Michele Buck - Chairman, Chief Executive Officer Steve Voskuil - Senior Vice President, Chief Financial Officer Melissa Poole - Vice President of Investor Relations

Greetings! And welcome to The Hershey Company, Fourth Quarter 2020 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host. Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin.

Thank you. Good morning everyone. Thank you for joining us today for The Hershey Company’s Fourth Quarter 2020 Earnings Q&A Session. I hope everyone has had the chance to read our press release and listen to our pre-reported management presentation, 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 a transcript and audio replay of this call. Please note that during today's Q&A session we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, 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 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.

Thank you. Our first question is from Nik Modi with RBC Capital Markets. Please proceed with your questions.

Yes, hi. Good morning everyone. Happy New Year. The – a couple of questions. First on just trade spend and just thinking about, obviously things have been pulled back quite dramatically in 2020 and as we think about 2021, I'm just curious in terms of your discussions with retailors, how your talking about trade spending. One of the things that we've been looking at is kind of this reset of price sensitivity given that no promotion, so the effect would have been in the market for the past nine to 10 months. So just wanted to get your thoughts on that? And then the other question is just, if you can give us a kind of a round-up of the innovation program that has already been announced, just so we can get a sense for the program in 2021? Thanks.

Sure. So relative to trade spending and promotion, we didn't have any meaningful shifts in promotion activity. Our levels for the year were pretty consistent with the prior year. So we were basically flat. The IRI data will support that, so I think there is a little bit of a disconnect in the Nielsen data. So we don't really expect any material changes as we go into next year as well. And then as you look at innovation, certainly I think some of the bigger items we have, Kit Kat flavors which has done exceptionally well for Kit Kat on a global basis. We have the Stuffed Reese’s product and our Reese Innovation tends to also always be quite strong for us. We have a permissible line of products to really address that benefit of better-for-you that we are under developed in across our portfolio, and that will include Kit Kat Thins, which is an addition to what has been an already launch of a successful platform with Reese Thins. We are also relaunching our sugar free line to Zero-Sugar, really focusing on Hershey and Reese and launching Hershey and Reese organic products. So those are the highlights of the year, and I would say overall if you looked at our innovation, the level of innovation is about comparable to prior year.

Excellent! Thanks Michele. I’ll pass it on.

The next question is from the line of Ken Goldman with J.P. Morgan. Please proceed with your question.

Hi, good morning. Thank you. Two from me if I can. First, I wanted to think or ask about you know the early holiday shipments that benefited for Q. Obviously, I think over the 4Q, 1Q ‘21 period it's overall a big benefit to you. So I don't think of it as early shipments, but I am curious, how do we look at the potential for a difficult comparison in 4Q ‘21 or should we expect maybe some of these additional orders that you receive this to kind of revert to normal with your competitors or you know maybe better able to fill demand going forward.

So Ken, if you think about the Easter that we’ll be shipping for in Q4, that 2022 Easter, happens to be one of those incredibly long Easters, and so typically we tend to ship a bit more in the Q4 prior to a long Easter. So we don't expect that there's going to be a material difference from a year-to-year basis because of that.

Thank you, and then just for my follow-up, you know your commentary on cocoa butter costs was I think more constructive than some observes maybe expected, which is great. But I'm hoping you can expand on that a bit, and maybe this is for Steve, just how do we think about you're all in cogs inflation this year versus 2020?

Sure, yes I'm happy to take that one. We are clearly facing, on an all-in basis facing more inflation this year than last year. As you know we’ve got the hedging program which mutes some of the cocoa impact as the LID flows through, and we have some longer term contracts on things like freight and warehousing. But that said, neither hedging or contracting is going to fully cover the exposure that we have in inflation and I think, if I take freight as an example, you know we look at things like demand planning and how important that is, and to the extent our plans deviate from the way volume comes in and have them go to the spot market for example where we have less cover, there is some risk there. So net-net more inflation, you know we've got a pretty good level of cover and that's included inside of our guidance, but we're not fully covered either on the commodity side or outside the commodities.

