Greetings, and welcome to The Hershey Company First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin.

Thank you, Melisa. Good morning everyone. Thank you for joining us for The Hershey Company's first quarter 2020 earnings conference call and webcast. We'll begin with remarks from Michele Buck, Chairman, President, and CEO; and Steve Voskuil, Senior Vice President and CFO, followed by a Q&A session. During the course of today's call, management will make forward-looking statements that are subject to various risk and uncertainties. These 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 company's SEC filings. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information does not intend 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. It is now my pleasure to turn the discussion over to Michele.

Thank you, Melissa. Good morning everyone and thank you for joining us today. I hope, first of all, that you and your loved ones are safe and healthy. We are all experiencing an unparalleled and rapidly evolving global pandemic. Our thoughts go out to those that have been impacted and we'd like to extend our sincere thank you to all of the heroes working to keep people safe during this difficult time. As you all know, food companies play an important role during this crisis, helping to ensure a steady food supply and supporting local economy. We recognized that Hershey is not only a food manufacturer, but also an important link in the broader food supply chain, particularly with farmers and other raw material suppliers that rely on us. I could not be more proud of The Hershey team and how they are responding to this situation, first and foremost, with the care and support they are showing for each other, their families, partners, and communities. But also with their relentless energy and passion to continue to safely operate with excellence. I'd like to extend a heartfelt thank you to all of them, especially to those in our manufacturing plants and those working at retail to make moments of goodness for our consumers during these difficult times. The situation continues to evolve so rapidly that it's difficult to predict the future with much certainty. While comparisons can certainly be drawn to weather related disruptions or natural disasters or recessions, the reality is that we have never seen so many factors at play at the same time on such a global scale. But we are committed to being transparent about what we are seeing in the marketplace and what we are doing to respond. We will continue to be forthcoming as…

Thank you, Michele, and good morning, everyone. I hope you, your families and colleagues are safe and well. I plan to start with highlights from our first quarter results, including the impact from COVID-19 and then pivot to expectations for financial performance moving forward in light of the evolving pandemic. During the first quarter, recorded net sales increased 1% versus the same period last year, with organic constant currency sales growth of 0.5%. This was in line with expectations with only a modest impact from COVID-19. North America organic constant currency sales growth of 1.2% versus prior year was driven by net price realization as expected, a shorter Easter offset solid everyday sales grow by approximately one point in Q1. We did see a larger increase in consumer demand from stock up trips at the end of the quarter with total Hershey U.S. retail takeaway, up over 10% in March. However, this did not materially contribute to net sales growth in the quarter as retailer inventory was depleted to satisfy much of this demand. As we look to the balance of the year, we did not expect COVID-19 to permanently change our base inventory level assumptions. Though, we expect continued volatility and trends over the coming months due to the virus disruptions. The International and other segments reported in organic constant currency sales decline of 5.8% versus the prior year quarter. This was largely attributable to COVID-19 related softness, particularly in China, also included in this segment are, our own retail location, and our travel retail business that Michele mentioned earlier. While these businesses so minimal COVID-19 impact during Q1, we expect a more significant impact in the second quarter, given the shelter in place restrictions that were implemented in late March and early April. Now, turning to profitability for…

Thanks Steve. As we look ahead, we expect the environment to remain volatile as the COVID-19 pandemic and consumers financial security both evolve. But we remain confident in the strength and resiliency of our category and brands over the long-term, and our remarkable leaders and employees who are executing against our strategies, reacting to current changes, and capitalizing on the opportunities that this change presents. The Hershey Company has more than 125 years of experience managing through tough, fast moving, and unprecedented moments in time; two World Wars, economic depressions and recessions, and other momentous events. Each time we plan, we took action, and we learned and adapted. And we kept our focus on making the best decisions for our employees, our partners, our stockholders, our communities, and the consumers that we serve. This moment in time is no different. It calls for us to be our best working together with compassion and understanding to do what's best for our global society. And we believe that this resilience will only make us stronger in the days and the years ahead. Steve, Melissa, and I are now available to take any of your questions.

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good morning, everybody, and hope everyone is doing well. And thanks for a lot of granularity in the prepared remarks.

Thanks, Andrew. Good morning.

