Michele Buck: Yes. So certainly I would agree that with value seeking behavior that a lot of that is coming from lower income consumers. And we’ve seen that relative to SNAP reduction and the trends that drove frankly in our business as well as I think across other edibles based on what other companies have shared as well. I would say that our C-store business is okay. And I would say Mass Club and Dollar are very strong. So you may be seeing a little bit of that value seeking based on where that shakes out, but I wouldn’t say it’s something that we have seen as significant or dramatic.
David Palmer: Got it. Thank you.
Operator: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.
Chris Carey: Hi. Good morning. One quick question on gross margin. Steve, did the complexion of your gross margin evolved at all through the year? I noticed some timing dynamics between Q1 and Q2 and the full year outlook is unchanged, but is productivity coming in better or parts of inflation coming in worse or parts of inflation coming in better? Just any insight on how your delivery against this target has evolved over the past few months and is evolving over the balance of the year relative to your going expectations?
Steve Voskuil: Yes, no change. We’re still as we talked about on our call last time about 200 basis points down year-over-year for the full year. Productivity savings off to a good start right in line with plans. So at this point nothing material that would point to a reshaping.
Chris Carey: Okay. Just the follow up on the category comments. The way that I interpreted it was that some of the slower category at the beginning of the year is almost entirely innovation relative to your go in expectations of your peer or is there anything else that you’re seeing which you would highlight as over and above just that one comment regarding the lapping of innovation for one of your important competitors.
Michele Buck: No, nothing else that I would highlight on that.
Chris Carey: That’s very clean. Thanks. Thank you very much.
Operator: Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Thomas Palmer: Good morning. I wanted to just ask a little bit differently. I know you’re not talking about cocoa inflation for next year. But there are some moving costs beyond just the headline cocoa inflation. You’ve got conversion cost and I think you’re buying more butter and liquor than powder. So when we just look at headline cocoa inflation, do these items like conversion and then kind of the sub items within cocoa that you’re buying, do those soften the magnitude of inflation? Are they adding to it right now? Just trying to understand that piece of the dynamic.
Steve Voskuil: Sure, Yes. You’re right. Cocoa is sort of the headline. It’s a big headline. But when you look at cocoa derivatives, they are also increasing and we won’t comment about percent increase relative to cocoa price increases, but they are inflationary just as cocoa itself is.
Thomas Palmer: Okay. Understood. And on the Salty snack side, do you noted non-measured channels as a driver maybe of outperformance versus what we see in scanner. Where’s that really coming from? Is this like other retailers? Is this more on the ecommerce side and should we think about it as velocity or expanded distribution?
Michele Buck: Yes. So it is from club, especially some very nice increases on dots that we shared last year. We got incremental distribution. So at this point, it’s from both distribution and velocity there. So dots was up about 30% to start the year and we gained over 300 market share points and club was one of the drivers of that.
Thomas Palmer: Great. Thank you.
Operator: And our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.
Rob Dickerson: Great. Thanks so much. Michele, maybe Steve too, let me fully understand, right, not speaking to hedging practices. Kind of where you’re positioned or how you’re positioned or how you’re thinking about the internal hedging dynamic? But I am curious, maybe just more broadly we heard from another large confection company earlier this week that was kind of able to speak kind of in general as to kind of just how you’re thinking about just like global cocoa supply, right? I’m sure you have plenty of internal and external advisors kind of trying to provide that perspective and I’m sure it’s a lot better than ours. So I’m just curious if you have any general comments around that first question?
Michele Buck: Yes. We’re happy to share. So I would say overall, our views about what has driven the market are somewhat consistent with what that large competitor shared earlier. As we think about it, we think both structural and transient forces have been at play impacting prices over the past several months. It certainly started with poor weather, a poor weather that impacted crop and then concerns about supply. But as we’ve mentioned previously, it’s also about much more than just supply and demand economics, but rather the impacts of regulation like the EU deforestation regulation, market speculation and also the lack of liquidity. So we continue to closely monitor supply and demand in the short-term, which are the things that we can most get data and information on.
The market will start and has started to get some signals on the supply outlook for the main crop that will happen over the summer. Early reads on midcrop look good, but it’s really early. So we continue to monitor that. We also have full coverage for ’24. We have some coverage into ’25, and then we remain very focused on executing what’s within our control. Our business strategy is to drive growth, improve share, innovate, enhance our capabilities, drive cost efficiency as we continue to monitor that environment.
Rob Dickerson: Okay. Great. Thanks for that. It was very helpful. And then maybe, Steve, this one is a little bit more for you. I know you have the two programs focused on productivity and savings to kind of gross is over the next three years $700 million. There’s obviously some cost inflation already in the system. It could be more forthcoming. I don’t really think you’ve spoken much to kind of like the net productivity and savings. And I also don’t expect you to give me an actual number. But I am just curious kind of like how should we feel about kind of like the net impact ability on the P&L again broadly speaking given just what clearly is kind of a material amount of savings and productivity over the next three years? That’s it. Thanks.
