Q4 2024 Hershey Co Earnings Call - Q&A
Okay.
Greetings and welcome to the Hershey Company's fourth quarter 2020 for question and answer session. At this time all participants are in a listen only mode. As a reminder, this conference is being recorded.
Laura: Now, let's turn the call over to your host Laura.
Laura: Not senior director of Investor Relations for the Hershey Company. Thank you you may begin.
Laura: Good morning, everyone. Thank you for joining us today for the Hershey company's fourth quarter of 2024 earnings Q&A session. I Hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks at the conclusion of <unk>.
Laura: Light Q&A session. We will also post the transfer and audio replay of this call.
Laura: 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.
Laura: Actual results could differ materially from those projected the company undertakes no obligation to update these statements based on subsequent about a detailed list of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe provide useful information for.
Laura: 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 reconciliation for the GAAP results are included in this mornings press release.
Speaker Change: Joining me today are Hershey, chairman and CEO, Michele Buck and Hershey Senior Vice President and CFO, Steve Voskuil with that I will turn it over to the operator for the first question.
Laura: Okay.
Laura: Thank you. Our first question is from Andrew Lazar with Barclays. Please proceed with your question.
Andrew Lazar: Great. Thanks, so much good morning, everybody.
Laura: Okay.
Laura: I know Michelle I know it's.
Speaker Change: Really way too early to get overly prescriptive at this stage on 'twenty six but you know in the prepared remarks, you mentioned positioning the company for balanced top and bottom line growth and 26 and I was really hoping you could just provide maybe just some context around this such as is.
Speaker Change: As growth doable in 'twenty six if cocoa remains at currently elevated levels and if so how do you feel about the ability to take more pricing in 2006 to get there even though we don't yet have a good sense for how the incremental pricing will be received by consumers for this year I'm really just trying to put some broader parameters around this and sort of what's embedded in your comment.
Speaker Change: The potential for balance growth in 'twenty six.
Speaker Change: Yep got it he's Steve do you want to just take a crack at that one yes, I'd be happy to do so.
Speaker Change: Yeah, that's implied when we say balanced growth, we want to eventually get EPS back on algorithm and so as we look to 26, one of the benefits of a great hedging and commodity team is we're not paying the market price. So you always have to catch up factor relative to commodities, but that said just like for 2025, what do you look at 26, we expect to you.
Speaker Change: The full suite of levers, we have to manage cocoa price and that includes looking at pricing that include additional productivity in Ci savings that include continuing to drive efficiency in SG&A.
And even driving more return for the same dollars in some case on marketing spend so all of those things will be in the consideration set as we take a look at what we can do in 2026.
Speaker Change: We don't wouldn't expect pricing to be easy that probably would be.
Speaker Change: A conversation we'd have to have and are thinking about internally the impact, but still 80% of our portfolio is less than $4, although the confection side and so you know.
Speaker Change: That would have to be one of the things we take a look at.
Thanks for that and then maybe can you talk about what sort of elasticity youre seeing currently.
Speaker Change: Price is already sort of made its way into the market and <unk> can I ask just because our understanding is that you know Hershey has taken a sort of a different approach to pricing. This year, where the company is maybe not fully line pricing across the portfolio and I wonder if part of not taking prices up and instant consumables as sort of a reflection of elasticity concerns.
Speaker Change: Or or there's some other sort of strategic intent there. Thanks so much.
Speaker Change: Sure. So it's a little bit early for us to have the full visibility to those results. What I'd say is what we're seeing is elasticities coming in either on par with our expectations and in some cases slightly better. So we are carefully watching that obviously, we have a lot of confidence in our ability.
Speaker Change: Due to price and.
Speaker Change: And we strategically selected where we thought it was best to do that.
Speaker Change: And we certainly always take into account.
Speaker Change: An expectation of where we think coca will be in it and as we think it's going to normalize how we factor that into the pricing decisions. So that we are really balancing how aggressive we go.
Speaker Change: So we will continue to monitor that but feel good about what we're seeing today.
Speaker Change: Thanks, so much.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question is from Ken Goldman with Jpmorgan. Please proceed with your question.
Ken Goldman: Hi, Thank you.
