Q3 2024 Hershey Co Earnings Call - Pre-Recorded Managemet Remarks

November 7, 2024

Anoori Naughton: Investor Relations. Joining me today are Hershey's Chairman and CEO, Michele Buck, and Hershey's Senior Vice President and CFO, Steve Voskuil. In addition to these remarks, we will host an analyst Q&A-only session at 8:30AM Eastern on the morning of November 7th. A replay of this webcast and our subsequent Q&A session will be available on the Investor Relations section of our website, along with their corresponding transcripts. During the course of today's discussion, management will make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings.

Hershey as chairman and CEO, Michele Buck and Hersheys Senior Vice President and CFO, Steve Buckle. In addition to these remarks, we will host an analyst Q&A only session at 830, a M. Eastern on the morning of November seven a replay of this webcast and our subsequent Q&A session will be available on the Investor Relations section of our web.

Along with their corresponding transcript.

During the course of today's discussion management will 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.

Results could differ materially from those projected the company undertakes no obligation to update these statements based on subsequent events a detailed listing of such risks and uncertainties can be found in today's press release and the Companys SEC filings. Finally, please note that during today's discussion we will refer to certain non-GAAP financial measures that we.

Anoori Naughton: Finally, please note that during today's discussion, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. It is now my pleasure to introduce our Chairman and CEO, Michele Buck.

Finally, please note that during today's discussion, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. It is now my pleasure to introduce our Chairman and CEO, Michele Buck.

Leave will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP reconciliations to the GAAP results are included in this morning's press release, it's now my pleasure to introduce our chairman and CEO Michele Buck.

Michele Buck: Thank you <unk> good morning, everyone and thank you for joining us today.

Michele Buck: Thank you, Anoori. Good morning, everyone, and thank you for joining us today. The operating environment year to date has been challenging, with historically high cocoa prices and a stretched consumer continuing to impact our results. Before I address those items further, I want to first emphasize that regardless of the external environment, the foundation of our business remains intact, as do the fundamental reasons for Hershey's success. We have a diversified portfolio of resilient brands in growing categories, the right strategy in place, and winning commercial capabilities like ubiquitous distribution, a strong in-house retail sales force, category management leadership, and supply chain scale and agility. Consumers across the income spectrum are making budgetary trade-offs and shopping differently this year. However, our data shows consumers continue to want to participate in snacking occasions.

The operating environment year to date has been challenging with historically high cocoa prices and a stretched consumer continuing to impact our results.

Before I address those items further.

Want to first emphasize that regardless of the external environment. The foundation of our business remains intact as do the fundamental reasons for hershey's success.

We have a diversified portfolio of resilient brands and growing categories. The right strategy in place.

And winning commercial capabilities like ubiquitous distribution, a strong in house retail Salesforce category management leadership and supply chain scale and agility.

Michele Buck: Yeah.

Consumers across the income spectrum are making budgetary tradeoffs and shopping differently. This year. However, our data shows consumers continue to want to participate and snacking occasions.

Section products are part of the most memorable moments in our consumers' lives like birthday celebrations and seasonal occasions.

Michele Buck: Confection products are part of the most memorable moments in our consumers' lives, like birthdays, celebrations, and seasonal occasions. For more than a decade, chocolate has consistently ranked the number two most eaten snack, which means it is also an integral part of consumers' everyday lives. The chocolate category has grown at a 4% CAGR since 2009, with positive growth every year for more than two decades. This is an incredibly resilient category that remains healthy in 2024, with everyday candy, mint, and gum consumption up over 2% year to date and continuing to outpace broader snacking in Q3. While our categories remain relevant to consumers, our performance this quarter was impacted by both industry-wide and Hershey-specific challenges. Relative to sector-wide headwinds, total snacking consumption softened to +0.1% in the quarter from +0.9% in Q2, as consumers continue to seek value, budget for meals, and prioritize satiety.

Confection products are part of the most memorable moments in our consumers' lives, like birthdays, celebrations, and seasonal occasions. For more than a decade, chocolate has consistently ranked the number two most eaten snack, which means it is also an integral part of consumers' everyday lives. The chocolate category has grown at a 4% CAGR since 2009, with positive growth every year for more than two decades. This is an incredibly resilient category that remains healthy in 2024, with everyday candy, mint, and gum consumption up over 2% year to date and continuing to outpace broader snacking in Q3. While our categories remain relevant to consumers, our performance this quarter was impacted by both industry-wide and Hershey-specific challenges. Relative to sector-wide headwinds, total snacking consumption softened to +0.1% in the quarter from +0.9% in Q2, as consumers continue to seek value, budget for meals, and prioritize satiety.

For more than a decade chocolate has consistently ranked the number two most eaton snack, which means it is also an integral part of consumers' everyday lives.

Michele Buck: Truckload category has grown at a 4% CAGR since 2009 with positive growth every year for more than two decades.

Michele Buck: This is an incredibly resilient category that remains healthy in 'twenty, four with everyday candy mint and gum consumption up over 2% year to date and continuing to outpace broader snacking in Q3.

Speaker Change: While our categories remain relevant to consumers our performance this quarter was impacted by both industry wide and Hershey specific challenges.

Speaker Change: Relative to sector wide headwinds total snacking consumption softened to plus 0.1% in the quarter from plus 0.9% in Q2.

Speaker Change: As consumers continue to seek value budget for meals and prioritize satiety.

Speaker Change: This has pressured trips to convenience and drug stores, where we over index those trips dipped further year over year in Q3.

Michele Buck: This has pressured trips to convenience and drugstores where we over-index. Those trips dipped further year over year in Q3. The broader evolution of shopping preferences is shifting trips into channels like club, dollar, and online, where our categories are less developed. Lastly, we saw a continuation of customers managing inventory more tightly, impacting our outlook for both North America confectionery and North America salty snacks. Relative to Hershey-specific challenges, in the third quarter, we experienced increased pressure across all our segments. First, similar to other categories, we continue to see increased competition in confection. In the US, we have lost share to smaller players and private label, particularly in take-home chocolate, where we had gained significant share of shelf through the pandemic. In our key international markets, we've seen an increase in activity from large global manufacturers.