Great, thanks so much.

The next question is from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Good morning everybody.

Hi Andrew.

Hi! I guess first off it seems as though Hershey’s building in a fair amount of reinvestment spend for ‘21 in both media and other capabilities. Maybe can you give us a sense of the magnitude of this sort of reinvestment and maybe more importantly the ability to be sort of flex up or down really depending on how things play out this year.

Steve, do you want to talk about that?

Happy to take that one as well, yes. So on the on the media side, I’ll say media and SG&A in general, we’re probably looking at something like mid-single digits across those pieces. On the media side, clearly we want to you know defend and extend our share gains and so you know we were thoughtful in how we deployed media last year. We made some reductions kind of mid-year. We actually turned it up a little bit towards the end of the year and we want to make sure as we go in to this year that we've got enough to defend and extend share. On the SG&A side, you know we kind of think about it in two buckets, and I'll say things like you know normal corporate expense, travel will be very tight year-over-year and there – you know these year based budgeting formats, watch headcount, all of that. And then we talk about the investment side. In the investment side we do have some capabilities that we want to continue to fortify, you know S/4 in the ERP program drives some OpEx through the SG&A areas. More expansion of our digital capabilities which came into play quite a bit over the course of last year and anything analytics and insights, but again we talked a lot about them last year as well, but continuing to extend our capabilities in those spaces. And so you know could it slide us up or down? I think as we get into the year and we see how you know the shape of the P&L and we see how the top line delivers, you know we probably have some latitude and flexibility there, but I would say we have pretty firm investment plans at least in those areas as we start the year.

Great! And then just lastly, I'm curious what drove the decision to take a better pricing on sort of one portion of the seasonal business, and should we also assume, I would think that this does not necessarily preclude Hershey from looking at other parts of the seasonal portfolio at some point if in fact you know it deems necessary to do so down the line. I’m just trying to get a sense of what goes into that sort of decision making process? Thank you. A - Michele Buck: So if we step back and think about the seasonal pricing holistically, let me just remind you that we had priced the Halloween portion of the season and Halloween is our biggest season, so that had occurred previously, and that's about, you know roughly call it 10% of our season. And then we mentioned that with the pricing in Holiday, Valentine and Easter, you know we're capturing at least another 10 points. There are certain parts of the season, some of the everyday items that got priced along with prior, instant consumable pricing actions. So at this point in time with this recent pricing action we really have priced almost all of the season in the past year so here.

Great! Thank you very much.

The next question is from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Hi! Thanks for the question and congrats on a really strong year. You provided some helpful color on your cocoa buying and cocoa liquor and butter, but it sounds like these hedges are protecting you this year. Is there an extensive step up in 2022 and it is possible that more pricing will be needed when the full effect of the LID comes into play, not just for you, but maybe for the overall industry.

Steve, do you want to talk about that?

Yeah, I’d be happy to. So I don’t want to get too far ahead and get into 2022. Obviously as we said in the past, our range of hedging could to be anywhere from three months to 24 months and so and that flexes across commodities and so – but I don't want to get too specific in ’22. But as we know, hedging helps smooth the impacts over time. At the end of the day as the LID flows through and sticks, then eventually that’s going to come into play in the cost, and so hedging can smooth that out, but to the extent the cocoa price picks that up, eventually that comes through. Now then that ties into the broader strategy Michele just talked about in pricing and looking at the overall P&L and other things like cocoa sourcing and recipes and things of that nature. A - Michele Buck: And Rob, let me just clarify one thing. So the LID is fully in play this year, so the hedges don't really impact that at all. Part of what's offsetting that as the hedge is we had even possibly prior to the LID going in or taking advantage of you know dislocations and supply and demand throughout the course of 2020. There were times when you know the cocoa market had come down for beans and things like that, so that's really there. Just to be fully clear, the LID is 100% in the cost base for 2021, but you have some of those hedges with supply and demand imbalances, as well as that cocoa butter dynamic, which is really where the offset is. And so as you think about ’22, those will be the two variables to kind of keep an eye on, of what could causes those costs to change, more so than the LID.

