Q2 2024 Hershey Co Earnings Call
Greetings and welcome to the Hershey Company's second quarter 2024 earnings question and answer session.
Operator: If anyone requires operators' assistance during the conference, please press star zero on your telephone keypad.
Operator: As a reminder, this conference is being recorded.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Nori Norton: It is now my pleasure to introduce your host, Nori Norton, Senior Vice President, Senior Director of Investor Relations.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nori Naughton, Senior Director of Investor Relations. Thank you, Ms. Naughton. You may begin.
Unknown Executive: Thank you, Miss Norton; you may begin.
Michelle Buck: Good morning, everyone. Thank you for joining us today for the Hershey Company's second quarter, 2024 earnings Q&A session. I hope everyone has had the chance to read our press release and move into 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.
Unknown Executive: Good morning, everyone. Thank you for joining us today for the Hershey Company second 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. 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.
Nori Naughton: Good morning, everyone. Thank you for joining us today for the Hershey Company second 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.
Nori Naughton: In addition, we have posted a transcript of the pre-recorded remarks.
Nori Naughton: 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, including expectations and assumptions regarding the company's future operations and financial performance.
Michelle Buck: 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, including expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected; their 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 in the company's SEC filing.
Nori Naughton: Actual results could differ materially from those projected, but company undertakes no obligation to update these statements based on subsequent events.
Michelle Buck: Finally, please note that we may refer to certain non-GAAP financial measures that we believe provide useful information for investors. The presentation of this information is not intended to be considered in isolation or the substitute for the financial information presented in accordance with GAAP. Reconciliation so the GAAP results are included in this morning's press release.
Nori Naughton: A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings.
Nori Naughton: Finally, please note that we may refer to certain non-GAAP financial measures that we believe 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 for the GAAP results are included in this morning's press release.
Unknown Executive: Joining me today are Hershey's chairman and CEO, Michelle Buck, and Hershey's senior vice president and CFO, Steve Bobgill.
Speaker Change: Joining me today are Hershey's Chairman and CEO , Michele Buck, and Hershey's Senior Vice President and CFO , Steve Voskuil. With that, I will turn it over to the operator for the first question.
Unknown Executive: With that, I will turn it over to the operator for the first question.
Unknown Executive: Thank you.
Operator: Thank you. We will now be conducting a question and answer session. 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 would 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. One moment, please, while we poll for questions.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation total indicates your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands at before pressing the star keys. One moment, please.
Speaker Change: Thank you. We will now be conducting a question and answer session. 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.
Speaker Change: You may press star 2 if you would 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. One moment, please, while we poll for questions.
Unknown Executive: Will we pull for questions?
Ken Goldman: Our first question comes from the line of Get Ken Goldman, which AP Morgan. Please proceed with your question.
Speaker Change: Our first question comes from the line of Ken Goldman with J.P. Morgan. Please proceed with your question.
Unknown Attendee: Hi, thank you. And Melissa Poole, I think you're probably somewhere on the call. I think you're still there. Thank you for all your help over the years. And Anuri, congratulations on your new, increased role.
Ken Goldman: Hi, thank you. And Melissa Poole, I think you're probably somewhere in the call. I think you're still there.
Ken Goldman: Thank you for all your help over the years, and a Norrie congrats on your new increased role. I wanted to ask, you know, within North American confectionery this quarter, as you mentioned, there was a 6% impact from lower retail inventory and around 2 to 3% from the Halloween shift. You seem confident that these impacts will have no real material effect on the year, which I understand. But my question is, is it unfair for investors to ask if there isn't, you know, at least a small red flag underlying this news? And I'm just asking because historically in food, you know, destockings, delayed orders, haven't always been for benign reasons.
Ken Goldman: Hi, thank you. And Melissa Poole, I think you're probably somewhere in the call. I think you're still there. Thank you for all your help over the years. And Anuri, congrats on your new increased role.
Speaker Change: I wanted to ask, you know, within North American Confectionery this quarter, as you mentioned, there was 6% impact from lower retail inventory and around 2-3% from the Halloween shift.
Unknown Attendee: You seem confident that these impacts will have no real material effect on the year, which I understand. But my question is, is it unfair for investors to ask if there isn't, you know, at least a small red flag underlying this news? And I'm just asking because, historically, in food, you know, destockings, delayed orders haven't always been for benign reasons. Sometimes they're, I guess, outgrowths of softer end user demand. So just curious what gives you confidence that there's not a relationship between the delays and demand.
Speaker Change: You seem confident that these impacts will have no real material effect on the year, which I understand.
Ken Goldman: Sometimes they're, I guess, outgrowth of softer and user demand. So just curious, what gives you confidence? There's not a relationship between the delays and demand, which seems to be implied by your commentary.
Steve Bobgill: Steve, do you want to take that?
Steve Bobgill: Yeah, be happy to. I mean, as we've seen in the last few years, there's been actually quite a bit of volatility around inventory level, partly based on cope, you know, the COVID era and supply chain challenges.
Steve Bobgill: And so I think what we're seeing now is a more reversion to the way it's been more traditionally, which is howling ships more in the third quarter than in the second quarter. And so the change from prior year, but we have good visibility into our seasonal orders already. You know, most of our orders aren't hand. We've got strong expectations for the seasons, a lot of retailer collaboration. And so I think that we look at it. We don't see it as a red flag. We see it as a more reversion to a traditional order pass.
Speaker Change: Now is more reversion to the way it's been more traditionally, which is Halloween ships more in the third quarter than in the second quarter. And so the change from prior year, but we have good visibility into our seasonal orders already. Most of those orders are in hand.
Unknown Executive: Okay.
Unknown Attendee: Okay, thank you for that. And then, um, quickly, I wanted to ask about your recently announced pricing. Can you perhaps give us a sense of which products it covers, the magnitude of the increase? And can you walk us through the degree to which you're comfortable taking this pricing right now, you know, given some elasticity and that you're one of the few categories to be doing so? Thank you.
Unknown Executive: Thank you for that.
Ken Goldman: And then quickly, I wanted to ask about your recently announced pricing.
Speaker Change: Okay, thank you for that. And then...
Steve Bobgill: Can you perhaps give us a sense of which products it covers, the magnitude of the increase, and can you walk us through the degree to which you're comfortable taking this pricing right now, you know, given some elasticity and that you're one of the few categories to be doing so. Thank you. Absolutely. So, as you all know, we have experience to store cocoa prices for some period of time now. And while we believe the current cocoa price is not sustainable, we do believe that the future prices will be higher levels than we've seen before this kind of recent historic pricing cycle.
Speaker Change: So, as you all know, we have experienced historic cocoa prices for some period of time now. And while we believe the current cocoa price is not sustainable,
Unknown Executive: Our approach to pricing has been to take a measured approach. We've absorbed a lot of inflation already, but we do believe we need to pass some of it on. And we're seeing the category hold up fairly well in this tougher environment. We think it's historically been very rational.
Steve Bobgill: You know, our approach on the pricing has been to take a measured approach. We've absorbed a lot of insulation already, but we do believe we need to pass some of it on. And you know, we're seeing the category hold up fairly well in this tougher environment. We think it's historically been very rational. We think it will continue to be.
Unknown Executive: We think it will continue to be. So at this point, we don't want to go into a lot of the specifics around the pricing, it was very recently announced. And so it is still, you know, out there being sold to customers. And we think from a competitive perspective, at this point, we shouldn't go into too much more detail. We are assuming that we'll see historic elasticities, which is a little bit worse than we have seen in our recent price increases. So we think that that's the right approach as we plan for this one, the business going forward.
Steve Bobgill: So overall, we are not going to price the entire portfolio. We do have a robust internal process where we take a lot of factors into consideration that determine what our approach will be. But you know, that's what gives us confidence. We will be getting about six to seven points of net price realization. At this point, we don't want to go into a lot of the specifics around the pricing. It was very recently announced. And so it is still, you know, out there being sold to customers. And we think, from a competitive perspective, at this point, we shouldn't go into too much more detail.
Speaker Change: Overall, we are not going to price the entire portfolio. We do have a robust internal process where we take a lot of factors into consideration to determine what our approach will be.
Speaker Change: At this point, we don't want to go into a lot of the specifics around the pricing. It was very recently announced, and so it is still, you know, out there being sold into customers. And we think from a
Speaker Change: Competitive Perspective. At this point, we shouldn't go into too much more detail. We are assuming that we'll see historic elasticities, which is a little bit worse than we have seen in our recent price increases. So we think that that's the right approach as we plan for this one, the business going forward.
