S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Is Gold Really Boring? (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Is Gold Really Boring? (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Is Gold Really Boring? (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Is Gold Really Boring? (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Hunting for Domestic Vanadium - The U.S. Govt. Did WHAT? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales

Hershey Q2 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing View Latest SEC 10-Q Filing

Participants

Presentation

Operator

Greetings, and welcome to The Hershey Company Second Quarter 2022 Question-and-Answer Session. At this time, all participants are on 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
Vice President of Investor Relations at Hershey

Good morning, everyone. Thank you for joining us today for The Hershey Company's second quarter 2022 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 pre-reported remarks. At the conclusion of today's live Q&A session, we will also locate 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 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.


Questions and Answers

Operator

Thank you. We'll now be conducting the question-and-answer session. [Operator Instructions] Thank you. Our first question is from Andrew Lazar with Barclays. Please proceed with your question.

Andrew Lazar
Analyst at Barclays

Great. Thanks so much. Good morning everybody.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Good morning.

Andrew Lazar
Analyst at Barclays

As you discussed in the prepared remarks, inventory refill has certainly been nicely additive to volume growth through the first half of the year. Where do you think retailers are at this stage? And how much more of a benefit, I guess, can this be in the second half from the prepared remarks, if I'm reading it right, it seems to suggest maybe the bulk of that inventory refill is behind you at this point and maybe no longer enough to necessarily offset what volume elasticity you are seeing? So just some clarity there would be helpful.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Yeah, that's exactly right, Andrew. We saw a pretty strong inventory replenishment in the second quarter as we commented. A portion of that was a pull-forward from the second half, so really a timing move. So as we look at the back half, we're really not seeing any additional meaningful inventory replenishment in the second half guidance.

Andrew Lazar
Analyst at Barclays

Right. And then sort of following on that, I guess, as you and others slowly start to get back to a better inventory position and some of the supply constraints slowly ease. I guess, not surprisingly, we're starting to hear from, I think from Hershey and others that they'll be in a better position, maybe for the first time in a while, right, to begin to kind of ramp back up merchandising activity to drive volume and traffic. And I can understand why in this environment, some might simply see that as retailer concessions, given all the pricing that's come through in the industry and with commodities starting to roll over. I assume you see this as more getting back to maybe a more normal cadence of spending and really looking just to drive volumes and traffic and protect elasticity's that I still think can be, in many cases, incremental to the business, but I was hoping, Michelle, you could kind of comment a little bit on that, if you could. Thank you so much.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Yeah, absolutely. As we have always talked about our investment model or our model and running the businesses, we strongly believe in investing to drive the top line and with our strong margins that enables us on the bottom line. So we always want to be spending to the consumer advertising our brands, having the right levels of promotion, the right levels of innovation.

And as we mentioned earlier, given some of those supply constraints, we did have to pull off on that a bit just because it didn't make sense to make those investments given some of those constraints. But we very much look forward to re-upping the investments as we look at the second half. We have always planned an increase both in DMEs as well as incremental merchandising coming back online.

Andrew Lazar
Analyst at Barclays

Thank you.

Operator

Thank you. Our next Alexia Howard with Bernstein. Please proceed with your question.

Alexia Howard
Analyst at Sanford C. Bernstein

Good morning, everyone.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Hi, Alexia.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Good morning.

Alexia Howard
Analyst at Sanford C. Bernstein

Hi there. So can I ask about the -- you talked about the general supply chain disruption that you're still experiencing. Can you talk about exactly where the pain points are? And I'm thinking across raw materials, packaging, labor, where are the things that you're really wrestling with at the moment? And are you seeing light at the end of the tunnel at this point? It sounds as though things are getting a little easier. And then I have a follow-up.

