The Hershey Company (NYSE:HSY) Q4 2022 Earnings Call Transcript

The Hershey Company (NYSE:HSY) Q4 2022 Earnings Call Transcript February 2, 2023

Operator: Greetings and welcome to The Hershey Company Fourth Quarter 2022 Question-and-Answer Session. At this time all participants are in listen-only mode. As a reminder this conference is being recorded. I’d now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin.

Melissa A. Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company’s fourth quarter 2022 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remarks. At the conclusion of today’s live Q&A session we will also post a transcript and audio replay of this call. Please note that during today’s Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company’s future operations and financial performance.

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Actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today’s press release and the company’s SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning’s press release. Joining me today are Hershey’s Chairman and CEO, Michele Buck, and Hershey’s Senior Vice President and CFO, Steve Voskuil.

With that, I will turn it over to the operator for the first question.

Andrew Lazar: Thanks so much. Good morning, everybody.

Michele Buck: Good morning, Andrew.

Andrew Lazar: I guess just one from me. Trying to get a better sense of how you’re thinking about elasticity for ’23 versus what you saw in ’22, which was very little? And what percentage increase in capacity you’re expecting for this year? And I guess I asked because, if elasticity were to stay as benign as it has been, and you ramp some capacity, trying to get a sense of whether it could render your flat, just slightly down volume outlook for the year somewhat conservative, or will continued capacity constraints limit the potential for top line upside from here?

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Q&A Session

Michele Buck : Yeah, Thanks, Andrew. As we look at price elasticities we are assuming that they will be closer to last year than they were to historic, but not quite as good as last year. And as we look at our capacity, we will have low single-digit increases in capacity which do give us some ability to flex with demand as we see it. Steven you can add.

Steve Voskuil : No, that’s fine.

Andrew Lazar: Excellent. That’s it. Thank you so much.

Michele Buck : Thanks, Andrew.

Operator: Thank you. Our next question comes from line of Robert Moskow with Credit Suisse. Please proceed with your question.

Robert Moskow: Hi, thanks. And congrats everyone for such a great year. I wanted to know, the guidance for ’23 is more aggressive than normal, like you normally start the year rather conservative. But this year, you’re guiding above your normal algorithm. And I want to know if could kind of isolate what the key drivers are, and why you’ve raised it compared to three months ago. Maybe drilling down looks like gross margin is coming in better than you thought, maybe you could explain why. And then also on market share. Are you expecting market share gains in confectionery in ’23? Thanks.

Steve Voskuil : Sure. Want me to start out.

Michele Buck : Yeah, go ahead, Steve.

Steve Voskuil : So just on, the big movers on the top line, obviously price driven, and we have good visibility into that. We saw that effect be part of the driver for the fourth quarter performance, but we see that carrying forward, especially through the first three quarters of next year. And we do have elasticity factors, as Michelle said in the last question. Our planning isn’t quite down to the levels of historic elasticity, but something looks more like last year. And if you sort of drop further through the P&L, we do see some benefit from the gross margin side, as we could see more stabilization, the pricing coming down and some cost efficiencies, and a return to more historic levels of productivity. Now we still have efforts for more productivity.

But at least this year, we’re starting to see something that we hadn’t seen in the last two years. So those are some drivers through the P&L that far. On the market share side, yes, we do expect to have a positive market share next year. I think that’s one that we’re disappointed about this year and want to see turn the other direction Next Year.

Michele Buck : Yeah, and some of that market share will be helped by the incremental marketing investment, as we’ve taken that up, as we have additional capacity online. And certainly the additional capacity as well. As we think about the pacing of the market share, you should think about it relative to the beginning part of the year, will be slower, and we won’t see those declines, probably till we get into the spring. But once we hit the spring that will really kick into gear. We know that we had some lost opportunity this year around seasons that we weren’t able to fulfill totally all of the orders. And then also a little bit of a mix impact from refreshment, being an late rebounder given social behaviors, but we think that’ll neutralize going.

Robert Moskow: Okay, makes sense. Just one follow-up. On the gross margin side, are your cost, like inflation cost coming in better than you thought or is this really just productivity is accelerating more than you thought?

Steve Voskuil : Yes, probably more on the productivity side. We have pretty good visibility in the cost, with the hedging program and so forth, particularly on commodities, and we’re still expecting high single digit, year-over-year inflation through commodities, and a lot of the materials items and mid-single digits on things like labor and logistics and other supply chain costs. I don’t think those assumptions have changed much from our outlook, but probably a little bit more productivity.

Robert Moskow: Great. Thank you.

Michele Buck : Thanks.