from here.

Rob Dickerson: So I just wanted to come back to Uh huh.

Rob Dickerson: Brief commentary today, then I think you'd mentioned it prior.

Rob Dickerson: A couple of calls that surround the consumer shopping for products, where maybe a bit more situation.

Rob Dickerson: You know clearly the conversation today that seems a little bit more focus on cocoa cost inflation consulting.

Rob Dickerson: And then also pricing potential from here, but like if we just separated all that out and we just did a focus more on kind of current consumer shopping behavior, especially in the confection category would.

Michele G. Buck: But, like, if we just separate all that out and we just, you know, focus more on current consumer shopping behavior, especially within the confection category, would you say, you know, there are kind of ongoing behavioral shifts that are still taking place? Or do you kind of foresee that, you know, maybe reversing out as you get through the year or just trying to get a sense as to kind of how you view the consumer shopping for that category relative to other parts of snacks? Thanks. Yeah, I mean, I'd say, first of all, overall, with the consumer, certainly, I think there is some increase in consumer confidence. We've seen unemployment rates, you know, employment be stable. However, we do continue to see some value-seeking behavior in some pockets of consumers. You know, we believe that the behavior across confection has largely normalized.

Michele G. Buck: Would you say there are kind of ongoing behavioral shifts that are still taking place are you kind of foresee that maybe reversing out as you get through the year or just trying to get a sense as to.

Speaker Change: How you view the consumer shopping bag category relative to other parts of the stack.

Michele G. Buck: Yeah, I mean, I'd say food personal overall with the consumer certainly I think.

Michele G. Buck: There is some increase in consumer confidence we've seen unemployment rates you know employment would be stable. However, we do continue to see some value seeking behavior in some pockets of consumer.

Speaker Change: You know, we believes that D behavior across confection has largely normalized.

Rob Dickerson: And we think that we have some of the right steps in place to kind of offset that satiety issue that we've seen with popcorn in areas like adjusting value across different pack types and enhancing marketing communication in ways that, you know, build the value proposition. So we do expect that we'll start to see some normalization in popcorn as we go through the year. Okay.

Speaker Change: And we think that we have some of the right steps in place to kind of offset that satiety issue that we've seen with popcorn in areas like adjusting value across different pack types.

Rob Dickerson: Enhancing marketing communication in ways that build the value proposition so.

Rob Dickerson: We do expect that we'll start to see some normalization in popcorn as we go through the year.

Speaker Change: Okay got it and then I guess.

Rob Dickerson: And then I guess, Um, I just want to ask about kind of, you know, longer term salty segment growth potential. While I realize you may not be giving, providing new long-term targets relative to what you presented at Investor Day last year, I mean, clearly, it seems like, you know, enough has changed, let's say, to at least ask the question.

Rob Dickerson:

Rob Dickerson: Just wanted to ask on kind of longer term salt segment growth potential Wow.

Rob Dickerson: I realize you may not have giving providing new long term targets relative to what you presented at Investor Day last year, I mean, clearly it seems like you know.

Rob Dickerson: Enough to changed let's say to at least ask the question.

Michele G. Buck: Um, so if we're thinking kind of past 2024, you know, like, do you think broadly that kind of low double-digit kind of growth for that segment is still feasible? Or, like, distribution maybe be a little slower, there needs to be a little bit more investment required to get there? Just kind of any color as to how you're thinking about that. And that's it. Thanks so much. Yeah, no problem.

Rob Dickerson: So I, we're thinking kind of past 2024.

Michele G. Buck: Do you do you think broadly that kind of low double digits.

Michele G. Buck: Gross.

Michele G. Buck: So that segment is still feasible or like could distribution, maybe be a little slower there needs to be a little bit more investment required to get there just kind of any color as to how youre thinking about that and that's it. Thanks so much.

Speaker Change: Yeah, No problem, Hey, we continue to feel great about the salty snack business and their long term potential we've seen such a tremendous growth over time.

Michele G. Buck: Hey, we continue to feel great about the salty snack business and its long-term potential. We've seen such tremendous growth over time. You know, there's no change to our long-term outlook. Our long-term outlook in the algorithm has always been around mid-single-digit growth. We had never expected low double-digit growth in the long term.

Michele G. Buck: There is no change to our long term outlook, our long term outlook and the algorithm has always been around mid single digit growth.

Michele G. Buck: Had never expected low double digit on the long term, we had expected originally that this year might be a bit stronger, but not on a long term basis. So no change to that long term outlook.

Rob Dickerson: We had originally expected that this year might be a bit stronger, but not on a long-term basis. So there is no change to that long-term outlook. Okay, Shaffer.

Shaffer: Okay Super Thanks, a lot.

Jim Salera: Thanks a lot. Thank you. Ladies and gentlemen, our final question comes from the line of Jim Salera with Stevens Inc. Please proceed with your question. Hi, guys. Thanks for squeezing us in.