That's right.

Okay, I'll follow-up on that. Maybe one follow-up. Can you give us a sense of where you think inventory levels are right now at the trade? Are you still a little bit below normal inventory or are you at normal and may be a little more color on – I think in the prepared remarks you say you might ship above consumption in the first half and below consumption in the second half. Steve, can you help us with a little bit more on that?

Yeah, that's exactly right. You know we ended the year with inventories in the trade of little below historical averages, so as we look to the next year, you know we see that could be a bit of a tailwind in the first half and a headwind perhaps in the back half at the year.

Okay, alright. Well, thank you.

The next question is from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone. A - Michele Buck: Hello!

Hi there! So it seems as though the top line particularly change was better than expected versus the guidance that you gave last quarter. I'm just wondering you know what was favorable versus where you were three months ago in terms of how the results came through in the fourth quarter and then I have a follow-up. A - Michele Buck: Sure. So Alexia, the most significant portion of our over delivery in Q4 was seasons. It was probably about two-thirds of our over delivery, and I would call it somewhat one time in nature if you think about it, so there were two parts to that. One was we did have retailers requesting early shipments, so that they could make sure that they had adequate supply as they came into 2021, so those shipments were incremental. And then we also had exceptionally strong sell through, both for Halloween and for Holiday, and that has kind of a knock on effect where we then have less discounting required you know post the holiday and less cannibalization of the everyday business, so you kind of get back to the everyday business even more quickly. So those investments and the focus that we put, both in terms of media and in store merchandising to drive category growth during the season really paid off for us, but that was the, you know kind of the single biggest factor that was different than we had anticipated.

Right, and then as my follow-up, I just wanted a little bit more color on China. You talked about the change in the go-to-market model there. I think you're talking about using local produces to get the product out. Is that instead of going through the retailers or is that something – I just wanted to understand a little bit better exactly what the changes are over there and also how big is China today as a percentage of overall sales. Thank you and I’ll pass it on.

So really the shift is relying less on a large owned retail sales force and instead really focusing more on you know a master distributor type of arrangement, which is just more efficient and more effective. Clearly we will give up some level of sales. There will be some slippage in taking that approach, but we think it is the most efficient and effective way for us to get our product to consumers. And then relative to the size of China, Steve do you want to hit that?

Yeah, today it's about 60 base – you know 0.6% of company sales and so I think in the past if we go back to early ’20, your right, we said it was about 1% of sales, and if you think about between then and now you got two things; obviously COVID had a pretty big impact on that business for us in the first half, and again strictly because we were concentrated in the gifting space, which was hit early last year and then the second piece is part of moving to the new model and some of those transition changes.

Great! Thank you very much. I’ll pass it on.

