Q1 2024 Hershey Co Earnings Call - Q&A
Operator: Greetings and welcome to the Hershey Company first quarter 2024 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.
Greetings and welcome to the Hershey Company first quarter 2024 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.
Melissa Poole: You you may begin.
Melissa Poole: Good morning, everyone. Thank you for joining us today for the Hershey Company's first quarter 2024 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded 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.
Melissa Poole: Good morning, everyone. Thank you for joining us today for the Hershey Company's first quarter 2024 earnings Q&A session. I Hope everyone has had the chance to read our press release and listen to our pre reported management remarks, 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 in audio.
Melissa Poole: Play on 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 actual results could differ materially from those projected the company undertakes no obligation to update these statements based on subsequent events a day.
Melissa Poole: 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.
Melissa Poole: The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filing. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. However, 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.
Melissa Poole: Tailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings.
Melissa Poole: 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.
Melissa Poole: 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. With that, I will turn it over to the operator for the first question.
Melissa Poole: Hershey Senior Vice President and CFO, Steve Voskuil with that I will turn it over to the operator for the first question.
Operator: Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. 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 key. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.
Melissa Poole: Thank you.
Melissa Poole: As a reminder, if you'd like to ask a question. Please press star one.
Melissa Poole: On your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Melissa Poole: And you May press star two if you'd like to remove your question from the queue.
Melissa Poole: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Melissa Poole: 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. Good morning, Andrew.
Great. Thanks, so much good morning, everybody.
Andrew Lazar: Good morning, Andrew.
Unknown Executive: Michele, I guess, you know, excluding the inventory build, underlying organic sales in North America confectionary rose 2%. I think we in the street had modeled it broadly more flattish. And recently, market share trends in chocolate have inflected, you know, following a year of weakness. I guess my question is, am I overplaying this, or maybe you two are starting to see some sort of building underlying momentum in the core confectionary segment, you know, outside of all the ERP inventory noise? And would you expect to see a sequential improvement in volume trends in 2Q?
Andrew Lazar: Michelle I guess, you know excluding the inventory build underlying organic sales in North America confectionery rose, 2% I think we and the street had modeled it broadly more flattish.
Andrew Lazar: And recently a.
Andrew Lazar: Market share trends in chocolate have inflicted following a year of weakness I guess my question is am I Overplaying. This or maybe are you starting to see sort of building underlying momentum in our core confectionery segment outside of all the ERP inventory noise and would you expect to see a sequential improvement in volume trends in <unk>.
Michele Gross Buck: Yep, so Andrew, we are definitely very pleased with our Q1 top line performance. I would say that, overall, it was in line with our expectations. However, our market share did exceed expectations, and our strength was really driven by very strong performance in the seasons, both overall in takeaway as well as market share. And also the strength that we had in innovation with Reese's Caramel, which not only did well with consumers but was the best innovation in the category and was also able to drive strong retail for us, particularly as we launched around the Super Bowl.
Speaker Change: Yep. So Andrew we are definitely we're very pleased with our Q1 top line performance I would say that overall it was in line with our expectations. However, our market share did exceed expectations and our strength was really driven by very strong performance in seasons both.
Speaker Change: Or overall and takeaway is as well as market share and also the strength that we had in innovation with Reese's caramel, which not only did well with consumers was the best innovation in the category and also was able to drive strong merchandising for us, particularly as we launched around Super Bowl. So we're feeling good.
Michele Gross Buck: So we're feeling good about what we're seeing, and as we look to the rest of the year, we do expect some improvement in trends as we enter throughout the year and proceed towards the end of the year.
Speaker Change: About what we're seeing and as.
Speaker Change: We look to the rest of the year, we do expect some improvement in trends as we enter throughout the year and proceed towards the end of the year.
Michele Gross Buck: And then you mentioned in the prepared remarks improved display in the first half of this year versus the second half of last year. I know there's a lot that goes into that, but can we also take this to mean maybe some of the headwind you faced last year from a major customer going through, you know, what seems like? [inaudible] Yeah, I would say we are partnering very strongly with that retailer, as we always do, and certainly, I think we both recognize some of those opportunities that we can go after.
Speaker Change: And then you mentioned in the prepared remarks improved display activity in the first half of this year versus the second half of last year I know, there's a lot that goes into that but can we also take this to mean, maybe that's some of the headwinds you faced last year from a major customer going through you know what seems like.
Speaker Change: Yet another sort of clean store efforts, maybe has started to realize a bit that display and sort of multiple points of interruption for snacks improved sales or is that too strong of a way to characterize it. Thanks. So much I would yeah I would say we are partnering very strongly with that retailer as we always do and certainly I think we both recognize.
Speaker Change: Some of those opportunities that we can go after them as we look at the performance year to date a lot of the strengths that we had seen versus second half of last year in merch was really across other customers versus versus that customer with seasoned innovation and then really tiny.
Michele Gross Buck: As we look at the performance year to date, a lot of the strengths that we had seen versus the second half of last year in merch were really across other customers versus that customer with season, innovation, and then really tying some of our media to events like the Super Bowl or March Madness driving merch. So we do anticipate that we will see some strength from merchandise with that retailer in the second half of the year.
Speaker Change: Our media to events like the Super Bowl or March Madness, driving merch. So we do anticipate that we will see some of the strength from merge with that retailer in the second half of the year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: And our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.
Speaker Change: And our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.
Alexia Jane Burland Howard: Good morning, everyone.
Alexia Jane Burland Howard: Good morning.
Alexia Jane Burland Howard: Okay, so two questions. First of all, I know you're not going to comment on what you're doing with your COCO forward contracting and hedging strategy, but could you give us a little bit more detail on the levers and options you have regarding sourcing for 2025? Whether it's sourcing from other regions, obviously timing of contracts, the amount of flexibility you can build into the system, just some ideas of the types of levers that you can pull, given the amount of volatility that's out there in the COCO markets today.
Alexia Jane Burland Howard: Okay. So two questions first of all I know youre not going to comment on.
Alexia Jane Burland Howard: What youre doing with your cocoa forward contracting and hedging strategy, but could you give us a little bit more detail on the levers and options you have regarding sourcing for 2025, whether it's sourcing from other regions, obviously timing of contracts.
Alexia Jane Burland Howard: Next the ability you can build into the system just some ideas about that.
Alexia Jane Burland Howard: Types of levers you can pull given the amount of volatility that's out there in the cocoa market today.
Steven E. Voskuil: Sure, yeah, I'm happy to take that one. So multiple ways to deal with the volatility, obviously, you know, the hedging program and the financial side are one way to deal. And then on the supply chain side, making sure we've got diverse sourcing. And we've done a good job of that over the years of really trying to diversify that supply chain footprint. And no doubt, you know, looking back at the last few years, we'll continue to move that diversification forward.
Speaker Change: Sure I'm happy to take that one.
Speaker Change: So multiple ways to deal with the volatility obviously, the hedging program and the financial side as one way to deal and then the supply chain side, making sure we've got diverse sourcing.
Speaker Change: And we've done a good job of that over the years of really trying to diversify our supply chain footprint.
Speaker Change: And no doubt you know looking back at the last few years will continue to move that diversification forward, but that does give us some flexibility on sourcing and of course, we have recipes that wind and taste profiles and things like that that guide those choices, but within that we've got quite a bit of flexibility on the sourcing side.
