In This Article:
Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
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The Hershey Co (NYSE:HSY) reported strong category growth for both Confection and Salty Snacks, outperforming broader food and snack category trends in Q1.
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Successful seasonal performance with Valentine's category growth up 6.5% and strong share gains during the Easter season, marking 4 consecutive periods of seasonal market share gains.
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Launch of innovative products like Reese's Caramel, which is the #1 innovation in the category this year, and the introduction of new Summer Seasonal Shape, Reese's Medals, in alignment with the Olympics.
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Successful ERP system implementation with SAP S/4HANA went live in Q1 across U.S., Canadian, and select international markets, enhancing end-to-end connectivity and efficiency.
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Robust advertising and marketing efforts, with a 12% increase in related spend in Q1, supporting brand strength and consumer engagement.
Negative Points
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Continued volatility in the cocoa market, impacting costs and requiring careful management of supply chain and pricing strategies.
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Planned declines in Mexico due to exiting the beverage business and softness in India impacting International segment performance.
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High cocoa prices expected to drive inflation in 2025, with potential impacts on financial scenarios still being evaluated.
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Gross margin pressures anticipated to continue, with full year declines expected around 200 basis points due to cocoa and sugar inflation.
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Challenges in the North America Salty Snacks segment with expected declines in SkinnyPop due to broader category weakness.
Q & A Highlights
Q: Can you discuss the impact of the new ERP system on Hershey's operations? A: Michele Gross Buck, Chairman, President & CEO - The new ERP system, specifically SAP S/4HANA, went live successfully in the U.S., Canada, and select international markets. It has enhanced end-to-end connectivity and efficiency across the organization, with all systems back online and a controlled ramp-up of end-to-end processes. This implementation has allowed for successful order taking, manufacturing, shipping, and invoicing with minimal market disruption, thanks to strong planning and customer partnerships.
Q: What are the financial expectations for Hershey following the ERP implementation and the inventory adjustments made in Q1? A: Steven E. Voskuil, Senior VP & CFO - The first quarter showed a net sales growth of 8.9%, boosted by inventory adjustments linked to the ERP implementation. This growth is expected to normalize in Q2 as inventory levels adjust. The full year net sales growth outlook remains at 2% to 3%, with no change to the full year EPS outlook, expected to align with the previous year.