Hershey(HSY)2024-08-01 15:23Financial Data and Key Metrics - The company experienced a 6% impact from lower retail inventory and a 2% to 3% impact from the Halloween shift in North American Confectionery [9] - The company expects to achieve 6 to 7 points of net price realization from recent pricing actions [13] - Gross margin is expected to decline by 200 basis points for the full year, with some input cost timing favorability in Q2 [27][28] Business Line Data and Key Metrics - North American Confectionery saw weaker market share trends in core chocolate, particularly in everyday items, with pressure in the C-store channel and an uptick in take-home and club stores [16][18] - The company expects stronger performance in the second half due to innovation, seasonal programming, and lapping retailer merch reductions [17][19] - Salty snacks, particularly Dot's and SkinnyPop, are showing strong trends, with Dot's benefiting from distribution expansion and SkinnyPop expected to regain momentum in the back half [40][61][62] Market Data and Key Metrics - Consumers are shifting spending away from convenience stores to mass and dollar stores due to discretionary spending pullbacks [43][44] - The company expects historic elasticity levels (around 1) for the recent price increase in North American Confectionery [45][46] Company Strategy and Industry Competition - The company is taking a measured approach to pricing, focusing on passing on some inflation while maintaining category rationality [12][13] - Innovation, particularly in sweets with the Shaq launch, and seasonal programming are key drivers for the back half [19][40] - The company is leveraging cost reduction, productivity, and formulation changes to manage cocoa price volatility [50][74] Management Commentary on Operating Environment and Future Outlook - Management is confident in the back half due to strong visibility into seasonal orders, retailer collaboration, and innovation [10][19] - Cocoa prices are expected to remain elevated, necessitating price increases, but the company is monitoring the market for future adjustments [12][49][51] - The company is focused on optimizing reinvestment and offering value through price points, innovation, and promotional activities [31][32] Other Important Information - The company completed its S/4 ERP implementation, which is foundational for its transformation program and cost savings initiatives [86] - Marketing support is expected to remain in line with sales growth for both 2024 and 2025 [57][58] Q&A Session Summary Question: Impact of lower retail inventory and Halloween shift on North American Confectionery [9] - Answer: The company views the inventory adjustments as a reversion to traditional order patterns, with strong visibility into seasonal orders and no material impact expected for the year [10] Question: Details on recent pricing actions [11] - Answer: The pricing covers select products, with a 6-7% net price realization expected, and the company is assuming historic elasticity levels [12][13] Question: Market share trends in core chocolate [16] - Answer: Share losses were driven by weaker C-store trends and reduced retailer merch, but the company expects improvement in the back half due to innovation and seasonal programming [17][18][19] Question: Consumer receptivity to price increases [29] - Answer: The company is taking a surgical approach to pricing, focusing on key price points and optimizing reinvestment to maintain value for consumers [30][31][32] Question: Cocoa price coverage and gross margin outlook [33][34] - Answer: The company is largely locked in on cocoa for 2024 but is monitoring the market for 2025, with gross margin expected to face headwinds from commodity inflation and seasonal mix [34][53][54] Question: Marketing support and portfolio optimization [57][69] - Answer: Marketing support will remain in line with sales growth, and the company is focused on optimizing its portfolio to meet consumer needs, including expanding into salty snacks [57][70] Question: Long-term growth initiatives [85] - Answer: The company is making progress on its transformation program, including digital and workforce planning, despite the volatile environment [86]