The Hershey Company (HSY) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Visibility into Seasonal Orders: Hershey has good visibility into its seasonal orders, with most orders already in hand, indicating strong expectations for upcoming seasons and retailer collaboration.
• Innovation and Market Share: Hershey is focusing on significant incremental innovation, particularly in sweets, with launches like Shaq and new forms expected to drive market share and offset areas of pressure.
• Salty Snack Momentum: Hershey highlighted momentum in its salty snack portfolio, particularly with Dot's Pretzels, and expects continued acceleration in the back half of the year.
• Retailer Merchandising Reversal: Hershey anticipates a reversal in the reduction of key retailer merchandising in the second half, which is expected to positively impact share trends.
• Marketing and Advertising Support: Hershey plans to maintain its marketing support in line with sales growth, ensuring continued consumer engagement and brand visibility.

Pessimistic Highlights

• Retail Inventory and Halloween Shift Impact: Hershey noted a 6% impact from lower retail inventory and a 2% to 3% impact from the Halloween shift, raising concerns about potential underlying demand issues.
• Cocoa Price Challenges: The company acknowledged the challenge of historic cocoa prices, necessitating a measured approach to pricing increases to cover inflation, with an expectation of historic price elasticities.
• Consumer Discretionary Spending Pullback: Hershey observed a pullback in consumer discretionary spending, particularly impacting convenience store sales, and expects this trend to continue through the year.

Company Outlook

• Back Half Growth Expectations: Hershey is optimistic about the back half of the year, expecting stronger performance due to lapping retailer merchandising reductions, seasonal strength, sweets innovation, and salty snack momentum.
• Pricing Strategy: Hershey plans to implement a 6% to 7% net price realization to manage cocoa price inflation, taking a measured approach across its portfolio to maintain consumer value.
• Transformation Program Progress: Despite current market pressures, Hershey is making progress on its transformation program, including technology and digital capabilities, to drive long-term growth and efficiency.

Q & A Highlights

• Q: Can you discuss the impact of lower retail inventory and the Halloween shift on investor concerns? (Ken Goldman, JPMorgan)

  A: We view the inventory and Halloween timing as a reversion to traditional patterns rather than a red flag. We have strong visibility into seasonal orders and do not see these factors as indicative of softer end-user demand. (Steve Voskuil)

• Q: What products does the recently announced pricing cover, and how are you managing elasticity concerns? (Ken Goldman, JPMorgan)

  A: The pricing covers parts of our portfolio, aiming for 6% to 7% net price realization. We're taking a measured approach, considering historic cocoa prices and category resilience, and planning for historic elasticities. (Michele Buck)

• Q: What's driving share losses in core chocolate, and when do you expect trends to inflect? (Andrew Lazar, Barclays)

  A: Share losses were anticipated due to programming shifts and retailer merchandising reductions. We expect improvements in the second half with innovation, seasonal strength, and better retailer positioning. (Michele Buck)

• Q: Can you elaborate on the incentive comp being down and its implications? (Alexia Howard, Bernstein)

  A: The reduction in incentive comp aligns with our full-year expectations and adjustments in our outlook. It's a reflection of our performance tracking and not expected to bounce back in the next quarter. (Steve Voskuil)

• Q: How are you addressing the consumer shift to value and the impact of pricing in this environment? (Bryan Spillane, Bank of America)

  A: We're focused on offering value across our portfolio, with significant parts under the $3 price point. Our pricing strategy considers consumer needs, and we're leveraging all marketing levers to maintain consumer engagement. (Michele Buck)