Hershey Q1 2023 Earnings Call Transcript

Participants

Corporate Executives

• Melissa Poole, Vice President of Investor Relations
• Michele Buck, Chairman of the Board, President and Chief Executive Officer
• Steve Voskuil, Senior Vice President and Chief Financial Officer

Analysts

• Andrew Lazar, Barclays PLC
• Ken Goldman, JPMorgan Chase & Co.
• Cody Ross, UBS Group AG
• Nik Modi, RBC
• Pamela Kaufman, Morgan Stanley
• David Palmer, Evercore ISI
• Max Gumport, BNP Paribas
• Bryan Spillane, Bank of America Co.
• Michael Lavery, Piper Sandler Companies
• Rob Dickerson, Jefferies Financial Group Inc.
• Jonathan Feeney, Consumer Edge
• John Baumgartner, Mizuho Securities USA
• Jason English, The Goldman Sachs Group, Inc.
• Chris Carey, Wells Fargo Securities

Presentation

[Operator]

Greetings and welcome to The Hershey Company First Quarter 2023 Question-and-Answer Session. [Operator Instructions] 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 First Quarter 2023 Earnings Q&A Session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, 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. 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]

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

[Andrew Lazar, Analyst at Barclays]

Great. Thanks so much. Good morning, everybody.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Good morning.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Good morning.

[Andrew Lazar, Analyst at Barclays]

Good morning. Just first off, I wanted to ask a little bit about the guidance update on the top line. The Company beat by a few points on the top line in the quarter, but when we take out the earlier summer shipments, which is really just timing, I guess, results on organic were only slightly ahead of the Street view, but Hershey raised its sales growth guidance to the high end of the previous range for the full year. So I guess my question is, what are you seeing at this stage that gave you the confidence to shift the top line guidance the way you did?

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. Thank you, Andrew. Yes. You're exactly right. For the first quarter, the timing impact was about half of the -- half the beat on the sales line and also strong performance in international. So those were the two big drivers. As we look to the balance of the year, obviously, the timing is going wash out in the second quarter. But we do expect to see a little bit better elasticities in the year-to-go period. We still see it moderating versus some of the strong performance we've seen in the last six to nine months, but a little bit more improving, and we're based that a little bit more on media investment that we also have incrementally in the year-to-go plan. So between, I'll say, with the strength we saw in the international business, what we're seeing on the back of improved elasticity a little bit in the year-to-go period. That's what gives us the confidence in the raise.

[Andrew Lazar, Analyst at Barclays]

Great. Thanks for that. And then with the pull forward of some shipments from 2Q into 1Q, along with the tougher, I guess, year ago organic sales and EPS growth comparisons in 2Q, I guess, what are some of the key puts and takes to keep in mind when we're modeling for 2Q? Thanks so much.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. Q2 will be -- probably our most challenging quarter as I look to the balance of the year. We're going to have the timing piece shift back out, but then also recall last year with a big inventory tilt quarter as well. And so when you look at the lap, it's a pretty tough lap. That combined with that a point and a half coming out, we'll put more to the mid-single-digit range probably from a sales standpoint and that will put more pressure on the EPS side than the rest of the quarters.

[Andrew Lazar, Analyst at Barclays]

Great. Thanks so much.

[Operator]

Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.

[Ken Goldman, Analyst at JPMorgan Chase & Co.]

Two questions on capacity, if I could. First, I think your prior guidance, if I had it down right, was for five new lines to come on this year. I think you're calling for four now. So Am I reading that wrong or was one delayed?

And then I'm also curious to learn a little bit more about the Weaver acquisitions, just in terms of how they may help you down the road in terms of added capacity or efficiency, obviously, bringing plants in-house is generally a good thing for efficiency, but just in light of the fact that they already did make product for you. Just trying to get a little bit of a better sense of some of the benefits down the road for you. Thank you.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Sure. So there is no change to the number of lines. There are five lines. And I think there's 1 that we just didn't specifically call out in our remarks. So no difference there.

Relative to Weaver, we feel very good about the acquisition. We were manufacturing is currently a command [Phonetic] of SkinnyPop. We acquired two plants and really what it gives us -- or three things that gives us sufficient capacity to be able to support growth for several years to come. And as you know, we're seeing very strong growth on SkinnyPop. It provides us with resiliency and also flexibility just so that we can continue to support the strong growth that we are seeing.