Steve Bobgill: We are assuming that we'll see historic elasticity, which is a little bit worse than we have seen in our recent pricing increases. So we think that that's the right approach as we plan for this one, the business going forward.
Unknown Executive: Great. Thank you.
Unknown Executive: Thanks, Cam. Thank you.
Andrew Lazar: Thank you. Our next question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Great. Thanks.
Andrew Lizar: Our next question comes from the line of Andrew Lizar with Barclays. Please proceed with your question. Great. Thanks so much.
Cam: Thanks, Pam.
Andrew Lizar: Good morning, everybody. Good morning. So I wanted to dig in a little bit more on market share trends in core chocolate. I know share trends have been a weaker, I think, than expected, particularly in everyday items, even though Hershey is lapping some share losses in core chocolate last year. And I know last year there was more of a focus on capacity additions, but I guess I was, I thought this year at market return to more innovation, you know, more normal levels of sort of in store commercial activity and such. So I'm just trying to get a better understanding of what you think is driving those share losses.
Unknown Attendee: Good morning. So I wanted to dig in a little bit more on market share trends in core chocolate I know share trends have been a weaker. I think then than expected particularly in everyday items Even though Hershey is lapping some some share losses in in core chocolate last year And I know last year there was more of a focus on capacity additions But I guess I was I thought this year would mark a return to more innovation You know more normal levels of sort of in-store commercial activity and such So I'm just trying to get a better understanding of what you think is driving those share losses And and maybe when you'd expect to start to see those trends, you know start to inflect Particularly in light of your intent to take some incremental pricing, you know, albeit justified pricing
Speaker Change: Michelle, I wanted to dig in a little bit more on market share trends in core chocolate. I know share trends have been weaker I think than expected particularly in everyday items.
Steve Bobgill: And maybe when you'd expect to start to see those trends, you know, start to inflect, particularly in light of your intent to take some incremental pricing, you know, albeit justified pricing. Yep, absolutely. The first of all, I'd say we are encouraged that we continue to see category growth in that roughly 2% range. All along as we planned the year, we had expected our second half to be stronger, better than the first half due both to lapse as well as the timing of programming. And we had also anticipated Q2 to be a weaker takeaway quarter for us than Q1.
Speaker Change: All along as we planned the year, we had expected our second half to be stronger and better than the first half, due both to laps, as well as the timing of programming, and we had also anticipated Q2 to be a weaker takeaway quarter for us than Q1.
Steve Bobgill: Given the timing of season, Reese Caramel, and then also some programming shifts where we had some programming that prior year was in Q2 that we shifted to Q3. That said, Q2 was a bit lighter than we anticipated, both from a category perspective in terms of where consumers were shopping and what they were buying, and certainly also from a share perspective. You know, if I look at the areas of pressure and share that we saw in the quarter. Tweet is an area that continued to be strong, and certainly we under indexed on suites. As we look at the back half, we have significant incremental innovation with the shack launch with new forms, et cetera, that we think is really going to help offset that.
Unknown Executive: Given the timing of the season, Reese Caramel, and then also some programming shifts where we had some programming that the prior year was in Q2 that we shifted to Q3. That said, Q2 was a bit lighter than we anticipated both from a category perspective, in terms of where consumers were shopping and what they were buying, and certainly also from a share perspective.
Speaker Change: given the timing of season.
Speaker Change: That said, Q2 was a bit lighter than we anticipated, both from a category perspective in terms of where consumers were shopping and what they were buying, and certainly also from a share perspective. If I look at the areas of pressure in share that we saw in the quarter,
Unknown Executive: You know, if I look at the areas of pressure in share that we saw in the quarter, Suite is an area that continued to be strong, and certainly we under-indexed on suites. As we look at the back half, we have significant incremental innovation with the shack launch, with new forms, etc., that we think is really going to help offset that. We saw pressure, particular pressure, that hit us in C-Store, given some of the weakening of those C-Store channel trends, as well as an uptick in take-home in club, where we are. And then, finally, of course, the biggest factor that we had spoken about in the past, kind of the reduction, continued reduction in key retailer merchandise, which reverses in the back half. So if we look at the back half, we feel Certainly the strength of our programming from an innovation perspective, lapping that merchandise reduction at the big retailer.
Speaker Change: As we look at the back half, we have significant incremental innovation with the shack launch, with new forms, etc., that we think is really going to help offset that.
Steve Bobgill: We saw pressure, particular pressure that hit us in sea store given some of the weakening of those sea store channel trends as well as an uptick and take home in club where we're less developed. And then finally, of course, the biggest factor that we had spoken about in the past, kind of the reduction continued reduction in key retail or merch, which reverses in the back half. So, as we look at the back half, we feel good about progress that we'll have on suites. Certainly, the strength of our programming from an innovation perspective, lapping that merch reduction at the big retailer.
Speaker Change: We saw pressure, particular pressure that hit us in CSTOR, given some of the weakening of those CSTOR channel trends, as well as an uptick in take-home in club where we're less developed.
Speaker Change: And then finally, of course, the biggest factor that we that we had spoken about in the past.
Speaker Change: which reverses in the back half. So if we look at the back half, we feel good about the progress that we'll have on suites. Certainly the strength of our programming from an innovation perspective, lapping that merch reduction at the big retailer.
Steve Bobgill: We have visibility into recess, and we know that we're going to have advantage position and recess in several key retailers. That's going to be a plus for us. And also as we look season second half to first half, you know, we are a big share player at seasons first half had the weekend Easter with the short season and we have strong visibility to seasons in the back half. So we know that that will drive share as well. And we're just going to follow up on the reduction in retailer merch that's going to be impacted the last couple of course that you'll be lapping.
Speaker Change: And we know that we're going to have advantage position in recess.
Speaker Change: Right. And just a quick follow-up on the production and retailer merch that's kind of impacted the last couple quarters that you'll be lapping. I guess, what was like the sort of post-mortem on that, if you will?
Steve Bobgill: I guess what was like the sort of postmortem on that, if you will. Typically, some of these things kind of depends on swings too far, maybe in one direction. And then key retailers sort of figure out that, you know, it does make sense to put to have a lot of different points of interruption, if you will, across the store because it's such an impulse item. So I'm just curious, like any lingering effects that you expect from that or not so much. Thanks. I would say I think that we're seeing things. I would say neutralize. I would say that, you know, sometimes those things do go to more extremes, and I think they, well, they don't revert back to where they were.
Speaker Change: Typically, some of these things, the pendulum swings too far, maybe in one direction.
Speaker Change: And then key retailers sort of figure out that, you know, it does make sense to put to have lots of different points of interruption, if you will, across the store, because it's such an impulse item. So I'm just curious, like, any, any lingering effects that you expect from that or not so much? Thanks.
Unknown Attendee: I would say that we're seeing things, I would say, neutralized. I would say that, you know, sometimes those things do go to more extremes, and I think they, while they don't revert back to where they were, I do think that there's more neutralization down the middle a bit more.
Unknown Attendee: Um, I would say I think that
Steve Bobgill: I do think that there's more neutralization down the middle a bit more.
Alexia Howard: Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Good morning, everyone.
Alexia Howard: Can I just start with the question on the incentive comp being down? If you just have to apply that this quarter wants something of a disappointment relative to plan, maybe because the timing of the shipment for Halloween or the retailer industries were run down. And what should we expect to have happen on those incentives on those incentive payments going forward? Yeah, the biggest driver on the incentive side is just tracking with what our expectations are from a full year standpoint, and so at any quarter we true up where we're at year to date and the outlook for the full year, and that's the benefit that we're going to say benefits that's flowing through into the incentive comp right now.
Speaker Change: [inaudible]
Speaker Change: Can I just start with the question on the incentive comp being down?
Speaker Change: Does that imply that this quarter was something of a disappointment relative to plan, maybe because the timing of the shipments for Halloween or the retailer inventories were run down? And what should we expect to have happen on those incentives, on those incentive payments going forward? Thank you. Thank you.
Speaker Change: Yeah, the biggest driver on the incentive side is just tracking with what our expectations are from a full year standpoint.
Speaker Change: And so at any quarter, we true up where we're at year-to-date and the outlook for the full year.
Steve Bobgill: Okay, but the full year is the same or extra, and there's only minor reduction in guidance this year. Obviously, this quarter was a disappointment relative to expectations. I was just trying to, does that mean that the comp sort of bounces back next quarter and normalizes? No, we wouldn't expect it to bounce back in the way our incentives are structured. It's more than just you'll say the headline numbers; you know there are things, other goals and objectives underneath there. There are different parts of the portfolio that have different goals. So, even though the headline numbers may not change that much, some of the underlying incentive calculations can change. And so, as I say, we true that every quarter. I'm not expecting it to come back; I would look bad as a step down for the second quarter that will continue to pull through the back half.