Ken Goldman: In your prepared remarks, you said you are prepared to adjust pricing.
Ken Goldman: Pack architecture et cetera, if your view on commodity markets.
Ken Goldman: So I just wanted to get a little bit more color on what that necessarily means is that dependent on how you view underlying supply and demand or is it really more dependent on hey, just looking at the futures market and saying okay. The prices are what they are right or wrong I'm, just trying to get a sense of your timeline and how you think about when you might.
Ken Goldman: Want to make that decision to adjust pricing or make other decisions around formulations and so forth.
Ken Goldman: So can we take both of those things into account, let me start by talking a little bit about our view on the market and then I'm going to turn it over to Steve to talk a little bit about how we balance those factors.
Ken Goldman: We continue to.
Steve Voskuil: To feel good about what we're seeing in the in the market fundamentals.
Steve Voskuil: We're continuing to see production increase with nearly half of the production today coming from areas outside of Ivory Coast and Ghana.
Steve Voskuil: We think that's really healthy for the Gulf Global cocoa supply over time, it's gonna be much more diversified and that diversification is going to provide an inherent resilience just balancing weather factors and geopolitical factors et cetera.
Steve Voskuil: We're continuing to take actions in West Africa to continue to help drive resiliency.
Steve Voskuil: And as we diversify our impact them you know, it's gonna look it's it's looking different by market.
Steve Voskuil: We've made investments in West Africa, we will continue to do that.
Steve Voskuil: We've also diversified our supply sources. So we're watching those fundamentals and certainly that is one factor for us at the same time, we know that the fundamentals and market price aren't exactly aligned and we certainly take that into account as well, Steve you want to talk a little bit more about that yeah. I would just say at the same time that were you still.
Speaker Change: Pricing in cocoa is transient right now.
Steve Voskuil: Dealing with the reality on the ground, which is to say you know we're building plans for.
Steve Voskuil: 26, we'll be watching the cocoa market in what's happening in reality a lot through the first half of the year.
Steve Voskuil: But not waiting even for that before setting plans and again kind of touching all parts of the P&L.
Steve Voskuil: In the event, we don't see that retrenchment. So that we're ready to go for 2026 and as I said earlier get back to in an algorithm opportunity on EPS.
Steve Voskuil: The other thing we do watch is not only whats the price on the exchange, but what's actually happening to those pricing in origin and there is some differential there and so we take that into account as well.
Speaker Change: Understood No. That's helpful. Thank you and then just a quick follow up.
Speaker Change: I think you had answered Andrew's question about what Youre seeing for elasticities today, it's great to hear that they are on par or maybe in some cases slightly better just curious what is baked into your guidance and if you said this I missed it but how are you thinking about elasticity as more pricing unfolds throughout this year.
Speaker Change: So we've baked into our guidance historic leftist cities at that minus one level.
Speaker Change: We will watch those because we do think that depending on factors there could be upside, but but we think that is the prudent approach for us right now.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Max Gulfport with BNP. Please proceed with your question.
Speaker Change: Thanks very much.
Max Gulfport: I have a follow up question on the elasticity you said minus one assumption.
Max Gulfport: Deals like this is the key unknown for 25 gig Coca cost largely locked in.
Max Gulfport: <unk> implemented visibility to cost savings is pretty clear.
Max Gulfport: So could you just give a bit more color on what's informing that minus one and if that applies to your smaller international segment too.
Max Gulfport: Particularly in context about competitor talking about.
Max Gulfport: And you ought to see about 25 that would be much more favorable thanks very much.
Max Gulfport: Yeah.
Max Gulfport: So we do see upside if the elasticity has come in better.
Max Gulfport: We again think that it is a prudent stance to take as we work through the the volatile consumer marketplace and some of the pressures that we know.
Max Gulfport: Exist for consumers and we have also considered greater elasticities and international in the outlook.
Max Gulfport: We are not the market leader in many of those markets, so not always leading those price increases.
Max Gulfport: So we take a different stance relative to our approach there I mean, it's a smaller piece of our business. Obviously, so it doesn't have nearly as big of an impact, but we do look at it differently.
Max Gulfport: Alright, great. Thanks, very much and then.
Max Gulfport: On international realize it is a smaller segment, but you had a very strong for Q.