Michele Buck
Chairman & Chief Executive Officer at Hershey

I mean I'd say, generally, we continue to see struggles across the supply chain. How I'd characterize it is what those are have evolved. So where we are now, I would say, early on, it was some of the basic logistics issues largely driven by labor. And as we've evolved, I'd say, we're now starting to see bigger concerns relative to scarcity of ingredients, needing to leverage different suppliers at higher costs and price points in order to secure production and then also the geopolitical environment has put certain strains on the business.

Certainly, the Ukraine-Russia issue created some scarcity and issue with ingredients. And more recently, there have been additional restrictions from Russia on the EU relative to natural gas. Germany will be impacted. That's an area where we source a lot of equipment, supplies, as do many of our suppliers. So I would say that that's kind of evolved.

Steve, would you add anything to that?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

The only thing I would add is that we're also starting to see more cost flow through from third parties, so co-packers, co-manufacturers, and those -- a lot of those are under contract, and so it happens as those contracts renew but they're facing the same cost pressures and disruptions that we're facing. And so we're starting to see more of that impact the P&L as well.

Michele Buck
Chairman & Chief Executive Officer at Hershey

I guess I'd also just add, we have made significant progress in investments in capacity, significant investments. And so part of our short-term pain was once you make those investments, it takes some time to get them up and running to get to the lines actually in place. And so part of some of the relief we're seeing is the gradual coming online of those capabilities as well, which is helpful.

Alexia Howard
Analyst at Sanford C. Bernstein

That's super helpful. Thank you so much for all the color there. And just as a follow-up, how big is India these days. You called it out in the prepared remarks, I haven't seen much news on India for a while. And I'm just wondering, how do you avoid the same problems coming up that you had in China several years ago? I know you've moved -- backed off from China and doing it more arm's length these days, why is India a different market? Why can that work over the longer term? Thank you and I'll pass it on.

Michele Buck
Chairman & Chief Executive Officer at Hershey

India is still relatively very small for us, growing high double digits. But back when we really made our decisions on China and India, for me, the key difference in India is the cost of doing business in that market is very different. So media costs, labor costs. And so in both markets, we thought we had the potential to drive top line. But as we really did assessment and looked at the NPV of our investment, India is a market that we feel good about our prospects of getting to profitable growth. Frankly, we're already in a place that we like relative to where gross margins are on that business, very different than where we ever were in China.

Alexia Howard
Analyst at Sanford C. Bernstein

Great. Thank you very much. I'll pass it on. I appreciate the color. Thank you.

Operator

Thank you. Our next question is from Robert Moskow with Credit Suisse. Please proceed with your question.

Robert Moskow
Analyst at Credit Suisse Group

Hi, Michele. Hi, Steve.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Hi.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Good morning.

Robert Moskow
Analyst at Credit Suisse Group

Good morning. I thought the comments about 2023 were pretty encouraging, albeit at a pretty early stage. You said that you expect your pricing actions to be partially offset by high single-digit inflation and then you also have productivity. So is that -- do you expect the pricing lap to offset inflation, cost inflation in 2023 because you've had lags in 2022. So I guess that's a positive.

And then maybe you could talk about the advertising increase that you're thinking you need to do. How much of that is just restoring what's lagged so far? And how do you think about how much investment is needed?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Sure. Yeah. I mean, for 2023, we're still talking at a pretty high level. We'll get a lot more fine-tuned as we get through the third quarter and get more picture for next year. But we are seeing high single-digit price is the expectation to come through. Volume wise, we'll watch and see how consumers be able to know more about elasticity's as we come out of this year.

And as you said, overall inflation, we're still seeing high single digits. When you peel into that, we'll have some -- I expect some commodity impact still as we'll be rolling off to more favorable hedges into hedges that were struck at prices that look more like recent times. We still see logistics and third-party cost impacts in there. And I think it's too soon yet to say whether the price is going to fully offset all of those inflationary impacts, we'll know more again as we get through the third quarter towards the end of the year. But we do want to increase advertising and we called that out in the remarks. We see that growing faster than the rate of sales.