Good morning. I want to start with -- obviously, things are still incredibly fluid and they will remain so for quite some time. And none of us know exactly how or if, you know, ultimately, consumers will alter the way they sort of -- alter the way they celebrate key seasons and things. But you mentioned Michele, a couple of them a couple of actions to sort of mitigate risk or making some smart choices around being able to pivot quickly if there are changes. Adding three of the things you mentioned, were optimizing the portfolio, potentially some changes to net price realization, and activation timing. I was wondering if you could just maybe comment just briefly on each of those. Just want to make sure I have a sense of what are some of the levers you could pull if there are some changes in the way we all think about and celebrate key holidays.

Yes, absolutely. So, relative to Halloween, I know that you were asking about -- and there was actually a fourth lever of e commerce. So, let me talk about each of those. So, first of all, we are looking at the portfolio because we have seasonally dressed items for Halloween. We also have in the season, everyday assortment bags that play a key role. So, one area we're looking at is how do we mitigate potential risk of not knowing what consumer behavior will be by really optimizing what's the right balance of seasonal and everyday type items? We're evaluating the price points relative to understanding that some consumers may be financially strapped. How do we look at some of those higher price points and make sure that we have enough entry level price points and that the balance of the portfolio across price points, accounts for the fact that there will be some consumers going through financial pressures. Activation timing is really trying to keep our pulse on -- we know that we can impact these seasons based on when we set the season, we know that consumers will buy a season to bring the product in their house and there's some celebration in the house before the community events of Trick or Treat. And so leaning in a little bit earlier on some of the timing is a very reasonable option that we're discussing with our retail partners to be able to capture more celebration outside of just the Trick or Treat occasion. And then lastly, we are seeing e-commerce really dial up in Easter we saw that and so we are increasing our investments and activity to really have a great presence in Halloween, the right portfolio, bundled solutions across the needs for Halloween. So, those are really the key actions there.

That's very helpful. And then just follow-up, I think you mentioned the number of 6% of sales was for food service, some of the retail locations, and I wasn't clear, does that include also China or was China separate from that number?

Yes. No, that includes China and also our world travel retail business, which of those stores that -- product we sell in duty-free stores in airport.

Great. Thanks so much. Hope everyone stays well.

Thank you. Thank you.

Thank you.

Thank you. Our next question comes from line of Robert Moskow with Credit Suisse. Please proceed with your question.

Hi. Thank you for the question. I appreciate it. I guess -- there is a lot to cover here. Let me ask about 2Q. Is your visibility better for 2Q than it is for the rest of the year? And can you give us -- maybe Steve, some of the puts and takes here. The gross margin benefit you've got in the first quarter, does that come out of 2Q. And then secondly, the retail sales growth as measured by Nielsen was really high, much higher than your shipments. And is there any timing impact with respect to 2Q like will that come back at all or is that just Easter being a week earlier. Thanks.

Hey, Rob, let me start by addressing some of that. So, first of all, I would say we do have greater visibility to Q2 because we're already halfway into the quarter. So we do have stronger visibility there. As you may recall, we had planned for a difficult Q2 prior to COVID as a result of some of our year-on-year lapse. And then our decision to close our retail locations for most of the second quarter, that's a known that's within our control. Certainly the impacts that we're seeing with restaurants closed in the second quarter that's a known that we can see the known impact on food service, the reduction in flights, we can see that that's a known relative to travel retail and then we also had some elements of cost that are knowns which include manufacturing and retail incentives, one-time costs on PPE and safety protocols. So, we do have a lot of visibility around those things. Relative to the kind of the gap or the disconnect in Q1 between retail and shipment, let me address that and then I'm going to let Steve make some other comments about Q2. If you look at Q1, you can really break up that differential with about half the differential with retail being ahead of shipments was driven by Easter. As you know, we always have Easter in Q1, but the amount of Easter that gets consumed in Q1 is all dependent on the timing of the Easter holiday. This year, Easter was a bit earlier than last year and therefore, much more of the season was actually consumed, taken away in Q1 versus last year. The other half of the differential in the retail sales to shipments, part of it is innovation. We shipped Take 5 and Kit Kat Duos in December to set up for strong merchandising in Q1. So, you got shipments in December, you got the takeaway in Q1, and then the other component is some inventory.