Max Gulfport: Broad based strength across your markets.
Max Gulfport: And Terry of low single digit growth.
Speaker Change: Heightened competitive activity in 25 stood out to me can you talk a bit more about what the competitive activity you're seeing in those markets, where it's more pronounced in <unk>.
Max Gulfport: You expect to manage through it thanks very much.
Max Gulfport: Sure Yeah. The fourth quarter was strong they were helped a little bit by a favorable lap and we also have some big Black Friday performance.
Max Gulfport: The markets, where that's what's big holidays. So strong performance there when you look at the totality of last year.
Max Gulfport: Business was up about a point so a lot more on balance of the 25 outlook doesn't look at that's different that we saw I would say the highest competitive activity in Brazil, and Mexico and Brazil. In particular was was very intense a lot of promotion.
A lot of innovation to market in those markets and that helped certainly in the fourth quarter, but again as we look kind of at the totality of 2025, we expect to see that competition increase and that's really what's informing the growth there.
Speaker Change: Thanks, very much slashdot.
Max Gulfport: Okay.
Speaker Change: Thank you. Our next question is from Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Hi, Thanks for the question Steve.
Robert Moskow: Steve I think I'll just ask about phasing do you expect your gross margin pressure to be pretty even throughout the quarters.
Robert Moskow: Or.
Robert Moskow: In fourth quarter.
Robert Moskow: Are you are you fully covered for fourth quarter or will they be like another hit in fourth quarter when when hedges rollover.
Robert Moskow: Sure so for the full year.
Robert Moskow: Nearly completely covered on cocoa and so we don't expect a big hit if you get a new hit from the outlook in the fourth quarter. As you look at the split of gross margin, we're going to have less gross margin pressure in the first half were Coca will be based on our hedging less probably in the neighborhood.
Robert Moskow: 500 basis points.
Robert Moskow: We get to the back half, we will see more impact of those hedge positions are going to be higher practice based on the floor cocoa, so definitely more in the back half than the first half.
Speaker Change: Okay, and then just a quick follow up for Michelle.
Robert Moskow: All right Michelle or U S.
Robert Moskow: Seeing your competitors take similar actions on pricing.
Robert Moskow: <unk> been very strategic about where youre going to take it it doesn't sound like you're taking it.
Robert Moskow: Super Bowls yet.
Robert Moskow: Do you have a have you seen similar actions or are there some discrepancies out there.
Robert Moskow: You know I guess I'd say overall I think the category is.
Robert Moskow: Very rational and we have seen most major players taking pricing, including private label, which is also taken pretty aggressive pricing as well.
Robert Moskow: I'd say that that pricing has probably been a bit more broad based those people tend to cycle through parts of their portfolio as they see appropriate.
Robert Moskow: And are.
Robert Moskow: You know.
Robert Moskow: 60% at one time and then go to the next piece, we know that we've tried to be just consider it a pressure.
Robert Moskow: Pressure in certain channels.
Robert Moskow: But nothing is off the table for US we are continuously evaluating the entire portfolio.
Robert Moskow: Okay got it thank you.
Speaker Change: Thank you. Our next question is from Alexia Howard with Bernstein. Please proceed with your question.
Alexia Howard: Good morning, everyone.
Robert Moskow: Good morning.
Robert Moskow: Okay. So first of all can I just ask him.
Robert Moskow: On the sales outlook for 2025, it's obviously.
Robert Moskow: We need to as compared to the strong performance.
Robert Moskow: Time around is that mainly due to the conservative pricing elasticity assumption or are there other puts and takes in that.
Robert Moskow: So I'd say a couple a couple of things.
International was a bit more pressured.
Robert Moskow: We would normally see in our growth algorithm.
Robert Moskow: So that certainly played a role we're certainly taking into account the volatility in the marketplace. We do anticipate that our consumption will be a bit stronger than shipments.
Robert Moskow: To primarily to a retailer inventory in North America confection, and so that's playing a role as well. In addition, one fewer shipping day and we do have some commercial activations that are really coming into play closer to the back half of the year, but those are the those are the key components.
Robert Moskow: Hello.
Speaker Change: Can I come back to the topic of or not.
