The Hershey Company (HSY) Earnings Call Transcript & Summary

All right. Hey, good morning, everyone. Welcome. So happy to have you here, especially knowing I know it's a very crazy market, and you guys all have a lot of other things in your mind. So we don't take it lightly that you are here with us today. So happy to have you. I'm going to get a few quick things out of the way. We have a packed agenda. Our favorite slide, we will have to make forward-looking statements this morning. Please keep that in mind. For those of you online, we have a couple of instructions coming up for you. We have a session from 9 to 11. That's going to be this one. For those of you in person, we'll have some stuff after lunch, and we'll give you a little bit more guidance on what to do and how to kind of operate in your groups for that session. But we're going to really focus the agenda on things that are top of mind. For all of you today our strategies for the next couple of years, where we're investing a lot of money. Thank you for those of you who kind of gave feedback for what you want to hear this morning from us. So we hope we have an agenda that you will leave and be excited and have a lot of your questions answered. So we'll go a little deep on the U.S. Confection business, Salty Snacks and Supply Chain. We're going to touch quickly on International and ESG and then certainly touch on our financial outlook and our capital allocation priorities before we open it up for Q&A. There are Q&A opportunities for those of you online, please feel free to type them in at any time. We'll be keeping an eye on those. For those of you in the room, there's Wi-Fi passwords there. On the back of the WiFi passwords there is a QRC code. If you guys want to scan that, we're going to have 2 chances for you guys to actually participate in the event. If you want to get to that in advance, go ahead and do that now, that might save us some time later. And for those of you online, in that Q&A section, you will see a spot for you to go there as well. So that's coming up in a little bit, but if you want to kind of get yourself ready for that. I think that's all we needed to take care of. So I'm happy to introduce our Chairman and CEO, Michele Buck, to kick us off this morning. [Presentation]

So good morning, everyone. I hope that you all had fun last night and a productive afternoon yesterday afternoon. I am delighted to have the opportunity to share with you our enterprise ambition and the strategies that we are confident will continue our momentum and continue our ability to deliver differentiated results. Much has changed since many of us were together in New York City back in March of 2017. However, many things also remain the same. Who we are here at Hershey [indiscernible]. We have delicious products that consumers love with iconic brands that they are emotionally connected to. We have competitively advantaged capabilities, including things like our retail sales teams that some of you got a chance to experience yesterday, our media targeting capabilities that you'll get a chance to see today and many more. We have people who are committed to excellence and importantly, they're also committed to achieving it in the right way. We have the financial capacity to be able to invest and, at the same time, deliver for our shareholders. And importantly, all of this is further fueled by a mindset of never being satisfied, not resting on our laurels, a restless ambition to be the best, to constantly look back and figure out how we can elevate and transform, to plan for the future while delivering today. When I took over 6 years ago, it was my vision to harness the unique culture, the passion and the commitment, the amazing assets and capabilities that we have here at Hershey, and importantly, to also embrace and enable transformation, transformation that could make us even stronger and set us up for continued future success that would set us up to do more. So how did we want to do more? Well, as we shared with you back then, we wanted to expand our offering of snacks. Broadening, so that we could capture even more snacking occasions. We wanted to take our already strong capabilities and take them further to the next level. We wanted to improve and enhance our employee value proposition so that we could unleash the full potential of our great people. We had always had the history of working closely with our retail partners, and we wanted to continue to evolve to meet their ever-changing needs. We wanted to advance our ESG agenda. And lastly, but importantly, we wanted to deliver even stronger returns for our investors. I think we've made great progress. We've significantly accelerated topline growth on U.S. Confection, with a 5-year CAGR of about 5%. We built e-commerce capabilities and a nice e-commerce business. We transitioned to pricing as a strategic growth driver. We transformed our portfolio, taking our International business from losing $100 million to making $100 million, a 27-point swing in segment margin. And we forever changed our portfolio footprint, building a snacking business that today comprises 10% of total company sales, with high-growth power brands that are leaders in their respective segments. We improved our already strong media capabilities with more sophisticated targeting that led to big increases in ROI. And lastly, we did a lot of work to execute to build more capacity to service very strong demand. I believe success starts with the right portfolio. And today, we have one of the strongest and most robust snacking portfolios in the market. We have continued to consistently outperform the market with sales growth nearly 2x that of our peers and differentiated earnings nearly 3x the growth rate of our peers. And that has led to leading performance of our stock, doubling our share price and doubling our market cap. Past couple of days, we closed at $50 billion in market cap. And that's over the past 6 years. So I know all of that is great, but what you all want to know is what are we going to do going forward? And I'm pleased to tell you that we know what it takes to continue our momentum, and we are committed to delivering it. We want the best portfolio of products that consumers love. We want to continue to lead in our categories and expand and elevate our leadership position, leading not only in performance, but also in thought leadership because thought leadership is what will lead to sustainable leadership and make us an indispensable partner to our retail partners and also for consumers. We are going to continue to invest differentially in brands and capabilities because that's what enables our future. Talent is everything. We want to be the #1 CPG company to work for so we can attract and retain the best talent. And lastly, all of this will enable us to continue delivering differentiated results ahead of our peers. Our goal is sustainable top tier performance. I believe we are well positioned to deliver on that ambition. Our fundamental strength and advantaged foundation is further bolstered by some unique transformational strengths. We have the financial capacity to invest in transformation. We have a unique culture, and we have great people who are capable of both executing and transforming to unlock new growth opportunities. To achieve our vision, our portfolio strategies remain the same. We want to continue to be the undisputed leader in CMG and drive category growth. On salty, we want to continue the great topline momentum that we've had and scale our business. We want to continue with focused, profitable international growth and use M&A for growth to capture incremental consumers and incremental snacking occasions. While our portfolio strategies remain, we will be evolving and transforming in other ways. We will focus on advancing and elevating our commercial capabilities to take them to the next level to garner even better insights and efficiencies, and we will also seize business model transformation opportunities where they can help us to deliver our next phase of profitable growth. As we look at supply chain, we'll be continuing to focus on expanding our network at the same time, building in flexibility and adaptability and making decisions to build the resilience of our network in these difficult supply chain global environment times. On ESG, we will focus on the most material issues and continue to embed ESG in everything we do in our day-to-day business operations. As it goes to salty, we want to continue the tremendous topline growth that we've had, but at the same time, scale our business, integrate and optimize our business model to drive margin expansion. And business and workforce planning is all about the opportunity for us to step back and think differently about how we can work even more efficiently. Let's dig in a bit further on each of our strategies. Our portfolio starts with tremendous balance and that's a great opportunity. It's balanced across pallets, channels, markets and occasions. So whether it is a scale Reese brand or a targeted better-for-you offering, whether a chocolate on-the-go product that is purchased for hunger satisfaction or a seasonal offering shared by a family during one of their favorite seasonal traditions, our portfolio diversification is a key strength. Within our portfolio, in confection, we'll continue to drive our leadership on chocolate. We will work to expand our presence in the fast-growing suite segment, and we'll continue to build a better-for-you platform. The key drivers of our business will be price realization, optimized brand investment, consumer occasion-based marketing and innovation. On our salty business, we have an opportunity to continue to drive and increase household penetration and expand to new occasions. Our key drivers will be augmented brand investment, price pack architecture and expanded availability of our products. At the same time, we'll be working to optimize our business model to drive margin expansion. And lastly, on International, we'll continue on our path for focused international profitable book growth. M&A has been important to our business to date, and it will continue to be going forward. And there's no change to our strategy. We are focused on on-trend categories, high-growth scale brands, businesses that can give us access to new consumers or new snacking occasions and strong gross margins to fit our business model of being able to invest and reinvest in brands to drive further growth and profitability. And while our primary focus is on buying brands, as you saw in the case with our Dot's and Pretzels acquisition, we will pursue capacity assets where they enable us to capture more growth. So let's dig a bit into some of the commercial capabilities. There are really 3 key areas of focus for here. And this is all about us leveraging data and technology to take our capabilities to the next level. The first area of focus is holistic commercial investment. And what that is all about is an ability for us to be able to optimize across the buckets of price, trade and media as opposed to within their respective silos. Integrated business planning is about automating our processes and adding more variables to improve forecast accuracy. This will also enable us to seamlessly connect our whole process all the way from procurement through manufacturing, to retail, to the end consumer. Agile supply chain, we're going to talk a bit more about in a few moments. But again, it's about building the capacity to support the great growth that we're seeing, building resilience into our network and, at the same time, building in the flexibility to be able to better adapt to ever-changing consumer and customer needs. New technology, enhanced processes and elevated talent will be critical to delivering against these capabilities. Finally, investments in data, technology and automation present to us enterprise-wide opportunity to simplify and digitize our processes. This will enable our teams to focus on the most value-added work, and it will also create savings to be able to be reinvested in the business. This will also require some different talent and skills than we have had or needed in the past. And we have an agenda and are focused right now on already building against those. We've done significant work advancing our career development planning program and to ensure that we continue to be one of the best developers of talent in the market because we know it will be critical to have a very strong and diverse pipeline of talent to deliver against our very ambitious goals. So in summary, we are confident and committed to the strategies we have going forward. We are confident that they will continue our momentum and enable us to continue to deliver differentiated results. So relative to today, thank you so much for providing feedback as we reached out. We wanted to make sure that our time with you was really valuable and that we focused a lot of your time here in terms of what were some of the key priorities and topics on your mind. So thanks to all of you who forward some of those in, we have crafted our agenda around that, and we hope that it is really helpful for you. So here's a little bit about our lineup for the day. We're going to start off covering the U.S. Confection business, to talk more about our growth strategies, and what we're seeing in terms of consumer behavior. We'll then go over to Kristen Riggs who's President of our salty business and we'll share our growth strategies and also our plans to go after margin expansion. Will Bonifant will talk about our capital investment going forward and where we are in that journey. We'll briefly touch on International and ESG, and we'll wrap it up with Steve to do our financial outlook and talk about capital allocation priorities. And then we will close with Q&A. So let me introduce Chuck Raup. He is currently the President of our U.S. Confection business, and previously, Chuck was the VP of Marketing for our U.S. business. Chuck has been the architect of a lot of the growth strategies that have accelerated our momentum on the U.S. Confection business. Chuck?