Yes and I want to add, of a good complete answer. We have good visibility into the costs I think for Q2 and Michele went through most of the things like the incentives and the sanitation are well known and we talked about those in the prepared remarks. The productivity piece, the 20 that we saved in Q1 doesn't come or doesn't go away in Q2, but we would have expected to add to that, and you need to grow and that's the piece that won't happen that we had in the plan. And then maybe the third piece that we touched on a little bit sort of implied as we talked about the top line as there is probably going to be some negative mix impact coming through, again, thinking about refreshment in convenience store impacts in the total mix. And that's probably a $5 million to $10 million gross profit impact for the year.

Okay. I do have a follow-up. You mentioned your in-store execution and your sales incentives as a way to maybe mitigate some of the category declines and take share. But are some of your retail partners, limiting the amount of people that will allow in the stores, just for social distancing reasons and does that impact your execution at all?

So, some of course are, but as we've worked out with our retail sales reps and partnered closely with retailers, even before that we had worked with them with a lot of our partners to have our team go in during off hours to try and bring our product and set displays when they're either work consumers in the store or at the very lowest periods of time. So, I would say, well, there is some impact. I would say, largely we've partnered really closely with retailers to work around that, both in terms of the safety and social distancing of our employees as well as helping the retailers to kind of protect and manage the number of people in their store. But largely, they've been really supportive and appreciative of the extra help which they desperately need obviously as consumers are purchasing a lot.

Got it. Okay, thank you.

Thank you. Our next question comes from the line of David Driscoll with DD Research. Please proceed with your question.

Great. Thank you and good morning.

Hey David. Good to hear from you.

Good morning.

What a pleasure, thank you. Good to be here. So, let me follow-up on Rob's, because I -- while I think you guys gave a good list of things in 2Q. Maybe there is some numbers that you gave that I feel like were annual like the PPE expense, the personal protective equipment and then something specific to the second quarter. So, I'm just a little confused on what expenses were allocating to the second quarter that you know of right now versus the sales side. And then can I can I just follow-up on this. I mean you've said it I think twice now, but I still think I'm not clear, it sounds like there are some -- there is at least one positive with how the retailer inventories ended at the end of the first quarter. And I think you said in the script that you haven't made any changes to your retailer inventory assumptions. So, that sounds like there is going to be a recovery of those retailer inventories in 2Q, which would be favorable to sales. So, again if you -- I apologize here, I do appreciate you've said this, but are you saying that Q2 sales are maybe a little bit better than expected versus where you previously had it, but on the expense side, that's significantly more negative because of the PPE costs, the incentive costs. And then there is I think a couple of other items that you wanted to call out right there in 2Q that we're hitting it the mix. Sorry. Appreciate it. The mix to what's going on in the business? Thank you.

Yes, David. The large majority of the cost increases really do hit in Q2. If you think about the biggest pieces of that the manufacturing and retail incentives, one-time costs around PP&E, the pull back on productivity was around Q2, there is some mix impact with the pressure around refreshment and C-store. And so if you look at that, by far the biggest impact is in Q2. Some of the PP&E and safety will continue throughout the year. And then there are some potential offsets, less travel that will have the benefit of throughout the year. We continue to kind of look at trade in DME optimization. There could be commodities, but not a large number. And as it relates to the inventory, I think, my gut would be that at some point we get a little bit of that back, but we don't know for sure and we definitely don't know that it will be in Q2. In fact, if I was just looking at what's going on in the world right now and at retail, my gut would be that likely wouldn't be in Q2, but instead, would be some point later in the year.

All right. That color is really helpful. Just one follow-up from me. I don't think you said how your China business was performing in April. Is there any insight we can gain right there? Are you seeing any sign of recovery? I mean a nearly 50% decline in that business in Q1 is really large. So, is there any color you can give us on how 2Q might shape up for Hershey China?

Yes, I mean it's better than we anticipated. It's better than we saw in February, but it's clearly in a ramp-up recovery. So, it's not close to back to normal yet. But we are watching that on to leverage any insights and I think the biggest insight there is just the move from offline to online is very real, it's continued and just like we think it will here in the U.S.

Thank you so much.