As you know, as you look across our business, for strategic categories and businesses that we are in. We do like to have at least some degree of owned manufacturing across our network. And we also feel pretty good about the investment return at the investment that we made, we believe given the quality of the assets, the fact the facilities are on the newer side that it is faster and cheaper than if we needed to build this on our own.

[Ken Goldman, Analyst at JPMorgan Chase & Co.]

Thank you.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Sure.

[Operator]

Our next question comes from the line of Cody Ross with UBS. Please proceed with your question.

[Cody Ross, Analyst at UBS Group]

Good morning. Thank you for taking a question. You're implementing a high single-digit price increase on 50% of your confection portfolio effective at the end of May. I believe that's correct. That's what you announced at the Analyst Day. How much do you believe will benefit fiscal '23 versus fiscal '24? And can you explain the mechanics of the benefit by the year?

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. At a high level, it's going to have, as we talked about in the investor conference, more impact in '24 than it is in '23. That's based on partly the implementation date and then also the fact that we have protection in place for big promotions and programming for a good part of the year. And we're still working with retailers on the implementation. And so, all of that will continue. I think by the time we get to the mid-year mark, we'll probably have more visibility, both on the balance of '23 and '24 impact. So we'll be able to talk more about it at that time.

[Cody Ross, Analyst at UBS Group]

Great. And then just a quick question on gross margin. Your gross margin came in higher than both years than the Street's expectation this quarter. You raised your outlook to expansion of 70 to 80 basis points for the year. What gives you confidence to raise your outlook this early in the year, especially in context of your retail partners who are struggling to expand gross margin this year based on their guidance? Thank you.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. Thank you. Yes, it is early in the year. I think in general, we probably wouldn't look at raising our guidance top line or bottom line this early in the year. On the gross margin side, though, a couple of things. One is, clearly, we have some commodities that are getting more expensive. And so cocoa and sugar in particular, are moving in the wrong direction. We have a few smaller non-hedged ingredients that are a little bit more favorable right now than they were. Time will tell whether that's going to be able to stick around. But probably the biggest piece has been just freight and logistics improvements and if you recall, last year at this time, when we did the call, that was one of the big, I'll say, surprises on the downside was increases in freight and logistics costs. And for the first quarter, at least, we saw some improvement in that, both on our supply chain, but also contracted support for getting trucks to show up for appointments and freight costs and go forth.

So those are really the drivers in the first quarter that we've captured in the outlook. Time will tell as the year goes on how the rest plays out. But that's what gives us the confidence is really just the first quarter performance.

[Cody Ross, Analyst at UBS Group]

Thank you very much. I'll pass it along.

[Operator]

Our next question comes from the line of Nik Modi with RBC. Please proceed with your question.

[Nik Modi, Analyst at RBC]

Yes. Thank you. Good morning, everyone. So just a quick clarification. Hey, good morning. On international, I saw the comment you put in the prepared remarks. But maybe any more context on exactly some of the specific initiatives outside of a recovery in travel I'm just curious on. There was a very strong number relative to expectations.

And then, if you could just touch on the market share commentary you made in the U.S., kind of what's driving some of that? You talked about the mix, but I was kind of unclear exactly what that was referencing.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Yes. I mean if we look at the initiatives in international, we've seen category strength across the markets. We saw a stronger Easter season in Brazil than we had anticipated. We continue to see distribution gains in Mexico and also in India. So, across the board some strength there. We do expect some moderation going forward, because we have some pretty strong laps. But our demand has really remained pretty -- pretty resilient.

And then, we're also seeing some impacts from timing as, if you may recall in Q4, consumer demand outpaced our shipments and we've recovered some of that in the first quarter. And can you repeat your share question one more time?

[Nik Modi, Analyst at RBC]

Yes. I was just -- Michelle, I was just hoping you could provide some context on the U.S. share commentary you had in the prepared remarks and the press release? You had referenced I think in the prepared remarks, mix was a driver and I was just unclear. But if you could just provide any context on some of the market share trends that you are seeing?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Yes. Absolutely. So we definitely -- if we look at Easter, we had some impact from supply constraints. We anticipate by Halloween and holiday, those will be behind us. But that impact -- impacted us. And then also, we've continued to see very strong growth in sweets and then also that rebound of refreshments from some of the weaker trends in that post-COVID type of the year. So really mix as an impact.

