Hershey Q3 2021 Earnings Call Transcript

Presentation

[Operator]

Good Greetings and welcome to The Hershey Company Third Quarter 2021 question-and-answer session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn this call over to your host, Ms. Melissa A. Poole, Vice President, Investor Relations for The Hershey Company. Thank you. You may begin.

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

Good morning, everyone, and thank you for joining us today for the Hershey Company's Third Quarter 2021 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management discussion, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks. At the conclusion of today's live Q&A session, we will also post the transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially from those projected as a result of the COVID-19 pandemic as well as other factors.

The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman of Board, President and CEO, Michele Buck and Hershey's Senior Vice President and CFO, Steve Voskuil. With that I will turn it over to the operator for the first question.

Questions and Answers

[Operator]

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jason English, with Goldman Sachs. You may proceed with your question.

[Jason English, Analyst at The Goldman Sachs Group]

Good morning, folks. Thanks for slotting me.

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

Good morning. Morning.

[Jason English, Analyst at The Goldman Sachs Group]

Congrats. Good morning. Congrats on a strong quarter, particularly given the strength that you're cycling the prior year. But despite the strength, I can't help, but remember that should have lost some of their sweetness, pre-COVID with a little if any volumetric growth, COVID is clearly rejuvenate demand in your capacity expansion effort seems to suggest that you believe that demand is going to stick. So, my question is why, why should not we believe that's managed just go leak back out the next year or two.

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

Yeah, Jason. So as we look at the growth that we've seen, the category growth has really been pretty broad-based, it's really cut across regions, it's cut across cohort. As we speak with consumers, you know, we hear that some of that elevation of those take-home behaviors and new routines that occurred during COVID, that some of those will stick and sustain, perhaps not all of them, not to the degree to which, you know, people were suggested that they shouldn't leave their homes, but we do believe that some of those will stick and stay around, based on what we're hearing and seeing, and we do also see some of that continued strength as people are out and about, and mobility increases and that we're seeing a pretty good balance there.

The other thing, we've heard from consumers, you know, repeatedly that we've seen over the years, is kind of the emotional aspect of the category, and how it fits with kind of good and Happy Moments and as those happy moment have continued to increase as people I think are starting to believe they see somewhat of a light at the end of the tunnel in us working through the pandemic, those moments of happiness that were really associated with we see continuing. So, that's really our perspective is, a lot of those routines. We think some of which will just continue into the future. That said, there are a lot of unknowns, you know, we certainly none of us know new any of this was going to happen and so we can't perfectly predict the future. As a constant capacity investments, what we're trying to do is be really prudent in our investment strategy. So we leaned in, in places on brands, where we have clearly seen sustained growth over time and there's a lot of proof point that capacity will pay off in REESE is a great example of that. Frankly, there are couple of other places where we had elevated demand that we held for a bit before leaning into that capacity until we really thought we were at a point where we could guarantee the ROI. So, it is a bit of a balancing act, but at this point, we are, we are bullish on the future.

[Jason English, Analyst at The Goldman Sachs Group]

That's helpful context. Thank you and I too like Happy Moments. One more question, then I'll pass it on. In your prepared remarks, you touched on your collaborative space planning of retailers and resulting acceleration growth for both you and your categories. Can you elaborate a bit on that. What's going on the initiative and maybe provide some specifics on the changes that have been enacted by the retailers. Thank you and I will pass it on.

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

I'm sorry, can you just repeat the very first part of the question, I missed.

[Jason English, Analyst at The Goldman Sachs Group]

What your collaborative space planning for retailers.

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

Oh, yeah.

[Jason English, Analyst at The Goldman Sachs Group]

We talked about is in your prepared remarks that give us more specifics, like what is it, what's happening and what are the changes that are being enacted on the back end of it.

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

Yeah, absolutely. So I would say, over the time, given that strong partnership we've had with retailers and particularly a lot of our category management expertise around analytics, we've always partnered with retailers in terms of how to think about the placement of confection in their store and ways to optimize category growth, whether that's looking at heat maps of how people travel through convenience stores or years back when we felt underutilized space, under the checkout counter and convenience stores and we put category there.