Steven E. Voskuil: But that does give us some flexibility on sourcing. And of course, we have recipes that go with them and taste profiles and things like that that guide those choices. But within that, we've got quite a bit of flexibility on the sourcing side.
Alexia Jane Burland Howard: Great. And then are you able to comment on what you're seeing in terms of the state of the American consumer? We've been hearing a lot about this recently with lower-income consumers becoming more vulnerable. Any comments you can make on how much the SNAP spending cutbacks last year hit you? I don't know whether you're able to quantify that, but just comments on where you're seeing the American consumer headed at the moment.
Speaker Change: Great and then Hum.
Speaker Change: Are you able to comment on what Youre seeing in terms of the state of the American consumer we've been hearing a lot about this recently with lower income consumers, becoming more vulnerable.
Speaker Change: Any comments you can make on how much the snap spending cutbacks last year hit you I don't know.
Speaker Change: Whether you're able to quantify that but just comments on on where youre seeing the American consumer headed at the moment, Thank you and I'll pass it on.
Michele Gross Buck: Thank you, and I'll pass it on.
Michele Gross Buck: Yeah, absolutely. So we do know that we saw an impact from the SNAP reductions in the business in the backcourt last year. You know, we are beginning to see some stabilization as we start to lap some of those reductions. Consistent with our expectations as we built our plan; we anticipated that that would occur. However, we do continue to see value-seeking behavior from consumers. So that still hasn't changed. I'd say it's improving a bit, but it's still there.
Speaker Change: Yeah, absolutely. So we do know that we saw impact from the snap reductions.
Speaker Change: In the business in the back part of last year. You know we are beginning to see some stabilization as we start to lap some of those reductions.
Consistent with our expectations as we built our plan we anticipated that that would occur. However, we do continue to see value seeking behavior from consumers. So so that still hasn't changed I'd say, it's improving a bit but it's still there.
Alexia Jane Burland Howard: Thank you very much. I'll pass it on.
Speaker Change: Thank you very much I'll pass it on.
Speaker Change: Okay.
Operator: Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.
Speaker Change: Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.
Kenneth B. Goldman: Hi, thank you. I just wanted to follow up on your answer to Andrew's question about North American Confectionery. I think you said that, in general, it came in underlying, right, excluding the ship ahead, you were kind of in line with your expectations, but that your market share exceeded your expectations. So I guess, just mathematically, the category maybe didn't do quite as well as you would hope. So, A, I'm just trying to make sure I'm hearing that correctly.
Kenneth B. Goldman: Hi, Thank you I just wanted to follow up to your answer to Andrew's question.
Kenneth B. Goldman: About North America confectionery I think you said that you were but in general it came in underlying rate. Excluding this the ship ahead kind of in line with your expectations, but that your market share exceeded your expectations. So I guess just mathematically the category, maybe you didn't do quite as well as you would hope so hey, I'm just trying to make sure I was hearing that correctly.
Kenneth B. Goldman: And B, if that's the case, you know, what do you attribute that to? Again, we all know there's been some elasticity, and you mentioned the lower end struggling a little bit. Is it really just tied to that? Or are there other factors maybe we should consider?
Kenneth B. Goldman: And B, if so what do you attribute that to again, we all know there's been some elasticity and you mentioned the lower end struggling a little bit is it really just tied to that or are there. Other factors, maybe we should consider.
Michele Gross Buck: Yeah, I mean, I'd say some of that is always tied to each key competitor and what their programming is like versus the prior year. So our largest competitor, Mars, was a little bit soft for the quarter with share down. And I think a lot of that was driven by their innovation, the lap versus the prior year, with some of that innovation not sustaining. And those things do impact the category. So that looked to be one of the biggest drivers.
Kenneth B. Goldman: Yeah, I mean, I'd say some of that is always tied to each key competitor and what their programming is like Ah versus prior year. So our largest competitor of ours was a little bit soft for the quarter with share down.
Kenneth B. Goldman: And I think a lot of that was driven by their innovation the lap versus prior year with some of that innovation not sustaining and those things do impact the category. So that looks to be one of the biggest drivers.
Kenneth B. Goldman: Thank you for that. And then just pivoting a little bit to Salty.
Speaker Change: Thank you for that and then just pivoting a little bit too salty. Obviously your your sales trends were much improved I think it's fair to say that there's still maybe some opportunities in margin ahead I just wanted to get a level of <unk> or <unk>.
Speaker Change: Get a sense of the level of how content you are with the <unk>.
A&P investment in that business.
Speaker Change: We expect to have to invest anymore in price just.
Speaker Change: Just I guess, how confident are you in the kind of the building blocks to really get that.
Little more stable to a position where you can grow it and expand margins at the same time.
Michele Gross Buck: Obviously, your sales trends have much improved. I think it's fair to say that there's still maybe some opportunities in the margin ahead. I just wanted to get a level of or get a sense of the level of, you know, how content you are with the A&P investment in that business? Do you expect to have to invest any more in price? I guess, how confident are you in the kind of building blocks to really get that business a little more stable to a position where you can grow it and expand margins at the same time? Yeah. So overall, salty was on top.
Michele Gross Buck: Yep, so overall, Salty was on track with our expectations as well. We had a very strong DOTS performance, and, as expected, while Skinny Pop improved, we knew that the majority of that improvement would not occur until we got to lapping the Q2 period and going forward. You know, Skinny Pop does remain pressured along with some of the rest of the ready-to-eat popcorn category, and we think that that will shift once we get past that phase.
Speaker Change: Yep. So overall so team was on track with our expectations as well we had very strong <unk> performance and then as expected.
Speaker Change: Well skinny pop improved we knew that the majority of that improvement would would not occur until we get to lapping the Q2 period and going forward.
Speaker Change: You'll skinny pop does remain pressured along with some of the rest of the ready to eat popcorn category and we think that that will shift once we get past that lap.
Michele Gross Buck: As we move through the year, we do have strong media and trade investments behind both of the brands. We also have flavor and pack innovation that will help us both grow and also drive share gains in the second half of the year. From a profitability perspective, Q1 Salty profit was the weakest for the year of where the business will be for the year, so you can expect that to get better going forward, and also, you know the bigger increase in our advertising really starts to happen in Q2 and beyond.
As we move through the year, we do have strong media and trade investments behind both of the brands. We also have flavor and pack innovation that will help us both grow and also drive share gains in the second half of the year from a profitability perspective, our Q1 <unk> profit was.
Speaker Change: Oh, the weakest for the year aware of where the business will be for the year. So you can expect that to get better going forward and also you know the bigger increase in our advertising really starts to happen in Q2 and beyond working forward.
Speaker Change: Very helpful. Thank you.
Operator: Our next question comes from the line of Max Gumport with BNP. Please proceed with your question.
Mexican: Our next question comes from the line of Mexican part with BNP. Please proceed with your question.
Max Andrew Stephen Gumport: Hey, thanks for the question. I realize you're not getting into the 2025 pricing conversation from this call or commenting on cocoa inflation. I'm just curious if you could talk about some of the other factors that go into that framework, though. So we've talked a little bit about market share trends, but also what you're seeing with category volumes, the health of the consumer overall, the competitive environment, cross category elasticity concerns, just as we try to think through what you're seeing. Thanks so much.