Robert Moskow: On this call.
Robert Moskow: The topic of G. L P ones, which would come up in the past are you seeing any material impact at the moment how are you measuring it.
Robert Moskow: And what's the strategy here as that plays out over time, Thank you and I'll pass it on.
So we are seeing no material impact.
Speaker Change: Yeah, we are continuously looking externally to get and evaluate data we have triangulated, both external and internal evidence, including some of the most recent studies like the recent Cornell New reader studies and they tend to validate our internal views and we have multiple data.
Speaker Change: Sources that also support our view that users of the drugs do not eat disproportionately less of our categories.
Speaker Change: We do know that there is a broader shift in consumer preference for healthier items that has been underway for some time.
Speaker Change: Nutritional claims around blue sugar and other things and we will continue to evolve our portfolio as we continue to track whats important to consumers.
Speaker Change: Next question.
Speaker Change: Hello, operator.
Speaker Change: Thank you. Our next question is from Peter Galbo with Bank of America. Please proceed with your question.
Speaker Change: Hey, good morning, Michelle and Steve Thanks for the questions, Steve maybe just a follow up on on phasing.
Speaker Change: On top line I know you gave color on <unk> and <unk>.
Speaker Change:
Speaker Change: In the prepared remarks, but I think there was a comment you just actually just made to <unk> question around.
Speaker Change: The back half of the year <unk>, maybe has one less day, just I just want to make sure. We have all the moving parts on top line as we think about bridging to the to the 2% given there is some lumpiness in the comps.
Speaker Change: Sure Yes.
Speaker Change: One quarter in the first quarter has two fewer shipping days fourth quarter has one.
Speaker Change: And so they have one extra so net net you're one day short for the full year again pretty minor between those two between first half and second half, but overall in the second half we would expect low single digit growth.
Speaker Change: Got it helpful and then Michelle maybe if I could switch gears.
Speaker Change: There's commentary about being able to participate.
Speaker Change: In the downside of cocoa markets do fall given your risk caps.
Speaker Change: You spoke a little bit about you know.
Speaker Change: I believe off off exchange mechanisms youre seeing some of the competitors are doing there has been some reporting about maybe your own activities that have been outside of the norm.
Speaker Change: Just wanted to get a deeper understanding of kind of what you're seeing from that perspective, what instruments, you're seeing yourselves and your competitors using it and maybe if you can also comment just on your own activity.
Speaker Change: That's maybe been outside the norm thanks very much.
Speaker Change: So right now we are seeing very low commercial participation participation on the exchange.
Speaker Change: And.
Speaker Change: Yes, we have been looking at them all.
Speaker Change: All alternatives and options of.
Speaker Change: That's how we approach our global supply chain.
Speaker Change: Our focus is really there.
Speaker Change: There has been an opportunity to get lower prices and origin versus on the exchange and we're trying to be very opportunistic about how we approach this hole.
Speaker Change: Area and take advantage of the market dislocations in a place that we think that we can come in a bit differently.
Speaker Change: Do you have anything you would add to that no I think we won't get more specific on the types of instruments, but market dislocation, sometimes present opportunities and so we want to make sure were looking everywhere, we can for opportunity.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Todd Palmer with Citi. Please proceed with your question.
Todd Palmer: Good morning, and thanks for the question.
Todd Palmer: Just starting out we could circle back to the elasticity the assumption I just wanted to make sure.
Todd Palmer: I have kind of the starting point right. When you talk about minus one it would be without pricing I guess what level of growth roughly do you.
Todd Palmer: Soon as a starting point and then the elasticity starts to trigger.
Todd Palmer: I guess, when we think about this coming year.
Todd Palmer: Is it different as a.
Todd Palmer: Starting point than maybe you would have in your long term algorithm or relatively normal.
Todd Palmer: So I would say it is.
Todd Palmer: It's largely similar to how we approach it I mean, we always say, we look at the impact of pricing and there is a volume conversion curve that you go on once you price and then we build back up from there relative to the programming that we have to unlock growth and consumption on the brand and we do that on a.
Todd Palmer: Pac Bipack and a retailer by retailer brand by brand.
Todd Palmer: And that's really what helped to get us to.