Thanks, Michele. Hi, everyone. As Michele said, I'm Chuck Raup and I'm the President of our U.S. Confection business. For my background, I've been with the company about 14 years, and I've been in this role for about 3.5 years. Now in addition to the things Michele mentioned, there's another important fact that I want to call out. I have 2 young sons, both of whom were born at Hershey Medical Center. They're 12 years old and 8 years old. The oldest is named Heath, like our candy bar. The youngest is Graham like the cracker you put in a s'more. So my family is certainly an all-in Hershey family. Now I'm going to talk to you guys about really 3 things today. First, are the -- is the advantaged business model that has delivered U.S. Confection leadership. The second are the strategies that will enable us to advance that business model. And then third are the positive consumer trends that will enable future growth for both the category and Hershey. So confection leadership is foundational to our enterprise growth. And as we look at our leadership position, it's strong. If you look at our CMG share, we're at a 31%. Now where that leaves us is 5 share points ahead of the next leading competitor and 20 share points ahead of the third place player. Additionally, despite having such a strong leadership share, we have been able to continue to grow our share position. And in fact, over these last 3 years, we've grown about 60 basis points, while our top 5 competitors have declined. As we look at the business model that delivered this confection leadership, we see it's a nice combination of topline growth and margin expansion. The topline growth has been driven by strong net price realization and also volume growth. Now the volume growth has been driven by really having a focus on winning consumer occasions. And an example of the programming that we are executing to capture those occasions is going on actually right now with our Reese's NCAA program. Okay. And what that does is it takes advantage of this increasing consumer trend and desire to spend more time with family and friends and connect watching things like college sports. The thing that I'll also offer you guys is if any of you have a bracket that looks like mine, eat a couple of Reese and you'll feel much better. As we look at the segment -- excuse me, the margin growth, that's really been driven by a few things. That net price realization, also a focus on lean manufacturing and investment in efficient manufacturing assets and also trade optimization. Now as we look at this model moving forward, we plan to deliver low single digit topline growth driven by that net price realization. There's also continued volume growth. Now important point to note is we're not just focused on the occasions where we're strong. We're also pushing into some other areas where that offer even higher growth such as sweets and better-for-you. The margin expansion will be driven by several things. First, strategic revenue growth management, and that will encompass things like net price realization or list price actions, price pack architecture, trade optimization and also, as Michele discussed, holistic customer investment. We'll also be getting greater fixed asset leverage as we continue to grow our topline. And then we also are very focused on continuing to advance our manufacturing capabilities and technologies, and you'll hear a little bit more about that in just a few minutes. And then for media, we're continually pushing ourselves to really be on that cutting edge and continue to update the way we do things. And so an example of the capability we're delivering there is our Hershey Intelligence Engine. Now what the intelligence engine is, it's a proprietary database that enables us to identify the highest value consumers to target through things like confection purchase behavior. We're also able to use this tool to get a more real-time readout on the way our marketing is resonating with our consumers and make adjustments much more frequently. Now we have this strong business model, but we have to continue to push ourselves to evolve to meet a changing environment. And there's really 4 areas that we've dialed in on over the last few years. The first is innovation and how we used to look at innovation was more of a mass model with high capital investment, and we kind of treated our -- all of our innovations the same. Now we've gone to a segmented model where we're much more fit for purpose, and we also are more -- we placed a greater emphasis on expanding occasions. And so how that works, for example, is that in that strategic innovation bucket, we'll have product innovation and also pack type innovation to drive that occasion penetration and some examples are our THiNS launch, which pushed our core portfolio into BFY. And then importantly, pack types like our fridge pack that's taking advantage of greater in-home eatings, and also our Super King, which takes advantage of on-the-go sharing occasions. Another area where we've really focused on is pricing. And in this case, we've evolved the way that we look at pricing. Going from a more reactive to cost environment to a more proactive strategic approach to pricing that not only helps us cover costs, but also helps us to use pricing as a way to grow our topline and very importantly, generate funds to invest back in the business. Importantly, we've also added price pack architecture as a key lever in our pricing strategies. Now as we look at omnichannel, we've made great strides here. And if you look back just a few years, it was less than 1% of our business. And now we've taken into greater than 5% and some of our key customers, it's about double that. And really, what we've done here to grow in omnichannels is to look at the holistic shopper experience with -- along with our key customers. And so key areas here are things like winning the total shelf. So we no longer just look at a brick-and-mortar shelf and then you have some virtual shelf. We take a look and we make sure we have the right packs, the right prices across the entire shelf, and we make sure that we're winning a share of that -- the shelf in total. Additionally, we've done things like optimize our search capability. So our products show up on that critical first page. And then we're -- very importantly, we're a thought leader with our key customers for designing the shopping experience of the future, and this is really huge. An example of this would be designing the front end to the future. So if you think about the rise of self-checkout and dynamics like that, we're partnering to understand what that front end has to look like, what snacking has to look like and what confection has to look like to make sure that we continue to grow. And then finally, there's our media. And simply put, we've moved from more of a mass TV-grounded model to being very digitally forward. And so 70% of our media spend is now digital. And that enables us to deliver better targeted, more compelling content to our consumers. Now as we look to grow, there are a few really positive consumer trends that bode well for the category and for Hershey. First, there's the explosion of in-home eatings. We've seen an increase of about 42 billion in-home eatings since 2019. It's pretty huge. And really, when you look at that for Hershey, that's a very positive indicator because we are the leader in take-home confection. And so what we've been doing there is really expanding out all of the different pack types that we have that meet with those at-home eating occasions. Now very importantly, we know that consumers are spending more time at home, but we also know the reason why they're spending more time at home has changed. And it's moved from personal safety when the pandemic started to personal wellness. And that personal wellness is segmented across really 2 areas. There's mental wellness and there's physical wellness. And for that mental well-being, we know that chocolate is the #1 snack for de-stressing. So when people are looking to take a break from a very tough world, the first snack that they pivot to is chocolate, which is a great thing. Then as we look at better-for-you, that personal wellness, our better-for-you portfolio fits well with that. And so we've been investing in areas, most notably our reduced sugar portfolio. And then as we look at the media landscape, digitally, there's never been more ways to connect with consumers in a meaningful way. And so, for example, addressable media has been growing at an accelerated pace. And what we've done to respond to that trend is to increase Hershey's addressable media from 20% to 65%. And to close out, I just want to spend a minute on talking about a couple of key areas where we are -- where we've put additional focus. First, acceleration in sweets driven by gummies. We've seen great momentum in this area. And so what we've done here is we have invested in distribution, innovation, media, trade support. We've also increased our capacity, which has unlocked about $100 million of growth potential. And then we've also partnered with some other trademarks for licensing opportunities to expand our gummy portfolio. An example of that is our partnership for [indiscernible] gummies. And then for better-for-you confection, we know that for consumers that are interested in this segment of confection, sugar reduction is the number one that they're looking for. And so we've really put a lot of effort into growing our reduced sugar portfolio. We've rebranded our sugar-free items to Zero Sugar, and we've seen tremendous growth. We've about doubled the business since we've done that. We also have acquired Lily's, which moves us into that premium segment of better-for-you. And then we also are not satisfied just stopping there. And so we are investigating and working new sugar technologies that can bring these reduced sugar products closer in performance to the core portfolio. So we have an advantaged business model. We have the strategies to continue to advance that model, and there's very positive consumer trends for the category. So I think there's every reason to be optimistic about Hershey's future. And as I close out, I'm going to leave you with a sampling of some of our advertising that I think really captures the heart of these wonderful brands that consumers love, and we're fortunate enough to have them make these brands part of their everyday lives. So thank you very much for your time. [Presentation]

All right. So now we need to go to the QRC codes. We just talked sweet. We're getting ready to talk salty. We have a quiz for you, a short quiz, it's very easy, later will be a harder one. This is 3 questions. Go to the QRC code, you can -- let me actually move us ahead, I think. No? I'm not. I went ahead too early. While you're filling that out, we're going to share -- we did this internally a couple of months ago. Internally, our company results were pretty evenly split. We have about 1/3 that are very sweet, 1/3 that are very salty and 1/3 that are a mix of both. Curious, we're going to show you in a second where you guys are. I was in the very -- I think I was sweet. Michele what were you? Do you remember? A little bit of both?

I was sweet and salty. I guess I'd ask you Melissa, where do you think everybody here -- you know everybody pretty well where do you think -- how would you characterize them?

All -- definitely all sweet. We're going to see a huge skew to -- Yes. Yes. Now I'm going to guess it's going to be fairly evenly split as well would be my guess because I think different departments have done it as well, and it was pretty consistent splits through.

I guess it also depends if you're talking about your product preferences or your personality. Well, to answer the question.

Yes. All right. Let's see. Wow. I was wrong. So unusual group. We actually have no insight as to what that means or says about you, but it's interesting to see nonetheless.

We just thought it was fun to do. All right. Thank you. Thanks for playing our game. We have more to come. So get ready. With that, I want to introduce Kristen Riggs. Prior to Kristen becoming the President of salty back in October, Kristen was our Chief Growth Officer. She was responsible for leading myself and our team through the work that we did to build our strategic framework for our go-forward plans. And she also was the commercial lead on the Dot's and Pretzels acquisition. Kristen?