[Nik Modi, Analyst at RBC]

Great. Thank you. I'll pass it on.

[Operator]

Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your question.

[Pamela Kaufman, Analyst at Morgan Stanley]

Hi, good morning.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Good morning.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Good morning.

[Pamela Kaufman, Analyst at Morgan Stanley]

I was hoping that you could talk kind of generally about what you're seeing in the consumer demand environment? You've seen strong volumes despite strong pricing growth. So how are you thinking about the consumer and elasticities over the course of the year?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

So, I'll start by talking a little bit about the trends and I'll let Steve talk about elasticities. Certainly, consumer behavior continues to evolve and we know that many consumers have made changes to their spending to respond to inflation in the marketplace. We certainly continue to see that food has performed well compared to other categories, specifically food at home as it's a much more affordable option for consumers versus dining out. And we also know snacks and candy continue to perform even better than broader food and elasticities in those categories have continued to remain pretty strong. And we do expect that we'll continue to see strength in those elasticities.

We know the consumers are being increasingly mindful about where they shop. They are looking for more affordable options, whether it is the channels in which they are shopping, whether it's private label, whether it is deals and increased promotion. And we are constantly carefully monitoring those trends, just to make sure that our media and our in-store activations are really optimized, so that we can align to the trends that we're seeing.

Steve, do you want to talk a little bit about elasticity?

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. On the elasticity side, we touched on this a little bit in the first question. We still expect elasticity to moderate as the year goes on, but in our outlook now a little bit less severely than we did in our original plan. And we'll see how the year plays out. But that's our current assumption.

[Pamela Kaufman, Analyst at Morgan Stanley]

Okay. Thank you. And my second question is just on the ERP implementation within snacks. Can you touch on what benefits you expect to realize from it? And what impact is factored into your guidance for this year from the ERP implementation?

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Sure. So we have -- we have the impact of the transition on the ERP baked into the guidance. We've profiled that out across the quarters including some inventory build in advance of the changeover and then the changeover itself in the back half of the year.

In terms of benefits, it's a critical ingredient to driving efficient scale across that businesses. We touched on that a bit in our investor conferences. Well, one of our goals is to drive scaled efficiency on all parts of that business on the front-end, the supply chain side, and so forth. And this system is important to get them on the same system the rest of the Company will operate on, so we can operate the back office efficiently, we can operate the front-end efficiently, have more inventory visibility, better planning capability. And so -- so it is the integral. We're excited about it. Everything to date is on track and we'll look forward to getting that behind us later this year.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

And Pam, I think we did on the last call, we might have called out the impact. It's about a half a point headwind for us for the full year related to that transition all focused in the fourth quarter results.

[Pamela Kaufman, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.

[David Palmer, Analyst at Evercore ISI]

Thanks. Good morning.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Good morning.

[David Palmer, Analyst at Evercore ISI]

In your prepared remarks, you mentioned -- good morning. You mentioned that you'll be in a strong position to fully support consumer demand for the rest of '23. I wonder if you could give some color about that. It's obviously ahead of some of that 5% increase in production that you're expecting to add. So is that the COVID era issues with labor constraints in your supply chain? Is that the upstream suppliers coming through? And I have a quick follow-up.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Yes. I mean, I would say, the recovery that we anticipate is really driven by the increasing Investments that we've continued to make over the past several years in capacity. Obviously, some of them take some time to be able to get equipment, get it up and running, etc. And so, that's the point at which we believe we start to get ahead. So I think we've pretty consistently talked about end of '23 and '24, that we anticipate being beyond many of these supply issues.

But yes, I would say, predominantly, they've been focused on capacity. Certainly, in the early years, there were some other industry dynamics, as well.

[Melissa Poole, Vice President of Investor Relations at Hershey]

And Dave, I'm not sure maybe your question, the 5%, just to clarify, that is actually that's a pound number not a sales number. I mean, we were clear enough in the remark. So that -- that 5% growth in production pounds will be well ahead of what the guidance calls for volume and that's kind of how we catch up.