This has pressured trips to convenience and drugstores where we over-index. Those trips dipped further year over year in Q3. The broader evolution of shopping preferences is shifting trips into channels like club, dollar, and online, where our categories are less developed. Lastly, we saw a continuation of customers managing inventory more tightly, impacting our outlook for both North America confectionery and North America salty snacks. Relative to Hershey-specific challenges, in the third quarter, we experienced increased pressure across all our segments. First, similar to other categories, we continue to see increased competition in confection. In the US, we have lost share to smaller players and private label, particularly in take-home chocolate, where we had gained significant share of shelf through the pandemic. In our key international markets, we've seen an increase in activity from large global manufacturers.

The broader evolution of shopping preferences is shifting trips into channels like club dollar and online where our categories are less developed land.

Lastly, we saw a continuation of customers managing inventory more tightly.

Speaker Change: <unk> our outlook for both North America, confectionery, and North America salty snacks.

Speaker Change: Relative to Hershey specific challenges in the third quarter, we experienced increased pressure across all our segments.

First similar to other categories, we continued to see increased competition and confection.

Speaker Change: In the U S. We have lost share to smaller players and private label, particularly in take home chocolate, where we had gained significant share of shelf through the pandemic.

In our key international markets, we've seen an increase in activity from large global manufacturers.

Speaker Change: Second we experienced execution issues with our plans and both confectionery and salty snacks. For example Olympics promotional programming fell short of our expectations as it competed for attention and resources with back to school.

Michele Buck: Second, we experienced executional issues with our plans in both confectionery and salty snacks. For example, Olympics promotional programming fell short of our expectations as it competed for attention and resources with back-to-school. In North America salty snacks, we experienced replenishment delays as we executed planned route-to-market changes. As a result of these pressures, we are sharpening our seasonal planning and occasion strategies to respond. We feel good that the second-half growth plans we discussed last quarter are gaining momentum, though we continue to strive to accelerate our pace of execution. Last quarter, we said consumption trends would improve as we lapped the onset of merchandising reductions at a key retailer and as we added new items in fall resets. Our everyday candy, mint, and gum business with that retailer increased 2.3% in the latest 12 weeks, and we are gaining 23 basis points of share in the latest four-week period.

Second, we experienced executional issues with our plans in both confectionery and salty snacks. For example, Olympics promotional programming fell short of our expectations as it competed for attention and resources with back-to-school. In North America salty snacks, we experienced replenishment delays as we executed planned route-to-market changes. As a result of these pressures, we are sharpening our seasonal planning and occasion strategies to respond. We feel good that the second-half growth plans we discussed last quarter are gaining momentum, though we continue to strive to accelerate our pace of execution. Last quarter, we said consumption trends would improve as we lapped the onset of merchandising reductions at a key retailer and as we added new items in fall resets. Our everyday candy, mint, and gum business with that retailer increased 2.3% in the latest 12 weeks, and we are gaining 23 basis points of share in the latest four-week period.

Michele Buck: In North America salty snacks, we experienced replenishment delays as we executed planned route to market changes.

As a result of these pressures we are sharpening our seasonal planning and occasion strategies to respond.

Michele Buck: We feel good that the second half growth plans, we discussed last quarter are gaining momentum, though we continue to strive to accelerate our pace of execution.

Michele Buck: Last quarter, we said consumption trends would improve as we lap the onset of merchandising reductions at a key retailer and as we added new items and full resets.

Michele Buck: Our everyday candy mint and gum business with that retailer increased two 3% in the latest 12 weeks.

Michele Buck: And we are gaining 23 basis points of share the latest four week period.

Michele Buck: Excluding the convenience channel our total everyday candy Mint and gum business has also returned to growth in the last month.

Michele Buck: Excluding the convenience channel, our total everyday candy, mint, and gum business has also returned to growth in the last month. We continue to have bigger, more impactful innovation. Reese's Caramel is the number one innovation in the category this year, and Reese's Lava is off to a strong start and outperforming expectations. In fact, Reese's held share in Q3 despite outsized convenience and drug channel, and programming pressures. We prioritized the acceleration of our sweets portfolio and shared the additions of Shaq-a-licious Gummies and Jolly Rancher Ropes that are intended to accelerate our sweets growth into 2025 and beyond. Our sweets consumption accelerated from 5% in August to 9% in September, and 23% in October to date, with share gains progressing from flat to up 30 basis points, to up 130 basis points over those time periods, respectively.

Excluding the convenience channel, our total everyday candy, mint, and gum business has also returned to growth in the last month. We continue to have bigger, more impactful innovation. Reese's Caramel is the number one innovation in the category this year, and Reese's Lava is off to a strong start and outperforming expectations. In fact, Reese's held share in Q3 despite outsized convenience and drug channel, and programming pressures. We prioritized the acceleration of our sweets portfolio and shared the additions of Shaq-a-licious Gummies and Jolly Rancher Ropes that are intended to accelerate our sweets growth into 2025 and beyond. Our sweets consumption accelerated from 5% in August to 9% in September, and 23% in October to date, with share gains progressing from flat to up 30 basis points, to up 130 basis points over those time periods, respectively.

We continue to have bigger more impactful innovation.

Michele Buck: Reese's Caramel is the number one innovation in the category this year and Reese's lover is off to a strong start and outperforming expectations.

Michele Buck: In fact, reese's held share in Q3, despite outsized convenience and drug channel and programming pressures.

Michele Buck: We prioritize the acceleration of our suites portfolio and shared the additions of shekel, Lucius Gummies and Jolly rancher ropes that are intended to accelerate our suites growth into 2025 and beyond.

Michele Buck: Our suites consumption accelerated from 5% in August to 9% in September and 23% in October to date.

