Robert Moskow: Got it, so you can be flexible depending on the cost conditions.
Michele Buck: Yes. Okay, thank you so much.
Operator: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Michael Lavery: Thank you, good morning. I just wanted to come back to Easter and the ERP transition. You’d mentioned with Salty in 4Q, how you cut back on some of the merchandising and even I think a little bit of the marketing spend. You mentioned Easter being a little bit shorter, but is there sort of an amplified headwind from the timing that, would you be doing a similar approach to promotions or marketing in conjunction with the transition to dial that back a little bit? Or is there a reason that they wouldn’t apply the same way as the Salty transition did?
Steve Voskuil: Yes, we’re not applying the same approach we did with Salty in that respect. We’ll still be building inventory in the first quarter, we’ll still be draining that inventory in the second quarter just to de-risk the transition, but we are not going the extra step of like freezing from all activity in store, merchandising promotion. We have a full merchandising and promotion plan. Those are going to proceed, they were planned well in advance and we have full confidence in being able to support them. So that is a difference.
Michele Buck: Yes, we felt like we got really good learning through the Salty and this was our plan to do Mexico first, then Salty and then the mother ship. And we got really good learning that we’ve been able to just incorporate and fine tune along the way. We also don’t have the complexity as quite as many different systems that we have to bring together with our business as we did with all of the acquisitions.
Michael Lavery: Okay, that’s great color. And then can you just give us a sense on elasticities maybe both how they currently look versus history and then also what your assumptions are in the guidance as far as how they might progress over the rest of the year?
Michele Buck: Yes, so we’re expecting our elasticities to be similar to the historic levels. So that’s our key assumption.
Michael Lavery: Okay, great. Thanks so much.
Operator: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Tom Palmer: Good morning. Thanks for the questions. Maybe just first-off on the pull forward of the productivity and cost savings, I just wanted to follow up from the earlier question. Are there new found savings embedded in this or are these largely initiatives that would have been done in future years? Just maybe clarify that piece of it.
Steve Voskuil: Sure, so when we did our investor conference back in March, we talked about incremental productivity savings in the manufacturing area. So this is incremental to that to start with. This is beyond that. As Michelle said, in the longer term view, we saw these as opportunities, but it’s new opportunities really built off the back of some of the technology now coming to fruition is the way to think about it.
Michele Buck: And we’ve really beefed up or are beefing up our capabilities in technology. We hired a CDTO in the fourth quarter who’s really bringing us capability and further expanding what we can do as a company, we believe.
Tom Palmer: Okay, thank you. And I know there’s some questions that kind of danced around this, but maybe I’ll be a little more direct on it. Just on pricing, what exactly is flowing through as we think about 2024? So kind of what pieces of the portfolio are being touched? Are there incremental pricing actions embedded at all in guidance or kind of what we start out in the first quarter is the run rate is kind of the full magnitude?
Steve Voskuil: Sure, yes. So we have sort of three pricing components that are embedded into the Outlook. I touched on a couple of these earlier. There’s the Easter Valentine’s Day action that was taken in 2022, that’s reflected this year. There’s everyday chocolate increase that we executed mid last year, that’s reflected. And then there’s a small new price increase on some grocery and food service items that really went just into effect this month. So that’s happening right now. Those are the only assumptions that are embedded in the outlook right now.
Tom Palmer: Right. Thank you.
Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.
Chris Carey: Hi. Good morning, everyone. So just a few follow-ups, if I could. Just on gross margin, again, just kind of put a fine point on this one. Do you expect expansion in the back half of the year, or are you saying that it’s just going to be less contraction in the front half?
Steve Voskuil: It’s going to be less contraction. Yes, the contraction will be more significant in the first half, less in the back half.
Chris Carey: Okay, understood. That’s what I thought. Thanks. And then just on a segment basis, right, there’s this dynamic where most of the inflation clearly is hitting you on the confection side, but probably some of the more fundamental category dynamics are more pressured on the snack side, clearly, because you’re expecting low algorithm for next year. And so just from a margin dynamic between the segments themselves, is there a dynamic where – and this quarter is so hard to assess with snacks because of the – because of the RP – but will snacks require more investment in a strange way? It’ll have more margin contraction than what we’re going to see in confection. Is there any way you can just kind of frame investment needs and sort of fundamental margin pressure in snacks versus just, I guess, inflationary driven – inflation that we would see in confection?
And then I apologize for just one more cleanup in a way. But I think to Brian’s question on SM&A as a percentage of sales, we’re probably implying a roughly 15-year low for this year. Maybe just help us contextualize why we’re not getting too low from that standpoint. And maybe that 15-year journey is just about increasing efficiency relative to sales base. It’s come up a couple times. So any added context there would maybe be helpful. Thanks.
Steve Voskuil: Sure. On the segment margins, you’re right. The confection business is going to bear the brunt of the margin impact due to cocoa. Salty margins are up for 2024 year-over-year. And that’s even on the back of some pretty heavy investment. And so we feel good about the journey that we’re on there. It’s not impacted, obviously, by the cocoa component. On the second question, could you just say the question again? I want to make sure I heard that one.
Chris Carey: It’s effectively that operating costs as a percentage of sales look to be implied at a roughly 15-year low in 2024. And it’s really just understanding why that’s not cutting to the bone or going too low relative well, we’re just getting more efficient relative to sales base over time. And that’s what we’re doing next year and the year after. So maybe just contextualizing that history would be helpful in putting 2024 in context. Thanks.
Steve Voskuil: Sure. Yes. Well, let me first say we’re not cutting to the bone. That’s not the intent of the program at all. We want to continue to protect the brands and the capabilities that give us differentiated opportunities in market. When you look at operating expenses, if you look back over time, definitely getting more fixed cost leverage, the business is bigger. Even with a little bit slower growth year in 2024 than we’ve seen the last couple of years, we get significant leverage. We have efficiencies elsewhere in the P&L, efficient driving efficiencies through the P&L is an every year activity. And that’s not new. And we’ve also seen more efficiencies in the international business. If you think back, the margins were quite a bit lower a couple of years ago before we made some of the transformational moves there.
So a combination of all of those things have led to the improvements that we’re seeing, but we’re not cutting so far that we feel we’re putting in jeopardy any of our key capabilities or growth potential.