[David Palmer, Analyst at Evercore ISI]

Got it. And in that capacity that you're ramping up with the three new Reese's plants and the one new Hershey plant, will that be more than the 5% into '24? Because it's ramping through the year. I am wondering what's the impact of capacity increases for 2024 do you think?

[Melissa Poole, Vice President of Investor Relations at Hershey]

There will be a carryover into '24 from those as well as some additional capacity expansions that we have coming online. So there will be a low single-digit increase in pounds production available next year as well from some carryover and some new initiatives.

[David Palmer, Analyst at Evercore ISI]

Thank you very much.

[Operator]

Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question.

[Max Gumport, Analyst at BNP Paribas]

Hey. Thanks for the question. I was hoping you could give us an update on what you're seeing with regard to the retailer pricing environment. It feels like we're seeing more headlines in the media talking about retailers pushing back specifically against packaged food manufacturers, but we're continuing to see companies like yourself getting strong pricing through in quarterly results. So just hoping you can give us some color on this debate that seems to be emerging. Thanks.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

So we always partner very closely with our retail customers to try and do what we believe is best to meet consumer demand and also to drive category growth, which is good for both of us. So we continue to have very collaborative discussions with our retailers relative to our pricing implementations, which also includes a lot of discussion about -- with the right plans to have business reinvestment that will enable the support of very strong unit conversion.

[Max Gumport, Analyst at BNP Paribas]

Thanks. And one follow-up on gross margin. I realized it's early in the year and that taking up guidance is a bit unusual and it speaks to the confidence you have in your outlook. But one question I'm getting is that, if we look at your gross margin result in the first quarter and think about what your guidance implies for the remainder of the year, it seems like it would imply some sequential step down in the gross margins through the year even after taking into account some seasonality. And so, I'm just curious what type of factors might be going into -- into those assumptions there? Thanks.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. The big -- I think the biggest factor is it is still early in the year. So we still have a lot to play out and so we're certainly taking stock of the upsides that we saw in the first quarter. But we're still being cautious also on what is to come in or the world has changed a lot over these quarters. There is still a lot of volatility potentially ahead. And so, we're factoring that. And then also, as we go forward, particularly in Q4 the laps get tougher. And so, that's the other factor weighing in the guidance.

[Max Gumport, Analyst at BNP Paribas]

Thanks very much.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Thank you.

[Operator]

Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question.

[Bryan Spillane, Analyst at Bank of America]

Hey, thanks, operator. Good morning, everybody. I just wanted to ask a question about seasonals, you talked about the -- what part of what impacted market share on seasonals in the first quarter was capacity constraints. And I think, right, we've talked about more capacity available for seasonals as we move through the year. So if can you just kind of talk about that and how that sets up for especially the fall or the third and fourth quarter? And whether you feel like you'll be adequately supplied with seasonal products there?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Yes. Sure. So, absolutely. We believe that with the additional supply that we have ramping up as we go through the year, that we will be in good shape to have a very solid plan to meet Halloween and holiday demand. So some of the issues that we encountered during Easter we should be passed in the back half.

[Bryan Spillane, Analyst at Bank of America]

Okay. Thank you.

[Operator]

Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

[Michael Lavery, Analyst at Piper Sandler Companies]

Thank you. Good morning. In the press release, you had mentioned just the ability to sustain momentum into 2024 and beyond, obviously, it's early. But just kind of caught my eye that you would call that out, what are you seeing that would you drive a reference that come up that far ahead and how much color can you give on how you're thinking about 2024 right now?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

I mean we're not going to give a lot of -- we are not really going to talk about 2024 I mean, at the very high level, I'll talk a little bit about the consumer piece and Steve can talk about the P&L component. But we feel good about the momentum that we're seeing on the business, certainly in terms of consumers engagement with the category, a lot of the underlying consumer behaviors that we're seeing sustain which continue to support performance. We're continuing to see good response to the investments that we're making in media behind the business across all parts, really. I mean CMG, as well as our salty [Phonetic] brands where we're just getting started on some of the investments in salty.