Recently, a lot of the focus from our retailers or there's been a big focus around, you know, the labor shortage and thus a push for even more presence of self checkout and so we've partnered really closely with those retailers to increase the presence of the category at self checkout and to maximize the presence in those queuing lines, leading up to checkout and particularly self checkout. I mean it's a perfect fit with some of the struggles they are having around labor and a great opportunity to get the category out there and make sure that people don't miss that chance to have that last impulse purchase. So, I think our retailers are always focused on what's going on in the environment that they need to address in terms of their store layout unfortunately, we've been able to help them with some of that.

[Jason English, Analyst at The Goldman Sachs Group]

Makes a lot of sense. Thank you.

[Operator]

Our next question comes from the line of Andrew Lazar, Barclays Capital. You may proceed with your question.

[Andrew Lazar, Analyst at Barclays Capital]

Great, thanks so much. Maybe just first off, I was hoping you could talk a little bit about what you're seeing in terms of competitive response with respect to the pricing moves that you've announced, and how that impacts your expectations on elasticity, because obviously thus far while early, you know, it would seem like volume trends have held up remarkably well in response to the pricing that you've taken.

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

Sure. So, as we have always seen in this category, it tends to be a very rational category relative to pricing, so our most recent pricing actions are on track and we have seen several competitors take pricing actions this year, including over the past several weeks and we don't really expect that we'll see any material changes in pricing on shelf versus the competition, any changes in GAAP etc.

[Andrew Lazar, Analyst at Barclays Capital]

Great and then I guess more to Steve, I certainly understand all the moving parts on the supply chain right now, which makes getting overly specific right on 22, certainly a bit of a challenge, but if we take it from the top line, consumption trends remain very elevated, Hershey has got more pricing coming through and as that inventory is depleted for really what will be I guess two years in a row, so I would think all these things provide a reasonably good line of sight to at least kind of an algorithm sort of taper at least on sales in 2022, again unless I'm sort of missing something and please pointed it out if I am. On the profitability side next year, obviously you've already talked about, and I understand there'll be supply chain pressures at least through the first half of the year, I guess my question is would you expect that year-over-year gross margin pressure to sort of sequentially improve as you move through the first half as sort of the pricing flows through and you make improvements to the supply chain or our gross margin pressures potentially expect it to be as, let's say, severe in the first half is maybe what you're seeing in the back half of this year.

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

Sure. Maybe I'll just start with the top line as you started. I think you're right, if we look at it today, it's hard to point to something that would say you don't have an algorithm top-line. It will have momentum coming out of this year, we've got a long Easter. You mentioned pricing, which will be a bigger factor next year than it was this year, that we've also would hope we see some capacity improvements would give us some upside and then at some point inventory replenishment. I think that's hard to call, but that we would expect to see some of that, certainly over the course of next year. So still volatile, but I agree with the first premise and then as you get into gross margin, I think there's still Still Our, a lot of moving pieces. You know, some of the things I think we can directionally point to, obviously the pricing will have a tailwind on gross margin. As we look at raw materials, the raw material inflation wasn't a big factor for us this year, we expect that will be a bigger factor as we look at next year. Logistics inflation that we're seeing now, I don't think we see a reason yet for that to break at least through the first half of next year, we'll have less stock market activity because some of the you know will take better position for some of the stronger consumer demand as we were particularly in the third quarter, we still expect to see some labor inflation and as we said in the prepared remarks that we've increased head count to respond to some of the additional demand. Packaging inflation is rising that I think we keep waiting for that to break and that's probably moderated, but it hasn't reverted back to other levels or lower levels, so I think at least through the first half, we're going to see that still remain a pressure point and then we'll see how the path to be plays out in the broader supply chain network, the challenges we have of logistics and trucks and warehousing, and all of those labor implications. So, when you step back from all of that, I'd say the gross margin piece is still has a lot of moving pieces, I think we'll give more clarity obviously when we get to February and provide full guidance. But right now, I'd say particularly through the first half of the year, we're going to see a lot of those cost pressures in place great.