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

Good morning. Thank you. My first question is, is there anything you can do to protect yourself right now, whether it's buying product ahead of time or potentially considering diversifying your geographic sourcing. Because there is obviously Western Africa has not been hit very hard by COVID yet. There have been some suggestions that maybe it will get hit harder later in this year. What are your concerns about that? Just given how much cocoa you source from one region and, again, what can you do to maybe mitigate some of those concerns, potentially?

Yes, right now our supply chain team has done a fantastic job and so aside from cocoa some of our more specialty small ingredients even certainly in the first quarter as COVID starting to get traction they bought some of those ahead to get ahead of it. Right now, I think we feel pretty strong about our cocoa supply, I can tell you our procurement team is very deep into that market on a good day, and they are even deeper here in looking at alternative suppliers and so. So, far harvest looks strong and we don't see anything in the medium term, that causes a lot of concern on cocoa supply.

Yes, what we need for the year, like those quantities are already here. So, they're out of that region. So, as we look at this year, we're in good shape and that gives us time and we're working closely with those governments as well. Obviously, this is important crop for that geography and we're working closely with them to make sure that they are set up to handle it.

Okay. Thank you for that. And then one quick follow-up. Thank you for the color on what's in the 6% number in terms of branded stores and World Travel locations and so forth. One question that I was asked, I wasn't sure how to answer was, how big our movie theaters, sporting events, things that maybe are not captured in Nielsen, first of all, is that in that 6% number as well and second, can you give us any kind of any kind of rough size for what you would think those types of channels might be. I know I'm being vague with the question there.

No, that's okay. Some of that falls into our broader specialty business and that might be another 2% to 3% of sales again some impact.

Great. Thanks so much.

Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone.

Good morning.

Good morning.

Hi. So, again focusing on the trends that you're seeing in Q2 now that the doctor settled on the panic-buying phase. Could you give us by channel, how things are looking. So for example, how big are you overall in e-commerce and how quickly is that growing right now and it's not different from the past. The C-store channel I think you mentioned that was about 15% of sale how soft is that right now? And we assume that the food service in China that 6% of the business as well down at the moment. And then also taking a look at it by product type, if you think about import versus seasonal versus every day, how fast are each of those growing or shrinking if I imagine some of the maybe relative to what you would normally expect? Thank you.

Okay. Let me do my best on that one to try a great set out. So, C-store is about 15% of our sales. It's declining about 10%. E-commerce is about 2% of our sales and we're seeing the growth rate double there. Now, of course, that's just what we've seen recently. So, all of these are the recent trends. So, of course, I can't predict exactly how that will play forward. Walmart and mass channels and dollar stores, grocery have had pretty good trends as people are really shopping there. They are frequenting those places and also all of those places tend to have or many of them and e-commerce leg that's being leveraged. I'd tell you the other place we are seeing some softness is around drug. So, drug and C-store are the two channels that I think we've seen the biggest softness, plus there were initial huge stock-ups of the initial stock up behavior with huge at clubs, that's moderated a bit. Melissa might have to come back and give you maybe more of the details around the specifics on each piece of trade. But I would say C-store is 15% and drug in that probably 8% range of our total business, and those are the places that are most pressured and then, of course, the rest kind of fall in the middle. If we look at take impulse, take-home and seasonal clearly the softness on impulse is a little bit less than you see in terms of the 10% decline in C-store, because we do still have business coming through, food, drug and mass, so less than that 10%. Take-home obviously driving our growth and seasons we had a really good Easter. So, at this point, what we're gearing up to do is to -- we met our expectations, our sell-in, our net sales shipments, we fell just short on takeaway. So, seasons, I call kind of a wash and then take-home is where we're seeing the strength. But Melissa can give you more details I think offline on that.

Perfect. And then a super quick follow-up. I think you said that Easter was down as expected, because of the shorter season, but it was also a bit weaker than expected, presumably because of the pandemic. Is that the way that we should be thinking about it?

The sell-in was on expectation. The sell-through was -- yes, was a little bit weaker than we anticipated. Really strong sell-through up until the final week. The final week of Easter happened at the same week that the government started to recommend the consumer is not going to grocery stores, unless it was essential and many of the big retailers started limiting the number of consumers they would allow in their store at one time. And we saw a direct impact on that, on that last week of Easter. But basically that will not cause that softness in the sell-through in the last week really shouldn't impact the P&L.