And as you said, it's really, as Michele said minutes ago, making sure that we continue to reinvest in brands, reinvest in consumers and have a healthy level of investment once we have supportability.

Robert Moskow
Analyst at Credit Suisse Group

Okay. Did you say that, Steve, that you expect your pricing to be up high single digit next year because of the flow-through?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

That's correct.

Robert Moskow
Analyst at Credit Suisse Group

Okay, all right. Thank you.

Michele Buck
Chairman & Chief Executive Officer at Hershey

You bet.

Operator

Thank you. Our next question is from Ken Goldman with JPMorgan. Please proceed with your question.

Ken Goldman
Analyst at JPMorgan Chase & Co.

Hi, thank you. One quick one and then a longer one on Halloween. I just wanted to get a sense, if possible, for the North America salty snacks business, the margin going forward. We've seen some volatility there. Just wanted to kind of get a sense for how to model that in the next couple of quarters, given some of the cloudiness we have in our model or at least our model on that one?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Sure. I'd be happy to take that one. So as you saw in Q2 looks a lot like Q1. We continue to see higher raw material costs and logistics costs that for these two quarters are more than offsetting the price that we've taken so far. That said, we've announced more price increase in the second quarter. So as we roll forward through the next two quarters, we do expect to see some stability and relief there. We're also going to begin to lap in the back half some of the higher logistics costs that we've been talking about. And so that will provide a little bit of relief there as well.

And then longer term, as we talked about on last quarter's call, we continue to advance the structural changes that we need to do for that division. So things like setting up or formalizing the supply chain, some of the back-office efficiencies that we need to put in place. And longer term, that will drive more structural improvement. But right now, it's kind of fighting the balance between pricing and inflation and commodities costs.

Ken Goldman
Analyst at JPMorgan Chase & Co.

Thank you for that. And then I wanted to ask about Halloween. It's early to be precise, but you guided to high single-digit sales growth. And you said that part of the reason is you're still capacity constrained, I was a little curious why the guidance wasn't higher. Maybe it's just -- there was a very difficult comp or you're facing a difficult comp from last year. Maybe it's just a little bit of conservatism because it's still early. But I would have expected maybe capacity to be less of an issue just given how important the holiday is. And maybe you could be rather in an all hands-on deck mode right and producing as much seasonal candy as possible. But maybe that's just an overly simplistic view of your supply chain. But I was just curious why that guidance wasn't a little bit higher?

Michele Buck
Chairman & Chief Executive Officer at Hershey

So Ken, as we look at the business, we had a strategy of prioritizing every day on-shelf availability. It was a tough decision to balance that with the seasons, but we thought that was really important. And so that was a choice that we needed to make. We had opportunity to deliver more Halloween, but we weren't able to supply that. And we were really producing.

We began producing Halloween back in the spring. And that's really when we needed to make these key decisions on what we were going to produce, so tough trade out to make. We feel really good about having high single-digit growth, but we also feel good about as we get into the future being able to have more capacity to really fulfill more of the demand that we see during the season.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

It's definitely all hands on deck. You make mistake.

Ken Goldman
Analyst at JPMorgan Chase & Co.

Understood. Thank you so much.

Operator

Thank you. Our next question is from Jason English with Goldman Sachs. Please proceed with your question.

Jason English
Analyst at The Goldman Sachs Group

Hi, good morning folks. Thanks for letting me in.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Hi, Jason.

Jason English
Analyst at The Goldman Sachs Group

I guess I want to start on capacity because there's a little bit of conflicting messages here. I think on one side, you've got enough capacity to be refilling retailer inventory levels. But on the other side, you don't have enough capacity to meet demand for some products. Can you help me put those two conflicting things and also give me a little bit better understanding of where the bottlenecks are, and what the pathway and time line is to relieve those bottlenecks?