Steve Voskuil: Sure. And maybe if I just take cocoa to the side and look at the rest of the business, our model is to offset inflationary costs over time through a variety of levers in the P&L and that fundamental model is still in place. Of course, cocoa was certainly stressing it in the near term, but longer term, that is still the model to cover inflation. And so as we think about these savings programs both the earlier one we discussed in the investor conference focused on productivity and then the most recent one, which is a mix of SG&A savings and productivity, both of those we like to focus on being a net benefit to the P&L over the horizons that we’re talking about, which would imply, we have to get other ongoing normal efficiencies to offset normal ongoing inflation. And so that’s the way we’re looking at those cost programs.
Rob Dickerson: All right. Great. Thanks so much.
Steve Voskuil: You bet.
Operator: Our next question comes from the line of Jim Salera with Stephens. Please proceed with your question.
Jim Salera: Guys, good morning. Thanks for taking our question. Michele, I wanted to circle back to seasons and just dig down on, you guys mentioned you gained share in Valentine’s and Easter. Can you just talk through what’s driving that? And then maybe if there’s any learnings that you can take to apply to, I don’t know, if you’d characterize it as like a mini or a bonus season with the Olympics this year.
Michele Buck: Sure. So as I look at winning in season, certainly, it starts with the right product portfolio. We feel good about the portfolio. We always have innovation at the seasons and we feel good that we have the right innovation. Another key driver is merch. We did a very nice job with merch and our retail sales teams working stores to get the visibility that we really desired for the category and overall for our business. And then also we had the ability to provide even more supply as we’ve mentioned over the past several years, in a couple of years where we were constrained by what we were able to deliver. And end of last year, we really got to a much fuller place in supply across our portfolio. And yes, all of those lessons we apply to those not traditional seasons, but those other occasional seasons, things like Super Bowl, March Madness and Olympics. And so we certainly plan to leverage those same levers to make Olympics a strong event for us in the summer.
Jim Salera: Great. And on the Olympics specifically, if I’m not mistaken, I think it’s two weeks. And so should we expect in-store activations on that to run for like three weeks or four weeks or any way to kind of size that up as we think about that at the end of the summer?
Michele Buck: Well, we usually start some of those activations ahead of the event. Retailers like to kind of highlight the event and get people engaged on ahead of time. So you will see some of those displays start as early as June really leading into the Olympics and then depending on the retailer, you’ll see them throughout the summer.
Jim Salera: Okay. Perfect. Thanks, guys. I’ll hop back in the queue.
Operator: Our next question comes from the line of John Baumgartner with Mizuho. Please proceed with your question.
John Baumgartner: Good morning. Thanks for the question.
Michele Buck: Good morning.
John Baumgartner: So in terms of the international business, there’s been some high level comments about Europe over the past year or so. I think recognizing your presence there a bit more than in the past. And I’m curious how you’re thinking about that market longer term. And would you say you’re still in a trial period? Is there anything that still needs better understanding at this point? Just how we think about Hershey’s desire to maybe take the next steps? And I guess it’s a pretty big market with some differentiated products.
Michele Buck: Yes. So yes, it is a large market and I think the approach that we’ve always taken over time is it is a very well developed, established market and therefore, we believed our best chances of succeeding are with a differentiated product. And after a lot of work, we have been successful in bringing Reese’s to Europe. And really starting in the U.K., we’ve had some phenomenal success with frankly not a ton of investment in support in terms of underground people or other investments. So we now have a business that we feel good about that’s profitable there and that’s really our primary focus. So we think about Europe a bit more from where we have that elements of a differentiated portfolio that we think can win. Not looking at as a big investment, but rather doing it efficiently to maintain strong margins.
John Baumgartner: Okay. And in the U.S., I’m curious as the consumer encounters just sort of an extended period of high inflation, are you seeing any changes in terms of demand drivers for your categories where maybe the pull in advertising isn’t what it used to be. Does it require more price promo? Does it require more in-store display, more front of store presence? How do you think about or are you seeing any changes in sort of the efficiency of demand drivers that are out there?
Michele Buck: Yes. I mean, I guess one way that I think about it is making sure that we look at each occasion, which really comes down to kind of the pack types across the portfolio and ensuring that we have good entry level prices based on how the consumer — well, and I guess price is based on how the consumer perceives value. A lot of times for the lower income consumer, it’s about an entry level price point that enables them to participate. In some categories, it’s about volume that has a better price per ounce. So I think to me that might be the bigger piece. I do think areas like seasons and innovation also drive value above and beyond the base products and so I think we’ve seen that as well.
John Baumgartner: Thank you.
Operator: Our next question comes from the line of Alejandro Zamacona with HSBC. Please proceed with your question.
Alejandro Zamacona: Thank you. Good morning, everyone. Just to follow up on the cocoa price discussion. So I’m curious on hearing any comments regarding the recent normalization. So recently prices have declined 30% in the last couple of weeks. So any comments around that would be helpful. Thank you.
Michele Buck: Yes. Well, I think first of all, that decline is just further evidence of the tremendous volatility that we’re seeing in the marketplace. It’s hard to peg what some of those declines. There are no new signals relative to supply and demand that are meaningful yet. I mean, perhaps some early signs about the mid-crop, which leads us to believe that more of the decline is driven by some of the non-supply, demand economic factors, but some of those other factors that we’ve discussed relative to speculators thoughts on regulation, etc.