Speaker Change: Okay. But the full year is the same, or ish. I mean, there's only a minor reduction in guidance this year. Obviously, this quarter was a disappointment relative to expectations. I was just trying to – does that mean that the comp sort of bounces back next quarter and normalizes?
Speaker Change: No, we wouldn't expect it to bounce back and the way our incentives are structured is more than just, you know, say the headline numbers, you know, there are things, other goals.
Steve Bobgill: And that's a real reduction in guidance does have an impact, I mean, you know, a meaningful impact on the comp.
Speaker Change: And that's the way a reduction in guidance does have an impact, I mean, you know, a meaningful impact on the comp.
Steve Bobgill: Got it. Okay, perfect. And then on the gross margin, you mentioned that this quarter, obviously, you're still expecting a 200 basis point decline for the full year. This quarter you talked about input cost timing favorability. Which input cost was that on? Presumably it wasn't Coco because I thought you had that locked in at the end of last year. I'm sure it's about dynamics on input cost. Yeah, there are a couple of things inside there for the second quarter. One is that we did have some movement and mark to market of derivatives for our hedging, and so it's not a change from the past. We always have for current periods and mark to market that flows through the segment recording.
Speaker Change: Got it. Okay, perfect. And then on the growth margin, you mentioned that this quarter, obviously, you're still expecting a 200 basis point decline for the full year.
Speaker Change: Yeah, there are a couple things inside there for the second quarter. One is that we did have some movement in mark-to-market of derivatives for our hedging, and so it's not a change from the past. We always have, for current periods, some mark-to-market that flows through the segment reporting. In this case, because of the volatility in commodities plus the business performance,
Steve Bobgill: In this case, because of volatility and commodities, plus the business performance and, as always, the mix of insurance and tools that we use, the hedge. We had some favorability there that came through relative to input cost that's hard to predict the very quarter to quarter, but that was one of the pieces we also made some small changes to as part of our ERP system in the way we match cost to products. That didn't have a big impact on the quarter, but you have slightly positive. As we look at those pieces, we look at them all timing-based, and so we expect to see those come back in the back half.
Speaker Change: And as always, the mix of instruments and tools that we used to hedge. We had some favorability there that came through relative to input costs. That's hard to predict. It varies quarter to quarter, but that was one of the pieces. We also made some small changes as part of our ERP system in the way we matched costs to products.
Speaker Change: That didn't have a big impact on the quarter, but slightly positive as well. As we look at those pieces, we look at them all as timing-based, and so we expect to see those come back in the back half.
Unknown Executive: Great.
Unknown Executive: I'll pop it on.
Brian Spillane: Thank you. Our next question comes from Brian Spalane with Bank of America. Please proceed with your question. Hi, thanks operator.
Speaker Change: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question.
Alexia Howard: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.
Michelle Buck: Good morning everyone. Hey, so Michelle, I guess you know a question I think you're going to get, or we're all going to be asking over the balance of the years, is just. You know consumer receptivity of a price increase and maybe why normal elasticity, and I say that in the context of if you look at your own results, right, it's clearly a value shift. Right, dollar stores, club stores doing well, convenience stores not doing as well. You know Pepsi is cutting prices right on Frito because they price too high. There was the lift on merchandising wasn't very good.
Unknown Executive: Yeah, the biggest driver on the incentive side is just tracking with what our expectations are from a full year standpoint. And so we at any quarter, we throw up where we're at year to date and the outlook for the full year. And that's the benefit that we're saying benefit that's flowing through into the incentive comp right
Unknown Attendee: Okay. But the full year is the same, or ish, I mean there's only a minor reduction in guidance this year. Obviously, this quarter was a disappointment relative to expectations, so I was just trying to see if that means that comp sort of bounces back next quarter and normalizes.
Speaker Change: Hi. Thanks, Operator. Good morning, everyone. Good morning, Bryan. Hey, so, Michele, I guess, you know, a question I think you're going to get or we're all going to be asking over the balance of the year is just,
Speaker Change: You know, consumer recipe, receptivity of a price increase, and maybe why normal elasticity and I say that in the context of
Speaker Change: You know, Pepsi is cutting prices, right on Frito because they priced too high. There was the lift on merchandising wasn't very good. You know, Mondelez is trying to get a three dollar price point, you know, instead of a four dollar price point in front of people's eyes. So it just seems like.
Michelle Buck: You know Mondalees is trying to get a $3 price point on you know instead of a $4 price point in front of people's eyes, so it just seems like. You know, a lot of the other snacking peers are adjusting down, maybe to start stimulating demand. So just how you think about that in the context of, you know, trying to take another price increase. So certainly, as we put together the pricing, you know, certainly we're experiencing outsized inflation versus, I'd say, some other peers that said we do really focus on the consumer as we look at historic price elasticity.
Michelle Buck: You know, our recent pricing increases, we have been better than historic elasticity level. So we are putting in place in more conservative assumption on the last capacity than we've seen in the past. That said, we also, you'll really take a surgical approach across the portfolio with a lot of analysis to look at the key price points we need to be at to offer the right range of opportunities for consumers. You know, we've got a pretty significant amount of our portfolio that's under the $3 price point. And we've made choices across the portfolio about where we think those price increases will benefit and work, and in some places that we've chosen not to lean in on price.
Speaker Change: That said, we do really focus on the consumer. As we look at historic price elasticities, you know, our recent pricing increases, we have been better than historic elasticity levels. So we are putting in place.
Speaker Change: a more conservative assumption on elasticity than we've seen in the past.
Speaker Change: That said, we also, you know, really take a surgical approach across the portfolio with a lot of analysis.
Speaker Change: And we've made choices across the portfolio about where we think those price increases will benefit and work and some places that we've chosen not to lean in on price.
Michelle Buck: We also continue to optimize reinvestment and look at the total bundle of value because we know value includes both price point, but also, you know, seasons provides value, innovation provides value, and then reinvestment in the right precise price points from a promotional perspective as well. So kind of that holistic approach is what makes us feel good about it.
Speaker Change: We also continue to optimize reinvestment.
Speaker Change: and look at the total bundle of value because we know value includes both price points but also
Steve Bobgill: And then, Steve, if I could just one quick follow-up, I think you mentioned it might have been in the prepared remarks. Coco and beginning to, you know, start laying in a little bit for 25. We think about the gross margin expectation for this year for 24. Should we assume that, you know, you're, you've got visibility or you're pretty much locked in on cocoa. So if it, if it moves around, it's more of a 25 versus 24 factor we should think about. Yeah. For 24 itself, I say we're pretty well locked in on cocoa, and the only caveat I would say is, like we saw this quarter, you know, there's still some potential for some mark, some in quarter marked market movements that could go through this year.
Speaker Change: Okay, and then, Steve, if I could just put one quick follow-up. I think you mentioned, it may have been in the prepared remarks.
Steve Bobgill: But cocoa, you know, supply and large part of the cocoa cost lots for this year.
Steve Bobgill: As we get to next year, of course, as we get further into the year, we'll share more about expectations for next year. I mean, it's no surprise; current cocoa prices still significantly versus where they have been in the past. That's, of course, necessitating the price increase that we're talking about. So more to come on 25, but for this year, we feel pretty confident about where we're sitting from a commodity basket standpoint. Okay. Thanks for that, Steve. Thanks, Michelle.
Steve: As we get to next year, of course, as we get further into the year, we'll share more about expectations for next year.
Speaker Change: Surprise, Kern Cocoa prices still significantly up versus where they have been in the past. That's, of course, necessitating the price increase that we're talking about. So more to come on 25, but for this year we feel pretty confident about where we're sitting from a commodity basket standpoint.
Speaker Change: Okay. Thanks for that, Steve. Thanks, Michele.
David Palmer: Our next question comes from line of David Palmer with Evercore ISI. Please proceed with your question. Great.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Unknown Attendee: Great. Thank you
David Palmer: Good morning. Just a quick follow-up on the previous question on pricing. You mentioned the six to seven percent price increases. That consistent with what you would expect for North America confection in your report results for 25.
David Palmer: Great. Good morning. Just a quick follow-up on the previous question on pricing. You mentioned the 6% to 7% price increase. Is that consistent with what you would expect?
David Palmer: Thank you. or their timing issues there. I just wanted to check on that. And then separately, your commentary and guidance seems to imply stabilization or at least some acceleration into the second half in North America. Confection, I just wanted to get your temperature.