Todd Palmer: To what that number looks like so that's how we derive it.
Todd Palmer: The long Easter helps us this year as somewhat of a starting point.
Todd Palmer: But those programs that we are an untapped allow us to get better than that minus one.
Todd Palmer: Understood.
Todd Palmer: Alright, thanks for that and then.
Todd Palmer: In the prepared remarks, there was reference to a timing benefit in the fourth quarter related to inventory valuation just any help quantifying guys and then what drove this and whether this has any impact on 2025 at all.
Todd Palmer: Yes, the impact was about $40 million.
Todd Palmer: And it's really related to our new ERP system, which has a much finer allocation of costs between inventory and the P&L based on what we sell and so it's sort of a better system with that system and that precision comes a little bit more variability. So as we go through the quarters, we may see a little bit more of that movement that we had in the past.
Todd Palmer: But it's not going to be material and I wouldn't we're not setting our models differently based on that.
Speaker Change: Okay. Thank you.
Todd Palmer: Sure.
Speaker Change: Thank you. Our next question is from Jim Solera with Stephens. Please proceed with your question.
Jim Solera: Yes, thanks for taking my question.
Jim Solera: On the prepared remarks, you called out the acceleration on the suites portfolio and some successes with the shack malicious gummies and Jolly rancher just in thinking about the drivers of potential upside on the portfolio can you maybe talk about innovation on the non chocolate portion of the portfolio and how that will play into some of the.
Jim Solera: Advertising efforts you have rolling out this year.
Speaker Change: Yeah, absolutely so as you know in Q.
Speaker Change: Q3, we launched in the marketplace, a lot of new innovation, including Jolly rancher innovation heightened support shekel issues Gummies and then in Q4, we actually purchased sour strips. So all of those things on suites, where new as of kind of mid to late Q3.
Speaker Change: The balance of the year. So as you look at the.
The year of 25, we're going to get you know a carryover benefit of pretty strong carryover benefit from those items. In addition to that we have also recently launched J R freeze dried.
Speaker Change: And that hit the marketplace. So that is new news on innovation and suites for this year.
Speaker Change: We have new news coming later this year that we haven't yet announced and then we obviously have distribution and velocity opportunities on sour strips as well. So we have a continued nice lineup of continued news and opportunity on suites as we entered the year and go through the year.
Speaker Change: Great and then you have your conversations with retail partners on expanding the suite selection.
Speaker Change: Is that often incremental space that you didn't add before or is it kind of swapping pieces about.
Speaker Change: Right.
Speaker Change: Especially in like the immediate consumption occasion cash wrap in.
Speaker Change: All of those areas.
Speaker Change: Yes, so we under indexed in suites, we are underdeveloped so for us it is an opportunity to be gaining.
Speaker Change: Incremental distribution incremental consumer occasions.
Speaker Change: We do look at that is helping us in that way. It also helps us with our seasons portfolio, where we're already quite strong, but being able to get some of these innovative suites components indices and is a new opportunity there as well.
Speaker Change: Great I appreciate the color I'll pass it on.
Speaker Change: Thank you. Our next question is from Leah Jordan <unk> with Goldman Sachs. Please proceed with your question.
Leah Jordan: Good morning. Thank you for taking my question I wanted to ask about the market share declines in everyday chocolate that you noted in the prepared remarks.
Leah Jordan: Just curious how that trended versus last quarter and throughout the quarter and then as you think about potential drivers for improvement going forward. How much do you think is dependent on an improvement just in the cyclical impulse in the C store channel versus the need to drive bigger innovation like Youre planning because.
Leah Jordan: Competition in newness has just been intensified from smaller players.
Leah Jordan: Sure.
Leah Jordan: So I'd say the everyday is getting better we have significant improvement with suites and we've also seen significant improvement in take home some of those improvements.
Leah Jordan: Were driven by strength in the category and certainly as we lapped some of the retailer specific pressures that we had the prior year and that we lap through those and got back to a normalized position relative to distribution and merch that was very helpful.
Leah Jordan: Innovation is an important lever and we are looking across each of our pack types to make sure that we've got that right innovation is there as there is increased competition.