Okay. Thank you so very much. I'll pass it on.

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

Hey. Good morning everyone.

Hi Bryan.

Good morning Bryan.

So, I had a question just on -- just one question around the end of line manufacturing flexibility you have with packaging. And I guess my question is around, if we're looking going forward at a scenario where it's more e-commerce, which is, it's sort of a different type -- it requires a different type of packaging, maybe more grocery and mass more at home less convenience and gas. And then also maybe needing packaging flexibility to address affordability, maybe different pack sizes or different types. Do you feel like with the investments you've made in recent years that you have the flexibility to sort of make those shifts and be able to kind of service if that's where the business SKUs over the next six to nine months?

Yes, I would say, largely, we have flexibility in our manufacturing. I mean we already have a portfolio of products that we're meeting e-commerce demand and that demand has been across every pack type whether it's candy dish, whether it is instant consumables, et cetera, we already have a multitude of pack sizes that we've always done. This is a category that that lives on many different pack types for many different occasions. And then certainly as we're doing some of our supply chain work going forward, one of our goals is to put an even more automation to hopefully improve margins as we do that, but we are well set up to be able to adapt to different packs and sizes right now.

And if I could just one follow-up to that is, we've seen in other categories where retailers are kind of narrowing SKUs, want to be in stock, with the highest-velocity SKUs. Have you seen any of that yet in your categories?

Yes, we are. And we think we're well positioned there. As you know, we had just gone through a big SKU rationalization program to get rid of some of the smaller SKUs and on the normal course of business, as we grow our business, we have all of our SKUs categorized with the very highest movers, there is a must haves, must be protected at all cost and then we kind of go through our portfolio. So, we've always managed our business in that way. So, we've been well set up to serve in that priority environment.

Okay. Thanks Michele.

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

Hey. Good morning. Thank you for sliding me in. I guess I'll pick up on one thread from Mr. Spillane in terms of e-com. As we think about maybe what could be different in 2021 assuming all these issues come to pass. The amount of sales going to e-com sounds like it could be the one durable change. So, quick question, just to get a little more context around it. And I guess what really my angle here is to understand the impact on your impulse oriented sales. I think historically you've said about a 30 year portfolio is impulse and you're saying today 15% of that's going through C-store. How much of that is going through food, drug, and mass?

I mean the other -- that would be the other 15%, basically the other between the difference between 33% and 15%, I would say, largely. Let me just think about--

And there is a little bit of lending in there too I think.

Yes, that's what I was trying to think how much would be in those specialty channels spending would be the biggest piece of that. We have some in Club as well in terms of reseller packs at Sam's. I mean, I guess I would estimate, I'm going to say may be 15% maybe fundraising Lending Club and specialty are 5%, so I'd say maybe 15% goes through drug and mass.

And how is that 15% tracking today?

It's tracking much better than the C-store. It really varies by channel. The drug piece would be the softest piece because overall drug is just not getting as much traffic. I think a lot of people are using drive through all options; people are trying to stay away from smaller stores. So, the larger majority of that is really going through mass and grocery. It's still softer than take-home, but it is still growing in some of our retailers.

Okay. So, is that sort of reflective of what life looks like in the lower trip frequency environment and people stick with the sort of online replenishment and trip frequency is lower. Do you think it's reasonable to assume that if there is risk to like lost business that can be a bit more durable? That's the risk. So, we're talking about a couple of points of sales which may -- that may not come back. And is there anything else that you would highlight that we should be cognizant of as we think about the impact to your earnings power in 2021 or beyond?

Yes, I mean I think with less trips, certainly there is some risk there and that creates some of -- some bit of a mix and sales risks. However, I guess the other thing I'd ask you to think about is, as we look at our e-commerce business, we have instant consumable strength in e-commerce. So, one of our biggest selling items has been instant consumable, both singles, as well as we sell case packs that have maybe 24 instant consumable items in them. And given that our margins are strong, we don't really discount and bulk the instant consumable items. Driving the growth there, our goal there is to continue to drive the growth there which offsets how the consumer behavior is evolving and changing. I think the other opportunity is really for us to just kind of drive against kind of the push that as consumers have less trips they're also executing bigger baskets and so really focusing on that as an opportunity as well.