[Andrew Lazar, Analyst at Barclays Capital]

Thanks so much.

[Operator]

Our next question comes from the line of Robert Moskow with Credit Suisse First Boston. You may proceed with your question.

[Robert Moskow, Analyst at Credit Suisse First Boston]

Hi, Melissa I wanted to ask about the decision to reduce advertising for the year. I guess it makes sense in the context of supply chain challenges and if you can't get the inventory where you want, you know by advertise, but that the stock's done well and your sales have done well, because of the market share gains and I just want to know if you think there is risk to market share erosion from this decision, do you think your competitors are doing the same thing, so it won't matter, how did you evaluate the risk and reward of that.

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

Yes. So first of all, I would say there is not a strategic change to our business model. We remain committed to investing in brands at some of the highest levels in our industry across the peer group. So there is nothing that has changed about the strategy, so want to be clear about that. Yeah, as we looked at the decision, it really was driven by the fact that we have such elevated demand and given that the supply chain challenges just wouldn't enable us to be able to meet further demand that we would create through our very impactful advertising. it just didn't make sense, it put more pressure on the supply chain and also we probably wouldn't get a good ROI because we wouldn't be able to fulfill that incremental demand. If we look at our market share right now, we don't think that the advertising cuts that we have executed impacted our share in quarter three and we're not be only ones having supply chain challenges and issues. So overall I think across the board even in the industry, we're seeing a lot of people manage advertising to supply as a challenge and will continue to focus on optimizing it, we will invest as much as we can, as much as we think we can sell. Certainly, we're investing in capacity going forward and we are very agile in how we're handling support behind our brands.

[Robert Moskow, Analyst at Credit Suisse First Boston]

Okay and can you give us any update on Halloween just kind of blow right through inventory or you also challenge to fulfill demand for Halloween, just like other products.

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

Yeah, so it is a very strong Halloween season, the biggest that we've ever had, with very strong double-digit growth on top of the strength that we had last year. We have done our very best to get as much product out there as possible. Certainly, I would say supply pressures hit every aspect of the business. So Halloween season would be a piece of that, but we are really excited about the growth that we've seen year-to-date, both in the category as well as on our own business and seeing lots of very picked over out there as a mountain stores going to be a good Trick-or-Treat based on everything we've heard from consumers as well as people really fluff back to that behavior.

[Robert Moskow, Analyst at Credit Suisse First Boston]

Okay, thank you very much.

[Operator]

Our next question comes from the line of that Ken Goldman, JP Morgan Securities. You may proceed with your question.

[Ken Goldman, Analyst at J.P. Morgan Securities]

Hi, thanks so much. I wanted to start by asking about your perception of your labor relations right now, we've had a couple of strikes, obviously in the food and home industry. So I'm just curious for any updates, how you see the risks there and so forth.

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

Yes. So, absolutely, we are very focused on our labor in the first and foremost, I would just want to again publicly acknowledge and thank our manufacturing employees, we have folks in our plans, who have been with the company for 20, 30 and 40 years and it's really their focus, their dedication from the very beginning that has enabled us to demonstrate and deliver the growth that we've been able to during this very dynamic environment. So we have very long focused and believed and operated in a way that we believe we have the best advocates for the needs of our people. We are in constant communication with our employees and we're really focused on our total employee value proposition with those employees. We know that we have highly competitive wage rate. We have excellent benefits and we routinely benchmark all of that, but we're also very focused on the softer factors that are very important to our employees and that includes, especially during these times of global supply chain challenge, work life balance, stress management, flexibility in hours, being able to get time off and so we have enacted a lot of strategies to really trying to help with that. We have an always-on recruiting approach and we have really amplified our recruiting efforts this year to be able to successfully manage through the challenges and increase our net headcount. We've also leveraging analytics to, as I said, understand some of the things most important to our workforce. So we're very focused on that. We are very focused on prioritizing the needs of that group and continuing to look at ways that we can optimize the situation in terms of supply and demand. So we feel pretty good about that.