And certainly, as we saw in the first quarter, strong momentum in international. So right now, we don't see any big signals that suggest to us any big hurdles on the top line.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. I would agree. I just point to, as Michelle said, capacity -- having capacity available as we exit the year to be a little bit more on the gaps from that standpoint versus some of the limits we've had in the last couple of years the salty aspirations that we have talked a lot about that at the conference coming off of the back of the ERP and rolling into next year, we're excited about that. And then the commercial capabilities that we talked more about at the conference as well, that being able to help drive sustainable growth in the U.S. business in particular. So, those are just some of the reasons that I think we feel pretty good about the momentum.

[Michael Lavery, Analyst at Piper Sandler Companies]

No. That's helpful color. Thank you. And just a follow-up on that, we got to see Dot's at the Investor Day obviously, and just curious, if you have a sense of how big a lift do you think that can drive and maybe specifically at least what's factored into your thinking and guidance around that. And just sort of -- we've already seen obviously a very strong momentum there. How much further can it go? And then what's some of how you think about your expectations?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

I would say it's too early. We've just started the support on air. We feel very good about all the work that we've done in terms of understanding the Dot's consumer and the consumer's relationship with Dot's. And so we feel good about the messaging direction, the creative execution and certainly, it's scored incredibly well, and the responsiveness that we tend to see across our snacking categories with advertising investments. So more to come, and we'll share more as we have actual in-market results on that. But we think that will clearly only help us given that we haven't been investing in that brand in the past.

[Michael Lavery, Analyst at Piper Sandler Companies]

Okay, great. Thanks so much.

[Operator]

Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question

[Rob Dickerson, Analyst at Jefferies Financial Group]

All right, great. Thanks so much. Just two kind of easy questions. The first is just in international, obviously impressive on the volume side, but really don't see any incremental pricing year-over-year. So I am just curious, I mean, clearly, it's intentional just kind of curious as to why that's intentional why we're not seeing much pricing in international that's kind of given the cost complex and kind of what you've been able to push through in the U.S.? And then I have a quick follow-up.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Sure. We are pursuing a price strategy in international. It's just more modest of what we're seeing so far, and it's offset by some of the other laps that we had in the quarter. They are having some impact on how much of that price is coming through. But we should see more price come through in the next three quarters.

[Rob Dickerson, Analyst at Jefferies Financial Group]

Okay, fair enough. And then just quickly back to you Steve too, buying the incremental popcorn facilities, which I get, but clearly not that much cash out lay -- cash outlay for those facilities and if we think -- kind of think about where the top line probably headed into '24 and capex gets a little bit better next year, margins seem decent, there should be a step up in free cash flow while the balance sheet is strong. So I know you kind of always reiterate kind of your standard issue capital deployment priorities, but would you say kind of at this point given all the capex that's being spent on the -- on the new facilities starting the new lines and then the recent -- the acquisition of the new popcorn facilities, they kind of broadly speaking you feel like you're probably in a pretty good spot in terms of kind of what you need to grow. And therefore, is there a possibility for, let's say other cash deployment whether be it around the dividend or buyback or what have you? Thanks.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Sure. Yes, great question. So the -- we do -- the short answer is, yes, we do feel good with that additional capacity in place or coming in place for the Weaver acquisition will be very helpful to support the growth of that business for a time to come. And I also like the fact that we're buying well-maintained state-of-the-art manufacturing facilities. While we're not doing that, it's still much more capital efficient than building from whole cloth. And so it is capital efficient to pick up assets this way as well. So as we look to the future, I feel good about the capacity that we're going to have installed on both the confection business and the salty business and that will have an impact on free cash flow as we look to the future.

[Rob Dickerson, Analyst at Jefferies Financial Group]

Alright. Fair enough. Thank you.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Thank you.

[Operator]

Our next question comes from the line of Jonathan Feeney with Consumer Edge. Please proceed with your question.