Speaker Change: for North America Confection in your report of results for 25 is
Unknown Attendee: Hi. Thanks, Operator. Good morning, everyone. Good morning, Bryan.
Speaker Change: or are there timing issues there?
Speaker Change: Check on that and then separately your your commentary and guidance seems to imply
Speaker Change: Stabilization, or at least some acceleration into the second half in North America, confection. I just wanted to get your temperature. What of the stuff that you've talked about, Shaq, the new Reese's?
Unknown Attendee: Hey, Michele, I guess, you know, a question I think you're going to get or we're all going to be asking over the balance of the year is just, If you look at your own results, right, it's clearly a value shift, right? Dollar stores, club stores doing well, convenience stores not doing as well. You know, Pepsi is cutting prices, right, on Frito because they priced them too high. The list on merchandising wasn't very good. You know, Mondelez is trying to get a $3 price point in front of people's eyes instead of a $4 price point. So it just seems like...
Steve Bobgill: What of the stuff that you've talked about, Shaq, the new Reese's, the channel expansion that you talked about maybe with Club, and then the restoration of merchandising with that key retailer, and what about that is the most important to that acceleration.
Steve Bobgill: Sure. On the pricing side, you can't take the 6.7 net for the full year for Confection. This price increase is going to be phased in. Some parts will be phased in later this year. Some parts will be having back next year, so don't take that all the way.
Speaker Change: Sure.
Speaker Change: On the pricing side, you can't take the 6-7 net for the full year for confection. This price increase is going to be phased in. Some parts will be phased in later this year. Some parts will have impact next year.
Steve Bobgill: But we look overall mid single digits in 2025 is the way to think about it.
Speaker Change: Don't take that all the way, but we look over all mid-single digits in 2025 is the way to think about it.
Steve Bobgill: Yeah, I guess if I was going to zero in on some of the biggest tasks, the second half driver, certainly the lap on the large retailer merch and resets is significant. So I would put that first and foremost, and we have really good visibility into what that should look like. Secondly, the impact of season, that differential, also large and strong visibility into the selling for those seasons, and then the sweet innovation is also one of the big drivers. And then lastly, I'd say the continued salty; we really haven't talked much about salty, but the continued salty acceleration, we have seen the momentum shift on that business.
Speaker Change: Yeah, I guess if I was going to zero in on some of the biggest second half drivers, certainly the lap on the large retailer merch and resets.
Speaker Change: is significant. So I would put that first and foremost, and we have really good visibility into what that should look like.
Steve Bobgill: Certainly, Dots has remained strong, but Skinny Pop is seeing a regaining momentum. And we expect to continue to see that in the back half. Great. That's helpful.
Unknown Executive: I'll pass it on.
Max Gumport: Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question. Hey, thanks for the question.
Speaker Change: Thank you. Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question.
Unknown Executive: So certainly, as we put together the pricing, you know, certainly we're experiencing outsized inflation versus, I'd say, some other peers. That said, we do really focus on the consumer. As we look at historic price elasticities, you know, our recent pricing increases have been better than historic elasticity levels. So we are putting in place a more conservative assumption on elasticity than we've seen in the past.
Unknown Attendee: Yeah, for 24 itself, I'd say we're pretty well locked in on COCO. And the only caveat I would say is, like we saw this quarter, there's still some potential for some in-quarter mark-to-market movements that could go through this year. But COCO, you know, supply and demand are part of the COCO cost loss for this year. As we get to next year, of course, as we get further into the year, we'll share more about expectations for next year.
Max Gumport: In the prepared remarks, you discussed consumers pulling back on discretionary spending and see store weakness.
Unknown Attendee: I mean, it's no surprise that the current COCO price is still significantly higher versus where they have been in the past. That's, of course, necessitating the price increase that we're talking about. So more to come on 25. But for this year, we feel pretty confident about where we're sitting from a commodity past. Okay, thanks for that, Steve. Thanks for sharing.
Michelle Buck: I was hoping to get a bit more color on what you're seeing there, particularly around the remark about seeing it really pick up over the last two months, and then also a bit more color on how long you accept this dynamic, good versus. Thank you. Yeah, I mean, I think in times where consumers are forced to make choices and pull back on some of their discretionary spending, they're even more focused on getting the best value that they can. And so shifting where they are making some of their purchases, where normally they may not go out of their way to do that.
Max Gumport: Discretionary Spending and C-Store Weakness. I was hoping to get a bit more color on what you're seeing there, particularly around the remark about seeing it really pick up over the last two months, and then also a bit more color on how long you expect this dynamic could persist. Thank you.
Speaker Change: You know, getting the best value that they can and so, you know, shifting where they are making some of their purchases, where normally they may not go out of their way to do that. I think during those times, this is something they're doing. And I think that's why we're seeing some of the shift.
Michelle Buck: I think during those times, this is something they're doing. And I think that's why we're seeing some of the shift away from convenience store into more mass, dollar, et cetera. And I think we've started to see that the first part of this year. I think I would expect to see that, as we continue through the year, we do have confidence that we can continue to shift and offer the right offerings across all those channels. One of the strengths in our business is our ability to do that.
Speaker Change: away from convenience store into more mass, dollar, et cetera.
Speaker Change: We do have confidence that we can continue to shift and offer the right offerings across all those channels. One of the strengths in our business is our ability to do that, and certainly as we lap that, we will see that stabilize and or grow.
Michelle Buck: And certainly, as we lap that, we will see that stabilized and or grow.
Steve Bobgill: Thanks, and then with regard to the commentary of historic elasticity, expected with the price increase on the North America Confection business, is that historic elasticity right around a 0.9 and just a bit more color on what's giving you the confidence it will be right around that level. Thank you. Yep, you're right; it is right around the one. And based on the model that we use and what data points we have, we would say that we feel pretty good that that's our good estimates for now. We are building in some of that conservatism versus where we've been in the past.
Speaker Change: Thanks, and then with regard to the commentary of historic eocity expected with the price increase on the North America confection business.
Speaker Change: And, you know, based on the models that we use,
Speaker Change: And what data points we have, we would say that we feel pretty good that that's a good estimate for now. We are building in some of that conservatism versus where we've been in the past.
Steve Bobgill: And that's really for price in isolation. There are other levers that can help to offset that relative to things like increased innovation, seasons, improvements in activity, customers, et cetera, et cetera.
Speaker Change: And that's really for price in isolation. There are other levers that can help to offset that relative to things like increased innovation, seasons, improvements in activity at customers, et cetera, et cetera.
Unknown Executive: Thanks, I'll pass it on.
Tom Palmer: Our next question comes from the line of Tom Palmer with City. Please proceed with your question. Good morning, and thanks for the question. You mentioned your view that current cocoa prices are not sustainable, and I just wanted to understand in the context of the round of pricing that you announced.
Speaker Change: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Steve Bobgill: How you're thinking about covering longer term pricing. So we're sorry, longer-term inflation. So this round of pricing, kind of cover your view of what cocoa prices might migrate longer term. So our strategy regarding pricing to cover commodities hasn't changed. That remains in place. But, as we've discussed before, we don't view that as totally linear. As in when the price goes up, there's an automatic coverage.
Unknown Speaker: Unknown Speaker, how you're thinking about covering longer term pricing. So, or sorry, longer term inflation. So does this round of pricing kind of cover your view of where cocoa prices might migrate longer term?
Speaker Change: So our strategy regarding pricing to cover commodities hasn't changed that remains in place, but as we've discussed before, we don't view that as
Steve Bobgill: So it starts by saying, you know, if we look at where prices have already been in terms of, and the fact that we've mentioned that we have some coverage for 25, you know, it would be a fair assumption to assume that this pricing will not fully cover inflation.
Steve Bobgill: Dean, anything you want to add to that? Yeah, no, that's right. We continue to manage pricing as one of many levers. And so, you know, we're also looking at cost reduction productivity. We're looking at formulation. We're looking at all kinds of levers that we've talked about in the past to manage cocoa price. Still very volatile. And as I said before, you know, given even where it is today, and it's down somewhere it was earlier this year, if we kind of took current prices and flash ahead to the future, it's a pretty still a very significant European or inflation piece.
Steve Bobgill: And so this pricing action will help. It's not by itself going to mean that we're already at long term covering the total cost, but it's a good first step. And you can expect will take other steps across all the levers that we have in the basket to address. And we'll continue to monitor cocoa pricing.
Speaker Change: Covering the total cost but it's a good first step and you can expect we'll take other steps across all the levers that we have in the basket to address.
Steve Bobgill: Certainly, we know there's been some positive news recently, but we also believe there won't be any significant impact in pricing until there's much greater visibility in the fall harvest, which, you know, is a bit of time for next.