Thanks, Michele. So these results, I'm a little puzzled by them. So I was hoping to see a little bit more salty in the room. I am Kristen Riggs, and I've been working at Hershey for 17 years now. So for the most part of my time at Hershey, I've been sweet, but now it's time to be salty as I lead the salty business. So the salty business at Hershey is now $1.2 billion in sales, and it's at a moment of scale. And today, we're going to talk about the growth levers that will drive and continue to drive our success as well as some of the ways we plan to expand margin. So let's get started. For 128 years, Hershey has been a company that has built iconic brands. We have some of the best brands, not just in the confection category, but in the entire snacking segment. When we think about our portfolio of brands in salty, we have some really great brands there, too. SkinnyPop, Pirate's Booty, Dot's, all have a ton of strength and the opportunity to lead in the salty segments they play. Currently today, SkinnyPop is #2, closing on #1, line of sight in the next couple of years. And Dot's is already #3. So having a strong portfolio and really great brands, is the first piece of the puzzle for us and winning. The second thing in our salty business is we have untapped potential in the categories in which we play. Currently, pretzels and popcorn are both around $2 billion in segment sales. Other salty categories go from $7 billion all the way up to $10 billion in sales. So we love the untapped potential of the pretzel and popcorn category and its ability to grow. And you can see on the chart, these categories are outpacing growth of other salty businesses. The third thing to know is consumer trends are on our side. In our consumer research, popcorn and pretzels are the 2 most permissible categories in all of salty snacking. So these consumer trends and the untapped potential as well as the fastest-growing brands in each segment give lots of opportunities to grow and win. As we think about our salty business, as a company, we really think about how we manage the business as a flywheel. We're going to use that same model in salty. First, thinking about what are the levers we have for growth? How do we continue to drive growth? Expanding profitability is a key focus for us. We're thinking about near and short-term commercial and operational levers and then investing in our business for growth and investing in the business model, as Michele talked about earlier. So let's start with growth. Over the next 3 years, we plan for low double digit growth in our salty business. We'll use brand building to drive awareness. We'll increase our distribution, and we'll also expand and provide incremental occasions in the brands and in the categories we play. Starting with household penetration, these brands still have very low household penetration, which provides a lot of opportunity for us to grow their awareness. Popcorn is at 15% and SkinnyPop is at 15%, Dot's is at 9%, while popcorn and pretzels overall are in the high 50s in terms of household penetration as categories. So that opportunity for us to drive brand awareness and use our marketing tools really provides a lot of growth in scaling. We've already begun to do that in SkinnyPop. SkinnyPop has grown behind our advertising investment, and we're going to continue to invest and we're working on a new campaign now to launch. For Dot's, we have yet to debut our campaign. Today, you guys are going to see the world debut of the Dot's campaign. As the team did the work on the campaign, as is typical, we really wanted to understand exactly what drives the consumer love for the brand and products. And as we dug into the consumer -- we found love and fandom unlike only 1 other brand in our portfolio. It's Big Orange, Reese's. There is huge fandom and excitement for this product that's really driven the grassroots growth of this brand. So I'm excited for you to see the story of consumer love with our first ad in the campaign for Dot's. So let's roll that ad. [Presentation]

In addition to advertising, we still have upside in distribution. The whole portfolio has opportunities for channel expansion and some of our traditional company places of strength like C-store and dollar. But additionally, Dot's still has opportunities for geographic expansion. So it just so happens that the Northeast is our least penetrated market for Dot's and it's also the largest pretzel market. So as we continue to drive and grow our distribution footprint on Dot's, we'll be able to capture those incremental sales. The last lever, which is really important for us is incremental occasions. You'll spend some time today looking at our pack price architecture opportunities. And really, back to the untapped potential of these categories still at $2 billion, the opportunity to expand occasions is really large in both pretzels and popcorn. So we're thinking about individual occasion expansion with things like multipacks, party and larger pack occasion expansion. And then within the category of themselves, there's also opportunities to reach incremental means. So our sweet and salty portfolio -- sweet and salty capabilities we've been really testing and working on for a really long time at Hershey can come to life now that we're popcorn makers and pretzel makers and the Dot's Pretzels has been in market for a few years, we now make our own Dot's Pretzels at Pretzels Inc. And additionally, Reese's popcorn, which was in a test market last year, just launched and will also be on the taste test lineup for you today. But this ability for us to bring sweet and salty and leverage the iconic brand of Reese's into the category -- into the salty category provides a lot of incrementality and growth. So in addition to the growth levers, we're also committed to margin expansion. Over the next 3 years, we plan to grow margins in our salty business 300 basis points. But in the near term, that commitment is strong. We also have a long-term commitment to really move from the middle of the pack in salty margins to a top quartile player within the salty competitive set. We'll do that not from one big move or one big lever, but we have multiple levers, both commercial and operational and both in the near term and short term. One of the big investments we've made this year is an ERP platform. So as we've acquired these businesses, they've been running on their own platforms, their own systems. And now that we're uniting into one Salty division for the company, this investment allows us to harmonize and bring all of our portfolio together. It's a key area of focus, and it's a big investment for us this year, but it will unlock profitability and growth. It will unlock profitability and growth in how we forecast and plan and harmonize the portfolio to reduce waste and have more accurate planning, but it will also allow us to execute across our network and supply chain more precisely and as one Salty division. In addition to the ERP investment, we're also leveraging Pretzels Inc., a really important asset that we bought in our Dot's acquisition to manufacture products for us. It's not just making pretzels. You probably heard that we've started with Pirate's Booty with some of the equipment that we had as part of the acquisition, being able to take products that were outsourced and in-source them, give us opportunities to expand margin. And in the long term, there is more of those supply chain capabilities and opportunities out there. Think about Dot's and Pretzel seasoning was their expertise, and Pretzels Inc. was making the pretzels that went into Dot's, we can think about how to harmonize that into one continuous process and system, that provides opportunity. There's also opportunity as you think about building a network to harmonize regional locations to think about how we might get closer to reduce freight costs. So there's a lot of levers for us in the long term in our supply chain. We'll also have opportunities as we think about the portfolio mix of products that we're making, both in our branded and private label business. So the last part of our flywheel is the investments we made. We talked about the investment in advertising to drive growth. We've talked about the investments in ERP and also in supply chain to help us expand profitability. But the last investment is maybe one of the most important ones for us in our salty business. It's investing in people and capabilities. For us, salty provides a completely new way of operating the business, but it also provides a way for us to provide scale from the enterprise. It really is the best of both for us. Being able to leverage learning and become pretzel makers and popcorn makers provide sources of inspiration and innovation and category leadership and thought leadership and will provide new opportunities for margin expansion as we start to learn more about making the products. To close, as we think about our salty journey, Michele already talked about this earlier, it's really happened over the last 6 years. We've gone from really no sales in salty to the SkinnyPop acquisition in 2017, a big foundational moment for us in our first salty brand and category. We added Pirate's Booty in 2018, and the Dot's and Pretzels acquisition really became a catalyzing moment for us. If you think about the $1.2 billion in scale, but also adding supply chain and another brand to the portfolio, we're able to provide scale portfolio and commercial execution, but also start to build some really critical elements of the business, building go-to-market capabilities, building a network to think about our salty business going forward. And we're really building. It's been fun for the team to go back to some of our roots of building. Milton Hershey himself was a builder and built this company. So we're building our salty business with a big ambition. Over the next 10 years, we plan to go from 10% of portfolio sales to 20% portfolio of sales, really thinking about how we might scale our ambition from $1 billion to $3 billion. We're excited about the salt business. It's a rally point for the entire enterprise. We're looking forward to driving the growth and expanding the profitability. Thank you.

All right. I have to say I'm pretty excited for this part. I've noticed that some of you tend to be a little bit competitive. And so as my kids were virtual schooling in the past couple of years, they had some competitive ways for them to learn that I kind of fell in love with. I don't know how many of your kids have maybe done cahoots or things of that nature. So we have a -- before we get into supply chain, we have a trivia competition. There's 10 questions. Some of you that went to the plants yesterday might have a little bit of an edge so I hope you were paying attention, but not too much of an edge.

There will be a winner. There is always a winner.

Because some of you reminded me of other places you've won around here, and so we have with trophies and surprises. So please go back in to the lane from before. Those of you online, there is a little bit of a delay from when you're hearing us. So focus, don't wait to hear us to answer the questions, focus and follow along on your phones. This is all about speed and accuracy, okay? Let the folks on the phone catch up and log in?

Love those icons.

Also any employees that are dialing in and listening, you can't participate because that would be cheating, you have an edge, and so you can't win even if you participate. So please don't -- as fun as it will be, we'll do it separately.

We get a lot of players, Melissa.

I know this is...

People are into it.

We're getting close? We're getting close? Should we do it. All right. We're going Okay. You're ready? Typical day, how many Hershey Kisses can we produce? Look at your phone, multiple choice.

Good, Hopefully you were listening well.

Have you shared this before though? 8.5 million, 70 million kisses a day.

Look at the leaderboard here on this one, wow, I like it, a little emojis too ,this is cute.

Okay. All right, here we go. Question 2. We have more players coming into. This is fantastic. Are you ready? What season is our largest? You should all know this one.

Yes, I think it's embarrassing if they don't.

Most of you did though. That's good, that's good, yes. Halloween is our largest season.

[indiscernible].

I'm not going to see somebody fall down.

I don't know who Simba is but Okay.

Okay. Question 3. How many cows are milked twice every day to satisfy our daily demand, how many cows do we need in Central Pennsylvania? You might have smelled them on the way in. That time of year. Well done.

That's impressive.

Well done, that's not bad. Again, some of you got that one yesterday, I think. But that's good. I'm glad you were paying attention. Ken's making a charge. Leaderboard, new leader board, well done. Okay, hang on to it, hang on to it, here you go. Question 4. How many manufacturing plants do we have globally? It's hard and I remember we got salty assets. It's your hint.

That was close, very close.

Yes, it's close. She's hanging on. She is hanging on. Just a couple of coming up. How many times can we circle the globe with the amount of Twizzlers we can produce each day, every day, how many times can we circle the globe? This might shift our leaderboard. Did you guys seal the quiz in advance. This is impressive. Well done. All right. We have a couple of true false coming up, too. So true or false, H.B. Reese originally worked for The Hershey Company.

50-50 there.

