The Hershey Company (NYSE:HSY) Q2 2023 Earnings Call Transcript

The Hershey Company (NYSE:HSY) Q2 2023 Earnings Call Transcript July 27, 2023

The Hershey Company misses on earnings expectations. Reported EPS is $1.8 EPS, expectations were $1.91.

Operator: Greetings. And welcome to The Hershey Company Second Quarter 2023 Question-and-Answer Session. At this time, all participants are in a 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 Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company’s second quarter 2023 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the prerecorded 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.

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 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.

Operator: Thank you. [Operator Instructions] Our first questions come from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Andrew Lazar: Great. Thanks so much, and good morning, everybody.

Michele Buck: Good morning, Andrew.

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Q&A Session

Andrew Lazar: Good morning. I want to ask a bit about the pricing versus volume commentary regarding the full year sales growth outlook. And the comments sounds like you expect price to be a bit better in the second half and maybe volume is a bit worse than originally planned. So just two questions on this. First, how do we think about the balance between the two in the second half and could volume be down year-over-year in 2H? And then more specifically on volume, is the weaker than anticipated volume fully due to just the new pricing actions or are you reflecting a tougher consumer or a competitive environment in that outlook or both? Thanks so much.

Steve Voskuil: Yeah. I am happy to take that one, Andrew. Your math is right. That’s the way we are looking at it. And the price piece, it really is driven or the volume impact really is driven by the extra price impact as we look at the back half. And as we look at volume in the back half, yes, year-over-year, we expect it to be down. But it really is price driven. There’s probably a very small portion attributable to the salty misstep in Q2, but the vast majority is just the reaction to price.

Andrew Lazar: Great. Great. Thanks so much. I will pass it on.

Operator: Thank you. Our next questions come from the line of Bryan Spillane with Bank of America. Please proceed with your questions. Bryan, could you check if yourself muted please.

Melissa Poole: All right. Let’s come back to Bryan.

Operator: Okay. Our next questions come from the line of Ken Goldman with JPMorgan. Please proceed with your questions.

Ken Goldman: Hi. Thanks so much. You have done a great job obviously implementing pricing to offset inflation, but cocoa and sugar are up a lot more. I know you can’t talk about pricing that hasn’t been announced to the trade yet. But is it reasonable to think that you are maybe considering another list price increase and at what point do you start to ask how high is too high, how do you think about elasticity in the consumer in that environment? I just wanted to get a sense for kind of the puts and takes as you think about how to deal with and manage maybe what continues to be an inflationary environment for you?

Steve Voskuil: Sure. I mean, you are right. Cocoa and sugar are historically high. I think I saw a news article this morning talking about cocoa being at a 12-year high on the New York Exchange. The good news is we have got experience managing through commodity rushes up and down. And so as we talked about in the past, as we look at dealing with that, price is a lever, but it’s not the only lever. And so we look at driving more productivity, driving efficiency through other parts of the P&L, and in general, driving revenue management is part of our ongoing strategy. And so all the usual levers will be applied, and as I said, it’s not the first time we have had to deal with something like this. So we are pretty good at being able to navigate, and you are right, we are not going to get more specific than that at this stage.

Ken Goldman: Thank you. And then just on the comment about increased competitive, I guess, innovation in confectionery in North America. How incremental is the innovation that you are seeing, any real surprises in there versus your prior expectations? It’s been such a — I don’t want to say a benign competitive environment, because, obviously, you have some tough players in the market, but is it getting more intense than what you would have expected, I guess, is what I am going for there?