Steve Bobgill: And then just any any health kind of thinking about the puts and takes as we think about the third quarter versus the fourth quarter in terms of maybe some of the earnings cadence. Obviously, shipment timing is a big factor, but maybe any other health on kind of the progression of gross margin or underlying sales trends.
Speaker Change: Okay, thanks for that detail. And then just any help kind of thinking about the puts and takes as we think about the third quarter versus the fourth quarter in terms of maybe some of the earnings cadence. Obviously, shipment timing is a big factor, but maybe any other help on kind of the progression of gross margin or underlying sales trends.
Steve Bobgill: Yeah, on the, it's a little more tricky, probably go quarter by quarter, but maybe a little bit. If I just say, as we look across the back half versus the front half, you know, if you look at the back half, we're going to expect to see more triple A savings. You know, we've been saying most of that back half loaded. We'll see some of that come through, and some of that does impact growth profits. We'll have our regular C.I. productivity. I think we said it on the earlier calls, but 140 million targets for the full year were right on track for that.
Speaker Change: Yeah, I'm the...
Speaker Change: versus the front half.
Speaker Change: You know, if you look at the back half, we're going to expect to see more AAA savings. You know, we've been saying most of that back half loaded, we'll see some of that come through and some of that does impact gross profit.
Speaker Change: We'll have our regular CI productivity that I think we said on the earlier calls about 140 million target for the full year. We're right on track for that. But there's more of that to come in the back half than we saw in the first half.
Steve Bobgill: But there's more of that to come in the back half than we saw in the first half. We'll also be lapping some incremental costs that we had in the back half of last year. Some of that was less for related warehousing and so forth. Most of the timing items, we would expect to reverse in Q3. So I think we'll see more of those benefits or more of those benefits reverse in Q3, but the others will continue over the back half.
Speaker Change: We'll also be lapping some incremental costs that we had in the back half of last year. Some of that was S4 related, warehousing, and so forth.
Speaker Change: Most of the timing items we would expect to reverse in Q3, so I think we'll see more of those benefits or more of those benefits reverse in Q3, but the others will continue over the back half.
Steve Bobgill: On the other side, as I think about back half gross margin, you know, we'll have more commodity inflation. That will have more seasons, makes naturally coming in, and that seasons makes this slightly diluted margin. We'll have a little bit more sweet growth, and sweet growth also, also a little bit diluted from margin standpoint and the reversal of some of the market market and other timing items that we talked about. Again, most please in Q3. Okay.
Speaker Change: On the other side, as I think about back half gross margin, you know, we'll have more commodity inflation, we'll have more seasons mix naturally coming in, and that seasons mix is...
Speaker Change: [inaudible]
Speaker Change: Okay, thank you for that.
Robert Moscow: Our next question comes from line of Robert Moscow with TD Cowan. Please proceed with your question. Thanks.
Robert Moscow: Just for the moment.
Steve Bobgill: I want to know if you could kind of elaborate on your thinking for marketing support. You know, there was a big increase last year, and I think the plan was for another increase this year. Where do you stand on your, you know, how much marketing is going to increase this year as anything changed. And as you get into 2025, you know, because of these incremental costs that you're going to have to take into account. How do you think about marketing? Relative to sales into 25. Thanks. Yeah. So we don't see a significant change in our marketing support versus what we had planned as we look to this year.
Speaker Change: with T.D. Cowan. Please proceed.
Speaker Change: [inaudible]
T.D. Cowan: for another increase this year, where do you stand on your, you know, how much
Speaker Change: Yeah, so we don't see a significant change in our marketing support versus what we had planned as we look to this year, still up in line with our sales growth.
Steve Bobgill: Still in up in line with our sales growth. And then next year. Yeah. And as we think about next year or next year, I expect also to match roughly in line with sale. And we're not far enough down all of our game planning for next year. We'll give more details later in the year. But I think from a planning standpoint, assume that it's going to at least match what we're doing from a sale standpoint. Okay.
Speaker Change: Yeah, and as we think about next year, next year, I'd expect also to match roughly in line with sales. And we're not far enough down all of our game planning for next year, we'll get more details we get later in the year. But I think from a planning standpoint, assume that it's going to at least match what we're doing from a sales standpoint.
Unknown Attendee: Okay. Thanks for that, Steve. Thanks, Michele.
Jim Salera: Our next question comes from line of Jim Solera with Steven. Please proceed with your question. Good morning, guys.
Speaker Change: You bet.
David Palmer: Thank you. Our next question comes from David Palmer with Evercore ISI. Please proceed with your question.
Unknown Attendee: Great. Good morning.
Michelle Buck: Thanks for taking our question. Michelle, on the prepared remarks, you talked about in salty, strong trends with dots and then kind of improvement for vicinity pop in the back half of the year. But the salty category as a whole has seen some pressure, and obviously more promotional activity probably coming into the category.
Speaker Change: Good morning, guys. Thanks for taking our question.
Michelle Buck: So you can walk through puts and takes on what to do the confidence for dots, maintaining momentum in the back half of the year and then skinny pop. Relic Celebrity. Yeah, absolutely. So certainly we've continued to see tremendous growth on dots. I'd start by saying on dots. We continue to have a lot of more upside on expanding our depths of distribution. There are still distribution opportunities, whether it's bi-geography, whether it is depth within a store, you know, space on shelf, given velocities. And we also have continued strong investments in dots relative to both marketing support and then also innovation relative to pack types and flavors.
Speaker Change: Yeah, absolutely. So certainly, we've continued to see tremendous growth on dots.
Speaker Change: I'd start by saying on DOTS, we continue to have a lot of more upside on expanding our depth of distribution. There are still distribution opportunities, whether it's
Speaker Change: by geography, whether it is depth within a store,
Michelle Buck: You know, one example recent launch of Parmesan garlic. So we continue to just have all the all the marketing levers still present opportunity on dots because that brand is really still been in the kind of introductory phase as I think about popcorn. I would say, yes, there's been some pressure on the category. We are seeing some stabilization as we lap some of the consumer concerns in that category. And we continue to feel good about the stepped up innovation opportunities on Skinny Pop as well relative to flavor, pack size and also marketing investment, which we have dialed up more recently as well in combination with lapping some of the softness from last year.
Speaker Change: So, we continue to just have all the marketing levers still present opportunity on DOTS because the brand has really still been in the kind of introductory phase. As I think about popcorn, I would say yes, there's been some pressure on the category.
Unknown Attendee: Just a quick follow-up on the previous question on pricing. You mentioned the 6% to 7% price increase. Is that consistent with what you would expect for North America confectionery in your report of results for 2025, or are there timing issues there? I just wanted to check. And then separately, your commentary and guidance seems to imply stabilization or at least some acceleration into the second half in North America confectionery. I just wanted to get your temperature.
Speaker Change: which we have dialed up more recently as well in combination with lapping some of the softness from last year.
Michelle Buck: Okay, that's awful.
Michelle Buck: Maybe to drill down a little bit on the ready to eat popcorn is part of the softness there, just consumer preference for like trading out or opting for another substitute good instead of the popcorn, or is there something particular with that cohort where the consumption trends are a little bit like they're relative to something like pretzels with dots. Yeah, I mean what we uncovered was, you know, the satiety factor was impacting total value proposition. And so that's what we started to see some softness on last last second quarter. And we're now at a point where we're really starting to laugh at and see it stabilized as we head through the back half of the year.
Speaker Change: Consumer preference for like trading out or opting for another substitute good instead of the popcorn or is there something particular with that cohort where the consumption trends are a little bit like they're there relative to something like pretzels with dots?
Unknown Executive: Great.
Unknown Executive: Thanks for the color.
Unknown Executive: I'll hop back in the queue.
Unknown Attendee: What of the stuff that you've talked about, Shack, New Reeses, The Channel Expansion that you talked about, maybe with Club, and then the restoration of merchandising with that key retailer? What about that is the most important to that acceleration?
Michael Laboratory: Our next question comes from the line of Michael Laboratory with Piper Sandler. Please proceed with your question. Thank you.
Michael Laboratory: Good morning. You touched on having some coverage for 2025 for cocoa. I imagine you don't want to be too specific, but more than halfway through the year now, more than halfway through 2024 and with at least sort of an average, maybe of kind of typically looking 12 months ahead. Would we estimate or assume reasonably that you're kind of half covered for the year?
Speaker Change: Thank you. Good morning.