Yes, got it. Thank you very much. I'll pass it on. Stay safe, be well.

Thank you. You too.

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

Hi, great. Thank you so much. So, just sort of question on pricing, I mean it seems like you're saying the last week pre-Easter weakness really shouldn't impact the P&L in the near-term. Maybe that suggests that the promotional plans have really been altered, but then I think it also sounded like, you said promotional spend could be increasing your price mix sharpened as you go through the year, right, to maybe increased demand overall, but then I also heard that maybe you're pricing plans remain on track. So, obviously, there are just a number of comments in there. I just wanted to clarify. Just in general pricing environment and we've heard Easter didn't go so well seasonally let's say in Europe, but obviously because the COVID buying, right, you kind of mask some of that seasonal weakness is there too much product still on the seasonal based on the shelf does that have to be sold through sounds like inventory levels have come down, but pricing sounds to be okay. So, any commentary you can just give kind of around the overall pricing dynamic will be great. Thanks.

Yes, I guess, first I'd start by saying, we feel good about our pricing strategy for the year and our current initiatives are on track and we really don't expect any material changes as a result of COVID. So, we were expecting in that two to two and half points of pricing in 2020 and we continue to believe that, that will be the case. As we look at promotional spending, at this point in time in our category a lot of our promotional spending is utilized to drive display. So, we are unlike some other categories that are less impulsive where people use price to have a temporary price reduction and really low pantry. That's not really how our category works. So, given our retail sales team is out there in force, we're continuing to get display. And so we aren't seeing a big pullback. There could be some small coupled -- couple of million dollars that come back from trade, but I think in general, we're continuing to drive against that. And then really relative to the -- we're just trying to be sensitive to the consumer environment around the financial constraints which is one reason that we continue to believe some of our promotional support makes sense than the display. And then during the holidays just making sure we have the right array of price point. So, I don't think about that as being an absolute reduction in price, because that's really not about the price realization per pack, it's just more what is the absolute price point. So, that consumers have options if they want to buy multiple or a bigger pack, they can and if they're going to buy less, so that's less kind of about the price per pound. Does that answer your question?

Yes. No, that's actually very helpful. I mean it sounds like basically if there is somewhat of a mix shift -- you talk about mix in terms of margin and time to make some pack size, et cetera, could affect pricing. But it sounds like maybe you could offset some of that with potential reduced promotional spend and display, so kind of net-net, at this point you feel like we're kind of okay. Does that make sense, back to you.

Yes, I would say net-net, we think we're okay, yes.

Okay, cool. And then just quickly and more broadly look over time, we've heard a number of larger food companies have said they actually do better online, but their online share can actually be better just given page one display and overall brand awareness. Obviously, there is a whole conversation around the channel shift. If we just think about online specifically in all the other channels, would you just say yes, we think, given our investment brand awareness, what have you. If we do shift into more than online purchase society over the next few years that we should be taking more share of category. That's it. Thanks a lot.

Sure. Yes, I mean we feel good about our ability to drive the business and capture share online. We're looking at total online share is a little difficult because there are a lot of unique businesses that have direct to consumer businesses online. But if we look at kind of the big retailers and the pure play big retailers in that space, yes, I feel pretty good that that we should be able to continue to drive share there.

Thank you, Michele. Stay safe.

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

Yes, good morning everyone. Michele, the share gains look really healthy and obviously you indicated they accelerated. So, I'm just wondering, what do you think is driving that? Is it a function of just the fact that your fill rates were so good? So, you have the product available. We are hearing about one of your major competitors of scaling back on some of the SKU count. So, I'm just curious what you're seeing and what you would attribute some of that market share gain to?

Yes, I would absolutely attribute it to our customer service levels. So we've been able to maintain incredibly high customer service levels at that 98%, 98.5%, 99% depending on the month. I think within that we have had very good availability across our portfolio. So, we've been pretty much able to meet the specific product demands as well. So, huge kudos and credit to our manufacturing team who has just done an outstanding job of being ahead of this, building inventory ahead of this, getting raw materials in ahead of this, working with their teams and all of our manufacturing employees who supported doing this. And then I would also say having our retail sales reps out there building displays, stocking shelves, that has also been a very positive impact. So, yes, I would say a lot of it is about the strength of our company in the past has always been a lot around operational excellence and execution, and I think that's really benefiting us on top of course the fact that we feel great about the brands and the programs we've had out there, but I do think that's been a difference maker.