Michele Buck: With share gains progressing from flat to up 30 basis points to up 130 basis points over those time periods respectively.

Michele Buck: We anticipated we would deliver on our Halloween expectations and overall seasonal participation remains solid as we expected.

Michele Buck: We anticipated we would deliver on our Halloween expectations, and overall seasonal participation remained solid as we expected. Our shipments and seasonal sell-through are in line with our low single-digit growth outlook, and we gained share for the fifth consecutive season. Finally, we have delivered on our plan to address SkinnyPop declines and expect the brand to return to growth in the fourth quarter. Consumption has inflected from down 1% in the last 12 weeks to +8% growth in the latest four weeks, resulting in a 260 basis points share gain in ready-to-eat popcorn. And we've seen Dot's sustain strong momentum, up 31% in Q3 and nearing a milestone of $500 million at retail in the last 52 weeks. Given our fundamentals and momentum in key areas, we remain confident in our long-term strategy.

We anticipated we would deliver on our Halloween expectations, and overall seasonal participation remained solid as we expected. Our shipments and seasonal sell-through are in line with our low single-digit growth outlook, and we gained share for the fifth consecutive season. Finally, we have delivered on our plan to address SkinnyPop declines and expect the brand to return to growth in the fourth quarter. Consumption has inflected from down 1% in the last 12 weeks to +8% growth in the latest four weeks, resulting in a 260 basis points share gain in ready-to-eat popcorn. And we've seen Dot's sustain strong momentum, up 31% in Q3 and nearing a milestone of $500 million at retail in the last 52 weeks. Given our fundamentals and momentum in key areas, we remain confident in our long-term strategy.

Michele Buck: Our shipments and seasonal sell through are in line with our low single digit growth outlook.

And we gained share for the fifth consecutive season.

Michele Buck: Finally, we have delivered on our plan to address skinny pop declines and expect the brand to return to growth in the fourth quarter.

Michele Buck: Consumption has inflicted from down 1% in the last 12 weeks to plus 8% growth in the latest four weeks, resulting in a 260 basis point share gain in ready to eat popcorn.

Michele Buck: And we've seen that sustained strong momentum up 31% in Q3, and nearing a milestone of $500 million at retail in the last 52 weeks.

Michele Buck: Given our fundamentals and momentum in key areas, we remain confident in our long term strategy.

Michele Buck: As we go forward, we know it will continue to be a challenging environment, but we are focused on controlling what we can in Q4, and 2025 to drive category growth and improve our market shares across our business and confectionery salty snacks and international.

Michele Buck: As we go forward, we know it will continue to be a challenging environment, but we are focused on controlling what we can in Q4 and 2025 to drive category growth and improve our market shares across our business in confectionery, salty snacks, and international. We are taking near-term and longer-term actions to position ourselves competitively for today and into the future. On North American confectionery, we are pleased to welcome Mike Del Pozzo to lead the US confection business. Mike brings significant food and beverage as well as transformation expertise from PepsiCo. In his first several weeks, he has been engaging with customers and distributors, spending time in market with our retail sales team, and listening to our employees with a focus on improving agility and speed. There are a few priorities where he will focus. Our first priority is reigniting chocolate.

As we go forward, we know it will continue to be a challenging environment, but we are focused on controlling what we can in Q4 and 2025 to drive category growth and improve our market shares across our business in confectionery, salty snacks, and international. We are taking near-term and longer-term actions to position ourselves competitively for today and into the future. On North American confectionery, we are pleased to welcome Mike Del Pozzo to lead the US confection business. Mike brings significant food and beverage as well as transformation expertise from PepsiCo. In his first several weeks, he has been engaging with customers and distributors, spending time in market with our retail sales team, and listening to our employees with a focus on improving agility and speed. There are a few priorities where he will focus. Our first priority is reigniting chocolate.

Michele Buck: We are taking near term and longer term actions to position ourselves competitively for today and into the future.

Michele Buck: Our North American confectionery, we're pleased to welcome Mike del Pozzo to lead the U S confection business, Mike brings significant food and beverage as well as transformation expertise from Pepsico.

Michele Buck: In this first several weeks he has been engaging with customers and distributors spending time in market with our retail sales team and listening to our employees with a focus on improving our agility and speed.

Michele Buck: There are a few priorities where he will focus.

Michele Buck: Our first priority is reigniting chocolate.

Michele Buck: For instant consumables, we intend to expand the implementation of our gold standard plant, a gram to improve productivity and find ability and margin accretive growth for retailers.

Michele Buck: For instant consumables, we intend to expand implementation of our gold standard planogram to improve productivity and findability and margin accretive growth for retailers. Trade and media investment is being redeployed to efficiently support variety brands like Almond Joy, Mounds, PayDay, Cadbury, and Rolo, which have stronger velocities and brand equities than many new items and drive value for consumers and customers. In take-home chocolate, we will deliver value through promotional optimization and compelling price pack architecture, and we are confident we will continue to win merchandising share in faster-growing, value-oriented retailers. We also continue to be relentless in accelerating our sweets growth. We are expanding our recent innovation launches nationally while rolling out new flavors and forms like Jolly Rancher Freeze Dry. Finally, we plan to continue delivering share-winning seasons by leveraging scale partnerships like Harry Potter and delivering best-in-class seasonal execution.

For instant consumables, we intend to expand implementation of our gold standard planogram to improve productivity and findability and margin accretive growth for retailers. Trade and media investment is being redeployed to efficiently support variety brands like Almond Joy, Mounds, PayDay, Cadbury, and Rolo, which have stronger velocities and brand equities than many new items and drive value for consumers and customers. In take-home chocolate, we will deliver value through promotional optimization and compelling price pack architecture, and we are confident we will continue to win merchandising share in faster-growing, value-oriented retailers. We also continue to be relentless in accelerating our sweets growth. We are expanding our recent innovation launches nationally while rolling out new flavors and forms like Jolly Rancher Freeze Dry. Finally, we plan to continue delivering share-winning seasons by leveraging scale partnerships like Harry Potter and delivering best-in-class seasonal execution.