Mexican: Hey, Thanks for the question I realize you are not getting into 2025 pricing conversations in this call are commenting on cocoa inflation. Just curious if you could talk about.
BNP: Other factors that go into that framework, though so we've talked a lot about market share trends, but also what youre seeing with category volumes health of the consumer overall, the competitive environment Cross category elasticity concerns just as we try to think through what youre seeing so much.
Michele Gross Buck: Yeah, so on 2025, and I think that's where you're pointing the question. I would just say we're in the midst of building the 2025 plan, and so obviously, yeah, we're not going to talk about COCO. As we look at the plan, there are a lot of levers we'll be looking at, and so pricing is a level we'll look at, other supply chain savings. As we talked about in our last call, we've got some transformation savings that we'll be building in the years to come, including 2025, and so as we get further into the year, we'll be able to talk more about what we expect for 2025, including category health and what we think about the consumer, and so forth.
BNP: Yes.
BNP: On 2025, and I think that's what you're pointing to question.
I would just say we're in the midst of building the twenty-five plan and so obviously you have were not going to talk about cocoa as we look to the plan. There are a lot of levers we'll be looking at and so pricing is a lever we'll look at other supply chain savings as we talked about in our last call. We've got some transformation savings that we'll be building in the years to come including 2025 and so.
BNP: As we get further into the year, we'll be able to talk more about what we expect for 2025, including category health and what we think about the consumer and so forth.
Max Andrew Stephen Gumport: Okay, and then turning to the comments on gross margin for Q24. Any help you can give us in terms of the cost absorption that might reverse out in 2Q after a strong 1Q, given the inventory dynamics associated with the ERP cutover? I'll leave it there. Thank you. Sure, yeah, we expect to see that fixed cost leverage that we've benefited from.
Speaker Change: [laughter], Okay, and then turning to the comments on gross margin.
Speaker Change: <unk> 24.
Speaker Change: Any help you can give us in terms of the cost absorption that might reverse out in Q2 after a strong Q.
Speaker Change: The inventory dynamics associated with the ERP cutover I'll leave it there. Thank you.
Steven E. Voskuil: Sure, yeah, we expect to see that fixed cost leverage that we benefited from in the first quarter effectively fully reverse out in the second quarter. So, by order of magnitude, you know, we had 20 to 25 million of benefit on fixed cost absorption and then also a little bit of mix just based on the type of inventory that was built in the first quarter. And so both of those components should reverse out in full in the second quarter.
Speaker Change: Sure Yeah, we expect to see that fixed cost leverage that we benefited from in the first quarter effectively fully reverse out in the second quarter. So order of magnitude of $20 million to $25 million benefit on fixed cost absorption and then also a little bit of mix just based on the type of inventory that was built in the first quarter and so both of those components should run.
Speaker Change: Hirst out in full in the second quarter.
Speaker Change: Great. Thank you.
Speaker Change: You bet.
Operator: And our next question comes from the line of Nick Modi with RBC Capital Markets. Please proceed with your question.
Speaker Change: And our next question comes from the line of Nik Modi with RBC capital markets. Please proceed with your question.
Sunil Harshad Modi: Yeah, thank you. Good morning, everyone. Just two questions. Good morning. Michele, I was wondering if you could just comment on kind of what you're seeing from a channel perspective, primarily C-Stores, because some of the feedback we're getting is that, you know, the traffic is really starting to come under some pressure. So, I would love your thoughts there. And then, just kind of more broadly, one of the things that we've talked about in the past has been this kind of cross-elasticity between, you know, what's going on in your business versus other potential alternatives for the consumer, whether it be snack bars or what have you.
Sunil Harshad Modi: Yeah. Thank you good morning, everyone.
Sunil Harshad Modi: Two questions good morning so.
Sunil Harshad Modi: I'm wondering if you could just comment on kind of what youre seeing from a channel perspective, primarily C stores because some of the feedback we're getting.
Sunil Harshad Modi: <unk> is really starting to come under some pressure.
Sunil Harshad Modi: Your thoughts there and then just kind of more broadly.
Sunil Harshad Modi: One of the things that obviously, we've talked about in the past and then just kind of crossing off tissue between what's going on in your business versus other potential alternatives for the consumer whether it be snack bars or or what have you and I'm. Just curious as you kind of think about the year are you.
Sunil Harshad Modi: And I'm just curious, as you kind of think about the year, you know, are you framing your promotional plans and your pricing and your price gaps more from that lens, or are you still just, you know, more holistically or focusing more specifically on just the categories in which
Sunil Harshad Modi: Framing your promotional plans in your pricing and your price gaps.
Sunil Harshad Modi: From that lens are you still just more holistically or focus more specifically on just the categories in which you're competing.
Michele Gross Buck: Yeah, so as it relates to CSTOR, our business in CSTOR has been holding up pretty well for us. So we really haven't seen a big, a big change in trend, I would say that we are focused on there. And as we look to price gaps, you know, we always look at price gaps, both and price points, absolute price points, both within the category, as well as across the snacking category. So that is really a standard way that we view our price elasticity, and we continue to evaluate it that way. Right, thanks.
Sunil Harshad Modi: Yeah, so as it relates to fee store and our business in C store has been holding up pretty well for us. So we really haven't seen them.
Sunil Harshad Modi: A big a big change in trend I would say that we are focused on there and as we look to price gaps.
Sunil Harshad Modi: We always look at price gaps boats and price points absolute price points, both within the category as well as across the snacking categories. So that is really a standard way that we view, our price elasticity and and we continue to evaluate it that way.
Sunil Harshad Modi: Thanks, I'll pass it on.
Speaker Change: Great. Thanks, I'll pass on.
Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Speaker Change: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Speaker Change: Okay.
Michael Scott Lavery: Thank you good morning.
Michael Scott Lavery: I just wanted to come back to the comments on 2Q. You called out the high single-digit declines you expect from the inventory reversal, but last quarter, you said how you expected double-digit EPS declines in the first half. I don't, unless I missed it, believe you reiterated that, but would that still apply as well? Yes, it does, yep. Okay, great. Thanks.
Michael Scott Lavery: Thanks.
Michael Scott Lavery: Just wanted to come back to the comments on <unk> you called out the high single digit declines do you expect from the inventory reversing but.
Michael Scott Lavery: Last quarter, you said you expect.
Michael Scott Lavery: Double digit EPS declines in the first half.
Speaker Change: I don't unless I missed it I believe you reiterated that but would that still apply as well.
Speaker Change: It does yes.
Michael Scott Lavery: And then, just as you think about any of the moving parts with some cocoa volatility, or costs, maybe uncertainty, at least, how have you also reiterated how, you know, you just think for the long term and want to, you know, approach the business that way? Would it be right to assume that that provides some amount of protection for A and C? You know, how do you think about managing that as one of the variables? And is it something that is in play or is protected? What's the kind of approach there as far as the marketing spend? Yeah, I mean, I think strategically, we want to
Speaker Change: Okay, great. Thanks, and then just as you think about any of the moving parts with some cocoa volatility or maybe uncertainty at least.
Speaker Change: <unk> also reiterated how you're just thinking for the long term and want to approach.
Speaker Change: Approach the business that way would it be right to assume.