Leah Jordan: For shelf space, having the right innovation within each pack type is incredibly important so we have dialed up some of the innovation levels and take home. This year and we think that that will result in a teeny piece of growth.
Leah Jordan: Next year really the share outlook is driven by a continued acceleration in suites continued strength in seasons and improvement in every day. We do have the biggest innovation that we have had ever unwreathe coming to the marketplace.
And so more news to come on that later this year.
Leah Jordan: And we'll continue to work with our commercial partners to improve trends in the instant consumable business. That's an area of the portfolio that is driven by some of these macro pressures and the consumer pressure, particularly in convenience store class of trade.
Leah Jordan: A little bit of downward category pressure, there, we see more momentum and upside on the on the other areas, but we continue to focus on share there as well.
Speaker Change: That's very helpful. Thank you and then maybe just following up on that C store discussion.
Speaker Change: Sounded like last quarter, you were going to invest more in variety brands and lean into your gold standard plan O Gram so.
Speaker Change: You know it sounded like the channels still soft but are you starting to see any improvement as you kind of implement those plans.
Speaker Change: So we have seen improvement on our variety portfolio, we saw improvements by about three points and our trends from Q3 to Q4.
Speaker Change: They are still pressured but we are seeing some significant improvement and we are in the process of ramping up that gold standards. So that takes some time to implement to sell it and it does require a reset by the retailers. So.
Speaker Change: So we're continuing to monitor that but I have a lot of confidence based on the the places where we've tested that it has you know provided two X the.
Speaker Change: The impact and the old plan and ground. So we're confident in those lips and we'll continue to see those hit the market places we.
Speaker Change: As we progressed through the year more of that upside will come closer to mid year into the second half.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question is from Michael lever with Piper Sandler. Please proceed with your question.
Michael Lever: Thank you good morning.
Michael Lever: Good morning mentioned and you mentioned in your prepared remarks, Youre seeing cocoa end users adapting reformulation.
Michael Lever: Could you maybe touch on what exactly you're seeing there.
Michael Lever: If you are re formulating yourselves as well.
Michael Lever: So we have over the last several years are always looking at where there may be some opportunities on formulation, but.
Michael Lever: Critically important we maintain the taste profile and the specialness of our iconic brands and so.
It's a place we look at we test and in some parts of our portfolio over time. We've made some changes we'll continue to look in that space and I would say in all the changes that we've made thus far there has been no consumer impact whatsoever, because you can imagine even on the smallest brand in the portfolio. If we were to make a change his extensive consumer testing.
Michael Lever: It's an area, we'll look at but we definitely want to make sure that where we're focused on the consumer.
Michael Lever:
Michael Lever: We have been seeing some increased global demand across the market.
Michael Lever: For cocoa alternatives. So we are seeing some some folks who are pressured and who perhaps have the opportunity to switch to cocoa butter alternatives.
Michael Lever: We we do that where possible, but we're pretty precious about the brands and what they stand for with consumers.
Michael Lever: But that's okay. That's helpful.
Michael Lever: Yeah. It does create some demand destruction in the market as we see others do that.
Michael Lever: Okay got it.
Speaker Change: You touched on something I don't think you've mentioned before which is the potential for cellular agriculture being a long term solution.
Is that.
Speaker Change: How far on the horizon, how far off is that is that something.
Speaker Change: Okay.
Speaker Change: To kind of consider as a potential substitute.
Speaker Change: Should we just think about what role if any that might play over the next say.
Speaker Change: A few years.
Speaker Change: It's something we're watching very closely I don't think it isn't necessarily near term, but I think it can be a game changer and it's certainly getting a lot of investment right now so I think it's something to watch.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you. Our next question is from Chris Carey with Wells Fargo Securities. Please proceed with your question.
Speaker Change: Hey, good morning, everyone just first Steve.
Speaker Change: I think the implied gross margin for Q1, I think is like 41% and maybe roughly 35% for the remainder of the year is it fair to assume that the core differential there.
Speaker Change: As cocoa inflation or are there other considerations that we should be thinking about.
Speaker Change: Yes, it will be for the first half will be down less than 500 basis points more than that like we talked about earlier in the second half and yes. The answer to your question of cocoa is really the biggest component of the inflation in the other areas some of the other commodities, but also labor.