Michele Buck: Trade and media investment is being redeployed to efficiently support variety brands like Almond Joy mounds, payday, Cadbury and rollout, which have stronger velocities and brand equities that many new items and drive value for consumers and customers.

Michele Buck: And take home chocolate, we will deliver values for promotional optimization and compelling price pack architecture.

Michele Buck: And we are confident we will continue to win merchandising share in faster growing value oriented retailers.

Michele Buck: We also continue to be relentless in accelerating our suites growth.

Michele Buck: We are expanding our recent innovation launches nationally, while rolling out new flavors and forms like Jolly rancher freeze dried.

Michele Buck: Finally, we plan to continue delivering share winning seasons by leveraging scale partnerships like Harry Potter and delivering best in class seasonal execution.

Michele Buck: In North America salty snacks, we have seen continued growth demonstrating the strength of our diversified portfolio.

Michele Buck: In North America salty snacks, we have seen continued growth, demonstrating the strength of our diversified portfolio. We intend to maintain and grow our share leadership through exciting partnerships, including a new celebrity brand ambassador and innovative package designs for SkinnyPop. We have plans to continue to accelerate household penetration through investment in media and scale promotions while leveraging our retail sales team to enhance our in-store execution. In International, we are investing for growth in our focus and new growth markets. We are accelerating the growth of our power brands, Hershey's, Pelon, and Kisses in Mexico through targeted investments. We expect to deliver accretive global innovation, focusing on both core and new markets like LATAM, the UK, and Australia, and we are optimizing our go-to-market strategy to engage more consumers in key growth markets like India.

In North America salty snacks, we have seen continued growth, demonstrating the strength of our diversified portfolio. We intend to maintain and grow our share leadership through exciting partnerships, including a new celebrity brand ambassador and innovative package designs for SkinnyPop. We have plans to continue to accelerate household penetration through investment in media and scale promotions while leveraging our retail sales team to enhance our in-store execution. In International, we are investing for growth in our focus and new growth markets. We are accelerating the growth of our power brands, Hershey's, Pelon, and Kisses in Mexico through targeted investments. We expect to deliver accretive global innovation, focusing on both core and new markets like LATAM, the UK, and Australia, and we are optimizing our go-to-market strategy to engage more consumers in key growth markets like India.

Michele Buck: We intend to maintain and grow our share leadership through exciting partnerships, including a new celebrity brand ambassador and innovative package designs for skinny pop.

Michele Buck: We have plans to continue to accelerate household penetration through investment in media and scaled promotions, while leveraging our retail sales team to enhance our in store execution.

Michele Buck: In international we're investing for growth and our focus and new growth markets. We are accelerating the growth of our power brands Hershey's payload and kisses in Mexico through targeted investments.

Michele Buck: We expect to deliver accretive global innovation, focusing on both core and new markets like Latam, the U K and Australia.

Michele Buck: And we are optimizing our go to market strategy to engage more consumers in key growth markets like India.

Michele Buck: In addition to our portfolio action plans. We are also continuing to transform our business for long term sustainable growth in.

Michele Buck: In addition to our portfolio action plans, we are also continuing to transform our business for long-term sustainable growth. In the third quarter, we executed the next phase of our operating model to better align our organization and our capabilities and drive more efficient growth. This includes evolving our marketing organization to have a stronger portfolio focus and better address evolving consumer needs. We are continuing to integrate our supply chain across confectionery and salty snacks to unlock efficiency and scale, leveraging our new ERP platform. And lastly, we are rebuilding our technology group and advancing capabilities in data science and technology to enable deeper consumer and category insights.

In addition to our portfolio action plans, we are also continuing to transform our business for long-term sustainable growth. In the third quarter, we executed the next phase of our operating model to better align our organization and our capabilities and drive more efficient growth. This includes evolving our marketing organization to have a stronger portfolio focus and better address evolving consumer needs. We are continuing to integrate our supply chain across confectionery and salty snacks to unlock efficiency and scale, leveraging our new ERP platform. And lastly, we are rebuilding our technology group and advancing capabilities in data science and technology to enable deeper consumer and category insights.

Michele Buck: In the third quarter, we executed the next phase of our operating model to better align our organization and our capabilities and drive more efficient growth.

Michele Buck: This includes evolving our marketing organization to have a stronger portfolio focus and better address evolving consumer needs.

Michele Buck: We are continuing to integrate our supply chain across confectionery and salty snacks to unlock efficiency and scale leveraging our new ERP platform.

Michele Buck: And lastly, we are rebuilding our technology group and advancing capabilities in data science and technology to enable deeper consumer and category insights.

Michele Buck: Based on the current consumer and channel pressures, we now anticipate sales growth to be approximately flat down from our prior guidance of approximately 2% growth.

Michele Buck: Based on the current consumer and channel pressures, we now anticipate sales growth to be approximately flat, down from our prior guidance of approximately 2% growth, and adjusted EPS to be down by mid-single digits from our prior guidance of down slightly. As we look ahead, we are confident in our ability to deliver on-algorithm top-line growth for 2025 as we end 2024 with improved momentum and stronger plans. Cocoa fundamentals are improving, and we believe there will be a global supply surplus in 2025, driven both by a recovery in West Africa and significant production growth in the rest of the world. Despite that, cocoa prices have remained high. Earnings, as expected, will be impacted by this historically high cocoa inflation, in addition to mixed headwinds and a few one-time benefits in 2024 that won't repeat. Steve will cover these topics in more detail.

Based on the current consumer and channel pressures, we now anticipate sales growth to be approximately flat, down from our prior guidance of approximately 2% growth, and adjusted EPS to be down by mid-single digits from our prior guidance of down slightly. As we look ahead, we are confident in our ability to deliver on-algorithm top-line growth for 2025 as we end 2024 with improved momentum and stronger plans. Cocoa fundamentals are improving, and we believe there will be a global supply surplus in 2025, driven both by a recovery in West Africa and significant production growth in the rest of the world. Despite that, cocoa prices have remained high. Earnings, as expected, will be impacted by this historically high cocoa inflation, in addition to mixed headwinds and a few one-time benefits in 2024 that won't repeat. Steve will cover these topics in more detail.

