Bryan Spillane: Thank you.
Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your questions.
Robert Moskow: Hi. A couple of questions, please. One is, since the inflation you’re facing is largely in cocoa, it would think, one would think that like the chocolate category would have to raise prices much higher than other snacking categories. Michele, when you think about how that would affect chocolate category elasticity, do you have to factor that in? Do consumers make pricing, choose chocolate over other snacks. Do they have pricing as part of that algorithm or not?
Michele Buck: Yes. So certainly, people are making choices across snack categories. And one of the things that we do factor in is kind of looking at cross category price elasticity, in our models. So that’s always the case. I think the past two years, in particular, have just been a little bit unique in terms of what’s going on in the marketplace overall. Inflation and pricing. So seeing some different dynamics there.
Robert Moskow: Okay. And then one quick follow-up. You mentioned some headwinds related to, I think, the ERP timing and shipments for the first half of 2024. I think you said headwinds, but sometimes you ship ahead of ERP conversion. So can, Steve, can you be a little more specific as to how to think about shipment movement in the first half of next year?
Steve Voskuil: Sure. And we’ll talk more about this when we give the 2024 guide too, including the inventory build and the takeout. But yes, you’re right, it’s more of a sales movement in first. So there’s some inventory build we’ll do in advance to risk mitigate just like we did for Salty here. And then we would expect to see that bleed out in the second quarter, mostly in the second quarter. So there’ll probably be some higher sales or higher inventory build and some fixed cost absorption on the front end and then the reversal of that in Q2. And there’ll be some costs. We’ll talk more about the cost profiling, some of that we take through, the regular P&L and some of that gets non-GAAPed out, but we’ll give more clarity to that as we give 2024 guidance.
Michele Buck: And that’s similar to what we saw, what we’ve experienced on Salty this year. where in Q3, we have the inventory build and then Q4, it starts to bleed out, work out.
Robert Moskow: Right. Okay. Thank you.
Steve Voskuil: You bet.
Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo. Please proceed with your question.
Chris Carey: Hi good morning.
Michele Buck: Good morning.
Chris Carey: Just a quick question on Salty as well. I guess one is near term. One is more medium term. Has anything changed about how you view the category over time given the slowdown? And then can you just maybe be a bit more specific about why consumption trends should improve? Is it really just lapping comps, increased promotional activity after Q4? I know you’re not doing it in Q4, but maybe more the kind of two to four-quarter trajectory and why things get better? So just what’s changed your thinking of the category, if anything, over the medium term and that two to four quarter kind of dynamic on improvement?
Michele Buck: Yes. So, I don’t have any different views on the category. Snacking continues to be very strong consumer behavior, and I love our portfolio of having a very strong leadership presence in both Indulgent Snacking and Confection as well as participating in savory snacking, especially with the brands that we’ve acquired that have very strong consumer engagement and growth potential. So continue to feel very good about those. I think relative to the trends improving, we can’t talk really about 2024. We’ll come back and talk a bit about that more. But we continue to feel that we’ll see similar trends in Q4 as we’ve seen in Q3 relative to takeaway. I mean, some differences in shipments related to S4 because the inventory will now be coming out. We built inventory in Q3. So from a shipment perspective, we’ll see that difference. But from a takeaway perspective, we anticipate a continuation of what we saw in Q3.
Chris Carey: Okay. Thanks.
Operator: Thank you. Our next question comes from the line of David Palmer with Evercore. Please proceed with your question.
David Palmer: Thanks. Good morning. A question on seasons, there’s been a lot of discussion about seasons on the call. I wonder how, can you remind us what percent of your business in Confection is from seasons? And it feels like you’ve won in seasons in recent years. Can you just give us a sense of how much of your growth in Confection has come from seasons in recent years?
Michele Buck: Yes. So, Seasons is between 25% and 30% of our total business on a full year basis. It varies by quarter. Obviously, Q4, we have Halloween and Holiday. So it’s a much bigger percent then and of our growth, probably about the same proportion of our growth, about a third in the back half of this year.
David Palmer: And then just looking ahead to 2024, wondering how you’re thinking about Seasons growth in an answer to a previous question, you talked about how Seasons would be helped by capacity. You just have more ability to fulfill demand? But, and I’m wondering how you would marry that with what you’re seeing from retailers and perhaps even the consumer and how you’re seeing the consumers respond to existing Halloween, how you think about Seasons in 2024? Thanks.
Michele Buck: Yes. So we think our Seasons business will be very solid in 2024. One of the key things to anticipating the next year is always realizing what your sell-through is on each current year season. So we need to get through Halloween to see what that sell-through turns out to be. We have, as mentioned earlier, a few more days about a week that we need to be able to look at that and then obviously have strong sell-through in holiday. So we need those data points, but we feel good based on where we are to date, but we’ll have a better feel afterwards. The other thing that will impact 2024 is there will be a shorter Easter depending on where the date falls. And this year, Easter in 2024, I think, is March 29. So it’s on the shorter side, which creates a shorter season and a little bit of pressure perspective, it just won’t be as large as in years with a long season.
David Palmer: Thank you.
Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.
Alexia Howard: Good morning, everyone.
Michele Buck: Good morning.
Alexia Howard: Hi. So I guess two questions. The short-term one is really about market share trends. I know that they’ve been weak in chocolate in the U.S. recently. I think the hope was that against an easy comp on Halloween that things might start to turn the corner sooner rather than later. But do you think we’re going to have to wait until the beginning of next year to really see that improvement with improved innovation? And then I have a follow-up.
Michele Buck: So from a short-term perspective, to-date, our data suggests we are winning share of Halloween. So we are pleased with that and feeling good about that. As it relates to the everyday business, there we will need to wait until 2024 to see improvement, driven by some of our stronger innovation that will really help the everyday business.
Alexia Howard: Great. Thank you. And then on the follow-up, the GLP-1 question, which we’re all chatting about out here. I know it’s too early to tell how big it’s going to get probably not having a big impact today because there’s, too few U.S. adults on these drugs right now. But today, how do you plan for different scenarios on that. Obviously, adult consumption versus kids is going to be different, low sugar versus full sugar items portion control. How are you thinking about planning for that scenario as it unfolds given that it’s early days. Thank you.
Michele Buck: Yes, absolutely. I mean I think you’ve captured it correctly. It certainly is very early days. We don’t believe the GLP-1s are having a material impact on our business at this point in time. And I think we all know there’s a lot of data coming out. There’s still so many unknowns regarding the rate of adoption the impact on food choices, the medium- to longer-term impacts on consumers, and we’re doing more work constantly to understand those future potential impacts on our categories. We have a robust planning and forecasting process, and we try and factor in all of those consumer behavior changes that we’re observing, inclusive of GLP-1s and thinking through all of those right strategies that will be important for us if they do increase in adoption.
One thing we feel particularly good of is the emotional nature of our categories and our brands and the role that they play in moments of celebration, Joy as you think about the Seasons but we will continue to adapt our portfolio as we have over time to make sure that we are providing consumers with what they’re looking for, whether it’s the products, the ingredients, the innovation, certainly, there are opportunities around portion size and pack type. And I think a lot of companies have been focused on that as you think about the potential impact of GLP-1s. And then certainly, we’re always looking at opportunistic M&A as well as we have in the past.