[Jonathan Feeney, Analyst at Consumer Edge]

Thanks very much. Could you comment on the role of say, not just recent distribution growth, but distribution growth over the last 12 to 18 months in the salty snack business driving that really outsized volume growth? Because, I guess, I'm trying to understand how when you take these products whether it's Dot's most recently or others into new markets, is there a necessary decay curve like, you have all this renovation to Hershey capabilities and then that kind of seasons and it slows down. What data or insight can you offer to help us understand that and may be if you think about what a sustainable organic volume growth looks like for salty snack going forward? Thanks.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Yes, absolutely. So clearly, distribution is job one when we buy a business like this. I mean, that's one of our key strengths and we want to fully utilize it. So on Dot's in particular, there were really opportunities to kind of fill in on distribution. Previously, they really didn't have a very large Walmart business, and they were underdeveloped in the Northeast. So that's been a big area of focus, and that certainly has driven -- has been a key driver of the business, but we've also seen increases in velocity at the same time, given the very strong repeat potential that we see from consumers behind this product.

Then as you think about the growth trajectory over time, I would kind of describe it as it basically will evolve in terms of what the drivers are. So as we fill out the distribution we start to really employ our category management capability relative to optimizing the shelf. As you saw in March, we then start to apply our media capability with advertising behind the brand to really increase awareness and household penetration. And then beyond that, the other kind of key focus is relative to price pack architecture and other drivers.

So I think where we'll see the revenue coming from, it will continue, but we will apply the other capabilities we have to really generate that. And as we mentioned at Investor Day, we do anticipate seeing growth in that 15% kind of range for the next few years. And then -- but a deceleration from the 20-plus percent that we've seen more recently.

[Jonathan Feeney, Analyst at Consumer Edge]

Thank you very much. Much.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Thank you.

[Operator]

Our next question comes from the line of John Baumgartner with Mizuho Securities USA. Please proceed with your question.

[John Baumgartner, Analyst at Mizuho Securities USA]

Good morning. Thanks for the question.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Good morning.

[John Baumgartner, Analyst at Mizuho Securities USA]

Maybe just building on Jon's question, Michelle sticking with the -- the salty snacks distribution. And another focus here is building availability in mass and grocery, but the ACV opportunity seems pretty significant in C stores, as well.

Are there any considerations whether it's dislodging competitors or the routes to market, in the DSD [phonetic] model given the velocities that didn't make the path to building ACV in C-stores a bit slower for these categories. Just how are you thinking about closing that distribution gap in C-stores over time? Thank you.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Well, C-store is really a core capability for the Company for our base core CMG business. So certainly we realized its importance in reaching certain specific consumers and really certain specific occasions when consumers are out and about. So it is a priority for us. We have been focused on that. I think in SkinnyPop, we are certainly making progress. But there's more opportunity to go. And so, it'll remain a focus for us going forward.

I don't know if I'd say that there is any key barrier. Certainly, there are folks who have DSD capability more broadly. But we've done a good job with our CMG business, where we don't have it building distribution in convenience stores. So we feel very good about that.

And then across our salty snacks network, we do have both warehouse and DSD capability. And we're really working right now to optimize how we best utilize each to maximize the potential of the business.

[John Baumgartner, Analyst at Mizuho Securities USA]

Okay. And then in terms of the popcorn assets that you're acquiring, in addition to just the pure growth in volume capacity, is there anything augments your capabilities whether it's pack size or anything else in terms of opportunities there?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Yes. And beyond just the capacity and one of the things that gives us the opportunity to optimize the supply chain network more, broadly. So if you think to the future, other assets are potentially coming in, if you think about some of the strategies we talked about around price pack architecture, and being able to make sure we have the right packs and mixes to support the business going forward. So by having all of that in our hands, in our control, just gives us more flexibility and agility to deliver that growth plan.

[Melissa Poole, Vice President of Investor Relations at Hershey]

Yes. And as I mentioned earlier, we do have that gives capacity ahead of demand. So it gives us that trajectory for the next few years.

[John Baumgartner, Analyst at Mizuho Securities USA]

Thanks, Michelle. Thanks, Steve.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Thank you.

[Operator]

Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.

[Jason English, a at Hershey]

Hey, good morning, folks. Thanks for swapping me in.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Good morning.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Good morning.

[Jason English, a at Hershey]

A couple of -- a couple of quick questions. So Colgate just recently did something similar in the past, we would think of going out and buying some capacity. When that came into the floor, there was a lot of other products that was making it created some margin torsions [phonetic] near term. Is there anything to be aware of like anything similar on that front with the Weaver acquisition?