Michele Buck: And adjusted EPS to be down by mid single digits from our prior guidance of down slightly.

Michele Buck: As we look ahead, we are confident in our ability to deliver an algorithm topline growth for 'twenty 'twenty five as we end 2024 with improved momentum and stronger plants.

Michele Buck: Cocoa fundamentals are improving and we believe there will be a global supply surplus and 'twenty twenty-five driven both by a recovery in West Africa and significant production growth in the rest of the world.

Michele Buck: Despite that cocoa prices have remained high.

Michele Buck: Earnings as expected will be impacted by this historically high cocoa inflation.

Michele Buck: In addition to mix headwinds and a few one time benefits in 2024 that won't repeat.

Michele Buck: Steve will cover these topics in more detail.

Michele Buck: In closing we are managing this business for the long term our team is taking action to control the variables, we're able to control and we are carefully monitoring those we cannot.

Michele Buck: In closing, we are managing this business for the long term. Our team is taking action to control the variables we're able to control, and we are carefully monitoring those we cannot. We are addressing consumer and customer evolution while also making organizational changes needed to ensure the long-term competitive health of our business. With that, let me turn it over to Steve to provide more details on our financial results and outlook. Thank you, Michele, and good morning, everyone. Q3 reported net sales declined 1.4%, as approximately two points of price realization was more than offset by volume declines. As Michele noted, we fell short of our expectations due to softer consumption trends across our segments, incremental retailer inventory contraction, and seasonal shipment delays, in addition to the planned lap of inventory increases ahead of last year's ERP implementation in the North America salty snacks segment.

In closing, we are managing this business for the long term. Our team is taking action to control the variables we're able to control, and we are carefully monitoring those we cannot. We are addressing consumer and customer evolution while also making organizational changes needed to ensure the long-term competitive health of our business. With that, let me turn it over to Steve to provide more details on our financial results and outlook.

Michele Buck: We are addressing consumer and customer evolution, while also making organizational changes needed to ensure the long term competitive health of our business with.

Speaker Change: With that let me turn it over to Steve to provide more details on our financial results and outlook.

Steve Buckle: Thank you Michelle and good morning, everyone.

Steve Voskuil: Thank you, Michele, and good morning, everyone. Q3 reported net sales declined 1.4%, as approximately two points of price realization was more than offset by volume declines. As Michele noted, we fell short of our expectations due to softer consumption trends across our segments, incremental retailer inventory contraction, and seasonal shipment delays, in addition to the planned lap of inventory increases ahead of last year's ERP implementation in the North America salty snacks segment.

Steve Buckle: Third quarter reported net sales declined one 4% that's approximately two points of price realization was more than offset by volume declines as Michelle noted, we fell short of our expectations due to softer consumption trends across our segments incremental retailer inventory contraction.

Steve Buckle: And seasonal shipment delays in addition to the planned lap of inventory increases ahead of last year's ERP implementation in the North America Salty snacks segment.

Steve Buckle: Our North America confectionery segment delivered organic constant currency net sales growth of 0.9% price realization contributed approximately two points of growth in the quarter.

Michele Buck: Our North America confectionery segment delivered organic, constant-currency net sales growth of 0.9%. Price realization contributed approximately two points of growth in the quarter. Volume was impacted by retailer inventory management efforts across both seasonal and everyday confection. While we saw a greater-than-planned increase in everyday retailer inventory, seasonal shifts continued as Halloween shipments that moved from Q2 into Q3 were partially offset by holiday deliveries shifting from Q3 into Q4. The net impact of these inventory items was a one-point benefit to volume in Q3. Excluding these items, the base business declined slightly, driven by weaker-than-planned consumer trends, higher competition, and softer-than-planned summer promotional effectiveness. The North America salty snacks segment net sales decline of 15.5% reflected an approximate 13-point headwind from lapping the planned inventory build ahead of the ERP implementation in Q4 of last year, as well as a mid-single-digit headwind from retailers reducing inventory levels.

Our North America confectionery segment delivered organic, constant-currency net sales growth of 0.9%. Price realization contributed approximately two points of growth in the quarter. Volume was impacted by retailer inventory management efforts across both seasonal and everyday confection. While we saw a greater-than-planned increase in everyday retailer inventory, seasonal shifts continued as Halloween shipments that moved from Q2 into Q3 were partially offset by holiday deliveries shifting from Q3 into Q4. The net impact of these inventory items was a one-point benefit to volume in Q3. Excluding these items, the base business declined slightly, driven by weaker-than-planned consumer trends, higher competition, and softer-than-planned summer promotional effectiveness. The North America salty snacks segment net sales decline of 15.5% reflected an approximate 13-point headwind from lapping the planned inventory build ahead of the ERP implementation in Q4 of last year, as well as a mid-single-digit headwind from retailers reducing inventory levels.

Steve Buckle: Volume was impacted by retailer inventory management efforts across both seasonal and everyday confection.

Steve Buckle: While we saw a greater than planned increase in everyday retailer inventory seasonal shifts continued as Halloween shipments that moved from Q2 into Q3 were partially offset by holiday deliveries shifting from Q3 into Q4.

Steve Buckle: The net impact of these inventory items was a one point benefit to volume in Q3.

Steve Buckle: Excluding these items the base business declined slightly driven by weaker than planned consumer trends higher competition and softer than planned summer promotional effectiveness.

Steve Buckle: The North America Salty snacks segment net sales decline of 15.5% reflected an approximate 13 point headwind from lapping the planned inventory build ahead of the ERP implementation in Q4 of last year as well as a mid single digit headwind from retailers reducing inventory.