H.B. Reese was an employee at the Hershey Company when he started creating Reese's peanut butter cups. And then the company purchased the brand. It's okay. You have time to redeem yourselves a couple more. A couple more. Right? True or false. In 2022, we sold enough SkinnyPop to fill Colosseum in Rome. That is crazy enough to be true. Can you imagine that, though? That's a lot of SkinnyPop. Alexia make it to charge. How many Dot's Pretzels are eaten each year? You just saw the truckload coming into the back, and some of you know you're pretty attached to these products, 1.5 Billion. We're going to have a mix up here. All right. Okay. Helen. Majority of the world's cocoa comes from just 2 countries, which are they?

I think a lot of people are going to get this.

I think so. The speed might be your key here. Yes. Well done, Côte d'Ivoire and Ghana.

It's a tight race.

All right. We might be in a race for a second here. Now last question. I don't think anybody can get Allen. Reese's makes enough peanut butter cups in 1 year to feed the 1 cup to every person in all of these countries, true or false? So some pretty big countries with a lot of people. Also crazy enough to be true. Well done. Well done.

Good job.

All right. We got that one pretty fast. I don't know if this could be enough. Allen, Well done. Well done, Allen. Come on up and get your trophy. I mean this is -- I hope you treasure this. You put it on your -- and then please pick a prize for you, the kids, whatever. Yes, that's fun, right? And who came in a second? Remind me, can we go back?

Looks like Allen. Oh, no Allen was there.

Alexia. Alexia you pulled off second. Third place well done. Are you here? Are you a golfer or somebody who is a journal, you have a choice. You take the journal. Congratulations, congratulations. Well done.

Thank you all for playing. That was fun. All right. Next up, we're going to talk about supply chain. Jason Reiman, our Chief Supply Chain Officer, got ill and was unable to be here today. But luckily, we are fortunate to have his right-hand man Will Bonifant here. Will is the head of our U.S. confection and salty supply chains. Prior to that, he led engineering and Jason, Will and their teams have done some tremendous work navigating through these really difficult global supply chain environment over the past several years. They've done great work to maximize the throughput that we could get out of our existing network, while at the same time putting together the smart plans for capacity investment into the future. So Will, over to you.

Awesome. Okay. Supply chain. I have to assume this is the part that everyone here has been waiting for. Melissa, do we need to take some time for more laptops to come out, and we'll just get going. All right. Well, as Michele said, my name is Will Bonifant. I have the pleasure of leading our supply chains in the U.S. and Canada for both salty and confection. I've been with Hershey for around 12 years and had various supply chain roles. My favorite role by far was to be the plant manager of our Reese's factory, and I know that some of you got to visit there yesterday. You've seen how special place it is, and there's no other job that's better to tell your kids that you do. So thank you so much for being here. I did get to meet a lot of you at breakfast this morning. Every time Melissa would introduce the group and say, "Hey, this is our supply chain guy," someone in the table would say, "Oh." So I'm not sure what you meant by that. I assume it meant that you're very excited about this presentation. So let me get us started. I want to start by anchoring on a key point, and that's, that at Hershey, supply chain is a business enabler, it's not a cost center. It's a really critical part of that business flywheel that Kristen was talking about. We help the business drive topline by delivering quality and service and by bringing on those investments in capacity, and we help to drive the margin and the bottom line through our productivity and our continuous improvement programs. And as Kristen talked about, the value that we create through both of those activities, we get to invest back into the business and in supply chain through assets and equipment and new capabilities. Today, I'd like to give my perspective in 3 areas. The first is how are we at Hershey investing in our supply chain to enable that business growth. And more importantly, how are we doing it in a disciplined way that's responsible use of our capital. Second, how are we expanding our margins by driving productivity across our network. I noticed that productivity is the biggest word on the word cloud that you submitted. So excited to talk about that. And thirdly, where are we leaning into areas like digital technology and automation to become more adaptable and responsive and build more resilience into our supply chain. You saw this slide earlier. The last few years have been very challenging. And what we've learned is that we do need to think differently about how we approach supply chain and our strategies. The consumer is changing so rapidly in what they want to buy from us, how they engage with our brands. And as a result, our customers are demanding more and more speed, performance, agility, you name it. And so we've got to do a couple of things. We have to continue building on our foundational strengths that we've relied on to get us where we are, things like best-in-class food safety programs, scale and efficiency and, as I'll talk a lot about, investing in core capacity. But on top of that, we need to spend more time thinking about those transformational areas. How can we navigate this ever-changing environment by looking at things like automation and technology, software and systems to give us the capabilities that we need. Now Michele and others have talked about investing against core capacity as a winning proposition to build for the growth of our brands. I'm going to talk about that, too, but I want to make the important point that when it comes time to deploy capital to create capacity, we do it in a very disciplined and responsible way. The first thing we do when we need capacity is we just look at our existing assets and say, "Hey, where can we get more from lean manufacturing techniques?" And if that's not an option, I work with my commercial partners, Kristen and Chuck, how can we optimize the portfolio because there is a lot of hidden capacity in the network that we can get at by finding ways to change production schedules or reduce complexity across the portfolio. Our teams recently developed a capability using advanced analytics and artificial intelligence to model different parts of our portfolio and look for those opportunities. We did that with our Kit Kat production network of 6 production lines, and as a result, found opportunities in schedule and item changes that found $35 million of capacity just sitting there that didn't require a whole lot of investment to get after. Thirdly, we look to eliminate bottlenecks by small investments in automation or equipment. We look at alternate sourcing with our network of co-manufacturers. And only after all of these options are exhausted, do we look at "Hey, where can we expand the network? Where can we drive the most return with a larger capital investment?" A couple of real examples where we've applied this approach recently. In our Illinois factory, our zero production line was underutilized, and we needed to grow payday. And so we looked at a third party in Canada. We developed them and develop their capability so that they could take on the zero production and then without expanding the factory itself, used all of that space for payday assets. Payday capacity grew by over 25% and Payday was about 1/5 of our overall retail sales growth last year as a result of these moves. Our Virginia factory, similarly, we had a line that was dedicated and designed for Cookie Layer Crunch production. That item had reached the end of its innovation life. And we had a new innovation, Reese's THiNS, that was growing very quickly. And rather than expand the Stuarts Draft factory, our engineering teams repurposed and redesigned that entire production line so that it could take on THiNS. And we took the line from 0% to 75% utilization in a very short period of time. Third area Kristen just talked about. We have a lot of new assets with Pretzels Inc. and we were able to repurpose some of those assets and bring in Pirate's Booty. So expanding capacity with our Pretzels Inc. acquisition. Now these are 3 good examples, but we've had to do this a lot lately. In the last 5 years, all of the volume demanded our brands has increased the utilization of our overall network by 15 points. That's created a lot of challenges in certain areas. We've had degraded service levels. We've missed out on a lot of opportunities to meet demand. And so we have been investing against our core business, and we've been investing to support the growth and also to get our production lines back to that more target level of utilization. A really good example of where this is succeeding is Reese's. Reese's is our #1 brand and the Reese's brand, volume demand has grown 20% since 2017. That's created all the same challenges that I just talked about. And as part of our overall core capacity investment program, the Reese's brand is 60% of that investment. That includes a brand-new chocolate making facility in downtown Hershey. I hope that some of you saw the construction in progress as we were driving to the various places yesterday. Investing in the core business, as we'll keep stressing, it's a winning proposition. Our Reese's brand and others continue to deliver and all of these projects continue to surpass our expectations. And rather than keep talking about it, let me show you a quick video that shows our Reese's investments in progress. Please roll the video. [Presentation]

So very awesome to see all this investment. That's a key theme that we'll talk about I hope that you also saw in the video, a lot of technology, automation and digitization as a thread that helps us in both the foundational as well as the transformational areas. I want to shift gears and talk about some areas that we're investing in transformational capabilities. I'll cover 3 examples. The first is around flexible manufacturing. Now while many of our production lines -- most of our production lines are designed for scale and efficiency, we are reimagining what it means to produce a chocolate bar. And we have our engineering teams working on a project called the Advanced Technology line, which is a completely new way of doing this. It's a multipurpose asset that leverages a lot of robotics and automation. The unit operations are modular so that it's not actually a line. It's not originally connected series of unit operations, they're modular. And it's that modularity that helps us to significantly reduce the time that's required for changeovers and cleanings between production runs. The line can handle a more diverse portfolio so that it helps us with innovation, and it also helps us with complexity reduction across the network. Those that went to West Hershey saw a lot of scale, big production lines. This new concept can absorb some of that complexity, some of the shorter runs so that the overall network can increase in efficiency. This line will start up in the next few months. And when it does, it will take on some of our dark extra creamy and cookie and cream bar flavors. Another concept that we're working on is called agile fulfillment. This concept will help us to unlock the power of our brand portfolios and bring brands together into display units in a way that takes them from one solution everywhere to precision -- I'm sorry, precision merchandising. So meeting specific customer or store level needs. It starts with our best-in-class category management capabilities. We have a lot of data and insights on the consumer and customer, and so that we can start with these unit cartridges, which are kind of like LEGO blocks and the robotics can put them together in different and customized ways. And so you can imagine the precision. Think about if you had a group of stores in Texas, and for whatever reason, their consumer likes more Payday. And maybe in the Northeast, they like more York. And that level of precision will give us better distribution, increased sell-through, reduced waste. And the software that we're using to develop this concept, it will reduce the innovation cycle time as we work with our customer teams to develop different display and merchandising units. Our last area of transformational capabilities, Kristen gave you a really good idea about this. With these Salty Snack's acquisitions, we have a lot of new capability that we, as a supply chain, can leverage for new and different things, whether it's growth or productivity. We have new capabilities in pretzel baking and seasoning. With the Dot's acquisition, it brought with us new proprietary extrusion capabilities, and that was some of the capabilities we used to in-source Pirate's Booty, but there's probably more opportunities we can leverage with that. And what I'm most excited about is that we at Hershey, obviously, we have very deep and long expertise and experience in confection. And so our teams are really working hard on how do we develop new innovation platforms that bring together both sweet and salty experiences. I have one more video that will highlight some of the Salty Snacks capabilities so that you can see this in action. Please go ahead. [Presentation]

So very good. I hope that this has given you a better sense of how in supply chain, we are thinking differently. We're still building on our foundational strengths while spending more time on the transformational areas. I hope you have a better sense of how we are enabling growth through investment and also enhancing margins and the areas we're leaning into in data technology and so on. These last few years have been extremely difficult for all of us. In supply chain, it's probably the hardest period of time over the past 12 -- or early '22 and late '21, that 12-month period that I've ever experienced as a professional. I know that the next few years are probably going to be different, but I'm not sure they're going to be much less difficult for folks in jobs like mine. But I do know that Hershey and our supply chain have the capabilities and strategies in place to help us to continue to be successful. So thank you for your time. And again, thank you for being here.