Speaker Change: But that does some amount of protection for AMC, how do you think about managing that as one of the variables in it.
Speaker Change: Is it something that.
Speaker Change: Is in play or has protected what's kind of the approach there as far as the marketing spend.
Michele Gross Buck: Yeah, I mean, strategically, we want to always continue to invest in our brands. We believe that's a key part of the model. And we know that if you break that investment, it can take some time to rebuild to get to kind of your threshold levels again. That said, every year when we build a plan, we reevaluate the return on all of those pieces of spending. And, you know, we have to have the right news.
Speaker Change: Yeah, I mean, I think strategically we want to always continue to invest in our brands.
Speaker Change: We believe that's a key part of the model and we know that.
Speaker Change: If you break that investment it can take some time to rebuild to get to kind of your threshold levels again that said every year when we build a plan and we.
Speaker Change: Reevaluate the return on all of those pieces of spending and we have to have the right news we have to have the rate increases in effectiveness and efficiency to set the right level. So it's not to say that we are set at a specific budget or percent of net sales every year.
Michele Gross Buck: We have to have the right increases in effectiveness and efficiency to set the right level. So it's not to say that we are set at a specific budget or percent of net sales. Every year, we do adjust that based on what we're seeing in the returns, where the opportunities are, what kind of news we might have that we want to support, etc.
Speaker Change: We do adjust that based on what we're seeing in the returns where the opportunities are what kind of news we might have that we want to support et cetera.
Okay, great. Thanks, so much.
Operator: Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question.
Speaker Change: Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question.
Bryan Douglass Spillane: Thanks, Operator. Good morning, everyone.
Thanks, operator, good morning, everyone.
Bryan Douglass Spillane: I guess, Michele, could you give us a perspective? If you can, I guess. If you look at seasons in the first quarter and maybe just, you know, how consumers purchased around Easter and what the display and merchandising was like, does that give you any insight into Halloween maybe being any different this year or maybe needing a different approach for Halloween? And I guess I say that in the context, if we think about last year with the everyday business being so under pressure, right, it put a lot more pressure on seasons and Halloween and, you know, kind of the balance of the year to sort of drive the business and try to understand within it seems like that every day is at least a category or, you know, the small format stores are under a lot of pressure. So I'm just trying to get an understanding if we have a lot of dependency on Halloween, you know, whether or not there's any sort of difference in the way consumers are shopping around holidays.
I guess Michele can you give us a perspective, if you can I guess.
If you look at the seasons in the first quarter.
Bryan Douglass Spillane: And maybe just how.
<unk> purchased around Easter and.
What the what the display and merchandising was was like.
Michele Gross Buck: Does it give you any insight into Halloween, maybe being any different this year or maybe needing a different approach for Halloween and I guess I would say that in the context, if we think about last year with the everyday business being so under pressure right to put a lot more pressure on on seasons in Halloween and kind of the.
Michele Gross Buck: The balance of the year or two to sort of drive the business and trying to understand within it seems like that every day is at least as a category or a small.
Small format stores are under a lot of pressure. So I'm just trying to get an understanding if we have a lot of dependency on Halloween as we go through the end of the year end.
Whether or not there is there is any sort of difference in the way consumers are shopping around holidays.
Michele Gross Buck: Yeah, absolutely. So if I start with the beginning of the year, Valentine's, the category was strong, and we performed very well there from a share perspective. The Easter category declined, but it was a shorter season, which always makes it more difficult. But Salisbury was very good.
Yeah, absolutely so if I.
Michele Gross Buck: Start with the beginning of the year.
Michele Gross Buck: Valentine's.
The category was strong and we performed very well there from a share perspective, the Easter category declined but it was a shorter season, which always makes it more difficult, but the sell through was very good and again, we gained share in that season as well as we look at the second half of the year, we do feel like.
Michele Gross Buck: And again, we gained share in that season as well. As we look at the second half of the year, we do feel like those trends are positive for the second half. But obviously, we had some very strong seasonal performance in 23. So we think the second half will grow, but we think the growth will moderate and perhaps be more in line with our overall growth as a company versus kind of being supersized in the back half. Okay, great. Thanks, Michele.
Michele Gross Buck: Those trends are positive for the second half, but obviously, we had some very strong seasonal performance in 'twenty. Three so we think second half will grow, but we think the growth will moderate.
Michele Gross Buck: And perhaps be more in line with our overall growth as a company versus kind of super sized in the back half.
Speaker Change: Okay, great. Thanks, Michelle.
Speaker Change: Okay.
Operator: And our next question comes from the line of Robert Moskow with T.D. Cowan. Please proceed with your question.
Speaker Change: And our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Hi Michele, I thought I remembered last quarter you saying that once you got past the ERP conversion completely, and you know, after the second quarter, that's when you would start to evaluate pricing actions to cover higher costs. Did I get that right? And is that still your strategy?
Robert Moskow: Hi, Thank you.
Michelle I felt I remember last quarter are you, saying that once you got past the ERP conversion completely and after second quarter. That's when you would start to evaluate.
Robert Moskow: Pricing actions to cover higher costs did I get that right and is that still your strategy and then and then lastly.
I was wondering like how do you know that.
Robert Moskow: How did you go about estimating how much extra inventory the customers pulled forward you were expecting one thing like maybe they would take a month of inventory and did they just say no we want two months instead.
Robert Moskow: And then, and then lastly, I was wondering, like, how do you know that? How did you go about estimating, you know, how much extra inventory the customers pulled forward? You know, you're expecting one thing, like maybe they would take a month for inventory? And did they just say, no, we want two months instead of one month extra? And then how do you know that maybe they weren't pulling forward shipments ahead of a perceived price increase?
Robert Moskow: Instead of one month extra and then how do you know that maybe they werent pulling forward shipments ahead of a perceived price increase thanks.
Michele Gross Buck: So, first of all, our teams have done an amazing job with the US and Canadian S4 implementation, and we don't take that lightly. So we're thrilled about that.
Robert Moskow: So first of all our teams have done an amazing job with the U S and Canadian as for implementation and we don't take that likely lately. So we're thrilled about that and I think we are consistent with what we've said all along which is hey, you know we are in a pretty good position. We're shipping product you know invoice.
Robert Moskow: And customers etcetera, but we do consider ourselves at the end of that ramp up phase and making sure that we have a stable system can close the books at the end of the quarter and all of that so yes end of Q2 is when we believe we're maybe officially stable an S. Four and have options available to us of course, we never.
Michele Gross Buck: And I think we are consistent with what we've said all along, which is, hey, you know, we are in a pretty good position, we're shipping products, you know, invoicing customers, etc. But we do consider ourselves at the end of that ramp-up phase, and making sure that we have a stable system can close the books at the end of the quarter and all of that. So yes, the end of Q2 is when we believe we're maybe officially stable on S4 and have options available to us.
Robert Moskow: Speak about any of our intentions or strategies around pricing or when we might or might not but rather just that you know that the capability exists to be able to.
Steven E. Voskuil: Of course, we never speak about, you know, any of our intentions or strategies around pricing or when we might or might not, but rather just that, you know, the capability exists to be able to. Relative to the excess inventory, frankly, we worked closely with customers because we wanted to, you know, understand how much inventory they wanted. I think a few things happened; we had some customers who maybe had not put in as much or communicated the requirements fully.