Steve Buckle: <unk> levels.

Steve Buckle: Excluding these items the <unk>.

Steve Buckle: <unk> business net sales increased low single digits, reflecting continued strength in data pretzels, partially offset by the planned shift of a skinny pop promotion into Q4 higher levels of competitive investment and order timing shifts into Q4 due to the planned route to market changes.

Michele Buck: Excluding these items, the base business net sales increased low single digits, reflecting continued strength in Dot's pretzels, partially offset by the planned shift of a SkinnyPop promotion into Q4, higher levels of competitive investment, and order timing shifts into Q4 due to the planned route-to-market changes. As Michele mentioned, we're pleased that SkinnyPop has returned to growth in recent weeks behind media, distribution, and merchandising increases, and we continue to expect growth in Q4. We also expect strong growth from Dot's, albeit moderating against last year's club distribution gains as our new flavor, Parmesan Garlic, expands distribution. Our international segment reported a net sales decline of 3.9%. Organic, constant-currency net sales were approximately flat, as about one point of price realization was offset by volume declines in Brazil and Mexico.

Excluding these items, the base business net sales increased low single digits, reflecting continued strength in Dot's pretzels, partially offset by the planned shift of a SkinnyPop promotion into Q4, higher levels of competitive investment, and order timing shifts into Q4 due to the planned route-to-market changes. As Michele mentioned, we're pleased that SkinnyPop has returned to growth in recent weeks behind media, distribution, and merchandising increases, and we continue to expect growth in Q4. We also expect strong growth from Dot's, albeit moderating against last year's club distribution gains as our new flavor, Parmesan Garlic, expands distribution. Our international segment reported a net sales decline of 3.9%. Organic, constant-currency net sales were approximately flat, as about one point of price realization was offset by volume declines in Brazil and Mexico.

Steve Buckle: As Michel mentioned, we're pleased that skinny pop has returned to growth in recent weeks behind media distribution and merchandising increases and we continue to expect growth in Q4.

Steve Buckle: We also expect strong growth from docs, albeit moderating against last year's club distribution gains as our new flavor parmesan garlic expand distribution.

Steve Buckle: Our international segment reported a net sales decline of three 9%.

Steve Buckle: Organic constant currency net sales were approximately flat.

Steve Buckle: About one point of price realization was offset by volume declines in Brazil and Mexico.

Steve Buckle: Based on our third quarter performance, we are revising our total company net sales outlook to flat year over year.

Michele Buck: Based on our third quarter performance, we are revising our total company net sales outlook to flat year over year. Our reduced outlook reflects our Q3 performance, sustained consumer, competitive, and channel pressures into Q4, as well as lower-than-planned year-end retailer inventory levels in both confection and salty snacks. As Michele discussed, we are taking actions to improve base business performance across all three segments. In the fourth quarter, we have good visibility on mid-single-digit sales growth from confection holiday shipments, two extra shipping days, and the lap of planned inventory drawdown following the Q4 2023 ERP implementation in salty snacks. Adjusted gross margin of 40.3% was below expectations, reflecting volume deleverage from lower-than-expected shipments and unfavorable mix.

Based on our third quarter performance, we are revising our total company net sales outlook to flat year over year. Our reduced outlook reflects our Q3 performance, sustained consumer, competitive, and channel pressures into Q4, as well as lower-than-planned year-end retailer inventory levels in both confection and salty snacks. As Michele discussed, we are taking actions to improve base business performance across all three segments. In the fourth quarter, we have good visibility on mid-single-digit sales growth from confection holiday shipments, two extra shipping days, and the lap of planned inventory drawdown following the Q4 2023 ERP implementation in salty snacks. Adjusted gross margin of 40.3% was below expectations, reflecting volume deleverage from lower-than-expected shipments and unfavorable mix.

Steve Buckle: Our reduced outlook reflects our Q3 performance.

Steve Buckle: <unk> consumer competitive and channel pressures into Q4, as well as lower than planned year end retailer inventory levels in both confection and salty snacks.

Steve Buckle: As Michel discussed we are taking actions to improve base business performance across all three segments.

Steve Buckle: In the fourth quarter, we have good visibility on mid single digit sales growth from confection holiday shipments two extra shipping days and the lap of planned inventory drawdown. Following the Q4 2023 ERP implementation in salty snacks.

Steve Buckle: Adjusted gross margin of 43% was below expectations, reflecting volume deleverage from lower than expected shipments and unfavorable mix.

Steve Buckle: We now expect full year adjusted gross margin to decline approximately 250 basis points year over year, reflecting a reduced volume outlook.

Michele Buck: We now expect full-year adjusted gross margin to decline approximately 250 basis points year over year, reflecting our reduced volume outlook and sustained channel and product mix headwinds, along with previously anticipated cocoa and sugar inflation, which more than offset net price realization, and supply chain productivity. Advertising and related consumer marketing decreased approximately 1% in the third quarter, as higher investment in our North America salty snacks, and international segments was more than offset by efficiencies in consumer marketing-related expenses in North America confectionery. Adjusted operating expenses, excluding advertising and related consumer marketing spend, declined approximately 14% due to reduced compensation and benefits costs, and decreased capability and technology investments versus the prior year period. Our AAA initiative remains on track to deliver at least $100 million in savings this year, primarily within division and corporate expenses, and will continue to build in Q4 relative to Q3.

We now expect full-year adjusted gross margin to decline approximately 250 basis points year over year, reflecting our reduced volume outlook and sustained channel and product mix headwinds, along with previously anticipated cocoa and sugar inflation, which more than offset net price realization, and supply chain productivity. Advertising and related consumer marketing decreased approximately 1% in the third quarter, as higher investment in our North America salty snacks, and international segments was more than offset by efficiencies in consumer marketing-related expenses in North America confectionery. Adjusted operating expenses, excluding advertising and related consumer marketing spend, declined approximately 14% due to reduced compensation and benefits costs, and decreased capability and technology investments versus the prior year period. Our AAA initiative remains on track to deliver at least $100 million in savings this year, primarily within division and corporate expenses, and will continue to build in Q4 relative to Q3.