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

No, I mean, the bulk of the capacity is ready-to-eat popcorn. So it didn't really come with a big negative overhang.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

That's right.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

Other than that there will be excess unused capacity for a while, so that there's some fixed overhead there.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. Some fixed overhead and some transition cost that would be normal. But not a portfolio overhang like you're referencing, Jason.

[Jason English, a at Hershey]

Good to know. Thanks for that. And then, bigger picture question, you've got -- as you mentioned elasticity has been very low. That's not a Hershey comment or even a confection comment, the industry comment because we have a hell lot of cross-price left, if you ever moving the same direction, it sounds like in '24, you're kind of -- have to kind of break from the past and push through quite a bit of pricing that it's why we're not expecting a lot from the industry at large.

So how are you managing these cross-price elasticities? Which category should we be watching, where you tend to see switching between confection? And I'll leave it there.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Yes. I would say, first of all, it's a little early yet to be starting to think about the cross elasticity for '24. But you're right. We're trying to think ahead in terms of the pricing strategy. We're also watching the commodity space like we talked about earlier and some of the upward movements on cocoa and sugar. And so, I think that's getting us in a good starting position. But then what happens to the other categories and peers is all yet to be seen. And we'll be able to communicate more on that, obviously as you probably turn the corner and get to the back half. But Melissa do you want to add?

[Melissa Poole, Vice President of Investor Relations at Hershey]

Yes. The one piece I might add is just, ours is a kind of come through a little bit slower and more elongated because of the timing it takes for us to implement particularly with seasons. So, kind of, as we think about '24 pricing, we won't have an outsized price gap versus kind of pre-pandemic levels versus a lot of our competition. As you see many of them are posting high teens or 20% pricing versus up at 10%.

So some of those, just ours is a little bit more spread out. But we will certainly be watching it very closely and particularly within snacking to look at where the share of stomach is going and how those cross elasticities progress.

[Jason English, a at Hershey]

Yes. That's a good point. Thanks a lot. I'll pass it on.

[Operator]

Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.

[Chris Carey, Analyst at Wells Fargo Securities]

Hi. Good morning. Thanks for the question. I just have a question on confection margins, very strong in the quarter even despite a tough year-ago compare, pricing is clearly building. How should we be thinking about confection margins not just this year, but certainly over time, as it seems like which coming through very strongly with pricing and cost perhaps are easing. And so, again, just your trajectory of confection margins would be helpful. And I think you had mentioned some inflation in cocoa and sugar, just remind us of your duration on those hedges and when we might be seeing that inflation coming through and just so we can kind of assess when the pricing might be needed to offset it. Thanks so much.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Sure, I'll take the last piece first. Just on cocoa and sugar we don't get specific on the duration of our hedging programs, obviously, for those two commodities we do some hedging. But we don't share the duration. We do expect to see potentially more impact in '24 than '23. But we'll see how the markets play out.

On pricing and just more generally as we talked about at the investor conference, our goal is to always have a mix of volume and price. That's part of the balance in our growth formula and as part of that, we also want to see margin accretion over time from both sources. And so, confection margins have been strong, but even in the future, across all levers, pricing, including price-packed architecture and mix, and other things, we want to continue to put upward pressure on our margins because that's part of our growth formula, so.

[Michele Buck, Chairman of the Board, President and Chief Executive Officer at Hershey]

And we continue to see some of our inputs rise, cocoa and sugar recently, which is one of the reasons that we decided to lean into that more recent pricing action.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

That's right.

[Chris Carey, Analyst at Wells Fargo Securities]

Okay. That's it for me. Thanks so much.

[Steve Voskuil, Senior Vice President and Chief Financial Officer at Hershey]

Thank you.

[Operator]

We have reached the end of the question and answer session. I'll now turn the call back over to Melissa Poole for closing remarks.

[Melissa Poole, Vice President of Investor Relations at Hershey]

Yes. Thanks so much for joining us this morning and all the great questions and the continued interest and investment in our Company. So I'll be available today and in the coming weeks to answer any additional follow-ups you may have. Thanks so much. Have a great day.

[Operator]

[Operator Closing Remarks]