Thank you, Will. I now have the pleasure of introducing Rohit Grover, who is the President of our International business. One fun fact I would share about Rohit. Rohit has a passion for margin, especially gross margin, more than anybody I know. And one reason that Rohit went into this job was he had the vision to create and execute our profit improvement plan that we executed over the past several years. So with that, let me welcome Rohit.

Good morning, everyone. And Michele, thank you so much. I'm excited to be in front of you to talk International today. Although it will be very brief Yes. We have a balanced growth model in International, right? We've grown net sales 3-year CAGR, about plus 7%. We've grown operating income plus 50%, 3-year CAGR. And by the end of this year, we'll be north of about 12% operating income margin. Now we still got a lot more work to do, right? I mean we're not satisfied. However, we are pleased with where we've gotten to right now considering where we were in the past, right? As you can see from this slide, brands are central to our winning strategy. We have a brand-centric strategy, right? And we apply and employ different levers to focus in on these brands so we can expand growth in our core markets. So let me give you a few examples of what we are doing. So if you think about the Hershey brand, we are building the Hershey equity in our core markets throughout. So not only with global campaigns, but through events and new occasions. So we drive engagement throughout the year. But very important is our innovation pipeline. We are focused on 3 platforms, and each has a particular role. I'll give you an example of our better-for-you platform. 3 years ago, we launched our dark portfolio in Brazil. I hope some of you get an opportunity to try it when you get to the next room. That portfolio has been growing double digit each year for the past 3 years and is margin accretive. But what's more exciting is it's bringing in new consumers into the portfolio and therefore, driving market share. Moving on to Reese's. We have been growing Reese's in the U.K. for the last several years. In fact, last year, we were the fastest-growing brand in the U.K. So how are we doing that? So we have applied a portfolio approach to our Reese's brand. We, of course, have the 2 cup, which is for the mature users, but we are heavily focused in on the Mini Minis and the Minis to bring in new consumers and drive penetration because the smaller bite size helps us transition into the larger cup. And we are taking this playbook into a couple of other markets. We believe it is a successful model. Moving on to our local jewels. We are strengthening our investments in key differentiated local jewels. So for example, I'll talk to you about the Pelon brand in Mexico, which is our spicy brand. Not only are we advertising and investing behind it, but we are innovating, getting into a new segment, which is the Lollipop, Spicy Lollipop. And that has helped us to drive 150 basis points of share last year alone. So we feel very confident with our balanced growth strategy. And we believe that this strategy will help us continue to grow over the next several years. So thank you so much. It's wonderful being here with you.

I'd like to introduce Leigh Horner, who is our Chief Sustainability Officer, in addition to running Corporate Communications for us. Leigh?

Thank you, Michele. Good morning, everyone. I'm Leigh Horner, as Michele said. I've been with the company -- I will be celebrating 11 years in about 3 weeks. And as you can hear from my colleagues this morning, it's a real privilege to work for a company across CMG and Salty, across the U.S. International, especially when we are focused on the underpinnings of how we do that. And so ESG is fundamental to Hershey, really not only in the business resilience, but also our business success. And we focus on our priorities that are reaffirmed by a double materiality assessment that we do. We just completed that at the end of '22, which reaffirmed the core operational priorities, Cocoa, responsible sourcing, our environment and our people initiatives. Cocoa has been, continues to be and will remain our top priority, where we are focused on looking at some of the issues within that sector, including child wellbeing, ending deforestation and improving farmer livelihoods. Farmer livelihoods is really important. You'll see this spring, we'll be launching a new income accelerator in Côte d'Ivoire to really support the economic resilience in those communities. We're also continuing to strengthen our human rights due diligence processes. As you may have seen recently, we continue to invest in renewable energy, and we're advancing our work on water and biodiversity in 2003. Underpinning these very important initiatives is the work we've done to operationalize ESG into the fabric of the business. This is really important for us. It can't sit separate from the operations of the business. And so we've strengthened controls, disclosures to ensure the transparency of our progress and our challenges as we go forward. And I would be remiss if I didn't close on the foundational support that we do with the communities in which we live and work, and our commitment to you, which I think many of you experienced last night with the Milton Hershey School. So with that, I'm going to turn it back over to Michele to get us in over to Steve. Thank you.

Thank you. I think you all know Steve Voskuil. He is our Chief Financial Officer. Steve is my #1 partner in making the growth and investment choices that we need to maximize our business results. Steve?

Thank you, Michele. Good morning, everyone. So you've heard a lot of themes already today. We've talked about topline growth plans. We've talked about innovation plans. We've talked about portfolio evolution and expansion. But one theme I hope you also picked up across all the speakers today was a focus and a commitment to continue delivering differentiated financial results and, in particular, margin expansion and capital efficiency. And it's that part of the story that I want to unpack a little bit more with our time yet today. So we know it all starts with a great playbook. We think we have a really good playbook. We operate in growing categories with our iconic brands. And on the top line, we want a mix of volume and price through the top of the funnel every year, and I'll talk more about that in a minute. We know that we have strong margins, but we also have a commitment to continuing to expand those margins. And the combination of that starting point, plus the commitment to continuous improvement means we're going to continue to generate significant cash flow. That allows us to reinvest in the business in the best opportunities and ideas that we have, but also to drive sustainable returns for shareholders. And at the end of the day, we want to be the best capital allocators in our space. So that's our goal. Now the good thing is that playbook works. I'm the CFO, so I don't get a sizzle video. I don't have any heartwarming -- but this is pretty good. Double digit adjusted EPS growth, double digit cash flow growth, a dividend that over time has moved in line with earnings. And then, of course, not here, but maybe most important, significant share price appreciation. And when taken together, this has allowed us to deliver top-tier TSR. Let's unpack the model a little bit more. And as always, we'll start with the topline. And on the topline, as you heard from everybody today, we want a balanced volume price driven topline. We want to bring new consumers into the franchise. We want new occasions. So we want the volume. We want to make Will and his team sweat with that new capacity. But at the same time, we also want to be very smart on price and price in all its forms, not just traditional price, which we've had to lean on more in recent times due to high inflation, but also price pack architecture, accretive innovation, portfolio mix and other levers. Now in any given year, it's going to vary what that looks like. We know 2023 is a price-driven plan as we talked about in our guidance for the year. But over time, we want to balance. It's also going to vary by business. We know our more mature U.S. Confection business probably on a relative basis, is going to have more price than volume. And we know that salty and International on a relative basis is probably going to have more volume than price. But across all businesses, we want to mix of both. Let's talk about margins. And we know that where we start from a margin standpoint is a good spot. But as I said, our goal is to continue to improve that spot. Michele said it at the beginning. We're pleased with the work our teams have done to offset significant inflation, external supply chain disruptions, internal challenges with capacity. So we're pleased with that work, but we are never satisfied. And this is an area where we want to have the muscle to continually advance our margins every year despite whatever is happening in the macro environment. Margin for us is a key indicator because it says that volume we're capturing that business we're bringing in is sustainable and it's good for shareholders. That's a key metric for us. The good thing is we have a lot of levers to move margin. And these won't be new to you. Everybody has touched on these already. Again, starting with the topline, the volume bringing fixed cost leverage across the system, having good price realization drop through. Productivity, which I'll touch more on in a minute, is significant, especially on the back of the capacity and capital investments that we've made in recent years. Kristen explained what we're doing on salty and think about multiple levers of optimization there. One, on the Supply Chain side, as she said, and as we optimize that network, but also internally on the operating model and the go-to-market model, making sure that the business is as efficient as it can be. And then, finally, we want to apply the same discipline to SG&A investment and between-the-line spending that we apply to any other investment. So for the capabilities that we think are critical for the next few years, we're going to invest, but we're going to have clear accountability, clear ROIs, clear deliverables. For costs that don't matter to the consumer, we want to keep those flat to down as a percent of sales over time. So let's talk about productivity a little bit more. No surprise, the last 2 years have been more challenging from a productivity standpoint. Some of that's been inflation. As Will said, a lot of it has been also our own internal capacity limitations. And in general, utilization is great. I want the highest utilization possible. But at a certain point, as Will said, it starts to be counterproductive from a productivity standpoint. Now with the investments that we've made, we're back to a healthier spot from a utilization standpoint. And with that, we have higher expectations for productivity. Over the next few years, we expect about $125 million of productivity improvement. In addition, we want to go back and recapture some of those inefficiencies that we've absorbed over the last 2 years. And so that will be another incremental piece that, in total, brings us to about a $400 million goal over the next few years. That will lead to strong cash flow, and the point I want to draw off this slide is that we don't just look at the core business as a source of cash flow, we look everywhere. And although we don't talk about working capital much on our earnings calls, and then probably the top 5 question, the reality is even there, we've been looking to extract cash. So our cash conversion cycle, we have taken down by more than 10 days over the last few years. Accounts payable terms has been part of that. Inventory management has been part of that. And we're going to have some turbulence now as we amp up inventory and then draw it down for the ERP transformations, but this remains a target for us to extract more cash that we can redeploy elsewhere, which leads to capital allocation. And for many of you, most of you are very familiar with our story, this will look like a familiar slide. There isn't a lot of change here. Our first priority is to continue investing behind the core business. Things like Reese machines on the video you saw, those are the highest returning projects we can invest in. But we're also going to look at critical infrastructure like the ERP that will set us up for the future. In addition, we're going to look at inorganic growth opportunities. And we're selective here. I've said in the past, we have a big appetite for M&A, but we are picky eaters. And we have high criteria for ROI, for synergies and the other criteria that Michele talked about in her opening remarks. But organic and inorganic growth is our first priority. Second priority is the dividend. We know that's important to our investors. Our policy here hasn't changed. We want to grow the dividend roughly in line with earnings and pay out about half over time. Third is buybacks and buybacks play an important dual role in our strategy. One, obviously, is to return cash to shareholders, but also internally, it creates constructive tension on the investments that we want to make. Because if we can't generate good risk-adjusted returns, we're going to give that cash back. Our job is not to warehouse the shareholders' cash. And so we use that internally, dynamically to also make sure we're making the best choices and forcing the best investments into the business. And then finally, leverage. We want to make sure we have the flexibility to execute our strategy no matter what the economic circumstances are. On CapEx, this is obviously 2023, a high watermark for capital, $800 million to $900 million, as we've guided earlier. As you've heard across today, the majority of that is capacity, also a significant piece for ERP. We'll also have elevated spending next year, which is really the carryover of those same projects into next year. Once we get to 2025, I expect we're going to start to see CapEx normalize. And I say that with the caveat. The caveat is, if Reese growth is still on a tear and I need more machines, I'd love as the CFO to have that opportunity to have to reset it because we have such good investments on Reese to fulfill. But right now, based on everything we see, we see normalization from 2025. So we know that playbook works, and when that playbook delivers and we execute it well, we'll generate outsized TSR results. And it's that momentum that we have that kind of leads us to thinking about the future. Right now, based on everything we can see in the next few years, we're going to be targeting the high end of our current long-term growth algorithm. We are not today resetting our long-term algorithm. There's still so much volatility both in the economy and with the consumer that we're going to want to see that settle out before we think about tinkering with the long-term algorithm. But based on the visibility we have in the business, the momentum that we have, we're going to be targeting the top portion of that guidance for the next few years. For 2023, we are also reaffirming our guidance. We'll be talking to you, I guess, in about 5 weeks. We'll have a chance to update you on the first quarter and updated outlook for the rest of the year. We look forward to talking about the progress we're making and expectations for the balance of the year. So I will hand it back to Michelle. I'll just close by saying you've heard a commitment to balance topline today. You've heard a commitment to margin expansion today, and you've heard our commitment to smart capital allocation as we deploy capital going forward. And with that, let me turn it back to Michele.

