Q2 2024 Earnings Summary
- Hershey has strong brands in growing categories, a highly efficient and agile supply chain, and advanced capabilities in analytics, media, category management, and sales, positioning the company to meet the changing needs of consumers and drive long-term success.
- New product innovations are expected to accelerate growth into 2025 and beyond, including the launch of a new Jolly Rancher gummy form and the Shaq-a-licious gummy line in collaboration with Shaquille O'Neal, which has seen strong retailer interest and sell-in.
- The North America Salty Snacks segment delivered above expectations with 8% retail sales growth in Q2, leading to a 22-basis point share gain in salty snacking, reflecting robust consumer demand and strong execution.
- Reported net sales declined 16.7% in Q2 2024, indicating potential challenges in maintaining revenue growth.
- Adjusted earnings per share declined 12.5% in the first half, driven by lower sales, gross margin declines, higher capability and technology investments, and a higher tax rate.
- The company is facing increasing input costs, particularly in cocoa and sugar, leading to gross margin pressures and necessitating price increases, which may impact consumer demand in a challenging economic environment.
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Price Increases and Elasticity
Q: How are you handling price increases amid consumer elasticity concerns?
A: We are experiencing outsized inflation due to historic cocoa prices and have taken a measured approach to pass some costs to consumers. We're implementing about 6 to 7 points of net price realization but not across the entire portfolio. We assume historic elasticities, slightly worse than recent increases, and focus on key price points, maintaining a significant portion of our products under the $3 price point. -
Cocoa Cost Inflation Impact
Q: Will recent pricing cover longer-term cocoa inflation?
A: Our pricing strategy hasn't changed, but we don't expect this round to fully cover inflation. While current cocoa prices are not sustainable, future prices may remain higher than previous levels. We'll use multiple levers like cost reduction and productivity to manage costs. -
Market Share Trends in Core Chocolate
Q: Why are you losing share in core chocolate, and when will it improve?
A: Despite category growth of around 2% , we faced pressure due to under-indexing in sweets and reduced merchandising at a key retailer. We anticipate improvement in the second half with incremental innovation like the Shaq launch and reversal of merchandising reductions. -
Gross Margin Outlook for Back Half
Q: What is the gross margin outlook for the second half?
A: We expect more commodity inflation and a mix impact from seasonal products, which are slightly margin-dilutive. We'll see benefits from cost savings initiatives and lapping prior year incremental costs, but overall margins may be pressured. -
Consumer Spending and C-store Weakness
Q: How is consumer pullback affecting convenience stores?
A: Consumers are seeking better value, shifting purchases from convenience stores to mass and dollar channels. We expect this trend to continue but are confident in adjusting our offerings across channels. -
Inventory Levels and Destocking
Q: Is destocking a red flag for demand?
A: We don't see it as a red flag but a reversion to traditional ordering patterns, with Halloween shipments moving to the third quarter. We have good visibility into seasonal orders and strong expectations for the season. -
2025 Pricing Impact and Visibility
Q: Will the 6-7% price increase reflect in 2025 results?
A: The price increase is phased, with some impact this year and more in 2025. We expect overall mid-single-digit price realization in 2025. -
Inflation Offsetting Strategies
Q: What levers are you using to offset inflation besides pricing?
A: We're focusing on cost reduction, productivity, and product portfolio adjustments. Initiatives include formulation changes and collaboration with retailers on value offerings. -
Marketing Spend Plans
Q: How will marketing spend change given cost pressures?
A: We plan to maintain marketing support in line with sales growth this year and expect the same for next year. No significant changes are anticipated. -
Salty Snacks Outlook
Q: What drives confidence in Dot's and SkinnyPop growth?
A: Dot's continues strong growth with distribution expansion and innovation like new flavors. For SkinnyPop, we're seeing stabilization and are investing in innovation and marketing to regain momentum.