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

Good morning, thank you. Just curious to get a little better sense of some of the sustainability of your share gains and just would love to understand how much you feel like it's innovation driven, execution driven, is it the higher marketing spending? It’s some amount, probably all of those, but is it – you know how much of the marketing efficiencies you saw last year? Are you still seeing and is that an important piece of what's driving some of the share momentum in ’21? How should we just think about all that together? A - Michele Buck: Sure. So I think our share gains really are as you mentioned, a factor of many different components coming together. First of all, we do have incredibly strong brand and very strong operating capabilities and executional capabilities. I think as I look at the year, you know we got a broad portfolio and we are able then to leverage that portfolio and pivot as needed to whatever occasion are resonating most with consumers and families right now. So certainly this past year there were a lot of those at home occasions. Things like S'mores where people were staying, being with their family at home in a smaller environment, doing movie night. You know products like Twizzlers. And seasons were it turned out to be incredibly important for consumers during this very difficult time where they wanted to cling to as much normalcy as possible and the seasons are really about traditions and rituals and connections with family and close friends. You know as you mentioned, we also made strong investments over the past several years and a lot of capabilities that allowed us to understand consumers, improved our ability to forecast where consumers were going to go, and then really execute well in our supply chain, apply data and analytics to our sales and retail coverage, data and analytics to our media in ways that we believe some others can't. You know early on we had discussed with all of you that we made that decision to lean in and capture opportunity as much as possible during COVID, take the opportunity and create new occasions for consumers and really partner with our retailers to make sure we were there for them when they need us with our retail sales folks in store stocking shelves and meeting their product needs when some others couldn't, so clearly all of those things together were really important for us. Now, as we look at that I would say, you know we are – you know in the past typically might have been 10, 20 basis points of share in a year. Obviously this year 160 basis points of share and you know 130 on our chocolate business where we already have a 45% market share. So as we look into 2021, we believe that the share growth will continue prior to the last, which is really you know basically up to Easter, and post Easter we believe that the share will moderate as we lap those 20 gains, but it's going to be our goal to profitably sustain as much of the share as we can going forward.

Okay, thank you, that's helpful color. And just a follow-up on your portfolio shaping. You mentioned in the prepared remarks you know interest in better-for-you. Obviously some of how you're doing that is spins and portion sizes that are organic type driven. But as far as M&A how should we think about maybe in broad strokes what to expect from any bigger push into better for you there. A - Michele Buck: Yeah, if you look at our M&A strategy, clearly it is focused on us capturing incremental snacking occasions and some of the ways that we look at that is you know clearly we do have a pretty sizeable business in sweet indulgent type products and as we look at consumers broad snacking needs, clearly you know salty savory and better-for-you are opportunities where our portfolio is under developed. And if you look at our past history of acquisition you would see that many of our acquisitions have been focused in that space. You know Skinny Pop is a great example of that. So clearly that is a focus area for us within our M&A strategy.

Okay, great. Thank you very much.

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

Thanks and congratulations on the year. Could you comment specifically on how much you think of your share gains this year or this last year 2020 was because of the supply chain advantages you might have had versus the competition. If it were supply chain or at least mostly supply chain, you would have expected diminishing share gains through the year, but the opposite seemed to have been the case, and I have a quick follow-up. A - Michele Buck: Yeah, I mean it is difficult in a year like this past year to precisely pinpoint exact amounts to any one factor, just because there was so much going on. I mean clearly we know supply chain was a piece of it. You know frankly though we also believe how we pivoted our portfolio and really shifted spending and shifted focus on our portfolio to the exact right items that consumers were looking for, you know the role that we were able to focus on with season and how much that resonated with consumers during that time. So it's difficult to pinpoint – you know there were opportunities for products on shelves, and so I guess I would say you know I think it's fair to say some of that was probably short term benefits and then there are other components that have somewhat of a longer lasting effect. So for example, if you do well in a season one year and your sell-through was quite strong, typically the buy that you get from retailers the next year tends to be pretty strong as well. You know if you're able to gain shelf space and get incremental items on shelves, typically if they're performing well, you have the opportunity to keep them on a sustained basis. So, well some of the benefits I think are short term, others will have that enduring effect.

Yeah, thank you and just a follow-up on some of the comments you made about the advertising spending, as a percentage of sales going up to 21, clearly there's been a lot of changes out there in terms of the depths of digital marketing in the perhaps more exact return on investment you can get or calculate from those. I'm wondering at this point, after many years of declining, not just for Hershey but for the industry, ad spend has come down as efficiency was more the focus. Do you think that you can get to a point where you can get a flywheel going, where you spend as much or maybe even lean in on advertising as a percentage of sales as you get a better sense of the returns on these types of spending? Thanks.