Steve Buckle: Sustained channel and product mix headwinds, along with previously anticipated cocoa and sugar inflation, which more than offset net price realization and supply chain productivity.

Steve Buckle: Advertising and related consumer marketing decreased approximately 1% in the third quarter as higher investment in our North America salty snacks and international segments was more than offset by efficiencies in consumer marketing related expenses in North America confectionery.

Steve Buckle: Adjusted operating expenses, excluding advertising and related consumer marketing spend declined approximately 14% due to reduced compensation and benefits costs and decreased capability and technology investments versus the prior year period.

Steve Buckle: Our AAA initiative remains on track to deliver at least $100 million in savings this year.

Steve Buckle: Primarily within division and corporate expenses and will continue to build in Q4 relative to Q3.

Steve Buckle: The adjusted tax rate for the quarter was 15, 2% a decrease of 5.2 points versus the year ago period due to higher levels of renewable tax credits in the current period and adjustments to tax reserves in the prior year period.

Michele Buck: The adjusted tax rate for the quarter was 15.2%, a decrease of 5.2 points versus the year-ago period due to higher levels of renewable tax credits in the current period and adjustments to tax reserves in the prior year period. We now expect a full-year adjusted tax rate of approximately 11%, which is lower than our previous outlook, driven by increased visibility into renewable energy projects to be completed this year. As a result, other expense is now estimated to be between $260 and 270 million. The net effect of both adjustments leaves our overall tax impact relatively unchanged. Interest expense of $44 million in the third quarter was in line with expectations, and we now expect full-year expense of around $170 million. Capital additions, including software, were $128 million in the quarter, supporting our previously discussed capacity expansion projects.

The adjusted tax rate for the quarter was 15.2%, a decrease of 5.2 points versus the year-ago period due to higher levels of renewable tax credits in the current period and adjustments to tax reserves in the prior year period. We now expect a full-year adjusted tax rate of approximately 11%, which is lower than our previous outlook, driven by increased visibility into renewable energy projects to be completed this year. As a result, other expense is now estimated to be between $260 and 270 million. The net effect of both adjustments leaves our overall tax impact relatively unchanged. Interest expense of $44 million in the third quarter was in line with expectations, and we now expect full-year expense of around $170 million. Capital additions, including software, were $128 million in the quarter, supporting our previously discussed capacity expansion projects.

Steve Buckle: We now expect our full year adjusted tax rate of approximately 11%, which is lower than our previous outlook driven by increased visibility into renewable energy projects to be completed this year.

Steve Buckle: As a result other expense is now estimated to be between $260 million and $270 million.

Steve Buckle: The net effect of both adjustments leaves our overall tax impact relatively unchanged.

Steve Buckle: Interest expense of $44 million in the third quarter was in line with expectations.

Steve Buckle: Now expect full year expense of around $170 million.

Steve Buckle: Capital additions, including software were $128 million in the quarter supporting our previously discussed capacity expansion projects.

Steve Buckle: We now expect full year capital investments of $575 million to $600 million base.

Michele Buck: We now expect full-year capital investments of $575 to $600 million based on improved visibility to ongoing projects. We remain committed to our capital allocation priorities, including reinvestment for growth, dividends, and share repurchases. In the third quarter, dividends paid to shareholders totaled $270 million, an increase of 13.7% versus the prior year period. The company did not repurchase any shares in the third quarter against our December 2023 $500 million authorization, with $470 million remaining. Adjusted earnings per share declined 10% in the quarter, as lower sales and gross margins were only partially offset by reduced SG&A related to lower compensation and benefits costs. Our full-year adjusted EPS is now expected to be down mid-single digits, driven by the reduction in our top-line and gross margin outlook. Before we wrap this morning, I want to address the cocoa market and touch on 2025.

We now expect full-year capital investments of $575 to $600 million based on improved visibility to ongoing projects. We remain committed to our capital allocation priorities, including reinvestment for growth, dividends, and share repurchases. In the third quarter, dividends paid to shareholders totaled $270 million, an increase of 13.7% versus the prior year period. The company did not repurchase any shares in the third quarter against our December 2023 $500 million authorization, with $470 million remaining. Adjusted earnings per share declined 10% in the quarter, as lower sales and gross margins were only partially offset by reduced SG&A related to lower compensation and benefits costs. Our full-year adjusted EPS is now expected to be down mid-single digits, driven by the reduction in our top-line and gross margin outlook. Before we wrap this morning, I want to address the cocoa market and touch on 2025.

Steve Buckle: Based on improved visibility to ongoing projects.

Steve Buckle: We remain committed to our capital allocation priorities, including reinvestment for growth dividends and share repurchases in.

Steve Buckle: In the third quarter dividends paid to shareholders totaled $270 million, an increase of 13, 7% versus the prior year period.

Steve Buckle: The company did not repurchase any shares in the third quarter against our December 2023, $500 million authorization with $470 million remaining.

Steve Buckle: Adjusted earnings per share declined 10% in the quarter as lower sales and gross margins were only partially offset by reduced SG&A related to lower compensation and benefits costs.

Steve Buckle: Our full year adjusted EPS is now expected to be down mid single digits, driven by the reduction in our topline and gross margin outlook.

Steve Buckle: Before we wrap this morning, I want to address the cocoa market and touch on 2025.

Steve Buckle: We are pleased to see cocoa fundamentals, improving with multiple data sources, indicating a global supply surplus in 2025.

Michele Buck: We are pleased to see cocoa fundamentals improving, with multiple data sources indicating a global supply surplus in 2025. The crop outlook in West Africa is positive, and cocoa arrivals in Ivory Coast ports are up 27% compared to this time last year. Moreover, production outside of Ivory Coast and Ghana now accounts for nearly half of global supply and is growing, driven by record-high prices. However, low liquidity on the exchange is contributing to sustained high prices, and normalization may occur gradually as cocoa production builds and origin sales continue in earnest. We have robust processes in place to ensure continuity of supply and good visibility into our costs. However, remember that we were well covered for 2024 when we provided our full-year outlook in February, and cocoa prices remained significantly above those and prior-year levels.