And just going back to the question, any changes in the competitive landscape. We are hearing again, one of your major competitors is looking to do their own SKU rationalization program. So, I'm just curious if you've seen that in the marketplace or if you've heard the same?

No, I mean, I'd say the only -- we've probably heard similar things as you had regarding a couple of competitors in the category, who may have supply, not a solid position on supply.

Great. And then just quickly on the size of SKU. So, if you think about a lot of the volume that was probably sold over the past several weeks, my suspicion is and maybe you can confirm that it was all large bags multi-packs. Just curious how you guys are thinking about at home inventory depletions just given general consumer behavior. I mean, my sense is, it's going to take some time for them to work that inventory down. But just love your thoughts on that. I could be wrong.

Yes, I mean, obviously, we didn't get as big of a stock up as like say some of the main meal categories. So, I don't think that that there is a huge backlog. But certainly as we get through the quarter, that will be something that we will learn more about. We do know that the things that are selling best or things that are around take-home occasions, snack size assortment bags, six packs of Hershey Bars for people to make S'mores at home. Twizzlers which one of the key uses for Twizzlers is when you're watching movies or TV, so I think we know which items are getting consumed the most rapidly. And like I said, we don't have a huge stockpile, but that is something that will play out in Q2 and we'll get a better feel for how quickly people utilize those. We also, know, hey, they are baking a lot at home and so there are other indulgent categories that we're competing with for those usage occasions at home.

Great. Thanks a lot. Stay healthy.

Thank you.

Thank you. Our next question comes from the line of Chris Growe with Stifel. Please proceed with your question.

Hi. Good morning.

Hi.

Good morning.

Hi. I just had two questions, if I could. I was curious first of all, Michele if you could speak to your thought here, the concept of the thought around guidance. And it sounds like and I'm taking good notes, and there's a lot of little factors you've given around the second quarter, but you seem to have pretty good -- a pretty good visibility into that quarter. Is there a factor too that worried you about giving guidance for the upcoming quarter or having a good read on the quarter given you seem to have good visibility across a number of different areas of the other P&L?

Yes. So, as we mentioned, we do have a lot of visibility into Q2 of some of the things that we know will hit us. We mentioned the 6% of the business, a lot of those businesses essentially being closed or down based on governmental regulations. We certainly know that we've got in that $45 million of cost that will hit in Q2. If you add up manufacturing and retail productivity some of those elements, so we do have that at the same time, we still don't know how the rest of the quarter will play out and we're seeing that every single week we get new pieces of news or information that make it difficult to know if something else is coming our way. And certainly, then I think as we look to the rest of the year, we have significantly less visibility there. We certainly have tried to share what we think the biggest risks and opportunities are in the portfolio. The opportunities we're driving at, how we're managing against the risks, but much less visibility there. So, yes, I would say that's where we kind of stand.

Okay. And then I just was curious, a quick question about your international business. Obviously, China has gotten better rather still down as you noted. Are the -- the other countries, in India, Brazil and Mexico, just a bigger risk of declines is that one area of uncertainty you have also in the second quarter?

Yes, international is definitely an area that remains a risk. Each country, each area is in a different state in the growth or stage of the pandemic and each government is acting quite differently. So, we have some markets like Mexico or India, India is really on a lockdown for four weeks. We have some of those markets where it's difficult for our employees to actually get to work, based on what's happening with public transportation, based on government regulations about people in certain areas, not traveling to other areas. So, we are facing a lot in those markets. And I'd say that's really primarily in Mexico and India as the two biggest impacts. But yes, it is in that camp of more uncertain at this point in time.

Just one final point on that. Is it likely that the international business could be weaker in Q2 than it was in Q1 even though you don't have that unique China experience?

Yes, I would say there is a lot of uncertainty in international such that I'm not really sure that I could say for sure how that's going to play out. I think that's one of the uncertainties for Q2.

Okay, that's fine. I appreciate it. And again stay safe. Thank you.