Robert Moskow: Relative to the excess inventory you know frankly, we worked closely with customers because we wanted to understand how much inventory. They wanted I think a few things happened we had some customers who maybe had not put in as much.
Steven E. Voskuil: So we had some of that that added to inventory. Frankly, I think we saw some others who, in the face of other companies in the marketplace, who were struggling with ERP implementation, spooked, you know, some retailers into wanting a little bit more inventory. So I would say relative to what we saw and what was communicated to us, that's really, and we were actually able to execute more than we anticipated. We actually thought we had to plan for some kind of disruption in the startup and assume that there'd be a cap on how much we could give retailers.
Robert Moskow: And communicated fully their requirements. So we had some of that that added to inventory frankly, I think we saw some others who in the face of other companies in the marketplace, who are struggling with ERP implementations.
Robert Moskow: You know some retailers into one thing a little bit more inventory. So I would say relative to what we saw in was communicated to us that's really and we were actually able to execute more than we anticipated we actually thought.
Robert Moskow: We you know we had to plan for some kind of disruption in the startup and assume that there'd be a cap on how much we could get retailers. So yeah, we were actually able to better fully meet what they really wanted versus originally I think we kind of tried to cap them a little more just because we weren't sure we'd be able to deliver evens or anything to say it and where we landed in the end we feel was a help.
Steven E. Voskuil: So we were actually able to better fully meet what they really wanted versus originally. I think we kind of tried to limit them a little more just because we weren't sure we'd be able to deliver. Steve, is there anything you'd say? Where we landed in the end, we feel it was a healthy level. And so in the second quarter, we'll see the vast majority of that bleed out. It wasn't too much, and we don't see there's a sign about trying to get ahead of the way. Unknown Speaker, Unknown Speaker, Great, thank you for the call.
Robert Moskow: <unk> level and so in the second quarter, we will see the vast majority of that bogie out.
Robert Moskow: It wasn't too much and we don't see that as a sign about trying to get ahead of price increases the way price increases. These days work their way to the market pre buying inventory isn't really the common practice, so not much risk there.
Robert Moskow: Great. Thank you for the call, Eric.
Speaker Change: Great. Thank you for the color.
Speaker Change: You bet.
Operator: Our next question comes from David Palmer with Evercore ISI. Please proceed with your question.
Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
David Sterling Palmer: Thank you. Good morning.
David Sterling Palmer: Thank you good morning a.
David Sterling Palmer: Question on price elasticity, what what do you think your price elasticity is on on the chocolate products today and do you have a sense of how that might change. If you ordered you have cocoa prices remain elevated and you were to need a.
David Sterling Palmer: Question on price elasticity. What do you think your price elasticity is for chocolate products today? And do you have a sense of how that might change if you were to, you know, if cocoa prices remain elevated and you were to need a large price increase heading into 25? Any thoughts about how that price elasticity might change?
David Sterling Palmer: A large price increase heading into 25 any thoughts about it.
David Sterling Palmer: How that price elasticity might change.
Michele Gross Buck: You know, what we've seen is no material change in our elasticities over the past several months. We remain in line with historical levels, which is about minus one, and that's what we would assume going forward.
Speaker Change: You know what we've seen is no material change in our elasticities over the past several months, we remain in line with historical levels.
Speaker Change: Which is about minus one and that's what we would assume going forward.
Speaker Change: Got it and.
David Sterling Palmer: Got it. And you're always so good at insights.
Speaker Change: You're always so good on insights are theres been this post COVID-19 slowdown in at home snacking, and perhaps there's a that overlay of the the snap reductions, causing more influencing that.
Speaker Change: But now there's talk of a weakening low end consumer and perhaps convenience channels being relatively weaker now I'm just wondering how youre thinking about the net of all these things going forward and if youre seeing crosscurrents between your different channels.
David Sterling Palmer: There's been this post-COVID slowdown in at-home snacking, and perhaps there's that overlay of the snap reductions causing or influencing that. But now there's talk of a weakening low-end consumer and perhaps convenience channels being relatively weaker now. I'm just wondering how you think about the net of all these things going forward and if you're seeing cross-currents between your different channels as you go through 24. Thank you.
Speaker Change: As you go through 'twenty four thank you.
Michele Gross Buck: Yeah, so certainly, I would agree that, you know, with value-seeking behavior, that a lot of that is coming from lower income consumers. And we've seen that relative to snap reduction and the trends that that that drove, frankly, in our business, as well as, I think, across other edibles, based on what other companies have shared as well. I would say that our C store business is okay, and I would say mass club and the dollar are very strong. So you may be seeing a little bit of that value seeking based on where that shakes out, but I wouldn't say it's something that we have seen as significant or dramatic.
Yeah, So certainly I would agree.
Speaker Change: That with value seeking behavior that a lot of that is coming from lower income consumers and we've seen that relative to snap reduction and the trends that that that drove frankly in our business as well as I think across other edibles based on what other companies have shared as well I would say that.
Speaker Change: Our D C store business is okay, and I would say mass club and dollar are very strong. So you may be seeing a little bit of that value seeking based on where that shakes out, but I wouldn't say, it's something that we have seen is significant or dramatic.
David Sterling Palmer: Got it. Thank you.
Speaker Change: Got it thank you.
Operator: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.
Speaker Change: And our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.
Christopher Michael Carey: Hi, good morning. One quick question on gross margins. Did the complexion of your gross margin evolve at all through the year? I know there's some timing dynamics between Q1 and Q2, and the full year outlook is unchanged, but is productivity coming in better? Are parts of inflation coming in worse? Or are parts of inflation coming in better? Any insight on how your delivery against this target has evolved over the past few months and is evolving over the balance of the year relative to your going expectations?
Christopher Michael Carey: Hi, Good morning, one one quick question on <unk>.
Christopher Michael Carey: Gross margin.
Yes.
Christopher Michael Carey: It would be.
Christopher Michael Carey: The complexion of your gross margin.
Christopher Michael Carey: <unk> it all through the year I know timing.
Christopher Michael Carey: Q1, and Q2 and the full year outlook is unchanged.
Christopher Michael Carey: Yes.
Christopher Michael Carey: It is productivity coming in better.
Christopher Michael Carey: There are parts of inflation coming in worse parts of my question, if I'm a little better just any.
Christopher Michael Carey: But any insight on.
Christopher Michael Carey: How do you deliver you guys got.
Involved over the past few months.
Christopher Michael Carey: Involving over the balance of year relative to your garlock locations.
Steven E. Voskuil: Yeah, no change. We're still, you know, as we talked about on our call last time, about 200 basis points down year over year for the full year. Productivity savings are off to a good start, right in line with plan. So at this point, nothing material that would point to a reshaping.
Speaker Change: Yes, no change.
So you know as we talked about on our call last time about 200 basis points down year over year for the full year productivity savings off to a good start right in line with plan. So at this point nothing material that would point.
Speaker Change: 0.2 of reshaping.
Christopher Michael Carey: Oh, okay. Yeah. Just the follow up is on the category comments. The way that I interpreted it was that some of the slower categories at the beginning of the year are almost entirely innovation relative to your goal and expectations of your peers, or is there anything else that you're seeing which you would highlight as over and above just that one comment regarding the lapping of innovation for one of your important No, no.
Speaker Change: Oh, yes.