We are pleased to see cocoa fundamentals improving, with multiple data sources indicating a global supply surplus in 2025. The crop outlook in West Africa is positive, and cocoa arrivals in Ivory Coast ports are up 27% compared to this time last year. Moreover, production outside of Ivory Coast and Ghana now accounts for nearly half of global supply and is growing, driven by record-high prices. However, low liquidity on the exchange is contributing to sustained high prices, and normalization may occur gradually as cocoa production builds and origin sales continue in earnest. We have robust processes in place to ensure continuity of supply and good visibility into our costs. However, remember that we were well covered for 2024 when we provided our full-year outlook in February, and cocoa prices remained significantly above those and prior-year levels.

Steve Buckle: Crop outlook in West Africa is positive and cocoa arrivals in Ivory coast ports are up 27% compared to this time last year Mauro.

Steve Buckle: Moreover, production outside of Ivory Coast, and Ghana, now accounts for nearly half of global supply and is growing driven by record high prices.

Steve Buckle: However, low liquidity on the exchange is contributing to sustained high prices and normalization may occur gradually as cocoa production builds and origin sales continue in earnest, we have robust processes in place to ensure continuity of supply and good visibility into our cost.

Steve Buckle: However, remember that we were well covered for 2024, when we provided our full year outlook in February and cocoa prices remained significantly above those and prior year levels.

Speaker Change: Regarding 2025, as Michelle said, we anticipate in an algorithm topline growth driven by strong plans the benefit of a longer Easter the flow through of previously announced pricing and price pack architecture and fewer headwinds than we experienced in 2024.

Michele Buck: Regarding 2025, as Michele said, we anticipate an on-algorithm top-line growth driven by strong plans, the benefit of a longer Easter, the flow-through of previously announced pricing and price pack architecture, and fewer headwinds than we experienced in 2024. However, historically high cocoa costs, other commodity and supply chain inflation, unfavorable mix, and elasticity more in line with historical rates will more than offset our pricing, productivity, and cost savings initiatives. While we have flexible hedging structures that would allow us to participate in downside cocoa cost normalization, based on what we know today, we expect higher levels of cost of goods sold inflation throughout 2025 than we experienced in 2024. Additionally, bear in mind that earnings in 2024 included a historically low economic tax rate and reduced incentive compensation, which are not expected to repeat in 2025. As usual, we will provide a detailed full-year 2025 outlook with our Q4 earnings.

Regarding 2025, as Michele said, we anticipate an on-algorithm top-line growth driven by strong plans, the benefit of a longer Easter, the flow-through of previously announced pricing and price pack architecture, and fewer headwinds than we experienced in 2024. However, historically high cocoa costs, other commodity and supply chain inflation, unfavorable mix, and elasticity more in line with historical rates will more than offset our pricing, productivity, and cost savings initiatives. While we have flexible hedging structures that would allow us to participate in downside cocoa cost normalization, based on what we know today, we expect higher levels of cost of goods sold inflation throughout 2025 than we experienced in 2024. Additionally, bear in mind that earnings in 2024 included a historically low economic tax rate and reduced incentive compensation, which are not expected to repeat in 2025. As usual, we will provide a detailed full-year 2025 outlook with our Q4 earnings.

Steve Buckle: However, historically high cocoa costs.

Steve Buckle: Their commodity and supply chain inflation unfavorable mix and elasticity more in line with historical rates were more than offset our pricing productivity and cost savings initiatives.

Steve Buckle: While we have flexible hedging structures that would allow us to participate in downside cocoa cost normalization based on what we know today, we expect higher levels of cost of goods sold inflation throughout 2025 that we experienced in 2024.

Steve Buckle: Additionally, bear in mind that earnings in 2024 included a historically low economic tax rate and reduced incentive compensation, which are not expected to repeat in 2025.

Steve Buckle: As usual, we will provide a detailed full year 2025 outlook with our Q4 earnings.

Steve Buckle: Despite another year of expected commodity driven earnings pressure in 2025, we will continue to invest to drive top line growth market share and innovation that delights consumers.

Michele Buck: Despite another year of expected commodity-driven earnings pressure in 2025, we will continue to invest to drive top-line growth, market share, and innovation that delights consumers. We remain confident in our ability to support peer-leading margins through efficiencies and cost savings programs over time. With that, I will turn it back to Michele for closing remarks. Thanks, Steve. We remain confident in the strengths of our categories, brands, people, and strategy to deliver long-term top and bottom-line success. We are continuing to invest to secure our competitive positioning and build our next platforms for future growth in 2025 and beyond.

Despite another year of expected commodity-driven earnings pressure in 2025, we will continue to invest to drive top-line growth, market share, and innovation that delights consumers. We remain confident in our ability to support peer-leading margins through efficiencies and cost savings programs over time. With that, I will turn it back to Michele for closing remarks.

Steve Buckle: We remain confident in our ability to support peer leading margins through efficiencies and cost savings programs overtime.

Speaker Change: With that I will turn it back to Michele for closing remarks.

Steve Buckle: Okay.

Michele Buck: Thanks, Steve. We remain confident in the strengths of our categories, brands, people, and strategy to deliver long-term top and bottom-line success. We are continuing to invest to secure our competitive positioning and build our next platforms for future growth in 2025 and beyond.

Steve Buckle: Yeah.

Speaker Change: Thanks, Steve we remain confident in the strength of our categories brands people and strategy to deliver long term top and bottom line success, we are continuing to invest to secure our competitive positioning and build our next platforms for future growth in <unk>.

Steve Buckle: 2025 and beyond.

Q3 2024 Hershey Co Earnings Call - Pre-Recorded Managemet Remarks

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