[Ken Goldman, Analyst at J.P. Morgan Securities]

Great, thank you for that and then a quick one for Steve. Steve, year-to-date your corporate other expense line has been up fairly meaningfully from both 2020 and 2019, I realize that grows somewhat in line with sales. But I'm just curious how we should think about when sort of an ongoing annual number for that corporate line is, especially as we think about modeling 2022, are there any potential one-time headwinds we should be thinking about that maybe go away next year, or is this kind of a good run rate to think about yeah.

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

You'll see incentive compensation is one of the big pieces in there and as we turn the page to next year that will be one item that resets. Otherwise there's not as much change we talked about this year, we had some planned investments in ERP and digital, will have some of those kinds of investment I expects next year. We also had a little bit heavier medical claims and benefits impacts this year coming off of COVID, so that may or may not continue next year, for pricing incentive reset will be the biggest year-over-year change that we start the next year.

[Ken Goldman, Analyst at J.P. Morgan Securities]

Thank you.

[Operator]

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

[Bryan Spillane, Analyst at Bank of America Merrill]

Hi, good morning everybody. So maybe just to tie one more up on 2022 and I guess, Steve, just below the operating profit line this year, there has been some benefit from interest expense being lower and so I guess my question is just is we're looking in the next year, and we're just looking at our models below the operating profit line. Is there anything that we should be thinking about in terms of puts and takes there.

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

We not, nothing major. I think if I were to look at your tax this year, it has been lumpy, but if I look at where we sort of set the final guidance for the year from a tax standpoint, and I look to next year, I'd expect relatively similar level for next year. You know, we had some one-time was this year that will not recur next year. We talked about it in the second quarter and to some extent this quarter as well. So I can take those out and I look at the finishing tax, position I see I have to same interest expense, but I don't expect a lot of change by flat year-over-year. So I hope that will have not much movement year-over-year, other than the one-timers.

[Bryan Spillane, Analyst at Bank of America Merrill]

Yeah, that's helpful and then just a follow-up on the capacity expansion. I guess 2 questions related to that one is, what type of investment is it, meaning is it like physical like actual physical product production lines Is it investment in like further down the manufacturing or like packaging capacity or just trying to get a sense of actually what type of capacity you're adding.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yes, we're adding capacity on both in terms of product production as well as packaging across multiple brands. I think we spoke before about building our agile fulfillment center that is up and coming online. So it's really across the board.

[Bryan Spillane, Analyst at Bank of America Merrill]

Then if we're thinking about, or if you could give us a sense of what is the capacity now that you're planning to add just where you stand now in terms of like capacity utilization or available capacity and I guess what's underneath my question is we've been sort of adding incrementally to CapEx over the last couple of years and just trying to getting an understanding of whether we're going to stay in this elevated cycle for a while or are we getting to the point where you feel like you're going to have enough flexibility in capacity.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

I'd like to start by saying, capacity utilization varies by brand and piece of the business, so each brand is in a slightly different position. We certainly have invested several hundred million dollars to install at least design new lines since the pandemic began and we do have more planned for 2023 and 2024, but Steve, do you want to talk a little bit more about where we are in that total investment.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Yeah. You look back, really the last 2 years and this year, we have done a lot of infrastructure spending. So we are going to talk about the agile fulfillment center. We've got a Canadian DC that's in processing course, ERP transformation, which is a big component as well. Now, I say, we have to finish those projects pivoting more towards the capacity side, so I think, like we talked about machines packaging, so far we haven't had the need to build buildings and infrastructure of that sort. But as we look at the total next year as we talked about, we have a slight increase versus this year from a CapEx standpoint. We really due to project timing this year more than anything else and then as we look further out, I will give more guidance on that as we get into next year.