Yes.
Speaker Change: Follow up on.
Speaker Change: Category comments.
Speaker Change: The way that I interpreted it was that some of the slower category.
Speaker Change: At the beginning of the year is almost entirely innovation.
Speaker Change: Relative to your going in expectation of your peer or is there anything else that you're seeing which you would highlight.
Speaker Change: Over and above just that one comment regarding it.
Speaker Change: Yes.
Speaker Change: The lapping of innovation for one of your important competitors.
Michele Gross Buck: Nope, nothing else that I would highlight about that.
Speaker Change: No nothing else that I would highlight on that.
Christopher Michael Carey: That's very clean. Thanks. Thank you very much.
Speaker Change: That's very clear thank you very much.
Operator: Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Speaker Change: Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Thomas Hinsdale Palmer: Good morning. I wanted to just ask something a little bit differently. I know you're not talking about cocoa inflation for next year, but there are some moving costs beyond just the headline cocoa inflation; you've got conversion costs, and I think you're buying more butter and liquor than powder. So when we just look at headline cocoa inflation, do these items like conversion and then the kind of sub items within cocoa that you're buying soften the magnitude of inflation? Are they adding to it right now? I'm just trying to understand that piece of the dynamic. Sure, yeah, you're right.
Good morning.
Thomas Hinsdale Palmer: I wanted to just ask a little bit differently, I know youre not talking about cocoa inflation for next year, but there are some moving costs beyond just the headline cocoa inflation, you've got conversion cost and I think youre buying.
More butter and liquor than powder or so when we just look at headline cocoa inflation.
Thomas Hinsdale Palmer: These items like.
Thomas Hinsdale Palmer: <unk> conversion and then kind of the sub items within Coco that youre buying do those soften the magnitude of inflation are they adding to it right now just trying to understand that piece of the dynamic.
Steven E. Voskuil: Sure, yeah, you're right, COCO is sort of the headline, the big headline, but when you look at COCO derivatives, they are also increasing. And, you know, we won't comment on the percent increase relative to COCO price increases, but they are inflationary just as COCO itself is.
Sure, Yes, youre right Coco as sort of the headlines the big headline, but when you look at cocoa derivatives.
Thomas Hinsdale Palmer: They are also increasing.
Thomas Hinsdale Palmer: And we won't comment about 2% increase relative to cocoa price increases, but they are inflationary just as cocoa itself.
Thomas Hinsdale Palmer: Okay.
Thomas Hinsdale Palmer: Okay, understood. And on the salty snack side, you noted non-measured channels as a driver or maybe of outperformance versus what we see in scanner. Where's that really coming from? And is this like other retailers? Is this more on the e-commerce side? And should we think about it as velocity or expanded distribution? Yes, so it is from Club.
Thomas Hinsdale Palmer: And on the salty snack side, you noted non measured channel.
Driver, maybe outperformance versus what we see in scanner.
Speaker Change: Where is that really coming from.
Speaker Change: Is this like other retailers is just more on the e-commerce side and should we think about it as velocity your expanded distribution.
Michele Gross Buck: Yes, so it is from Club, especially some very nice increases in dots that we shared last year. We got incremental distribution, so at this point, it's from both distribution and velocity there. The dots were up, you know, about 30% to start the year. And, you know, we gained over 300 market share points, and Club was one of the drivers.
Speaker Change: Yes, so it is from club.
Speaker Change: Especially.
Speaker Change: Some very nice increases on data that we shared last year, we got incremental distribution. So at this point, it's from both distribution and velocity there. So.
Speaker Change: <unk> was up about 30% to start the year and we gained over 300 market share points. In club was up was one of the drivers of that.
Speaker Change: Great. Thank you.
Operator: And our next question comes from the line of Rob Dickerson with Jeffries. Please proceed with your question.
And our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.
Robert Frederick Dickerson: Great. Thanks so much.
Robert Frederick Dickerson: Great. Thanks, so much Michelle maybe seem to be fully understand right not speaking to hedging practices.
Robert Frederick Dickerson: Michele, maybe Steve, too, let me fully understand, right, not speaking to hedging practices. You know, kind of where you're positioned or how you're positioned or how you're thinking about, you know, the internal hedging dynamic. But I'm curious, maybe just more broadly, you know, we heard from another large confection company earlier this week that was kind of able to speak, you know, kind of in general, as to kind of just how you're thinking about just like the global cocoa supply, right?
Robert Frederick Dickerson: Got it.
Robert Frederick Dickerson: Youre positioned or how you're positioned there how are you thinking about the internal hedging dynamic, but I'm curious maybe just more broadly you know we heard from another large confection company earlier. This week that was kind of able to speak you know kind of in general.
Robert Frederick Dickerson: Kind of just how you're thinking about just like global cocoa supply right I'm sure your hubs.
Robert Frederick Dickerson: Plenty of internal and external advisers kind of try to provide that perspective, and I'm sure. It's a lot better than ours.
Robert Frederick Dickerson: I'm sure you have plenty of internal and external advisors kind of trying to provide that perspective, and I'm sure it's a lot better than ours. Curious if you have any general comments around that first question. Yes, we're happy to share.
Speaker Change: Just curious if you have any general comments around that yeah. First question Yep, we're happy to share. So I would say overall our views about what has driven the market are somewhat consistent with what that you know large competitor shared.
Michele Gross Buck: So I would say, you know, overall, our views about what has driven the market are somewhat consistent with what that, you know, large competitor shared earlier. You know, as we think about it, we think both structural and transient forces have been at play, impacting prices over the past several months. You know, it certainly started with poor weather, poor weather that impacted the crop and then concerns about supply. But as we've mentioned previously, it's also about much more than just supply and demand economics. But rather the impacts of regulation, like the EU's deforestation regulation, market speculation, and also the lack of liquidity.
Earlier.
Speaker Change: As we think about it we think both structural and transients forces have been at play.
Speaker Change: <unk> prices over the past several months.
Speaker Change: It certainly started with poor weather and poor weather that impacted crop and then concerns about supply, but as we've mentioned previously it's also about much more than just supply and demand economics.
Speaker Change: But rather the impacts of regulation like the EU deforestation regulation.
Speaker Change: Get speculation and also the lack of liquidity.
Michele Gross Buck: So we continue to closely monitor supply and demand in the short term, which are the things that we can most get data and information on. The market will start, and has already started to get some signals on the supply outlook for the main crop. That will happen over the summer. Your early reads on mid-crop look good, but it's really early.
Speaker Change: So we continue to closely monitor supply and demand in the short term, which are the things that we can most get data and information on.
Speaker Change: The market will start and has started to get some signals on the supply outlook for the main crop that will happen over the summer you know early reads on mid crop look good but it's really early so.
Michele Gross Buck: So we continue to monitor that. We also have full coverage for 24. We have some coverage into 25. And then we remain very focused on executing what's within our control.
Speaker Change: We continue to monitor that.
Speaker Change:
Speaker Change: We we also have full coverage for 'twenty four we have some coverage into 'twenty five.
Speaker Change: And then we remain very focused on executing what's within our control.