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

Good morning.

Good morning.

Good morning.

With the heavy traffic at retail are you -- what adjustments are you making if any to promotional spending? And if there is any change in plans or those things that can drive savings or is it just shifting timing to a different point in the year?

Yes, we haven't made a lot of big wholesale changes in promotions, because our promotions are really geared against display, because our retail sales teams are still out there and are able to build those displays and obviously there remains a lot of space in stores given outages in certain categories. We continue to be focused on making sure that we are really driving as much of our spending as possible to display any place that we didn't have any kind of temporary price reduction. We are trying to pull back on those and then certainly we are trying to gear the spending around the right programs that are relevant at this point in time. So, we continue to look at where we are there. We continue to partner with retailers in terms of how we meet their needs. At this point in time, I would say we are largely executing according to our plans for the year, but always looking if there is opportunity where promotions aren't going to make sense. They aren't going to drive consumers like a temporary price reduction. I don't think, well, how we convert that more to a display driving initiative or use it for something else.

Okay, that's helpful. And then you talked about it a lot of the puts and takes on the cost side and specifically a lot of cost headwinds that are more 2Q focused. You also have some of the marketing savings you mentioned and efficiencies from the bigger SKUs running to the extent that it goes both ways on the full year how does it net out? Is it a net negative or is it about a push, how do you see assuming just at least what you know now?

Are you saying a net negative or a push on total cost impact to the business?

Exactly, yes.

Steve, do you want to talk to that?

The cost impact on a full year basis will be a net negative. I think we're not giving guidance for the full year until all of the other puts and takes on the variables that we're watching will come into play. Obviously, depending on the shape of the recovery, we would expect to see improvement in those costs, after we get past the challenge in Q2. But I don't think there is enough new savings to offset some of the deeper incremental costs we are going to face in Q2.

Okay. Thanks. And just a last quick one on the Hershey World Stores, how much seasonality is there to that with the percentage of sales in Q2 and 3Q typically be much higher?

So, it depends on the location. Clearly for the Hershey-based store, there is big seasonality in the summer, because we are right outside Hershey Park. So, that one is highly seasonal. Las Vegas, I would say not so much and Time Square has a bit of a SKU to summer and to holiday because it's driven by that traffic, but not quite as much of a seasonal SKU.

Okay. Thank you very much.

Thank you. [Operator Instructions] It will come from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Yes. Hey, thanks for taking the question. I guess if we just wrap all this up, I mean before we -- before this the COVID-19 situation, I'll started we were looking forward to an Investor Day update from you in March, which seems like a long, long time ago. But as you think back and think about what you intend to communicate that day, how much of the content that you feel would remain unchanged as it relates to your medium to long-term strategy at this point versus what degree do you think we're all going through now is likely to have lasting impacts on Hershey's future playbook?

I don't think that what we are going through right now would have any impact on that content on our long-term strategies. What I would say is, some of it may shift a bit. So, certainly, I think there has been a step change in e-commerce that just now occurred that probably would have taken longer to occur in society around consumers' adoption of e-commerce around retailers' readiness. It would be smaller things like that, but largely our strategies remain unchanged. Our big initiatives in terms of what we think is important remain unchanged as well.

Okay. And I guess maybe just a quick follow-up. I can tie it to your comments that you made today on the plans to divest the businesses that you highlighted. I guess how much -- was that a March communication or is that a decision that you've definitively come to more recently. It feels just a little bit surprising in the context of what were all -- what were in the midst of. So, I just wanted some clarity there as you -- I mean obviously you've made comments about this business in the past, but with the X now intend--?

That was pre-COVID. That's been under way. It has been Q1, late Q4, probably started in Q4 or early Q1 activity to explore and to begin that work.

Yes, I'd say we're always looking at everything in the portfolio, testing where its best place is and so no COVID impact on that.

Okay. And is there any way you can dimension the size 2019 sales profitability of those businesses, just for some frame of reference?

I mean they're small.

Yes, they are small.

Okay, fair enough. Thanks so much.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Poole for any final comments.

Thank you all for joining us this morning. I'm sure there are still additional questions, I'll be around all day to answer as many of them as I can. Thanks so much. Stay wealthy -- stay healthy.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.