Yeah, I mean our approach on media spend is, you know this is a category and we have brands that are incredibly responsive to media, and if you look at ROIs on media being driven by scale, profit margin and lift, last responsiveness, we win on all three of those. So we are one of the highest spenders on advertising as a percent of net sales within the industry and we really believe in that. At the same time we challenge ourselves constantly to get more from our money, and so over the years we have transitioned from 100% television advertising, probably 12 years ago to we are now down to probably 40%. I think about 60%, 65% of our spending is digital. Now the other factor that kind of plays in, in addition to being more efficient through digital which enabled us to do a lot of very targeted things such as targeting media, based on how sell-through is during a season or targeting zip codes, etcetera, you have the other factor going on, which is you know media, the cost of media in the marketplace and inflation and kind of playing through that. If you think about 2020, our spending was down a little bit because we pulled back on some parts of the portfolio that we thought you know just weren’t relevant like refreshment this year, so part of our increase is restoring some spend levels in some of those areas, and that's part of what's driving up some of our spending as well.

Got it, thank you very much.

The next question is from the line of John Baumgartner with Wells Fargo. Please proceed with your questions.

Good morning, thanks for the question. Yes, I guess first off Michele, I wanted to go back to the Zero Sugar product. Can you share a bit in terms of you know what's enabling that relaunch? Is there anything there recipe wise that's different and then where do you expect it to price relative to the baseline portfolio and is it fair to think that it's, I guess at least gross margin neutral relative to the base.

Yes, so a lot of the proposition is kind of relaunch, rebranding to – you know think about this as a product that we launched many, many years ago, more as sugar free for diabetics, which is what, you know what that was about, I don't know, call it 20 years ago probably. And really the bulk of the relaunch is about repositioning sugar free in a way that is more contemporary. You know you look at beverages and Zero Sugar and you know lots of other categories, I mean those products are just positioned entirely differently in a much more contemporary way and that's really our goal. We actually think that the products are pretty good tasting too and we're getting good response from consumers, but it is a lot about the repositioning of them. And I'm sorry what was the latter part of your question?

In terms of the profit contribution, is it sort of neutral from a gross margin perspective relative to the base?

Yeah, it’s in the same zip code, and the repositioning isn't going to be a you know a whole new P&L there.

Okay, great. And then just you know a follow-up in terms of retail assortments. I think part of the strategy has been smarter execution that allows for some muscling out of shelf space, the front end from lower velocity and lower profit categories for retailers. But I think since COVID you’ve seen some pretty sharp declines and distribution points for mints and gum. Has anything changed in that environment, whether it's an uptick in hand sanitizers or anything else, that maybe forces you to pivot in terms of how you're thinking about shelf gains to the front end in a COVID world. Thank you.

No, I mean I would say you know mint and gum, clearly there was pressure on mints and gums relative to COVID as a segment. But part of what you might be seeing is how frequently something scans and versus high frequency which can some impact – sometimes impact what distribution actually looks like, but sometimes it's there and not scanning. So we haven't had any kind of material changes in our brand and portfolio broadly. We feel pretty good about our portfolio, largely focused on ice breakers as a key brand, which has strong points of competitive differentiation in the product and does well in the brand. So we are – yeah, we are feeling pretty good about where we are in distributions, overall for us and our brands.

Okay, thanks Michele.

The next question comes from the line of Chris Growe with Stifel. Please proceed with your question.

Hi, good morning. Just had two follow-on questions for you if I could. Just curious, Ken asked earlier about the incremental shipments that occurred in the fourth quarter. Is it as simple as looking at your consumption and comparing it to what you reported to understand like how much that seasonal shipment pattern changed or were there other factors, the inventory replenishment, that kind of thing and like you mentioned some non-measured channels that may have affected your shipments in the fourth quarter.

Yeah, non-measured was the other piece. Seasons was the – you know was the biggest component. Non-measured channel which we believe was driven by inventory replenishment. There was also the minor area of there were more shopping days in Q4 versus the prior year and so that contributed as well.

