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    Hershey Co (HSY)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$195.88Last close (May 2, 2024)
    Post-Earnings Price$196.00Open (May 3, 2024)
    Price Change
    $0.12(+0.06%)

    What went well

    • Strong market share gains and performance in North America Confectionery, driven by successful innovation such as Reese's Caramel, which was the best innovation in the category and drove strong merchandising efforts. The company expects improvement in trends as the year progresses.
    • Salty Snacks segment is on track, with Dot's Pretzels up about 30% and gaining over 300 market share points, fueled by increased distribution and velocity, especially in club channels. Profitability in Salty Snacks is expected to improve throughout the year, with strong media and trade investments and new flavor and pack innovations driving growth and share gains in the second half.
    • Continued strength in seasonal products, with market share gains in Valentine's and Easter seasons, driven by the right product portfolio, strong merchandising, and improved supply. The company plans to leverage these strategies to make events like the Olympics a strong opportunity in the summer.

    What went wrong

    • Hershey expects double-digit EPS declines in the first half of 2024, indicating profitability pressures.
    • Gross margins are projected to decrease by approximately 200 basis points year-over-year for the full year, suggesting ongoing margin compression.
    • Challenges in the Salty Snacks segment, particularly with SkinnyPop, which remains under pressure along with the rest of the ready-to-eat popcorn category, could impact overall performance. Additionally, Q1 Salty Snacks profit was the weakest for the year, signaling margin concerns in that business unit.

    Q&A Summary

    1. Cocoa Prices and Future Pricing
      Q: How will cocoa prices affect 2025 pricing?
      A: We're in the midst of building the 2025 plan, considering multiple levers like pricing and supply chain savings. Cocoa prices have been volatile due to both structural and transient factors, including poor weather, regulatory impacts like the EU deforestation regulation, market speculation, and lack of liquidity. We have full coverage for 2024 and some into 2025, and we'll continue to monitor and manage what's within our control.

    2. Price Elasticity and Consumer Response
      Q: How might price elasticity change with large price increases?
      A: We've seen no material change in our elasticities over the past several months. We remain in line with historical levels, which is about minus 1, and that's what we assume going forward.

    3. Margin Outlook and Cost Savings
      Q: How will cost savings impact the P&L amid inflation?
      A: Our model is to offset inflationary costs over time through various levers in the P&L. We have two programs focused on productivity and savings, totaling $700 million over the next three years. These will be a net benefit to the P&L despite near-term stresses from cocoa inflation.

    4. North America Confectionery Sales and Market Share
      Q: Why did market share exceed expectations but the category didn't?
      A: Our Q1 top-line performance was in line with expectations, but our market share exceeded due to strong seasons and innovation like Reese's Caramel. The category's softness was partly due to our largest competitor, Mars, being down in share, driven by their innovation not sustaining.

    5. State of the American Consumer
      Q: How is the lower-income consumer affecting demand?
      A: We've seen impact from the SNAP reductions in the back part of last year, but we're beginning to see some stabilization as we start to lap those reductions. Value-seeking behavior continues, especially among lower-income consumers. Our C-store business is okay, while mass, club, and dollar channels are very strong.

    6. Salty Snacks Performance
      Q: What is driving Salty Snacks' improvement and margin outlook?
      A: Salty was on track with expectations, with strong Dot's performance up about 30%, gaining over 300 market share points. SkinnyPop improved, but significant gains will occur as we lap Q2. Profitability will improve going forward, with increased advertising starting in Q2.

    7. Inventory Dynamics and ERP Implementation
      Q: How will inventory reversal impact Q2 and pricing actions?
      A: The fixed cost leverage that benefited us in Q1 will fully reverse in Q2, with a high single-digit decline expected. We remain consistent with our strategy to evaluate pricing actions after stabilizing our ERP system at the end of Q2.

    8. Gross Margin Expectations
      Q: Has the gross margin outlook evolved through the year?
      A: No change; we're still about 200 basis points down year-over-year for the full year. Productivity savings are on track and right in line with the plan.

    9. International Expansion in Europe
      Q: What is Hershey's approach to Europe?
      A: We've been successful with Reese's in the U.K., seeing phenomenal success without significant investment. We now have a profitable business there, which is our primary focus, leveraging differentiated products in a well-developed market.

    10. Seasonal Sales and Olympics Activation
      Q: How are you approaching seasonal events like the Olympics?
      A: Winning in seasons starts with the right product portfolio and innovation. We apply lessons from previous seasons to events like the Olympics, with activations starting as early as June to engage consumers ahead of the event.

    11. Channel Performance and C-Stores
      Q: Are you seeing pressure in the C-store channel?
      A: Our business in C-stores has been holding up well; we haven't seen a significant change. We always evaluate price gaps and points both within and across categories.

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