Robert Frederick Dickerson: You know, our business strategies to drive growth, improve, share, innovate, enhance our capabilities, and drive cost efficiency as we continue to monitor that environment. Okay, great. Thanks for that. It was very helpful. And then maybe, Steve, this one's a little bit more for you. You know, I know you have the two programs focused on productivity and savings, the kind of, you know, gross revenues for the next three years, 700 million. You know, there's obviously some cost inflation already in the system, and there could be more forthcoming.
Speaker Change: Strategies to drive growth improve share innovate enhance our capabilities drive cost efficiency as we continue to monitor that environment.
Speaker Change: Okay, great. Thanks for that that's very helpful.
Speaker Change: And then maybe.
Steve this one's a little bit more for you.
Steven E. Voskuil: I know you have the two programs focused on productivity savings and it kind of grosses.
Steven E. Voskuil: The next three or 700 million.
Robert Frederick Dickerson: I don't really think you've, you know, spoken much about kind of like net productivity and savings. And I also don't expect you to give me an actual number. But I am just curious, kind of like, how we should feel about kind of like the, you know, net impactability, you know, on the P&L, again, broadly speaking, given just what clearly is kind of a material amount of savings and productivity over the next three years. That's it. Thanks.
Steven E. Voskuil: There is obviously some cost inflation already in the system could be more forthcoming.
Steven E. Voskuil: I don't really think you.
Speaker Change: Spoken much to kind of like the net productivity and savings and I also don't expect you to give me the actual number but.
Speaker Change: But I am just curious kind of like you know how should we feel about that.
Speaker Change: Blake B.
Speaker Change: Net impact of ability.
Speaker Change: On the P&L again broadly speaking speaking given just the what clearly is kind of a material amount of savings and productivity over the next three years that's it. Thanks.
Steven E. Voskuil: Sure, and maybe if I just take COCO to the side and look at the rest of the business, you know, our model is to offset inflationary costs over time through a variety of levers in the P&L. And that fundamental model is still in place. Of course, COCO is certainly stressing it in the near term, but longer term, that is still the model to cover inflation. And so as we think about these savings programs, both the earlier one we discussed in the investor conference focused on productivity, and then the most recent one, which is a mix of FG&A savings and productivity, both of those we like to focus on being a net benefit to the P&L over the horizons that we're And so that's the way we're looking at those cost programs. All right, great. Thanks so much.
Speaker Change: Sure, Yes, maybe if I just take Coco to the side and look at the rest of the business. You know our model is to offset inflationary cost over time through a variety of levers in the P&L and that fundamental model is still in place of course cocoa was certainly stressing it in the near term, but longer term that is still the model to cover inflation.
Robert Frederick Dickerson: Our next question comes from the line of Jim Salera with Stevens. Please proceed with your question. Good morning.
Speaker Change: So as we think about the savings programs are both the early on my earlier, one we discussed any investor conference focused on productivity and then the most recent one which is a mix of SG&A savings and productivity you know both of those we like to focus on being a net benefit to the P&L over the horizon that we're talking about which.
Speaker Change: Would imply you know we have to get other ongoing normal efficiencies to offset normal ongoing inflation right. So that's the way we're looking at those cost program.
Speaker Change: Alright, great. Thanks, so much.
Speaker Change: You bet.
Speaker Change: And our next question comes from the line of Jim Solera with Stephens. Please proceed with your question.
Operator: Good morning. Thanks for taking our question. Michele, I wanted to circle back on seasons and just dig down on, you know, you guys mentioned you gained share on Valentine's and Easter. Can you just talk through what's driving that and then maybe if there are any learnings that you can take to apply to, I don't know if you'd characterize it as like a mini or a bonus season with the Olympics this year?
Hey, guys. Good morning, Thanks for taking our question.
James Ronald Salera: Sean I wanted to circle back to seasons.
James Ronald Salera: Just to dig down on you guys mentioned you gained share in Valentines and Easter can you just talk through what's driving that and then maybe if there's any learnings that you can take to apply to I don't know if you'd characterize it as like a mini or a bonus season with the Olympics this year.
James Ronald Salera: Sure.
James Ronald Salera: So as I look at, you know, winning in season, certainly it starts with the right product portfolio. We feel good about the portfolio. We always have innovation at the seasons, and we feel good that we have the right innovation. Another key driver is merch. We did a very nice job with merchandise and our retail sales teams working in stores to get the visibility that we really desired for the category and overall for our business.
James Ronald Salera: So as I look at winning in season certainly.
James Ronald Salera: It starts with the right product portfolio, we feel good about the portfolio, we always have innovation at the seasons and we feel good that we had the right innovation.
James Ronald Salera: Another key driver is March we.
James Ronald Salera: We did a very nice job with merch and our retail sales teams working stores to get the visibility that we really desired for the category and overall for our business and then also we had the ability to provide even more supply as we've mentioned over the past several years, we had a couple of years, where we were constrained.
James Ronald Salera: Also, we had the ability to provide even more supply. As we've mentioned over the past several years, we had a couple of years where we were constrained by what we were able to deliver, and at the end of last year, we really got to a much fuller place in supply across our portfolio. And yes, all of those lessons we apply to those not traditional seasons, but those other occasional seasons, things like Super Bowl, March Madness, and Olympics. And so we certainly plan to leverage those same levers to make the Olympics a strong event for us in the summer.
James Ronald Salera: And by what will what we were able to deliver and end of last year, we really got to a much fuller place in supply across our portfolio and yes, all of those lessons we apply to those.
James Ronald Salera: Not traditional seasons, but those other occasional seasons things like Super Bowl March Madness and Olympics, and so we certainly plan to leverage those same levers to make Olympics, a strong event for us into summer.
Michele Gross Buck: Great. And on the Olympics specifically, if I'm not mistaken, I think it's two weeks, and so should we expect like in-store activations on that to run for like three weeks or four weeks or any way to that size?
James Ronald Salera: Great.
Speaker Change: On the Olympics, specifically, if I'm not mistaken I think it's two weeks and so should we expect like in store activations on that to run for like three weeks or four weeks or any way to kind of size that up.
James Ronald Salera: any way, to kind of size that up as we think about it at the end of the summer.
Speaker Change: As we think about that at the end of the summer.
Michele Gross Buck: Well, we usually start some of those activations ahead of the event. Retailers like to, you know, kind of highlight the event and get people engaged ahead of time. So you will see some of those displays start as early as June, really leading into the Olympics. And then, depending on the retailer, you'll see them throughout the summer. Okay, perfect. Thanks, guys. I'll hop back in.
Speaker Change: Well, we usually start some of those Activations ahead of the event our retailers like too you know.
Speaker Change: Kind of highlight the event and get people engaged on ahead of time. So you will see some of those displays start as early as June really leading into the Olympics and then depending on the retailer youll see them throughout the summer.
Speaker Change: Okay perfect. Thanks, guys I'll hop back in queue.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Operator: Our next question comes from the line of John Baumgartner with Mizuho. Please proceed with your question.
Speaker Change: Our next question comes from the line of John Baumgartner with Mizuho. Please proceed with your question.
John Joseph Baumgartner: Good morning, thanks for the question. So in terms of international business, there have been some high-level comments about Europe over the past year or so, you know, recognizing your presence there a bit more than in the past. And I'm curious how you think about that market longer term. And would you say you're still in the trial period? Is there anything that still needs better understanding at this point? Just how do you think about Hershey's desire to maybe take the next steps? And I guess it's a pretty big market with some differentiated products.