Thank you, Steve. All right. So we are going to prepare for Q&A. And while we are doing that preparation, I want to take a brief moment to announce and introduce to you some of the rest of my direct report team who didn't present today. So first of all, I'd like to introduce James Turoff , who is our General Counsel. James does a great job enabling us to seize opportunities while obviously managing risk at the same time. James, if you just want to wave to everyone. Hector De La Barreda recently took on a new role for us, leading the work that we shared today around transforming how we work. Prior to that, Hector had been leading our salty business through the tremendous topline growth that we've experienced over the past several years. So Hector? Chris Milan is our Chief Development Officer. Chris has been my partner for many years now in building the expansion of our portfolio to snacking. In fact, it's Chris who conceived of popcorn and sold all of us on the opportunity. Chris? And last, but not least, Chris Milan, my -- sorry, Chris Scalia, my unicorn CHRO, who has a tremendous commercial nose for the business and is an expert at leveraging talent to drive business outcomes. It's Chris who partnered with me to build the team that we have leading the business today. So Chris? So with that, we are going to start Q&A.

And we have 2 mics lying around and then we'll be keeping an eye on line as well.

Ken Goldman, JPMorgan. Just wanted to get a quick follow-up about sort of the drivers of the long-term algo. I think previously, the 2% to 4% was supposed to be driven 1.5% to 2% by CMG, 0.5% by snacking and international as well a little bit. Are those rough drivers, those percentages in terms of contribution to the topline still valid as we think about them today?

Yes. On a long-term basis, they are in the nearer term, as you heard from salty, we've got higher expectations in terms of growth contribution on the topline for salty in particular. At some point, maybe it will not be a double digit grower. But for now, those are the right compositions.

A quick follow-up if I can. A couple of the brands that we didn't hear a lot about today, Pirate's Booty, the one brand. We saw some THiNS and then Kit Kat. I don't want to take too much time on any of them, but I just wanted to get a sense of which of those are still priorities for the company and which may be less so right now?

Sure. So I'll take some of those off. Pirate's Booty, still a priority, that we always prioritize across our brand portfolio, and we have some work to do right now on driving margin and profitability on that business. So we have prioritized growth primarily on SkinnyPop and Dot's where the margins are where we want them to be right now. As it comes to one brands and our nutrition portfolio, we are continuing to drive that business. As we all know, the category took a bit of a hit during the pandemic, and our business has been a little slower to recover than we had hoped. We've been focused on stabilizing distribution, expanding the portfolio to really shift our focus more to take-home bars and innovation where some of the growth is and also increasing our investment. And then I think you talked about -- was KitKat the last 1 you mentioned?

We saw like Kit Kat growth just wasn't nearly as strong as we saw in the last few years, but you told it wasn't really a capacity thing. Such a great brand. Just curious for the future there.

Chuck, do you want to talk a little bit about growth across non-Reese brands, the chocolate brands on the business?

Sure. To directly answer the question on Kit Kat, it is a priority brand. Where we saw Kit Kat hit a little bit more, especially during the pandemic was -- it has less of a take-home component versus an IC component. So as you saw some of the reduced traffic through C-store and less -- and people were spending more time eating in home, Kit Kat took a bit more of a hit and slowed it up. But as people continue to move around and we get to see more of that mobility and things like that, Kit Kat is still a priority, and we do believe that it will continue to grow.

Pam Kaufman from Morgan Stanley. Just another clarification on the growth guidance for the next few years. What assumptions does that factor in about M&A? Over the past 5 years, M&A has contributed around 200 basis points to your topline growth. And I think previously, there was some M&A incorporated into your prior targets.

Yes, no M&A assumed inside the guidance we talked about today. So we're going to extract value from the ones we have. That's the key assumption.

Great. And my second question is just on innovation. Can you talk about how you're thinking about innovation going forward? Over the last few years, it's been focused on leveraging the core. So how are you thinking about balancing further opportunity in the core brands versus more incremental innovation like you've had in the past?

Sure. So we continue to believe that our model where we are balancing the core in innovation and not over relying on innovation is the right one and has served us well. We know that the core is much more sustainable. So we continue to see more upside growth on the core. That said, we do have a focused innovation agenda, at the top of our innovation priorities continue to be pack innovation because pack allows us to access new occasions. And we've seen that be the most incremental and sustainable, and that's true both on confection and also on salty. That said, we do have core innovation that we're focused on to bring news and excitement. And as we look at platform innovation. Better for you is a great example of platform innovation within our confection portfolio as well as expanding the portfolio in the high-growth Suites segment. On salty, primarily pack type innovation with some limited focused flavor innovation, things like cinnamon sugar dot's, which if any of you have tried are great, but highly incremental because it's a sweet and salty variety versus our base. Go ahead Nik. We're just going to try and get to as many as we can.

So I have two questions. First, Michele, maybe you can talk about any early thoughts you have on the impact of the SNAP reductions and how it could affect the Hershey portfolio? And then the second question is for Will. And just this polarity between price pack and package proliferation with the need to also focus on core SKUs because obviously, the last few years, that was an issue. So I was just hoping you can talk about that tension and how you manage that.

Yes. So I mean, so far, we have continued to see the category be very resilient, and our pricing actions convert incredibly well. We do know that all consumers and especially lower income consumers are needing to make a lot of different choices. I think about half of consumers say that inflation is impacting their food purchases. But what we continue to be focused on is that variety of price points and sizes so that there is a price point that works for every consumer and allows them to participate in the category. Will?

Yes. Thank you, Nik. That's a great question. And certainly, there is always that tension between investing against the core and then proliferating the portfolio, and it's something that I'm working very closely with Chuck on the confection and Kristen in salty and Rohit on the International. Some of the modeling that I talked about earlier, some of the new capabilities with technology have allowed us to model out the complexity in certain areas and identify what's good complexity versus bad complexity. And we've been able to make some decisions on the margin around something to either take out or bring in. And then we've done a lot of demand balancing over the past 24 months in recognizing where we need to lean into the core. But now that we have more capacity coming on that investment in capacity has given us a little bit of the relief and headroom to now go after taking on -- taking back on more complexity in smart spots. So it's just a continued conversation. I hope that gives you a better sense.

This side of the room.

Steve, you mentioned the inventory buildup in anticipation of the ERP rollout. Could you maybe just talk about the specific timing there? And maybe what sort of unlocks you anticipate from that afterwards. And then Michelle, both you and Chuck talked about the improved revenue management. It seems almost hard to believe because you guys have had somewhat better connectivity between marketing and sales and insights than other companies already. So maybe you can be -- just help us get our heads around what exactly is going to be happening in terms of the organization that's going to help you drill down better than you have in the recent past?

Sure. With respect to the inventory build, we'll start to see more of that kick in, in the back half of this year. We have the salty implementation in the back half, but we're actually not building that much inventory for salty. I would say a regular amount as much as we can do, but the shelf life limits how much inventory we can hold. But we'll begin the inventory build for confection in the back half of this year. And then as we come out, I think there'll be a lot of benefits. Obviously, for salty, in particular, as Kristen said, being on our platform so we can manage that business in a better way. But more broadly, we'll have better inventory visibility, inventory management, and then efficiencies in the back office that will allow us to continue to -- kind of going back to some of the SG&A discussion that we had some efficiencies there as well as we scale up more common processes.