Steve Bobgill: I guess part of the question is how much are you maybe looking to be patient for better rates or, you know, kind of more focused on securing supply, you know, maybe just a sense of how, you know, kind of that securing product for 2025 is progressing. and related to that, maybe I know you would ordinarily give an update in February when you report for Q on the next calendar year. Is there any chance later this fall when you've got plans put together, you might give a little preview sooner than normal, or should we expect just the typical cycle in terms of bad news?
Speaker Change: How, you know, kind of that, that securing product for 2025 is progressing and
Unknown Executive: Yeah, I guess if I was going to zero in on some of the biggest half the second half drivers, certainly the lap on the large retailer, merch, and reset is significant. So I would put that first and foremost, and we have really good visibility into what that should look like.
Unknown Executive: Secondly, the impact of seasons, that differential, also has a large and strong visibility into the sell-in for those seasons. And then sweets innovation is also one of the big drivers. And then lastly, I'd say the continued salty acceleration. We really haven't talked much about salty, but the continued salty acceleration, we have seen the momentum shift on that business. Certainly, Dots has remained strong, but Skinny Pop is seeing a regaining of momentum. And we expect to continue to see that in the back.
Speaker Change: Related to that maybe, I know you would ordinarily give an update in February when you report 4Q on the next calendar year.
Unknown Attendee: Great, that's helpful. I'll pass it on. Thank you.
Steve Bobgill: Sure. Yeah, on the specifics on hedging your right, I can't really give color around how far overheads for 2025, you know, as a broad policy hasn't changed. And so, you know, we've got some guardrails downstairs to assume we've got some level of coverage in 2025, but we're still, you know, watching the market and the volatility, and so we'll continue to, through our normal process, monitor that and take coverage as appropriate. As we get later in the year, you know, as our visibility increases, I would hope to be able to provide a little bit more color.
Speaker Change: And so, you know, we've got some guardrails, you know, start to assume we've got some level of coverage in 2025.
Unknown Attendee: Hey, thanks for the question. In the prepared remarks, you discussed consumers pulling back on discretionary spending and seeing store weakness. I was hoping to get a bit more color on what you're seeing there, particularly around the remark about seeing it really pick up over the last two months, and then also a bit more color on how long you expect this dynamic could persist. Thank you.
Unknown Executive: Yeah, I mean, I think in times when consumers are forced to make choices and pull back on some of their discretionary spending, they're even more focused on, you know, getting the best value that they can. And so, you know, shifting where they are making some of their purchases, where normally they may not go out of their way to do that. I think during those times, this is something they're doing.
Unknown Executive: And I think that's why we're seeing some of the shift away from convenience stores into more, you know, mass, dollar, etc. And I think, you know, we've started to see that in the first part of this year; I think I would expect to see that as we continue through the year. We do have confidence that we can continue to shift and offer the right products across all those channels. One of the strengths of our business is our ability to do that. And certainly, as we monitor that, we will see that stabilize and or grow.
Unknown Attendee: Is that historic elasticity right around a 1 or a 0.9, and just a bit more color on what's giving you the confidence it will be right around that level? Thank you.
Steve Bobgill: Again, a lot will depend on, as we sit here, for example, on the third quarter crawl, what we see and how much visibly we do have into Coke One price and other variables as well. That would be the hope; we'll see how we're sitting when we get there, but we'd love to be able to provide more color once we have some visibility we can give you to rely on.
Michelle Buck: Okay, that's helpful. And just as far as, you know, obviously the cocoa cost pressures are very well known, does that do anything to influence how you might think about portfolio optimization? Maybe diversifying a little bit more away from chocolate specifically or, you know, any other way that it might impact how you think about managing the portfolio.
Speaker Change: Okay, that's helpful. And just as far as, you know, obviously the
Michelle Buck: Hey, I mean, we're always looking at the best portfolio to meet consumer needs. We love the categories that we're in. And as you know, you know, we've made decisions to expand and leverage our core capabilities that are so strong and snacking more broadly across snacking with our, you know, particularly with our launch in the salty a few years ago. You know, we also look across our, even our chocolate portfolio and, you know, try and optimize our demand creation. We have certain parts of the portfolio that have more cocoa and chocolate, and certain parts, like cookies and cream, that, you know, may have others.
Speaker Change: Hey, I mean, we're always looking at the best portfolio to meet consumer needs.
Speaker Change: We also look across even our chocolate portfolio and try and optimize our demand creation. We have certain parts of the portfolio that have more cocoa and chocolate and certain parts like cookies and cream that may have others.
Michelle Buck: But, you know, our goal is always to go where the consumer is. Okay, that's helpful.
Unknown Executive: Thanks so much.
Unknown Executive: Thank you.
Unknown Executive: Yep, you're right. It is right around the corner.
Press Carry: Our next question comes from line of press carry with Wells Fargo. Please proceed with your question. Hey, good morning.
Press Carry: Thank you for the question. I just have one follow-up on levers and then clarification on the back half. Just regarding the levers, you know, in the prepared remarks, there was a statement that the pricing was a first step to cover inflation. I couldn't tell if the implication was that you're assessing the pricing in market before perhaps taking other pricing, or pricing is just one of your, you know, many tools in the toolkit to manage inflation.
Speaker Change: Hey, good morning. Thank you for the question. I just have one follow-up on levers and then a clarification on the back half.
Speaker Change: There was a statement that the pricing was the first step to cover inflation.
Speaker Change: You're assessing the pricing and market before perhaps taking other pricing or pricing is just
Press Carry: And then, you know, just regarding the toolkit, where's the most effort being put right now as far as, you know, levers to offset inflation, whether that's, you know, product reformulation, price tag, incremental price to be, maybe you even have some tax savings, doesn't feel like marketing will be a key source of savings. So, you've had time to kind of prepare for this. Where's a lot of that work going right now? And then, sorry for the long question, but just in the back half of the year, the four points of visibility seems about a point is seasonal.
Speaker Change: Inflation, whether that's product reformulation, price pack, incremental productivity, maybe even have some tax savings.
Speaker Change: [inaudible]
Steve Bobgill: Is, is the rest of the innovation, or is there any of the six points kind of destarcated in Q2 coming back in the back half? So, thanks for all that. Sure, on the first part of your question, this is really just our normal strategy. We're always looking at the market, we're looking at cost, we're looking at pricing, and so this is the comments were intended to say this is a tripwire pricing, and we're waiting to, we'll always be looking at pricing, and we'll be looking at all the levers, just to address that. In terms of levers, I would say we're focused on all of that, but some we've talked about in the past. PTA is a big one.
Unknown Executive: And, you know, based on the model that we use and what data points we have, we would say that we feel pretty good that that's our good estimate for now. We are building in some of that conservatism versus where we've been in the past. And that's really for price in isolation. There are other levers that can help to offset that relative to things like increased innovation, season, you know, improvements in, you know, activity at customers, etc, etc.
Unknown Executive: If we kind of take current prices and flash ahead to the future, it's still a very significant year-over-year inflation piece, and so this pricing action will help. It's not by itself going to mean that we're already covering the total cost, but it's a good first step, and you can expect we'll take other steps across all the levers that we have in the basket.
Speaker Change: Sure. On the first part of your question, this is really just our normal strategy. We're always looking at the market, we're looking at costs, we're looking at pricing, and so this isn't... The comments weren't intended to say, hey, this is a tripwire pricing and we're waiting to see what happens.
Unknown Attendee: Thanks. Just wanted to know if you could kind of elaborate on your thinking for marketing support. You know, there was a big increase last year, and I think the plan was for another increase this year. Where do you stand on your, you know, how much marketing is going to increase this year? Has anything changed?
Unknown Executive: And as you get into 2025? You know, because of these incremental costs that you're going to have to take into account? How do you think about marketing relative to sales in 25? Thanks.
Unknown Attendee: , , , , , , , , , Okay, great. Thank you.
Speaker Change: We'll always be looking at the right hand. We'll be looking at all the levers.
Steve Bobgill: We want to make sure that we are, Michele Sutter, we're really bringing values; consumers going where they are. We've got a lot of initiatives underway, some of which are contemplated in this price increase, but other things that we're working in collaboration with retailers to bring to bear in the next couple of years. So that continues to be a focus. And then things like the transformation program to drive cost savings all through the PNL, also one of the pieces, one of the levers that we can use, and in driving production efficiency off the back of some of those technology investments.
Speaker Change: That is a big one. We want to make sure that we are, as Michele said earlier, bringing value to consumers, going where they are.
Michele: A couple of years.
Michele: So that continues to be a focus. And then things like the transformation program to drive cost savings all through the P&L, also one of the pieces, one of the levers that we can use.