Speaker Change: Warehousing and so forth those things are more evenly paced over the year.
Speaker Change: Okay, Okay great.
Speaker Change: And then Michelle obviously, Youre announced plans to transition out of your role, which is which is exciting.
Speaker Change: Can you maybe provide any more color or just context on the search process.
Speaker Change: Timing and.
Speaker Change: The sorts of capabilities that you would be looking for as an organization. Thanks so much.
Speaker Change: Sure. So you know we've had a framework for long term succession in place I'm always as a company is always do them now that I have announced a firm date for my retirement, the search practice or the search process is actively underway that is appropriate.
Speaker Change: Yeah, we will conduct a very robust search process led by a search committee on the board I'm, certainly, we will be recognizing and paying attention to the fast evolving industry and world that we're all living in and experiencing today and being very selective to.
Speaker Change: To bring on board somebody who has the right skills experience qualifications.
Speaker Change: And people focus to allow us to win during this environment. So I'm confident we will find the right successor, and I'm working closely with the board on that to ensure the right selection and a seamless transition.
Speaker Change: But I am absolutely, 100% lease are focused in the interim on delivering this twenty-five gland continuing to execute our transformation and making sure on positioning the company for our next phase of growth.
Speaker Change: Uh huh.
Speaker Change: Thank you. Our next question is from Rob Dickerson with Jefferies. Please proceed with your question.
Rob Dickerson: Great. Thanks, so much.
Speaker Change: I guess just.
Speaker Change: Around 26, maybe it's a question more for Steve.
Speaker Change: What Michelle you can chime in.
Speaker Change: I guess the.
Speaker Change: Kind of what I'm hearing today is.
Speaker Change: Hopefully the price comes down maybe.
Speaker Change: The crop comes in Okay supply demand dynamics start to settle maybe demand weakens a little bit so it pulls it down.
Speaker Change: Clearly I think the direct combat or the.
Speaker Change: And in the prepared remarks right.
Speaker Change: And hopefully as you get to 'twenty section getting kind of more balanced top and bottom line growth.
Speaker Change: But then Steve I kind of heard you also kind of mentioned on Alco.
Speaker Change: So I'm just trying to gauge a little bit better like how are you kind of feel out 26 right is it like yes, clearly a coker comes down of bugs than our earnings can go up to launch.
Speaker Change: If it comes down some.
Speaker Change: You know really what we're hoping for is more on outgrow growth right because.
Speaker Change: Once you have a year like this year such that you know absolute earnings are so far down.
Speaker Change: To me it kind of a core questions. Okay, well you can be back when they'll all go grows.
Speaker Change: But is there kind of a scenario that has some decent probability around it such that you could be like why a ball bonder I'll go growth.
Speaker Change: Try to get back more of those absolute earnings that's all I have thanks, so much.
Speaker Change: Sure, Yes, so we see a path even at beef cocoa prices to EPS growth for 26 again on the back of some aggressive actions that we talked about earlier that we're framing for execution, depending on what we see particularly in the first half of this year.
Speaker Change: And then I think theres, an opportunity for outsized growth will get some help from cocoa and we see cocoa start to backtrack.
Speaker Change: Those are kind of our operating assumptions, that's what we mean, when we say an algo or when we say that we want to see balanced growth for next year, that's what we're shooting for.
Speaker Change: Okay. Okay, and then it makes sense and then I guess just quickly you know while I fully respect that you I don't think ever talk about your hedging practices.
Speaker Change: Is it fair to assume that kind of like where cocoa sits today right.
Speaker Change: That may be.
Speaker Change: Can you kind of give it a little bit more time before you start to really actively hedge 26, and I think you kind of kind of vaguely touched all of that right.
Speaker Change: We'll see how it plays out but if you do think it comes down like my assumption would be you.
Speaker Change: Wait a bit before you start to hedge.
Speaker Change: Yes, we can't comment too much on the timing of the plan for 'twenty six hedging for competitive reasons, but we've got a great team there very close to what's happening in the cocoa markets and whats happening on exchange off exchange and and other innovative solutions and so we're going to continue to take advantage of that we've got the best cocoa traders out there working.
