Hershey : 2-4-21 Q&A Transcript.pdf

The Hershey Company

Fourth Quarter 2020 Earnings Q&A Session

February 4, 2021

The Hershey Company - Fourth Quarter 2020 Earnings Q&A Session, February 4, 2021

C O R P O R A T E P A R T I C I P A N T S

Melissa Poole, Vice President, Investor Relations

Michele Buck, Chairman of the Board, President and Chief Executive Officer

Steven Voskuil, Senior Vice President and Chief Financial Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Nik Modi, RBC Capital Markets

Ken Goldman, JPMorgan

Andrew Lazar, Barclays

Robert Moskow, Credit Suisse

Alexia Howard, Sanford C. Bernstein & Co., LLC

Michael Lavery, Piper Sandler

David Palmer, Evercore ISI

John Baumgartner, Wells Fargo

Chris Growe, Stifel Nicolaus

Jason English, Goldman Sachs

Bryan Spillane, Bank of America Merrill Lynch

Ken Zaslow, BMO Capital Markets

Rob Dickerson, Jefferies

P R E S E N T A T I O N

Operator

Greetings, and welcome to The Hershey Company Fourth Quarter 2020 Question and Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded.

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The Hershey Company - Fourth Quarter 2020 Earnings Q&A Session, February 4, 2021

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

Thank you. Good morning, everyone. Thank you for joining us today for The Hershey Company's Fourth Quarter 2020 Earnings Q&A session.

I hope everyone has had the chance to read our press release and listen to our pre-recorded Management presentation, 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, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially from those projected as a result of the COVID-19 pandemic, as well as other factors. 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.

Operator

Thank you. Our first question is from Nik Modi with RBC Capital Markets. Please proceed with your question.

Nik Modi

Yes, hi, good morning, everyone. Happy New Year. A couple questions. First, on just trade spend and just thinking about-you know, obviously, things have been pulled back quite dramatically in 2020, and as we think about 2021, I'm just curious, in terms of your discussions with retailers, how you're talking about trade spending. One of the things that we've been looking at is kind of this reset of price sensitivity, given that no promotions have effectively been in the market for the past nine to ten months, so just wanted to get your thoughts on that.

Then, the other question is just if you can give us kind of a roundup of the innovation program that has already been announced, just so we can get a sense for the program in 2021. Thanks.

Michele Buck

Sure. Relative to trade spending and promotion, we didn't have any meaningful shifts in promotion activity. Our levels for the year were pretty consistent with prior year, so we were basically flat. The IRI data will support that, so I think there's a little bit of a disconnect in the Nielsen data. So, we don't really expect any material changes as we go into next year, as well.

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The Hershey Company - Fourth Quarter 2020 Earnings Q&A Session, February 4, 2021

Then, as you look at innovation, certainly, I think some of the bigger items-we have, Kit Kat flavor, which has done exceptionally well for Kit Kat on a global basis. We have the stuffed Reese's products and our Reese's innovation tends to also always be quite strong for us. We have a permissible line of products to really address that benefit of better-for-you, that we are underdeveloped in across our portfolio, and that will include Kit Kat Thins, which is an addition to what has been an already launch of a successful platform with Reese's Thins. We are also relaunching our sugar-free line to zero sugar, really focusing on Hershey and Reese's, and launching Hershey and Reese's organic products. Those are the highlights for the year, and I would say, overall, if you look at our innovation, the level of innovation is about comparable to prior year.

Nik Modi

Excellent. Thanks, Michele. I'll pass it on.

Operator

The next question is from the line of Ken Goldman with JPMorgan. Please proceed with your question.

Ken Goldman

Hi, good morning, and thank you. Two for me, if I can. First, I wanted to ask about the early holiday shipments that benefited 4Q. Obviously, I think, over the 4Q/1Q '21 period, it's, overall, a big benefit to you, so I don't think of it as early shipments, but I am curious, how do we look at the potential for a difficult comparison in 4Q '21, or should we expect maybe some of these additional orders that you receive this year to kind of revert to normal if your competitors are maybe better able to fill demand going forward.

Michele Buck

Ken, if you think about the Easter that we'll be shipping for in Q4, that 2022 Easter happens to be one of those incredibly long Easters. Typically, we tend to ship a bit more in the Q4 prior to a long Easter, so we don't expect that there's going to be a material difference from a year-to-year basis because of that.

Ken Goldman

Thank you. Then, just for my follow-up, your commentary on cocoa butter costs was, I think, more constructive than some observers maybe expected, which is great, but I'm hoping you can expand on that a bit, and maybe this is for Steve, just how do we think about your all-in COGS inflation this year versus 2020.

Steven Voskuil

Sure. Yes, I'm happy to take that one. Clearly, on an all-in basis, facing more inflation this year than last year. As you know, we've got a hedging program, which means that some of the cocoa impact as the LID flows through, and we have some longer term contracts on things like freight and warehousing. With that said, neither hedging nor contracting is going to fully cover the exposure that we have in inflation. If I take freight as an example, we look at things like demand planning and how important that is, and to the extent our plans deviate from the way the volume comes in and having to go to the spot market, for example, where we have less cover, there's some risk there. So, net/net more inflation. We've got a pretty good level of cover, and that's included inside of our guidance, but we're not fully covered, either, on the commodity side or outside of commodities.

Ken Goldman

Great. Thanks so much.

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ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

1-888-562-02621-604-929-1352www.viavid.com