[Bryan Spillane, Analyst at Bank of America Merrill]

Okay, thanks. I'll leave it there. Thanks everyone.

[Operator]

Our next question comes from the line of Nik Modi, RBC Capital Markets. You may proceed with your question.

[Nik Modi, Analyst at RBC Capital Markets]

Thank you and good morning everyone. Melissa, I wanted to ask about market share. If you could just give us some context. Obviously, I think a big question has been, how much of the share gains Hershey has had over the last 12 to 18 months and how much of that will stick it looks like quite a bit of sticking. So can you just talk about where you see the most stickiness where things have retrenched and then obviously discussions are taking place now about 2022 shelf allocation, just wanted to get some of your early thoughts on how you think your progress there.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yes, sure. So since the pandemic, we have been able to hold on to about 50% of the market share gains that we had realized. We see certain areas of the business where those numbers are very strong, seasons in particular as we mentioned in our remarks, we had gained 500 basis points and we held on to about 75% of that, take-home also has been very strong in terms of our retention. so we're pleased with what we've been able to hold on to and as we continue to unlock more capacity and reinstate some of that advertising, we believe that we'll see some continued strength going forward.

[Nik Modi, Analyst at RBC Capital Markets]

Then just a follow-up on assortment, because I know that's been a big area that retailers have been focused on given all the supply chain challenges. So as you kind of engage with retailers regarding space in with some of your initiatives, how are you guys thinking about your overall assortment on the shelf.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yeah. So I would say we know that assortment bags are really big sellers with consumers and there has been a trend toward that particularly during the seasons and the especially during Halloween. So we have definitely seen that part of the category tick up relative to assortment bags. If I look broadly at assortments and what is on the shelf, what we've been trying to do is to optimize our portfolio of SKUs for right now based on what consumer demand is, where the demand is and availability of capacity and we really prioritized a lot of our core items that the core of the core of the core items which are the highest-velocity item, even to the point where we're focusing in some places on shelf you will see double facing of those items as opposed to the presence of perhaps some second or third tier item. So we spent a lot of time on this and we think we've taken a really smart approach that has enabled us to generate that very positive demand and at the same time maximize the available output that we have on capacity and on supply.

[Nik Modi, Analyst at RBC Capital Markets]

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

[Operator]

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

[Michael Lavery, Analyst at Piper Jaffray & Co.]

Good morning. Thank you.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Good morning.

[Michael Lavery, Analyst at Piper Jaffray & Co.]

I just wanted to come back to the trajectory of capacity relief. I know you've quantified the de-load hit for this year and just in terms of, at least how you're planning for it, assuming now that all set for next year, can you give a sense of how you expect that to unfold and just how soon you can start to see relief and reloading retailer inventories.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Steve, you want to add anything?

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Yeah, I think it's hard to call exactly how that's going to phase over next year. You know as we've talked about in the prepared remarks, we've got capacity that's come online this year, we've got more coming online next year, I mean I think between consumer demand and our capacity coming online, it's going to be a challenge to kind of quarterly profile that. We'll share more in February, we'll have a better picture at that point.

[Michael Lavery, Analyst at Piper Jaffray & Co.]

The issue more of the production lines or labor or is it both.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

It's a bit of both, labor only from availability like everyone, we've done a lot of hiring this year, we talked about it again in the prepared remarks, we've increased head count. But we've also seen more attrition than we've had in the past. So there is a labor component, but there is also a machine capacity components.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yeah. Also say there has been a logistics and shipping component as well, although we've been able to take some actions and have seen some improvement on that.

[Michael Lavery, Analyst at Piper Jaffray & Co.]

Okay, thanks and you mentioned in the prepared remarks about the strength in unmeasured channels and just how your total sell through is stronger than what we see in the measured channels. Can you give a sense of, if there is any certain products or channels in particular driving that and just how sustainable it might be.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yeah, I mean we're seeing at the up versus the pre-pandemic levels and I think over 2 years, it's relatively in line with what we would call as normal. So low single-digit growth is kind of what you should be thinking there.