And just one quick point of clarification, that inventory build is internal. So that's not going to be something that will be necessarily impacting our net sales later this year, just getting ready for the spring transition.

One point of clarification on your question relative to improved revenue management. Were you talking about the commercial capability we talked about relative to better business planning in the forecasting process? or were you talking about pricing?

I thought of more about pricing, pricing revenue pack, whatever -- I mean it was really more of the external marketplace stuff.

Yes. Chuck, do you want to talk a little bit about that in terms of improved strategic revenue management and some of the opportunities we continue to see for the future. I mean, clearly, there's a big piece of that, that's around the right price packs and getting to those price points that are within the seams. But anything else you want to add on that?

Yes. There's a couple of things. One is I talked about in presentation. We are looking at our pricing model more proactively versus reactive for costs. So laying out like what the potential scenarios might be and really understanding the opportunities for price in the category. The other thing is, as we've seen an inflationary environment, price pack architecture plays a big role in seeing what areas we can fill. The other piece that will help us out a lot, and Michele talked on this is this concept of holistic commercial investment. We've been very good at being connected and analyzing different pieces. But now the concept of looking at our business through holistic media and trade together and really seeing areas where, "Hey, maybe we don't have to show up and stack all these things together, what's the right balance," we really think it's -- the way I think of it is moving from connected silos to more of an ecosystem that you really see across your whole investment. And we think there's a pretty big unlock there.

Max Gumport from BNP. First question is for Michele. When you joined as CEO in 2017, you laid out your strategy to expand in the Salty Snacks, and it's fair to say you've made significant moves into that broader category. There's still significant white space though, in terms of -- you talked about the 3 piece pretzels, puffs and popcorn. And I'm wondering, are you looking at other subcategories as well, for instance, potato chips, a fourth potential P? And how would you analyze these different subcategories, what you see? And then for Steve, you've talked about further EBIT margin expansion from here. At the same time, you're already at a 23% EBIT margin. It's obviously top of the group by a wide margin. I'm wondering if you see any natural ceiling to where your EBIT margins could eventually hit a peak?

So relative to M&A, I would say, our first priority by far is driving against the business that we have today. We feel good. We really wanted to get scale to compete in salty, and we feel very good that we have some good scale now. If you look at SkinnyPop, it's almost $0.5 billion in revenue. Dot's around that $300 million point, a scale business with Pirate's, and we have so much continued opportunity around household penetration and buying rate and margin expansion. And we want to make sure we fully leverage that. So I'd say that's job one. That said, we are open to adding additional brands and we are open to potentially considering other segments within salty. I think it really depends on -- I can't tell you that right now. There's one piece we are eyeing. I think we'd be looking for similar characteristics of what we have looked for to date. Where do we think there is a brand or a business that has a unique positioning, strong indicators of sustainability for continued high growth that has a differentiated place in the market. So nothing on the immediate horizon right now.

And on the margin side, I would say there may be some natural limit somewhere. It's not healthy for us to think about there being a limit. I think we want to focus on, okay, how do we keep breaking the ceiling and finding creative ways or new technology or something to elevate what the possible can be on margins. And so that's our focus. As we look at the levers that we have in the near term or the midterm that we're not looking at, we don't feel like we have a ceiling.

Can you get Andrew the mic.

Andrew Lazar. A question for Will. Thanks for sharing all of the unique capability building that you've done around the supply chain. And I guess I'm curious, based on whatever competitive intelligence you might have around what competitors can or can't do or have been investing in I guess, how unique and differentiated are some of these dynamics like the ability to go to the store level around different shipper sizes and configurations and things like that. It would strike me that's pretty forward thinking. I don't know that others have necessarily made that kind of investment, but I'm trying to get a sense of how differentiated it is. And then, Chuck, maybe an example or 2 you might have where those types of supply chain capabilities have actually led to incremental shelf space in the store or opportunities that you might not have had if it weren't for those supply chain investments?

Great question, Andrew. Thank you. So to start, some competitive intelligence I have just spending time with McCain and some of their customers yesterday. It does still feel like we are ahead of where our competitors are in terms of servicing them and other customers. So that's good to hear that feedback. Now to get to your question, where do we feel our -- the capabilities that we're building are competitive. Certainly, the 2 examples I showed on the slide around the advanced technology line and the precision merchandising. I have not heard of any competitors working on kind of a modular concept like that. I have heard of some equipment suppliers. [indiscernible] was working on something like that a year or so ago when we talked with them. It didn't look like they were making as much progress. The precision merchandising, I think that's an idea that's been out there. So it would surprise me if others were not trying to do similar things. But I do think the progress we've made is probably advantaged. And then some of the areas that I think are more common that companies are pursuing, things like someone mentioned the integrated dynamic planning. I think it was Michele. It's not advantage that we would put in a new modern planning system that's getting to be more table stakes. But I think that the capabilities we've developed over the years to -- and how we plan in our processes, flipping over to kind of the commercial capability side, how we plan the category and help customers plan their planograms and write seasonal orders, a lot of the technology we're bringing into aid, how we're doing that, I think we'll be advantaged in just bringing our processes to technology that's out there. I hope that helps.

And then for the examples like I really -- Will and I are partnered very closely. And what I love about the flexibility that they have is if you think about it, it goes back to the idea of not being connected silos but this ecosystem, right? And so we get all this great consumer information, and we know certain products appeal to certain consumers. And so for example, we can be more targeted than ever in our media. The ability then to roll in, say, a shipper program that says it's got to be this mix that really appeals to the consumers, then you're in a place where you have the right distribution base, you're getting the targeted media, and then you're rolling in [indiscernible] to come together, that's a big unlock. It works for the program. It also works for keeping velocities up on shelf. And so when we're able to do that, we're actually taking advantage of all the insights that we have to drive the business.

Bryan Spillane from Bank of America. Two questions. One, just, Steve, a clarification on the $400 million of productivity, is that a gross or a net number? And if assuming it's gross, just how we think about maybe where some of that would be redeployed?

Yes. It's a net number. That's the way we measure our productivity.

Okay. So we would assume that, that net dropped to the bottom line?

Yes. I mean we may choose to invest it somewhere else in the P&L. Again, going back to our criteria for returns and what opportunities we have but I mean it starts as a net number. And then what I like about that is we have choices then. We have options on dropping it through to earnings. We have options of reinvesting if we think we have something compelling.

Comparable to the $100 million we're at now. From a target perspective, it's a little bit higher just based on the scale of the business.

Okay. And then a question for Chuck. In your presentation, you talked a little bit about the connection between confections and emotional wellness. And at the same slide, you also had kind of the changing in media, right? So like I'm assuming we're talking about social media. So how do you balance -- on one hand, social media is maybe causing people to have eating disorders, body dysmorphia. At the same time, we're talking about emotional wellness in chocolate. So just how do you balance that being the opportunity without it becoming a risk?

Yes. So when we look at the portfolio, we really have it segmented to different occasions and consumer needs, right? And so as we market our products, we, of course, look at our core full sugar products as being a treat, right? And so that appeals to people who are having these occasions and are connecting with their families, and that does lend to the mental wellness. Developing that other part of the portfolio for consumers who are concerned with their physical well-being and so the investment in Lily's, the Zero Sugar portfolio, we've seen strong growth. Those parts of the portfolio also deliver on a consumer needing. So there's options if you're looking for your physical well-being that we make sure that we have for those consumers as well. The other thing, too, is we're also very selective on where we go with our media, right? And so if it's landing in areas where there is negative content because we know social media can have that impact on people, we will pull back our advertising. And so when there were issues on Facebook, that's an example where our spending on that platform came down.

Cody Ross from UBS. You talked about growing towards the high end of your algorithm in '24 and '25. Can you just discuss some of the visibility that you have to that elaborate a little further? And then in context, think about how the categories grow during that time as well.

Steve, do you want to take that?

Yes, I'll start. The I say we have reasonable visibility. Obviously, with the hedging program, we've got some visibility into the cost structure. Obviously, our internal cost structure, we have good visibility too. And the plans from a topline standpoint that we're already working through. And so in that sense, I think we have pretty good visibility, enough visibility to feel comfortable with giving that guidance. On the categories, I don't know if anything you want to add on categories, growth?

Yes. I would say we continue to look -- I guess I'd say for salty, where we are less developed, I'd say our growth is more about where we are in the stage of developing the maturity of those brands than it is tied to the category growth. I mean, certainly, we think the categories are going to continue to grow, but we have so much just fundamental upside there. And as we look at confection, while certainly, it will depend where things go with inflation relative to that moderating a bit the role of price and how much price will be in our growth model going forward. We continue to see all of these trends with consumers relative to the home centricity, the focus on emotional well-being, the difficult inflationary times really being a driver for our accessible categories, price point wise that we think will continue to see really nice momentum in the categories, so above what we've seen historically.

Alexia. Michael, we will come to you next.

Alexia Howard from Bernstein. So two questions. The first one is around the international business. I'm just curious about what's really driven the profit improvement in that business. It seems as though the business model change in China might have been a piece of that, but maybe there was other stuff in there as well. What caused that or enabled that? And how do you drive faster growth in that business without losing and diluting the margins as has happened in the past?

So I would start, but I'm going to kick it over to Rohit. Yes, definitely, China played a big piece of that. That was one of the pillars was I think we discussed before that we were investing in some developing markets. We had made an investment in China, but we really didn't see the kind of return over the long term that we wanted. And so we made some decision to focus and retract a little bit there and also shut down the Golden Monkey acquisition. But Rohit, do you want to talk about the other levers that have driven the growth in profitability in International and then also address the question about continuing to further accelerate our topline growth.