Okay. Thank you. Then just another follow-on was in relation to the international division. Do you expect international sales growth this year? You talk about achieving market stability in 2021, and I guess I'm curious also on that question excluding China, so to understand kind of how the other markets are faring given the uniqueness of China.

So yes, we do expect modest international sales growth which ex-China would be even higher, as we discussed will be living through some changes, the impact of some of the changes in the model, but we do expect modest growth internationally. Each market is a little bit different. You know we continue to feel good on long term basis about international. It’s an important part of our business, it drives incremental, incremental source of growth for us and then as I said, each market’s a bit different. India we saw some nice rebound and a strong finish to the year. Well certainly earlier in the year India suffered through a lot of COVID related pressure. In Brazil constant currency sales were good. They were double digit, but FX has been a challenge. Mexico really is the market’s that contended or has tended to have continued COVID pressure, where the category sales have remained soft, even though they are improving and a lot of that is driven by two factors, you know store declines, traditional trade, store closures and less of those family celebrations where chocolate has traditionally played such an important role. So it's a little bit of a tale with multiple cities as we look at each piece around the world, but in totality will lead to modest growth.

Okay, thanks for all the color.

The next question is from the line of Jason English with Goldman Sachs. Please proceed with your question.

Hey, good morning folks. Thank you for spotting me in and congrats on a strong finish to the year. A couple of quick follow-on questions, you mostly already covered a lot of ground. First, in response to one question and I forget who asked it in terms of glide path for market share. You mentioned strength up to the period where we entered COVID and then a fade from there. Just for clarification, are you talking about a fade in gain or do you expect your market share to flip into net losses as you give back some of the outsides gains from this past year.

Yes, so I would say our goal – we expect we will continue to gain share through the lap and then once the lap hits, we are going to be focused relentlessly on trying to profitably sustain as much of the share gain that we can. Obviously it's hard to predict what will happen, what will be going on in the market place competitively, etcetera. Category mix alone could pressure our share a little bit, as gum will likely rebound versus ‘20 and we are under developing gum, so that mix shift alone puts a little bit of pressure, and I guess that's probably the only specific thing I’d call out. We will be executing and it’s one of the reasons that Steve mentioned earlier, that we are really making sure we have significant investments this year, so that we invest in trying to maintain those share gains.

That's helpful thanks. And one more related follow-on. I think in response to Mr. Modi’s question, you mentioned that you held your trades; it’s been flat for the year. It’s our understanding that some of your competitors did not do the same. That they actually pulled back on some trade and pulled back on some merchandising activity suggesting that you likely gained share of trade spend, share of merchandising, share of activity in the marketplace. (A) is that understanding well placed to misplaced, and if it is sort of the reality of what happened last year, any indication that some of those folks who called back maybe leaning back in?

Yes, so it is a fair statement that some – we won some competitive merchandising, absolutely, as we had good product to deliver to really deliver for retailers and for consumers. But we really want share in every aspect of the business, you know velocity, promotion, shelf space, season, so pretty much across the board our share gains were pretty pervasive.

Yeah, well done. Thanks a lot. I’ll pass it on.

Thank you. The next question is coming from the line of Bryan Spillane with Bank of America. Please proceed with your questions.

Hey, good morning everyone. I guess just two quick ones on capital allocation. First, share repurchases. I think in the prepared remarks you talked about ‘21 kind of being a more normal year. So are share repurchases or reducing the share count part of the build to the earnings growth for ‘21 or the mid asset. So are we, do share purchases create any of the earnings leverage?

Yes, they do. Again more going back to historic levels, you know recent history. Last year was usual on capital allocation, the number of fronts is being cautious on share repurchase among other areas. As we look to ‘21 and plan this year, we're expecting share repurchase to revert to a more normal level. And again our goal is not to warehouse cash at the end of the day. We want to deploy it for profitable growth and share purchase becomes one levering creating some good constructive tension in that equation.