[Michael Lavery, Analyst at Piper Jaffray & Co.]

Okay, thanks a lot.

[Operator]

Our next question comes from the line of Alexia Howard with Bernstein. You may proceed with your question.

[Alexia Howard, Analyst at Sanford C. Bernstein]

Good morning, everyone.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Good morning.

[Alexia Howard, Analyst at Sanford C. Bernstein]

Great so two questions from me. Firstly, you mentioned in the prepared remarks that some of the emerging markets still holding up well, I wonder if you could give us a quick tour of India, Brazil and Mexico. How large are they collectively and one of the main initiatives in those areas and then I have a follow-up.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Steve, you want to talk about the size.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

The 3 markets are doing well. I think we start the same point that I think on the second quarter call, but we're gaining share in all 3 of those markets in our key brands. So we're pleased with the progress that we're making. You can continue to see aside from the top line the benefits of some of the go-to-market work including the model in China, but also efficiencies in the other markets. So we're pleased with the way things are going where we look to the 4th quarter, some of the same capacity challenges that we've seen in the US and North America are going to have some impact on those markets as well. But really pleased with the distribution gains, we've seen the velocity and the share across those 3 markets.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yeah, I think in terms of the key initiatives. I would probably the bucket them across in terms of it is investing in the core, so India, we're still focused on the chocolate expansion and broadening that. In Mexico, we have both strong chocolate portfolio as well Peru, Puerto Rico in the sweets as area and Brazil, continuing to fill out our portfolio we launched Halloween in Brazil for the first time, we had a premium dark line that came out in Brazil, a while back that's been very successful and across all of those mark. Investing to continue to build those brands and to build distribution, I think are really the key priorities there.

[Alexia Howard, Analyst at Sanford C. Bernstein]

Great and then as a follow-up. I didn't see any reference to the e-commerce channels in the prepared remarks this time around. Has that channel slowed down materially, obviously it was very elevated during the pandemic, I'm just wondering what's happening over there and whether that's becoming maybe less of a focus this year.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

Yeah. So overall I think perhaps not totally unexpectedly from a broad consumer perspective overall trips to stores, both Brick-and-Mortar and e-commerce are up. Both versus 2020 and 2019, in store trips have pretty much rebounded to the pre-pandemic levels and in e-commerce what we've seen is the trips have largely maintained versus last year, but we have seen the dollars per trip go down as many of those consumers who were more exclusively purchasing in e-commerce shifted more of their spend back into Bricks-and-Mortar, most of the e-commerce shoppers are not exclusively e-commerce, they shop omnichannel, so we saw some of that shifting occur. You know relative to our business in particular our e-commerce retail sales are up versus last year with our omnichannel partners despite the significant growth that we had year ago and also, despite the significant growth that we're seeing in Bricks-and-Mortar as well.

[Alexia Howard, Analyst at Sanford C. Bernstein]

Great, thank you very much. I'll pass it on.

[Operator]

Our next question comes from the line of Steve Powers with Deutsche Bank Securities. You may proceed with your question.

[Steve Powers, Analyst at Deutsche Bank Securities]

Yeah, hey, thanks, good morning. With the -- back to the capacity question again just with the timing of exactly when you might be able to alleviate pressure on those most capacity constraints brands hard the call, as you talked about with Michael. I guess I wanted to cycle back to Rob's question just get a sense for how long you think this lower run rate on marketing could continue and how long you'd be comfortable letting it run, just given the competitive backdrop.

[Michele Buck, Chairman of Board, President and CEO, at Hershey]

I mean I think relative to the marketing investment, I mean we are continuously being agile and flexible and as we are able to either bring new capacity online or make adjustments in how we are operating, because we've had a lot of focus in things like freeing up additional capacity by reducing changeovers by focusing on core SKUs, so I'd say we're in a period of continuous improvement, both in terms of capacity investment and maximizing the capacity we have. So we closely monitor that, so that as we do see upticks, we can then quickly reassess and adjust our spending accordingly.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Yeah, all I would add is we talked in the past about the analytics that we have around our media investment and we put a lot of our own investment in building out that analytics capability, so I don't think of the media types of a sort of a peanut butter approach. It's very surgical very precise to the areas where we have capacity constraints and very protective of the high ROI core brand advertising.