Speaker Change: So we're going to leave it in their hands and we'll get more information as the year progresses.
Speaker Change: Alright Super C in Florida. Thank you. Thank.
Speaker Change: Thank you.
Speaker Change: Pieces.
Speaker Change: Thank you. Our next question is from John Baumgartner with Mizuho Securities. Please proceed with your question.
Speaker Change: Good morning, Thanks for the question.
Speaker Change: Michelle.
Speaker Change: Good morning, I wanted to come back to <unk> question on the U S chocolate category, specifically and in 2024 volume was down about 5% and that was a little bit worse in 2023, even though pricing in 2024 was about half the magnitude and it sounds as if <unk> are not a big driver, but that health and wellness may still be <unk>.
Speaker Change: Having some impact I guess independently so how would you bucket the factors driving truckload declines at this point between health and wellness any shifts into non chocolate confections versus the re snacks or maybe just outright demand destruction from from prices. It feels like there's a lot going on simultaneously.
Speaker Change: Yeah. So I'd say there is a lot going on so I would start and say if I think about the broad confection category first of all suites has really been a high growth area. So theres been some mix that's been evolving there.
Speaker Change: <unk> suites deliveries on a different palate experience.
Speaker Change: We tend to value component to it. So so that's been one factor impacting the overall category and certainly having an impact on chocolate and that's been in place for a while that's been a longer trend, but continues to be there I think we've seen a lot of channel evolution. So theres been some pressure in some.
Speaker Change: Of the.
Speaker Change: Primary channels, where a lot of chocolate is sold areas like convenience and then theres been some growth in some of the unmeasured channels that have traditionally not been as strong across mainstream chocolate and so we're shifting our focus is to really accommodate that and the <unk>.
Speaker Change: All category growth is really strong in those places and that's an opportunity for us and also I think for the category.
Speaker Change: The consumer focus on health and wellness is also a continuation I don't see it doesn't massive change and certainly we're seeing really nice growth on our zero sugar line of products and also our protein line of products, both of which we put a heightened focused on growing.
Speaker Change: And we see a lot of opportunity on those going forward.
Michelle: Thanks Michelle.
Thank you. Our next question is from David Palmer with Evercore ISI. Please proceed with your question.
David Palmer: Thanks, Good morning.
David Palmer: Guys I wanted to ask you about maybe some big picture growth bucket questions. I mean, primarily I'm curious about seasons and how youre thinking about that this year, it's been a greater area for growth.
David Palmer: Some tough comparisons maybe have been lapped at this point from Covid I'm wondering how you're sort of budgeting and forecasting seasons as a grower. This year and then if theres any other commentary from a channel perspective about how you're thinking this year might play out you know convenience stores.
David Palmer: Also had sort of a post COVID-19.
David Palmer: Of recovery that I think was notable and Im wondering how youre thinking about that channel and any other insights. Thanks.
David Palmer: Yes, so we're expecting strength in seasons. This year, we've been pretty consistently doing very well during season, I think theres, a very strong emotional component with consumers that makes them want to participate in seasons, regardless of what might be going on in the macro environment and they love their brands.
David Palmer: Part of the part of their traditions and rituals over over the years with their families. This year Easter.
David Palmer: Easter is advantage being a late Easter so that elongate the season, and we expect strong growth, we expect to gain share there.
David Palmer: And we also continue to believe that we'll do well in the other seasons as you know performance in the prior year in a season helps to set up success in the following year and we feel good about what we delivered in the seasons. This year that gives us a good foundation as well going into 'twenty five.
Speaker Change: And then any comment on the convenience channel.
Speaker Change: Do you think that that'll be in line with your forecast broadly or.
Speaker Change: What's your thoughts there.
I think that convenience will absolutely be in line with our forecast we are continuing to forecast some pressure in that channel until we see it stabilized more so we'll lap some parts of that pressure.
Speaker Change: So so that will be a help.
Speaker Change: Lapping it about the summer timeframe, so continued softness until we see that lap.
Speaker Change: That makes sense, thanks very much.
Speaker Change: Yep.
Speaker Change: Thank you. This does conclude our question and answer session you may disconnect.
Speaker Change: Your lines at this time, thank you for your participation.
Speaker Change: Okay.