We’ll warehouse some cash for you in our living room if you'd like. The other just capital spending, I think we're going to be at $550 million for this year and maybe can you remind us, I know it's been elevated because you've been investing in some capabilities and some manufacturing capacity. Just kind of where we are in this CapEx cycle and is $550 million kind of a good number to run out going forward or are we still, is that still kind of reflective of a more elevated capital spending.

Yes it's more elevated, the answer is somewhere in between. If you remember last year we started targeting $450 million to $500 million for CapEx. Again, one of the areas we were a little bit cautious on was projects last year and with COVID and pressure on resources we had to reprioritize some things last year and the net effect of that was a little bit less CapEx in ’20 and that CapEx pushing into ’21, and for the main project there to the biggest ERP being one and work on supply chain. The total project cost didn't change and so it shifted more into ‘21 and therefore you can imagine some shifted into ‘22 as well. And so, but this year it's usually high. I think we're going to see elevated CapEx sort of above our long term algorithm, probably ’23 ,’24 and we're going to talk a little bit more about that and tag me in a few weeks, we’ll give some more color on capital and where it’s headed, but I would expect an elevated level for the next couple of years before we get back down to what's inside of our algorithm.

Okay, and then just last one tied into capital allocation, maybe a bit of a follow-on to question I was asked earlier about M&A. With interest rates being so low, you know it sort of you know changes the deal dynamics a little bit, right. We’ve seen a couple of acquisitions either rumored or on the tape in the last few months that are very accretive, because we are borrowing it at under 2%, in some cases it’s under 1%. So with that kind of backdrop, does that at all impact maybe the appetite of both in terms of just doing deals, but also size. You know we've got this unusual opportunity, there is plenty of liquidity, you know does that at all kind of change maybe the way you're thinking about M&A today verses you know might have been a year or two ago in a different environment.

Sure, I'll start and Michele can add on. I think from an appetite stand point we have the appetite and the second piece, we have great balance sheet. And so we generate a lot of cash, we've got flexibility, we like where we're at and so we are poised for the environment that we're in. I think Michele did a great job earlier kind of pointing to where those hunting grounds are you know we're aware of the external environment and where interest rates are and what may or may not be hitting the market, and we want to be able to participate in that growth just like everybody else. Anything to add to that Michele?

No, nothing. Well said.

Alright, great. Thanks everyone.

The next question is coming from the lines of Ken Zaslow with Bank of Montreal. Please proceed with your questions.

Hey, good morning everyone.

Good morning.

Morning.

Hello!

Yeah, good morning.

Can you talk about your pipeline for Packaging Innovation? How that should impact pricing, not just in 2021 but also 2022, and how deep it is and you're just a thought process on you know packaging innovation and the pricing that's assigned to that.

Yes, so when we think about packaging innovation, you know we think about pack types which are designed to meet specific consumer occasions. So this is – for me I would encompass this as part of kind of price backed architecture, which is as we look to capture incremental consumer occasions how do we have certain packs that enable that, so that there’s a value to the consumer that you know our products now better meet an occasion or a need. If you go back and look at, you know we went from lay down to stand-up bags, not only was it easier to shop on shelves, but it was also, once it got into the home, in the pantry, much easier to use, much easier to see, less messy, those types of things. We will look at pack configurations in terms of you know size, like is there a smaller size than it used for certain occasions or certain demographics versus a larger pack and we'll do that on a brand-by-brand basis. So I would say that our pipeline is largely kind of focused on what we would say price pack architecture and so as such, what we trying and do from a strategic perspective is make sure that we are at least margin neutral. I mean that would be our goal. We can get price realization, obviously that’s the focus, but short of that we want to be margin neutral.

Okay. I appreciate it, thank you very much.

