Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Hershey Co (HSY, Financial) reported strong category growth for both Confection and Salty Snacks, outperforming broader food and snack category trends in Q1.
- Successful seasonal performance with Valentine's category growth up 6.5% and strong share gains during the Easter season, marking 4 consecutive periods of seasonal market share gains.
- Launch of innovative products like Reese's Caramel, which is the #1 innovation in the category this year, and the introduction of new Summer Seasonal Shape, Reese's Medals, in alignment with the Olympics.
- Successful ERP system implementation with SAP S/4HANA went live in Q1 across U.S., Canadian, and select international markets, enhancing end-to-end connectivity and efficiency.
- Robust advertising and marketing efforts, with a 12% increase in related spend in Q1, supporting brand strength and consumer engagement.
Negative Points
- Continued volatility in the cocoa market, impacting costs and requiring careful management of supply chain and pricing strategies.
- Planned declines in Mexico due to exiting the beverage business and softness in India impacting International segment performance.
- High cocoa prices expected to drive inflation in 2025, with potential impacts on financial scenarios still being evaluated.
- Gross margin pressures anticipated to continue, with full year declines expected around 200 basis points due to cocoa and sugar inflation.
- Challenges in the North America Salty Snacks segment with expected declines in SkinnyPop due to broader category weakness.
Q & A Highlights
Q: Can you discuss the impact of the new ERP system on Hershey's operations?
A: Michele Gross Buck, Chairman, President & CEO - The new ERP system, specifically SAP S/4HANA, went live successfully in the U.S., Canada, and select international markets. It has enhanced end-to-end connectivity and efficiency across the organization, with all systems back online and a controlled ramp-up of end-to-end processes. This implementation has allowed for successful order taking, manufacturing, shipping, and invoicing with minimal market disruption, thanks to strong planning and customer partnerships.
Q: What are the financial expectations for Hershey following the ERP implementation and the inventory adjustments made in Q1?
A: Steven E. Voskuil, Senior VP & CFO - The first quarter showed a net sales growth of 8.9%, boosted by inventory adjustments linked to the ERP implementation. This growth is expected to normalize in Q2 as inventory levels adjust. The full year net sales growth outlook remains at 2% to 3%, with no change to the full year EPS outlook, expected to align with the previous year.
Q: How is Hershey addressing the volatility in cocoa prices and its impact on operations?
A: Michele Gross Buck, Chairman, President & CEO - Hershey is actively engaging with governments, civil society, and industry partners to improve cocoa resilience and farmer economic stability, which includes investments in crop care and farmer education. Despite current market challenges like liquidity issues and new regulations, Hershey has robust processes to ensure supply continuity and cost visibility, with coverage for 2024 secured.
Q: What new products and marketing strategies are Hershey focusing on for future growth?
A: Michele Gross Buck, Chairman, President & CEO - Hershey is launching new products like Reese's Medals and a new gummy brand, alongside marketing campaigns tied to the Olympics and new flavors for SkinnyPop and Dot's Pretzels. These initiatives are supported by strong in-store execution and increased advertising spend, aiming to drive consumer engagement and market share.
Q: How did Hershey's different segments perform in the first quarter, and what are the expectations moving forward?
A: Steven E. Voskuil, Senior VP & CFO - The North America Confectionery segment saw a net sales growth of 10.4%, driven by price realization and volume growth. The Salty Snacks segment grew by 1.9%, with strength in Dot's Pretzels. The International segment grew by 1.8%, with strong performance in Europe and Latin America. The company maintains a positive outlook with strategic initiatives in place to drive continued growth.
Q: What are the projected financial impacts of the current high cocoa prices on Hershey?
A: Michele Gross Buck, Chairman, President & CEO - While high cocoa prices are expected to drive inflation in 2025, Hershey is confident in its long-term outlook and strategies to mitigate inflation and protect margins. Detailed financial impacts and strategies will be shared closer to 2025 as the situation evolves and planning progresses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