Michele Buck
Chairman & Chief Executive Officer at Hershey

Yeah. So capacity is constrained, but obviously in certain parts of the portfolio, more than others. So there are certain places we have no constraints and there are other places that we are more constrained. We've shared previously that Reese's is one of the areas where we have seen high double-digit growth for extended periods of time. It's our very largest brand. So that's certainly been a pressure point. And then there are a few other places that have been pressure points and where we've needed to make trade-offs in order to prioritize some parts of the portfolio.

So we continue to work through a capacity investment plan to address where the soft areas are and bring capacity online. So that might be part of the mixed messaging is there are certain places we're not constrained others that we are.

Refreshment specifically Icebreakers Mint is one area where we had some production difficulties as we ramped production back up after the COVID softness. And so that's one place as well that we're continuing to work to get more supply available. Does that help?

Jason English
Analyst at The Goldman Sachs Group

It does. It doesn't shed a lot of light on when you think the issues will be behind you, but it certainly helps in understanding where the issues are.

Michele Buck
Chairman & Chief Executive Officer at Hershey

So as we get through the issues, I would say we're making -- I would characterize it as gradual improvement. Certainly, we are, I would say, quite constrained this year. We see that gradually improving as we get through 2023. And as we get to 2024, we feel much better about our ability to be able to fully meet demand. So that's how I would characterize it.

Steve, anything...

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Yeah, just the color around in the last three years, we've invested on the order of $800 million on capacity mostly in the core. And so we've got 13 new lines in place coming online. We've refurbished 11 and so as Michele said, over the next year or two, we're going to start to see more significant capacity available.

Michele Buck
Chairman & Chief Executive Officer at Hershey

If it helps. The investments that we made will result in about a 15% increase in our internal volume production capability. That should allow us to catch up but also to deliver some of that future growth.

Jason English
Analyst at The Goldman Sachs Group

For sure. That's helpful. And I want to come back to Rob Moskow's question real quick. It was -- I was surprised that you were offering color on 2023 this early? It's uncharacteristic of you. And it begs the question of why? I guess Rob showed one interpretation of, hey, like you have inflation, but your price above it. Don't worry gross margins are weak now, but they'll come back to growth next year. I guess, it's one way to interpret it.

The other is your emphasis on we're going to lean into spending next year, so don't get out over your tips in terms of how much margin flow through is going to drop to the bottom line. Which were those two interpretations do you think we should be leaning towards?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

I would just say it's still pretty early. We're trying to just give some broad movements on the top line and inflation. That's really the part that we could share. I say we're learning more every month and quarter that goes by, we'll have a lot more to share as we get to the end of the year. So really not trying to get ahead of our skis just extending some of the color we see right now.

Michele Buck
Chairman & Chief Executive Officer at Hershey

And Jason, if I would just add a little bit was just related to some of the pricing that's in the marketplace and expecting to come, trying to put that in perspective around how much 2023 factored into that choice and just trying to make sure that everybody was understanding some of the inflation that we see coming in 2023 to help put some of that pricing in perspective as well.

Jason English
Analyst at The Goldman Sachs Group

For sure, for sure. Thank you.

Operator

Thank you. Our next question is from Bryan Spillane with Bank of America. Please proceed with your question.

Bryan Spillane
Analyst at Bank of America

Thanks, operator. Good morning, everyone.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Good morning.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Hi, Bryan.

Bryan Spillane
Analyst at Bank of America

Just wanted to follow-up on, I guess, the -- just the commentary around inflation. And I guess two things, Steve. One, you mentioned -- it's been mentioned in the call that there's some of the pressure is like scarcity of ingredients, and it's more than just like market-based type things, right? So I guess what I was trying to understand is just how much of the increase in COGS that you're experiencing now as maybe a more permanent shift? And how much of it is still a function of just the current environment, and maybe there will be some relief like disinflation at some point in time?