John Joseph Baumgartner: Good morning, Thanks for the question.
John Joseph Baumgartner: Michelle.
John Joseph Baumgartner: In terms of the international business I mean, there's been some high level comments about Europe over the past year or so I think recognizing your presence there a bit more of that in the past and I'm curious, how you're thinking about that market longer term would you say you're still on the trial period is there anything that you still need better understanding at this point just how do we think about hershey's desire.
John Joseph Baumgartner: If you pick the next steps I guess, it's a pretty big market with some differentiated products.
Michele Gross Buck: yeah so so yes it is a large market and I think the approach that we've always taken over time is it is a very well-developed established market and therefore we believed our you know our best chances of succeeding are with a differentiated product and after a lot of work we have been successful in bringing Reese's to Europe and you know really starting in the UK we've had some phenomenal success with frankly not a ton of investment in support in terms of on-the-ground people or other investments so we now have a business that we feel good about that's profitable there and that's really our primary focus so we think about Europe a bit more from where we have that you know elements of a differentiated portfolio that we think can win and depending on what you're not looking at as a big investment, but rather doing it efficiently to maintain strong learning.
Speaker Change: Yeah. So so yes. It is a large market and I think the approach that we've always taken over time is it is a very well developed established market and therefore, we believed our you know our best chances of succeeding or with a differentiated product and after a lot of work we have.
Speaker Change: Been successful in bringing research to Europe, and you know really starting in the U K, we've had some phenomenal success.
Speaker Change: With frankly, not a ton of investment and support in terms of on the ground people or other investments.
Speaker Change: So we now have a business that we feel good about that's profitable there and that's really our primary focus so we think about Europe, a bit more from where we have that elements of a differentiated portfolio that we think can win.
Speaker Change: And depending of I'm not looking at it as a big investment, but rather doing it efficiently to maintain strong margins.
John Joseph Baumgartner: Okay, and in the US, I'm curious, as the consumer encounters just, you know, sort of an extended period of high inflation, are you seeing any changes in terms of demand drivers for your categories where maybe the pull of advertising isn't what it used to be? Does it require, you know, more price promotions? Does it require more in-store display, you know, more front-of-store presence? How do you think about, or are you seeing any changes in, you know, sort of the efficiency of demand drivers that are out there? Yeah, I mean, I guess one way that I think about it is
Speaker Change: Okay and in the U S. I'm curious as the consumer encounters just sort of an extended period of high inflation.
Are you seeing any changes in terms of in terms of demand drivers for your categories, where maybe the pull in advertising isn't what it used to be does it require more price promo does it require more in store display of more and more front of store presence. How do you think about where are you seeing any changes in sort of the youth.
Speaker Change: Consumer demand drivers that are out there.
Michele Gross Buck: Yeah, I mean, one way that I think about it is making sure that we look at each occasion, which really comes down to kind of the pack types across the portfolio, and ensuring that we have good entry level prices based on how the consumer, well, and I guess prices based on how the consumer, you know, perceives value. A lot of times, for the lower-income consumer, it's about an entry level price point that enables them to participate in some categories.
Speaker Change: Yeah, I mean, I guess, one way that I think about it is making sure that we look at each occasion, which really comes down to kind of the pack types across the portfolio and ensuring that we have a good entry level prices based on how the consumer well and I guess prices based on how the consumer you know that.
Speaker Change: Perceive as value a lot of times for the lower income consumer its about an entry level price point that enables them to participate in some categories. It's about volume that has a better.
Michele Gross Buck: It's about volume that has a better price per ounce. So I think, to me, that might be the bigger piece. I do think areas like seasons and innovation also drive value above and beyond the base products. And so I think we've seen that as well. Thank you.
Speaker Change: Price per ounce, so I think to me that what might be the the bigger piece.
Speaker Change: I do think areas like seasons, and innovation also drive value above and beyond the base products and so I think we've seen that as well.
Speaker Change: Thank you.
Speaker Change: Okay.
Operator: And our next question comes from the line of Alejandro Zamacona with HSBC. Please proceed with your question. Thank you. Good morning, everyone.
Speaker Change: And our next question comes from the line of Alejandro Zelman Kona with HSBC. Please proceed with your question.
Speaker Change: Thank you good morning, everyone just a follow up on the breakeven.
Speaker Change: So I'm doing some.
Speaker Change: Uh huh.
Speaker Change: Any comments regarding any of the recent change them.
Speaker Change: So recently presence have declined 30% in the last couple of weeks ago.
Speaker Change: Any comments around that would be helpful. Thank you.
Alejandro Zamacona: Yeah, well, I think first of all, that decline is just further evidence of the tremendous volatility that we're seeing in the marketplace. It's hard to peg the cause of some of those declines. There are no new signals relative to supply and demand that are meaningful yet. I mean, perhaps some early signs about the mid-crop, which leads us to believe that more of the decline is driven by some of the non-supply-demand economic factors, but some of those other factors that we've discussed relative to speculators, thoughts on regulation, etc.
Speaker Change: Yeah, well I think first of all that decline is just further evidence of the tremendous volatility.
Speaker Change: Seeing in the marketplace.
Speaker Change: You know, it's hard to peg what some of those declines there are no new signals relative to supply and demand that are meaningful yet I mean, perhaps some early signs about the mid crop, which leads us to believe that more of the decline is driven by some of the non <unk>.
Speaker Change: Why demand economic factors, but some of those other factors that we've discussed relative to.
Speculators.
Speaker Change: On regulation et cetera.
Speaker Change: Thank you.
Michele Gross Buck: Thank you. We have reached the end of our question and answer session. And with that, I would like to turn the floor back over to Melissa Poole for any closing comments. Thanks so much for joining us this morning.
Speaker Change: Thank you.
Speaker Change: We have reached the end of our question and answer session and with that I would like to turn the floor back over to Melissa Poole for any closing comments.
Melissa Poole: This morning I know there's another call, so we'll let you all go to make sure you can attend that and look forward to catching up later today. Have a great weekend.
Melissa Poole: Thanks, so much for joining us this morning, I know there's another call. So we'll let you all go to make sure you can attend that and look forward to catching up later today.
Melissa Poole: Great weekend.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
unknown: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Okay.
Melissa Poole: [music].
Melissa Poole: Hum.
Melissa Poole: [music].
Melissa Poole: Hum.
Melissa Poole: Uh-huh.
Melissa Poole: Oh.
Melissa Poole: [music].
Melissa Poole:
Melissa Poole: [music].
Melissa Poole: Hum.
Melissa Poole: Hum.
Hum.
Melissa Poole: Mhm mhm.
Melissa Poole: Hum.
Melissa Poole: [music].
Melissa Poole: Mhm.
Melissa Poole: Hum.
Hmm.
Melissa Poole: Hello.
Melissa Poole: Oh.
Melissa Poole: [noise] [music].
Melissa Poole: Hum.
Melissa Poole: Yeah.
Melissa Poole: Hum.
Melissa Poole: Okay.
Melissa Poole: Yeah.
Melissa Poole: Okay.
Melissa Poole: Yeah.
Melissa Poole: Mhm mhm.
Melissa Poole: [music].
Melissa Poole: Hum.
Melissa Poole: Hum.
Melissa Poole: Oh, Oh Oh.