Steve Bobgill: wide span of tools, but those are ones that are getting a lot of attention. And then on the back half, your question was just that you just asked me to repeat that last piece. The question is basically there's, you know, this roughly four points in the back half of a shipment, the ability highlighted in the prepared marks. I can get to about a point of that being seized in a hole. The rest of that is that, you know, incremental invasion, or just other proactive initiatives you have, or is any of that this six point, you know, retail reduction in Q2.
Speaker Change: And in driving production efficiency off the back of some of those technology investments. So, wide span of tools, but those are ones that are getting a lot of attention. And then on the back half, your question was, just ask you to repeat that last piece.
Steve Bobgill: I couldn't tell because there was a comment about retail inventory should be in line with current levels into the full year. So I didn't know if you were getting come that back, or, you know, the rest of the shipment visibility is other things. Thanks. Yeah, the back half guidance doesn't require any increase in retailer inventory. So we're at a level now that we might have expected to be at the end of the year. Would be typical, but we're not expecting any increase in retailer inventory. And as far as some of those drivers, we touched on some of them earlier for the back half.
Speaker Change: Or, you know, the rest of the shipment visibility and other things. Thanks.
Speaker Change: But we're not expecting any increase in retailer inventory and as far as some of those drivers we touched on some of them earlier for the back half
Steve Bobgill: And you have as well, you know, we will have more innovation relative to the first half seasons. We'll play a role. We'll have some easier laughs and a couple of businesses we mentioned in the prepared remarks. International will have some easier last salty as well, given the ERP implementation there in the fourth quarter of last year.
Speaker Change: We will have more innovation relative to the first half season, we'll play a role, we'll have some easier laps in a couple of businesses, we mentioned in the prepared remarks international, we'll have some
Speaker Change: E.R. Lab Salty, as well, given the ERP implementation there in the fourth quarter of last year. So, those are the things that give us confidence in what we can do from a business standpoint in BackApp.
Steve Bobgill: So, so those are the things that give us confidence in what we can do for business standpoint and back up.
Rob Dickerson: Our next question comes from the line of Rob Dickerson. Would you at least please proceed with your question. Great.
Rob Dickerson: Thanks so much.
Steve Bobgill: Maybe just a quick question. Proceed. You know, just in terms of those levers, right? I mean, clearly you've outlined the 700 million in growth savings. I think it's through 26. So I'm just curious, you know, kind of, you know, given the clear elevated cocoa cost situation.
Speaker Change: You know, just in terms of those levers, right? I mean, clearly you've outlined the 700 million in growth savings. I think it's through 26.
Steve Bobgill: Is there a little bit more flex in those savings, maybe to help offset some of those costs, or you just kind of pre-plan that say, well, there aren't re-investment needs that have already been marked and we'll see what we can do, but not really. That's first.
Speaker Change: and those savings, maybe to help offset some of those costs? Or do you just kind of pre-plan that and say, well, there are reinvestment needs that have already been earmarked. And we'll see what we can do, but not really. That's the first question.
Steve Bobgill: Yeah, also we're very focused on the cost side, absolutely. And so, as we look through the transformation work, as we looked through the ongoing productivity work, and even now moving past ERP and some of the savings we can leverage off the back of that. So all of those things are helping us focus on cost to help make some impact on what we can do from a cost savings standpoint. And as we said, we're expecting a net 300 savings over that period. So it's not 300. Then reinvest portion; we want 300 net after reinvestment to hit the PNL.
Speaker Change: And so, as we look through the transformation work, as we look through the ongoing productivity work, and even now moving past ERP and some of the savings we can leverage off the back of that. So, all of those things are helping us focus on cost to help...
Steve Bobgill: Yeah, I guess I would say like could you take the 300 to like 350 because maybe the cost situation change that it sounds like you're not budget. Yeah, okay. Yeah, well, I wouldn't say we're not like we went pencils down on cost savings once we put that program in place. You know, we continue to look all the time for cost savings, and believe me, all the pressure is up to find more. Yeah, there are no. Okay, cool.
Speaker Change: Yeah, I guess I would just say like, could you take the 300 to like 350 because maybe the cost situation.
Michelle Buck: And then I guess Michelle just kind of a question, you know, around some of this kind of ongoing discretionary than softness on chocolate, because I kind of asked because let me clearly, you know, we've seen a tremendous and kind of ongoing growth on the sweet side of the business. So, which I guess one could argue it's still somewhat discretionary and clearly still a much smaller piece of the US broader confection market.
Speaker Change: Yeah, fair enough.
Michelle Buck: So I just, you know, just first, you know, kind of maybe like why do you think consumers are maybe, you know, increasingly shifted to kind of non chocolate confection one. And then to maybe how broad is the shackleship launch expected to be as we get through the back half of the year.
Speaker Change: So I guess, you know, just first, you know, kind of maybe, like, why do you think consumers have maybe, you know, increasingly shifted to kind of non-chocolate confection, one, and then two, maybe how broad is the Shackalicious
Michelle Buck: And then three, like, you know, could there be any acquisition opportunities that you would maybe dream of? You don't have to name names, but yeah, it could be an area of interest. That's all, thanks. Yeah, so first of all, I'd say chocolate is still growing, and the non-chocolate growth that we're seeing doesn't appear to be sourcing much from chocolate. We do believe that there's growth in that area due to some of the kind of the emotional factors around fun, dress release. And frankly, there's been a lot of news and innovation in that segment. So, in addition to value playing a role, there are many other, you know, main drivers, I would say, that do make sweet appealing.
Speaker Change: Yes, so first of all, I'd say, you know, chocolate is still growing. And the non-chocolate growth that we're seeing doesn't appear to be sourcing much
Speaker Change: We do believe that there's growth in that area due to some of the kind of the emotional factors around fun.
Speaker Change: Stress release
Michelle Buck: And it's one of the reasons that we've really ramped up our innovation in that space with Shack with the launch of a new form in the back half and continued investment in those brands. All right, fair enough.
Unknown Executive: Thank you so much.
Jim Salera: Thank you. Our next question comes from the line of Jim Salera with Stevens. Please proceed with your question.
Stephen Powers: Our next question comes from line of Stephen Powers with Deutsche Bank. Please proceed with your question. Good morning.
Unknown Executive: Good morning guys, thanks for taking our question. Michele, in the prepared remarks you talked about and SALSI, you know, strong trends with DOTS and then kind of improvement for Skinny Pop in the back half of the year, but the SALSI category as a whole has seen some pressure and obviously more promotional activity probably coming into the category, so can you maybe walk through, put some takes on what gives you the confidence for DOTS maintaining momentum in the back half of the year and then, you know, Skinny Pop re-accelerating?
Stephen Powers: Thank you so much. So I know we're late in the call.
Unknown Executive: We are seeing some stabilization as we lap some of the consumer concerns in that category, and we continue to feel good about the stepped-up innovation opportunities on Skinny Pop as well relative to flavor, pack size, and also marketing investments, which we have dialed up more recently as well, in combination with lapping some of the softness from last year.
Unknown Attendee: Okay, that's helpful. Maybe to drill down a little bit on ready-to-eat popcorn, is part of the softness there just consumer preference for trading out or opting for another substitute good instead of popcorn? Or is there something particular with that cohort where the consumption trends are a little bit wiser there relative to something like pretzels with dots?
Unknown Attendee: as we head through the back half. Great.
Michelle Buck: I wanted to ask a, maybe a, kind of a wrap up and longer term question. You know, a little over a year ago, you obviously outlined a number of initiatives to drive. The next phase of long-term growth for the company at your investor day, and a lot of news at that time, the discussion around upgraded commercial capabilities, digital network and supply chain optimization, workforce planning, et cetera. A lot of that you've touched upon it in bits and pieces today as well. But I guess when you step back, just given all the volatility you've experienced in the time since that day, and kind of what you see ahead over the next 12 plus months.
Unknown Attendee: Great. Thanks for the call. I'll hop back in a few minutes.
Speaker Change: Good morning, thank you so much. So I know we're late in the call. I wanted to ask maybe a kind of a wrap-up and longer-term question. You know, a little over a year ago you obviously outlined a number of initiatives to drive
Speaker Change: The next phase of long-term growth for the company at your investor day and There are a lot of news at that time discuss around upgraded commercial capabilities digital
Michelle Buck: Yeah, how would you assess your ability to keep pace with the cadence of change and improvement that you had envisioned during that Investor Day? Have you been able to largely keep pace, you know, amidst all this noise? Or are there areas where the honest assessment is you'll have to do some catch up when the demand and cost environment, you know, hopefully stabilize. Well, I would say we have continued to drive really hard on all of those capabilities around digital workforce planning, et cetera. You know, Steve referenced the transformation program, and that transformation program includes a lot of those components, and we have continued to make progress on that.