[Steve Powers, Analyst at Deutsche Bank Securities]

Yeah, I mean, that makes sense. Just if I could how much of that analytics and those considerations are driven by your sort of aspects of their internal to you and your control in your capacity versus versus the competitive backdrop, right so right now, it sounds like you and competitors are all in a kind of a similar spot and so as you pulled back, not overly concerned about share of voice being loss etc. But if you thought you were more off-size on capacity relative to competitors and picking things up, how does that factor and would you be ramping up ahead of capacity on marketing, just to maintain that share of voice or how do you think about that.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Yeah, our retail sales team at very strong precedent stores, so we between what's on air and what's on shelf and what's being promoted, we have very good data coming back on what's happening from a competitive set in all of that does feed into the decision as we think about how we're going to optimize our marketing and media spend.

[Steve Powers, Analyst at Deutsche Bank Securities]

Okay, great and just one last question if I could, you called out the price increase executed recently in the US and your expectation for pricing to play a bigger role in next year's growth, which makes good sense. Is there any color you can provide us in terms of the cadence of how you expect net realized price to flow, is there going to be relatively even throughout the year, is it doesn't build just on any context there would be helpful. Thank you.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Yeah, we're going to have more in the first half of '22 and you think about the most recent price increase will kick in in the first quarter, plus we'll have carryover from the price increases that we announced earlier this year. So the first half will have more price relative to the back half.

[Steve Powers, Analyst at Deutsche Bank Securities]

Perfect, thank you.

[Operator]

Our next question comes from the line of Jonathan Feeney with Consumer Edge Research, LLC. You may proceed with your question.

[Jonathan Feeney, Analyst at Consumer Edge Research]

Hey, good morning and thanks. Just a quick one for me. I'm trying to understand where you for quarter three and your numbers if I'm off by a few days in your numbers probably in mind, but clearly I have 97 for pricing in measured pricing in quarter three US scanner channels and that's significant when pricing broadly is at retail, is ahead of what wholesale pricing appears to be, what's going on, and does that tell us something about the kind of pricing you'd expect to flow through and is there any possibility that retailers are trying to margining up a little bit, at least relative to what you would consider standard operations. Thanks very much.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

We're not seeing retailers margin up in a material way. What you do see a lot of impact of mix in retail, I mean, you really got to click down to get down the pack type and we do see what's happening and when you get down to that level, it's consistent more than what you see when you look at just at the top level.

[Jonathan Feeney, Analyst at Consumer Edge Research]

Got you. So you say, it's more of a mix phenomenon --

[Steve Voskuil, Senior Vice President and CFO at Hershey]

Looking ahead,

[Jonathan Feeney, Analyst at Consumer Edge Research]

Cool, thanks very much.

[Steve Voskuil, Senior Vice President and CFO at Hershey]

You bet.

[Operator]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Ms. Melissa Poole for closing remarks.

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

Thanks so much for joining us this morning. We will certainly be available throughout the day for any additional questions you may have. Have a great day.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Melissa A Poole, Vice President, Investor Relations
• Michele Buck, Chairman of Board, President and CEO
• Steve Voskuil, Senior Vice President and CFO

Analysts

• Jason English, The Goldman Sachs Group, Inc.
• Andrew Lazar, Barclays Capital
• Robert Moskow, Credit Suisse First Boston
• Ken Goldman, J.P. Morgan Securities
• Bryan Spillane, Bank of America Merrill
• Nik Modi, RBC Capital Markets
• Michael Lavery, Piper Jaffray & Co.
• Alexia Howard, Sanford C. Bernstein
• Steve Powers, Deutsche Bank Securities
• Jonathan Feeney, Consumer Edge Research