So just trying to understand how much do you think is really just, hey, look, this is now our kind of permanently rebased higher costs, or is there -- or do you think some of this could be more variable and you get some disinflation in the future?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Yeah. So it's a really good question, and it's hard to answer that one with precision as you look at all the moving pieces there are clearly some that we would see as temporary. The scarcity issues, hopefully, some of the commodities pressures that are being influenced by the events in Eastern Europe, things like that.

On the other side, we've seen more labor inflation and other things that could prove to be more structural. And so again, as we get to the end of the year, and we get some guidance for next year, I'll probably give some more color on that. But it is a mix. Some are temporary and some at least have the potential to be longer lasting.

That said, we also focus on productivity and continuous improvement every year and extend the goal of that program is to be able to more than offset over time some of those structural costs. And so that also has to continue to advance.

Bryan Spillane
Analyst at Bank of America

Right, right, right. Okay. All right. That's all I had. Thank you.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Thanks.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Thank you.

Operator

Thank you. Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question.

Michael Lavery
Analyst at Piper Sandler Companies

Thank you. Good morning.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Good morning.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Morning.

Michael Lavery
Analyst at Piper Sandler Companies

I just wanted to come back to Dot's, which obviously is up very strongly. I would love to understand a little bit more some of the dynamics there. How much is distribution driven? And maybe more importantly, how much distribution upside runway do you still have left?

Michele Buck
Chairman & Chief Executive Officer at Hershey

Sure. So we are absolutely very pleased with Dot's performance in the marketplace and the momentum that we see. I think what we're really happy about is we continue to gain distribution, but we are maintaining our velocities as we continue to broaden reach. And that can be a challenge to do as you continue to broaden reach into sometimes some of the smaller accounts. So all the trends are in line with our expectations. Retail sales growing about 50% over the past 12 weeks, share up about 370 basis points.

We are right now lapping some large distribution increases from prior year. So we do expect to see a little bit of softening in trend as we overlap that, but we do have continued distribution upside as we took over the business, the distribution was really concentrated primarily in the center of the country and the West. And we're really still filling out the East and importantly, just making sure that we have the right placement in stores and then, of course, beginning to actually market and drive consumer messaging to the brand, which we help think will further drive upside in velocities.

Michael Lavery
Analyst at Piper Sandler Companies

Okay. That's helpful. Thank you. And just a quick follow-up on the pricing, I know you've said you've got at least most if maybe not all of it that's announced. Is there any of that's sort of TBD or to be negotiated, or is it all locked and loaded and just a question of on the cloud ready to go out the door?

Michele Buck
Chairman & Chief Executive Officer at Hershey

Our recent announced pricing action is being executed. It is going as planned, and we're starting to see some of the new retails in the market already. We feel good that we really took a consumer focused approach for the right retail price points, and we're also beginning to reset some of the promotional points.

So overall, the prices are moving in line with our recommendations and our expected ranges. And we are pleased about that as we want to really move ahead with further investments in the business and capacity and consumer spending, new capabilities and the right programming and all of this will allow us to do that to drive profitable category growth.

Michael Lavery
Analyst at Piper Sandler Companies

Okay, great. Thanks so much.

Operator

Thank you. Our next question is from Chris Growe with Stifel. Please proceed with your question.

Chris Growe
Analyst at Stifel Nicolaus

Thank you. Good morning.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Good morning.

Chris Growe
Analyst at Stifel Nicolaus

Good morning. I just had a question first on your -- the recent price increases you put into place in particular, across confectionery. I guess, to understand, I guess you see very little of that coming through this year. It would seem like some would come through but very little. And then just to what degree that's caused you to build in a higher degree of elasticity into your second half assumption? I just want to get a better feel for that.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Sure. Yeah. I mean it's right. Most of it will impact next year. We will get a benefit in the fourth quarter. But even a portion of that benefit, we're reinvesting in -- with the trade and to drive merchandising and so forth. But most of it will impact next year.