Yes, sure. Thanks for the question. So if you look back in 2017, our operating income was, let's say, minus 3%, it was worth prior. Now we're sitting around 12% million I would say a little more than half of it is probably China. The rest is got to do significantly with capacity utilization, for example, what Will and Jason's team have been helping us with over the last few years. So that's played a big role. Continuous improvement in terms of lean manufacturing, et cetera, has paid a massive role. Pricing has paid a massive role. But I would say the biggest lever has been portfolio. So a couple of things on portfolio is what is the right portfolio we want to play with, right, that gives us an advantage to win and has higher margins? So for example, Reese, I just gave you an example of Reese or I gave you an example of dark, higher-margin portfolios that we've been focusing in on heavily, right? So that's kind of how the model has been working to allow us to get to where we have gotten to. So now the question is, how do we go and move ahead in terms of topline? So I would say some of these levers are going to continue because we still have opportunity on capacity utilization, let's say, on the bottom line, right? We still have opportunities in terms of really looking at some of the parts of our portfolio that are still challenged and weaker on the margin front. In terms of topline, the 3 examples I shared with you, we believe those are going to continue to generate and accelerate further growth, right? So whether it is taking the Reese business model to a couple of other markets, continuing to expand the 3 platforms of innovation that we are currently heavily focused on, whether it's better-for-you, value and [indiscernible], which all offer us the opportunity to bring in a lot more consumers in into our fold. So I would say those are -- those and several other levers are kind of going to help us to continue to take the business forward.

One more quick one, for Chuck. You talked about the addressable media increasing from 20% to 65%, I think, was on one of your slides. First of all, what exactly does that mean? I think that's about personalizing and reaching out to individual consumers. But does that mean that you end up talking to your existing loyal high consumption consumers and missing out on the opportunity to recruit new consumers? I'm just curious about the advertising strategy and marketing strategy over time.

Yes. So the addressable media is great because it's a flexible tool instead of the broad reach, right? And so what we look at the addressable media is, it actually helps us get at the exact point that you talk about where we take the information that we have from the Hershey Intelligence Engine, and we're able to see buying patterns, right? And so if we're trying to get somebody to buy one more Reese, we're able then to target a group that looks like that and then get feedback on what the result is. We also -- as we read that, then we're able to, what we call frequency cap, so you're not hitting the same person over and over again. So the addressable media helps you find that high-value target who you really want to affect that purchase behavior, get more immediate feedback on how you're doing and then actually move on to somebody else who you're trying to effect. And then there's a very big exercise we go on to finding like our highest value targets and who gets almost reminder media and some that get kind of a bit more growth level to pull them into the portfolio.

We can go into that a lot more this afternoon as well. Can you help us out and pass that down to Michael.

Michael Lavery from Piper. Just want to come back to some of the media and spending. I know you've talked about efficiencies as a margin driver. You've also had some relatively lower spending levels in the last sort of couple of years because of supply limitations. Brands, of course, are as important as ever, if not more so. And so just as -- for example, the advertising as a percent of sales being a metric we can track and see and compare across companies. Should we still expect a rebound there? I know there's some efficiencies that are part of how you think about it, but where is that going forward? And how do you think about that over the next few years? and then I have a quick second one after.

This year is a reinvestment year to some extent, 2023. And I think from a '23 level, we feel pretty good about that level of spending. And from here forward, I think broadly in line with sales is probably the way to think about it. Anything to add?

I mean if we have opportunities for places we think we can get incremental profitable growth, we might go slightly above percent of sales -- equal to percent of sales in the future. But I agree with Steve. A lot of the reinvestment is this year based on the fact that we had some of those supply shortfalls. We pulled back. We did see a little bit of moderation in demand, but we did that. So we thought it was important to reinvest in some of those key areas.

And a quick second one, just coming back to pricing. You've obviously identified that as a growth driver in the near term and long term. The retailers seem to be getting a little exhausted with certainly list increases. I know that's not the only approach you can take. But is the next year or 2, you're going to lean on mix or price pack architecture. I guess just -- how do we think about -- given some of the visibility you've called out on '24 and '25, it -- should we expect pricing to be up or price mix at least? And just kind of what's the near term look like given kind of what we've just been through?

I don't want to get real specific on forward-looking price. But what I would say is in the last 2 years, we've been limited on some of the other levers because of capacity, doing price pack architecture, even mix plays with the limitations we had in capacity was constraining it . So as we look to the future in the next couple of years, we now do have more capacity, we have more access to all the levers of managing revenue beyond just price. And as we think about the next couple of years, I'd expect to see a mixture of those levers.

We've got both Robs in the back. Can we get mics to -- got their hands up. Thank you.

Rob Dickerson from Jefferies. Got a nice follow-up maybe to Michael's question to you. So that was more on price. I think you had mentioned in the presentation, approximately low single digit growth for North America Confection right? And then there's also pricing coming or price mix coming while at the same time you're adding capacity. So again, so as we think about the capacity being added and then maybe just some perspective on kind of how you view North American Confection category growth going forward, I think that's a metric you usually do speak to. It also kind of implies that maybe volumes wouldn't grow that much. I mean positive, right, but not really shooting for the stars so to speak. But then you're also talking about the utilization getting better and capabilities and what have you, and then I have a more follow-up.

Yes. I would say, again, going forward, we want to mix, and now we have capacity. So this year, for the '23 guidance, we said volumes are going to be under pressure because of the elasticity assumptions. We'll see how elasticity actually plays out. But even with the capacity we have, even a small amount of volume growth in the U.S. is going to, again, start to soak into that capacity. Of course, we hope for more. We hope Reese continues on a tear and soaks that capacity up faster, but yes, so that's how we're thinking about it right now without getting real specific.

Great. And then I guess just on a category basis, right, we continue to talk about confection versus salty. Clearly, there seems to be, at least for the people in the room and the little test we took, right, it was, what, almost 2/3 of people said Salty and Sweet or Sweet and Salty. So how do you think about maybe that third category I realize you could put pretzels and chips and a Reese's cup, maybe that's still confection. But do you view it more broadly over a longer period of time that maybe there is a clear third category?

Kristen, do you want to talk a little bit about Sweet and Salty and our vision for that?

Sure. So over the past several years, we've been implying Sweet and Salty within the confection category. So you've seen some of the announcements, the consumer excitement for the most recent entry of Reese's animal crackers. But that expertise now taking that from the confection category into the salty category provides us new occasions, new consumers to recruit, and that will be really incremental for us. So we've been able to expand that within confection and Chuck and team, and we're partnering really closely on thinking about that space, in confection space. And we know Sweet and Salty, things like Reese's Take5 where you get the Pretzel head inside the Reese's are still going to be a part of our confection growth strategy and portfolio. But in salty, we'll be in the salty aisle, which changes the consumer mindset and occasion in which you're entering and then also within salty, the idea of bringing Sweet and Salty as a need into the aisle is really white space. There's some of that today. You think about popcorn, there's kettle corn, there's carmel corn. But then when you have Reese's pop corn, it's doing some of the same things at that Sweet and Salty space. So I would say for us, in the salty space, we do see it as a growth driver and opportunity for expansion. So we'll leverage it both in confection and salty.

Thank you for the question. I had a question about the Salty Snacks gross margin expansion target. It's 300 basis points. What do you intend to do with that margin expansion? Maybe, Michele, you could also opine. Is it going to be dropped to the bottom line? Or do you reinvest that to drive more growth? And then you have very different distribution routes for Dot. There's a lot of DSD in there, and then you have direct to warehouse for skinny. So is that -- does that create more leverage opportunities on SG&A? Or do you not really think about it that way?

So we continue to -- as we grow the business and as we're running the business decide how much of that gross margin. And frankly, it will depend year-on-year. Each year may be a little different. Do we drop to the bottom line? How much do we reinvest. We are at a critical stage on that business where there's a lot of demand for these brands, and we want to make sure that we really build that brand connectivity with consumers and capture that momentum so that we get scale, which we know ultimately is one of the biggest levers driving margin expansion as well. So I guess my long and short answer is we don't have a definitive position. We're going to be balancing that as we go. Clearly, we are going to work to drive margin expansion both at the gross margin and the operating margin lines over time. It's just a matter of each year those specific decisions. Anything you would...

No. It's a building business. And so we are consciously even this year, making some reinvestment in things like ERP rather than let all that drop through. And as Michele said, it will be a balance going forward.

And we're still optimizing everything across the business model. At this point in time, we don't have a specific plan to change our distribution approach, but we spend a lot of time trying to optimize what we have. So optimizing -- learning and then optimizing the DSD that we have on salty, and we've done a lot of work against that. But really, we're working across the whole model.

We see maybe one more. I'm sorry, I know we didn't get to all of you. Chris, sure.

Can you just talk about the competitive environment? So there was -- Michele, you made a comment about maybe holding on to some better growth versus past. Obviously, you're looking at margin expansion in your confection business. It sounds like price pack architecture and mix are going to be key drivers of that as opposed to just only list price. But certainly, there's talk about a more competitive environment across staples, you have low private label exposure. Can you just maybe frame for us how you're thinking about the competitive environment in the context of your targets over the next few years, specifically on the confection side?

Sure. So I would say on confection, we haven't seen significant material differences in our competitors and how they are acting in the marketplace. If I look at the category, there's certainly, over the past several years, have been an uptick in innovation in Gummy and Suites, but we haven't really seen a material impact aside from that. And as we think about pricing in the category, it has historically always been a very rational category where the category prices. So nothing I would say of note in competition within confection.

All right. Thanks so much. For those of you joining us online, we're going to say goodbye, and thank you so much for joining us this morning. For those of you here in person, your day is not quite done yet. We have a little bit more fun planned for you. I'm going to see if I can get this right. For those of you who we didn't get to in Q&A, I apologize, be more than happy to answer any follow-up questions kind of over lunch. We've got lunch outside in the Fountain lobby where breakfast was. We're breaking into the groups that you were in yesterday to do capability, deep dives and sessions. So you'll be going around. There is a station for media. That's actually going to be right here in this space with our Head of Media Vinny. Right behind you is going to be the innovation station, keep that in mind as you have lunch. I would say, keep some room because it is a massive amount you'll get to sample.