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Hershey(HSY) - 2025 Q2 - Earnings Call Transcript
2025-07-30 12:02
Financial Data and Key Metrics Changes - The company reported a 26% increase in net sales compared to the same period last year, with organic constant currency net sales growth of 26.3% driven by net price realization of approximately five points and volume growth of approximately 21 points [26] - Adjusted gross margin decreased by five to ten basis points to 38.1% due to commodity inflation and incremental tariff expenses, although gross margin was higher than expected due to timing of cocoa hedges and lower tariff expenses [30][37] - Adjusted earnings per share declined by 4.7% year over year, impacted by incremental commodity costs and a higher tax rate [34] Business Line Data and Key Metrics Changes - North America Confectionery segment net sales grew by 32%, with volume increasing by 25%, benefiting from Easter timing and inventory changes related to ERP system implementation [27] - North America Salty Snacks segment net sales increased by 8.8%, with volume growth of over 4% driven by brands like Dots and Skinny Pop [28] - The International segment saw a 4.4% increase in net sales, but volume growth was below expectations due to category softness in Mexico and lower export demand [29] Market Data and Key Metrics Changes - Hershey's U.S. retail sales for candy, mint, and gum increased by 21.8%, outpacing the category growth of 17.9% [8] - The company gained approximately 90 basis points in market share, with everyday chocolate retail takeaway accelerating to 6.7% [9] - In the International segment, constant currency net sales increased double digits in Brazil, while growth in Europe was mid-single digits, led by the U.K. [18] Company Strategy and Development Direction - The company aims to be a leading snacking powerhouse, with a focus on balanced growth and mitigating cocoa inflation through productivity and strategic pricing [7][19] - Hershey announced a new price action on its U.S. Confection portfolio, which represents roughly 80% of total net sales, expected to deliver an estimated 16 points of pricing contribution [23] - The company is implementing a Smart Complexity initiative to simplify packaging and optimize manufacturing efficiency, raising its savings target to $400 million [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying trajectory of the business, expecting robust results to continue in the second half of the year [19] - The company anticipates adjusted earnings per share to decline between 36% and 38% for the year, reflecting higher cocoa costs and tariff expenses [37] - Management remains hopeful for improvements in tariff conditions over time, although no relief is planned for 2025 [36] Other Important Information - The company announced the appointment of Kirk Tanner as the new President and CEO, effective August 18, following Michele Buck's retirement [5][6] - Hershey's advertising and related consumer marketing expenses increased by 35.5% in the second quarter, reflecting the timing of expenses in prior years [30] - Capital expenditures for the second quarter were $231 million, with full-year expectations between $425 million and $450 million [34] Q&A Session Summary Question: What are the expectations for cocoa prices and inflation? - Management indicated that cocoa prices remain volatile and elevated, with expectations of inflation in cocoa input costs year over year in 2026 [20][21] Question: How is the company addressing tariff impacts? - The company has embedded incremental tariff costs in its full-year outlook and is taking steps to mitigate tariff exposures over time [36] Question: What is the outlook for the International segment? - The full-year constant currency segment net sales growth outlook for the International segment remains low single digits, with expectations for reacceleration in the second half [18]