The next question is from the line of Rob Dickerson with Jefferies. Please proceed with your questions.

Great, thanks so much. Just, sorry you had some good question answered there. You know I guess in the prepared remarks you had mentioned the bar business, I guess the named ONE is the brand. You had stated that it seems like some, maybe retailer shifted space to protein drinks and powders right, through just to meet the COVID demand shift. But then also saying, kind of given the discussions with retailers, the expectation is that, kind of that bar business would come back. So just asking, kind of broadly speaking, as you look at that bar category, relative to protein shake powders, are those conversations with retailers like fairly pointed, such that either they are suggesting, oh this is what we're doing for this period of time, but as we get through lets says Q2 or what have you, you know we would look to reallocate back to certain brands and certain bars, or is this kind of more of a you know “yes, it’s going to probably come back, let's kind of wait and see how everything develops” and that's kind of a big question I guess for bars, but then also more holistically for the entire store.

Yes, I mean since retailors are – yes they are always looking to try and optimize their space according to what the current consumer demand is, and so you know – hey, nobody knows how long, what the curve of the pandemic is going to look like. So I can't tell you a specific time when it will shift and obviously it will shift at different times with different retailers too, based on who their consumers are. So I would say it’s less – we have a definitive timeline and you know we are focused on one, on how we make sure that we got the right score behind the brand and the right innovation relative to mini’s which we think is a big idea and also plant based which are on trend, so that as the category does come back, we are well positioned to capture that.

Okay, fair enough. And then you know look, I’m totally impressed with kind of all the different areas that you're focused on in ‘21 right and kind of on the go forward, right where we were talking about a little bit more sugar free potentially, right, obviously there's ESG going, you got some plant based innovation maybe more on the bar side, you mentioned before touching potentially increasingly into baked snacks. So I guess Michele you know the question is, as you step back right, it seems like Hershey continued to evolve right, in more of a broader snacking business, obviously outside of the core chocolate confection. So as we get through ‘21 and we think about ’22, like very simplistically you know would you argue that you know the point here is to kind of get Hershey bigger in the store, in a bunch of different areas such that you are increasing overall distribution points on the go-forward for broader Hershey? Or do you feel like as you step back as a whole company, yes obviously you're looking for a quick distribution, but maybe there's a little bit of in-sell on a skew maybe on Sugar Free and maybe you take one out in Kisses. So I'm just trying to right size kind of that increased distribution opportunity given all the different spaces that you're focused on. Thanks, that’s it.

Yes, so I guess I would say first and foremost you know our number one priority is always our core confection business, because it is the mother ship, it is our profit engine, we have tremendous strength, it's growing within consumer demand and so you know we always start there. And then with that as the foundation we really looked across all the capabilities that we have as a company relative to consumer insight, to taste science, to ubiquitous distribution, all of that and say how could we leverage that to capture more and more incremental consumer occasion and so I think that’s where you know you see us with a targeted focus on, okay something like better-for-you should capture an incremental occasion, an incremental consumer. so I would think about that as kind of more incremental. And then if I look at you know flavor variety on the core, to me that’s a little bit more where we rotate in, we rotate out, you know we have one slot for that, but it’s not a permeate incremental. Some of our expansion into other categories, i.e., better-for-you in savory, yeah I look at those as gaining incremental distribution points more broadly in the store by meeting incremental consumer occasion. So I think incremental occasion is importation for us, leveraging the capabilities, and then importantly making sure that we do a very measured expansion. We want to focus on confection, add-in area and really play to win there, and make sure we don’t spread ourselves too thin, similarly to what I would say we’d do on international. We have a focused select set of markets that we prioritize, that we really want to play to win as oppose to spreading ourselves too thin.

Alright, great. Thanks so much.

Thank you. At this time I’ll turn the floor back to Melissa Poole for closing remarks.

Thank you so much for joining us this morning. I will be available throughout the day to answer any follow-up questions you may have.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.