In terms of elasticity assumptions, we do have in the back half in elasticity that is a little bit better than what we've seen historically, but a little bit worse than what we saw in the first half. It actually looks a lot like the second quarter, if you adjusted for the volume replenishment, that level of elasticity is the assumption for the back half. And then, of course, the range on guidance kind of goes up and down from there.

Chris Growe
Analyst at Stifel Nicolaus

Okay. And then one related question to that would be, do you expect pricing to sequentially accelerate in the second quarter -- I'm sorry, in the third quarter from the second quarter or maybe more Q4 with the confectionery pricing coming through? And then do you believe you can grow volume in the second half of the year? You've had some really strong volume trends to date.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Yeah. So we don't see sequential improvement in the third quarter. We do in the fourth quarter, and that's when we'll see the beginning effects of the price increase. And we don't expect to see volume growth. Again, with that elasticity impact defined with the pull forward of the inventory replenishment from the second half into the second quarter.

Chris Growe
Analyst at Stifel Nicolaus

Got it. That's all I have. Thanks so much.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Thank you.

Operator

Thank you. Our next question is from Cody Ross with UBS. Please proceed with your question.

Simon Negin
Analyst at UBS Group

Good morning. This is Simon Negin filling in for Cody Ross. Could you give some additional detail into the delays in capacity coming online next year? Is this only impacting lease? And how much of an impact is expected?

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

The -- so most of the capacity that will be coming online is focused on the core Reese's one significant component of that. I don't think we're going to be specific about exactly how much is coming on when, but that is the focus of the capacity.

Simon Negin
Analyst at UBS Group

Got you. And just one smaller question. Obviously, dots is demonstrating incredible growth largely distribution gains. Moving forward, do you expect a change in consumer's trialing new brands and products when budgets are squeezed more in this environment, perhaps sticking to what they're comfortable with?

Michele Buck
Chairman & Chief Executive Officer at Hershey

It's a good question. I think across snacking, what we tend to see is consumers very much like their brands. So if you look across total food, as budgets are tighter, certainly, private label brands have grown share versus with across snacking, private label has not and consumers tend to like their brands. So I think that consumers will continue to try new brands, given that they have a real focus on brands within snacking. So we will closely monitor that. But at this point, we haven't seen any concerns around the slowdown in trial as a result of that.

Simon Negin
Analyst at UBS Group

Great. Thanks so much.

Operator

Thank you. Our next question is from Jonathan Feeney with Consumer Edge. Please proceed with your question.

Jonathan Feeney
Analyst at Consumer Edge

Good morning. Thanks for taking the question. And great quarter. As far as pricing over the next 6 to 12 months, assuming we have, if we did have a moderating cost environment, how you lived through a lot of ups and downs in cost in this business. How do the -- if there's been so much conversation, so much acceleration in pricing, much of that headline cost driven. How does it work -- if -- what changes about the conversation if costs move sharply in the other direction? Like they did in grains, for example, at least so far, off their peak? If costs moderate, how do you handle that? Do people -- does it typically play out that it's increased promotion? Do you see decreased list prices, or do you see no impact in just a significant increase in gross margin? Thanks.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Yeah. I mean our focus is always on driving profitable category growth and looking at how we can invest to do so. We have a deep list of investment priorities and growth driving opportunities and so we believe that this enables us to really invest to unlock whether that is in capacity, whether that is in the right consumer marketing support, whether that is in more impactful promotions, investments in innovation, technology, et cetera. So, we like to invest back in the business. And I would say that's the overall approach and strategy that we take.

Jonathan Feeney
Analyst at Consumer Edge

Okay. Thank you.

Steve Voskuil
Senior Vice President & Chief Financial Officer at Hershey

Thank you.

Operator

Thank you. There are no further questions at this time. I would like to pass the floor back over to Michele Buck for any closing comments.

Michele Buck
Chairman & Chief Executive Officer at Hershey

Thank you very much for your time today. We appreciate all the questions, and I know that many of you will have follow-ups with Melissa throughout the day. So thanks.

Operator

[Operator Closing Remarks]

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