Speaker Change: Yeah, how would you assess your ability to keep pace with the cadence of change and improvement that you had envisioned during that investor day?
Speaker Change: Well, I would say we have continued to drive really hard on all of those capabilities around digital workforce planning, etc. You know, Steve referenced the transformation program.
Michelle Buck: So starting with the completion of S4, which we were able to successfully do, so that is now behind us. That was the foundation. Many of the work streams that enable us to deliver the transformation cost savings that we are on track to deliver involve technology and automation and digital solutions to enable that. So those things are continuing to move ahead. So I'd say it's kind of an end, which is dealing with the current, you know, pressured in environment and continuing to drive ahead on all of those initiatives that are part of the transformation.
Speaker Change: to enable that. So those things are continuing to move ahead. So I'd say it's kind of an and, which is dealing with the current, you know, pressured in environment, and continuing to drive ahead on all of those initiatives that are part of the transformation.
Michelle Buck: Okay, great.
Unknown Executive: I appreciate it.
Unknown Executive: There are no further questions at this time.
Nori Norton: I'd like to turn the floor over to Ms. Norton for closing comments. Thank you all so much for joining us this morning. We look forward to catching up with you in the coming days and weeks.
Speaker Change: There are no further questions at this time. I'd like to turn the floor over to Ms. Naughton for closing comments.
Michael Lavery: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Unknown Attendee: Related to that, maybe, I know you would ordinarily give an update in February when you report 4Q for the next calendar year. Is there any chance later this fall when you've got plans put together you might give a little preview sooner than normal, or should we expect just the typical cycle in terms of bad news?
Unknown Executive: Sure. Yeah, on the specifics of hedging, you're right. I can't really give you color around how far out we're hedged for 2025. You know, as I said, our policy hasn't changed.
Unknown Executive: Thank you all so much for joining us this morning. We look forward to catching up with you in the coming days and weeks.
Unknown Executive: And so, you know, we've got some guardrails, and I'm scared to assume we'll have some level of coverage in 2025. But we're still, you know, watching the market and the volatility. And so we'll continue to, through our normal process, monitor that and take coverage as appropriate. As we get later in the year, you know, as our visibility increases, I would hope to be able to provide a little bit more color. Again, a lot will depend on, as we sit here, for example, on the third quarter crawl, what we see and how much visibility we do have into Copeland. That would be the hope. We'll see how we're sitting when we get there, but we'd love to be able to provide more color once we have some visibility we can give you to rely on.
Unknown Attendee: Okay, that's helpful. And just as far as, you know, obviously, the local cost pressures are very well known. Does that do anything to influence how you might think about portfolio optimization, maybe diversifying a little bit more away from chocolate specifically, or, you know, any other way that it might impact how you think about managing the portfolio?
Nori Norton: Have a great rest of your day.
Unknown Executive: Hey, I mean, we're always looking for the best portfolio to meet consumer needs. We love the categories that we're in. And as you know, we've made decisions to expand and leverage our core capabilities that are so strong in snacking more broadly across snacking, particularly with our launch into salty a few years ago. We also look across our even our chocolate portfolio and, you know, try and optimize our demand creation; we have certain parts of the portfolio that have more cocoa and chocolate and certain parts, like cookies and cream, that, you know, may have others. But you know, our goal is always to go where the consumer is. OK?
Chris Carey: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo. Please proceed with your question.
Unknown Attendee: Steve, just regarding the levers, you know, in the prepare to march speech, there was a statement that pricing was a first step to cover inflation. I couldn't tell if the implication was that you're assessing the pricing and market before perhaps taking other measures or pricing is just one of your, you know, many tools in the toolkit to manage inflation. And then, you know, just regarding the toolkit, where's the most effort being put right now as far as, you know, levers to offset inflation, whether that's, you know, product reformulation, price packs, incremental productivity, maybe even some tax savings.
Unknown Attendee: It doesn't feel like marketing will be a key source of savings. So you've had time to kind of prepare for this. Where's a lot of that work going on right now? And then, sorry for the long question, but just in the back half of the year, the four points of visibility seems about a point of seasonal variation. Is the rest of the innovation, or is there any of the six point kind of D stock in Q2 coming back in the back half? So thanks for all that.
Operator: This concludes today's teleconference. You may disconnect your lines of this time, so thank you for your participation, and have a wonderful day.
Unknown Executive: Sure. On the first part of your question, this is really just our normal strategy. We're always looking at the market, we're looking at costs, we're looking at pricing. And so the comments weren't intended to say, hey, this is a tripwire price, and we'll always be looking at pricing, and we'll be looking at all the levers. So just to address that.
Unknown Attendee: In terms of levers, I would say we're focused on all of them, but some we've talked about in the past; PPA is a big one. We want to make sure that we are, as Michele said earlier, bringing value to consumers and going where they are. We've got a lot of initiatives underway, some of which are contemplated in this price increase, but other things that we're working in collaboration with retailers to bring to bear in the next couple of years.
Unknown Attendee: So that continues to be a focus. And then things like the transformation program to drive cost savings all through the P&L are also one of the pieces, one of the levers that we can use to drive production efficiency off the back of some of those technology investments. So, wide range of tools, but those are ones that are getting a lot of attention. And then on the back half, your question was, can you just ask you to repeat that last piece?
Unknown Attendee: The question is basically, there are roughly four points in the back half of shipment visibility highlighted in the prepared remarks. I can get to about a point of that being seasonal.
Unknown Executive: The rest of that is, you know, incremental innovation, or just other proactive initiatives you have? Or is any of that this six-point, you know, retail reduction in Q2? I couldn't tell because there was a comment about retail inventory should be in line with current levels for the full year. So I didn't know if you're getting some of that back, or, you know, the rest of the shipment visibility and other things. Thanks.
Unknown Attendee: So those are the things that give us confidence in what we can do from a business standpoint, in fact.
Unknown Attendee: Great, thanks so much. Maybe just a quick question for Steve.
Unknown Attendee: Yeah, well, I would say we felt like we went pencils down on cost savings. Once we put that program in place, you know, we continue to look all the time for cost savings. And believe me, all the pressure is up to find more.
Unknown Attendee: Yeah, fair enough. Okay, cool.
Unknown Attendee: And then I guess, Michele, just kind of a question, you know, around some of this kind of ongoing discretionary spend softness on chocolate. Because I kind of asked because, let me clearly tell you, we've seen a tremendous and kind of ongoing growth on the sweet side of the business. So, which you, I guess one could argue is still somewhat discretionary and clearly still a much smaller piece of the U.S. broader confection market. So, I guess, you know, just first, kind of maybe, like, why do you think consumers have maybe, you know, increasingly shifted to kind of non-chocolate confections?
Unknown Attendee: And then two, maybe how broad is the Shackalicious launch expected to be as we get through the back half of the year? And then three, like, you know, could there be any acquisition opportunities that you would maybe dream of? You don't have to name names, but yeah, it could be an area of interest. That's all. Thanks.
Unknown Executive: Yeah, so first of all, I'd say chocolate is still growing. And the non-chocolate growth that we're seeing doesn't appear to be sourcing much from chocolate. We do believe that there's growth in that area due to some of the emotional factors around fun and stress release. And frankly, there's been a lot of news and innovation in that segment. So, in addition to value playing a role, there are many other, you know, main drivers, I would say that do make sweets appealing. And it's one of the reasons that we've really ramped up our innovation in that space with Shaq with the launch of a new form in the back half and continued investment in those brands.
Unknown Attendee: All right, fair enough. Thank you so much.
Unknown Attendee: Thanks. Thank you.
Steven Powers: Thank you. Our next question comes from the line of Steven Powers with Deutsche Bank. Please proceed with your question.
Unknown Attendee: Good morning. Thank you so much.
Unknown Executive: So I know we're late on the call, but I wanted to ask maybe a kind of a wrap up and longer term question. You know, a little over a year ago, you obviously outlined a number of initiatives to drive the next phase of long-term growth for the company at your investor day, and there was a lot of news at that time, discussion around upgraded commercial capabilities, digital network and supply chain optimization, workforce planning, etc. A lot of that you've touched upon, you know, bits and pieces today as well.
Unknown Executive: But I guess when you step back, just given all the volatility you've experienced in the time since that day, and kind of what you see ahead over the next 12 plus months, yeah, how would you assess your ability to keep pace with the cadence of change and improvement that you had envisioned during that investor day? Have you been able to largely keep pace, you know, amidst all this noise? Or are there areas where the honest assessment is that you'll have to do some catch up when the demand and cost environment, you know, hopefully stabilizes?