Rob Dickerson: Yeah.

Rob Dickerson: Thank you ladies and gentlemen, our final question comes from the line of Jim <unk> with Stephens Inc. Please proceed with your question.

Jim Salera: Hi, guys. Thanks for squeezing us in.

Jim Salera: In your prepared comments, you mentioned that we would be seeing some joint merchandising activations between Confection and Salty. Can you just give us a sense of why that is, is that to increase, you know, purchase rates in Hershey households that maybe buy the Confection part of your portfolio but not Salty? Or is it more of a way to increase the visibility for Salty by kind of piggybacking on, you know, the good retail activations you already have for Confectionary? Yeah, it's really a bit of both. Certainly, there's power in that visibility of all of these great brands together. You know, our salty brands are now two of our top 10 brands.

Jim Salera: In your prepared comments, you mentioned that we would be seeing some joint merchandising activations between confection salty.

Jim Salera: Can you just give us a sense for is that to increase by rates in Hershey households that maybe by the confection part of your portfolio, but not salty or is it more of a way to increase the visibility for salt E bike kind of piggybacking on the good merchandising Activations you already have for confectionery.

Jim Salera: Yeah, it's really some of both certainly there is power to that visibility of of all of these great brands together, you know where to sell tea brands now are two of our top 10 brands. So they have the velocity that warrant being with some of our other really major brands and then of course it doesn't encourage some of that.

Michele G. Buck: So they have the velocity that warrants being with some of our other really major brands. And then, of course, it does encourage some of that cross-household purchase as well. And then if I can maybe drill down on dots in particular, I think you mentioned, you know, incremental club distribution for dots. I can say in my neck of the woods, at least it certainly feels like I or dots placements when I shop at my local club store. How much more distribution upside should we think about for dots in some of those untracked channels where we don't have as much visibility?

Michele G. Buck: Cros are household purchase as well.

Michele G. Buck: And then if I can maybe drill down on on dots in particular, I think you mentioned incremental club distribution for dance I can say in my neck of the woods at least it certainly feels like or das placements, where I shop, My local club store.

Michele G. Buck: How much more distribution upside should we think about for dots in some of those untracked channels, where we don't have as much visibility.

Jim Salera: We still do have some distribution upside on DOTS. You know, I'd say more than several points of distribution upside still remain. Okay, great. Thanks, guys. Thank you. Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question. Good morning.

Michele G. Buck: We still do have some distribution upside on dots. So.

John Baumgartner: You know I'd say more than several points of distribution upside still remains.

John Baumgartner: Okay, great. Thanks, guys.

Jim Salera: Thank you. Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.

John Baumgartner: Good morning, Thanks for the question.

John Baumgartner: Thanks for the question. I wanted to come back, Michele, to the outlook for ad spending in 2024, I guess more or less in line with sales. Is that a function of just having spent ahead of sales in 2023, and now it's a more normalized year? Or is there an expectation for maybe a shift in reinvestment to other drivers, whether it's trade or anything else, where your total spend growth is actually above the rate of sales? Because it just seems as though with the larger innovation coming through, and the need for more pricing in the market, I'm sort of surprised that ad spend isn't going to be higher this year.

John Baumgartner: Good morning, So I wanted to come.

John Baumgartner: I wanted to come back Michel to the outlook for AD spending in 2020 for I guess more or less in line with sales is that is that a function of just having spent ahead of sales in 2023 and now it's a more normalized year or is there an expectation for maybe a shift in reinvestment to other drivers, whether it's trade or anything else, where your total spend.

John Baumgartner: Growth is actually above the rate of sales because it just seems as though the larger innovation coming through the need for more pricing in the market I'm sort of surprised that the AD spend is not going to be up higher this year.

John Baumgartner: You know, we always really do look across the entire bundle and certainly we have some trade spending increases in 'twenty four and so we look at what's the right bundle across D. I mean cross marketing and consumer marketing and trade that we think will have the biggest impact and most efficiently on.

Michele G. Buck: You know, we always really do look across the entire bundle, and certainly, we have some trade spending increases in 24. And so we look at what's the right bundle across DME, across marketing, consumer marketing, and trade that we think will have the biggest impact and most efficiently drive revenue. So it's some of balancing the total view of all of that spending together, which is a big area of focus for us. How do we make it all together work as hard as each individual piece?

Michele G. Buck: Driving revenue. So it is some of balancing the total view of all of that spending together, which is a big area of focus for us how do we make it all together work as hard as each individual piece.

John Baumgartner: Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Poole for any final comments. Thank you all for joining us this morning. We look forward to catching up with you later today to answer any additional questions you may have. Have a great day. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you.

John Baumgartner: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Ms. Poole for any final comments.

Melissa A. Poole: Thank you all for joining us. This morning, we look forward to catching up with you later today to answer any additional questions. You may have have a great day.

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