and welcome to The Hershey Company's First Quarter 2019 Results Conference Call. My name is Catherine, and I will be your conference operator today. All participants have been placed in a listen only mode. After the speakers' remarks, there will be a question and answer session. This call is scheduled to end at about 9:30 am, so please limit yourself to one question, so we can get to as many of you as possible.
Please note this call may be recorded. Thank you. I would now like to turn the call over to Melissa Poole, Vice President of Investor Relations. Ms. Poole, you may begin your conference.
Thank you, Catherine. Good morning, everyone. We appreciate you joining us for The Hershey Company's Q1 2019 earnings conference call and webcast. Michelle Buck, President and CEO and Patricia Little, Senior Vice President and CFO, will provide you with an overview of our results followed by a Q and A session. Before we begin, please remember that during the course of this call, we may make forward looking statements within the meaning of the federal securities laws.
These statements are based on our current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward looking statements contained in our 2018 10 ks filed with the SEC and today's press release. 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 is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of the non GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, let me turn
the call over to Michelle. Thanks, Melissa. Good morning to all of you on the phone and webcast. Our year has gotten off to a strong start and we remain on track to deliver our financial commitments for the year. I'd like to thank my colleagues across the Hershey business for their focus and hard work.
Many of them listen to this call and I'm very proud of what we have accomplished and the progress we are making. Now, on to the results. Net sales increased 2.3% in the 1st quarter, in line with expectations. The net benefit of acquisitions and divestitures was 90 basis points and foreign currency exchange was a 50 basis point headwind. Organic constant currency net sales growth of approximately 2% was driven by a longer Easter season and international growth, which was partially offset by our SKU rationalization program.
We continue to make good progress against our margin improvement plans, which contributed to gross margin expansion of 80 basis points in the quarter versus the same from our complexity reduction efforts. These gross margin gains, along with our solid sales performance, drove quality EPS growth of +12.8 percent in the Q1. This was above expectations, driven by the stronger than anticipated gross margin as well as the timing of investments. Our key initiatives for this year are progressing well and we remain confident that our balanced plans will enable us to accelerate our U. S.
CMG performance, deliver our acquisition models for Amplify and Pirate Brands and maintain our international business momentum. Net price realization was up slightly in the quarter in line with expectations. Consistent with previous guidance, we anticipate the net benefit of pricing
to build over the course of
the year and current retail pricing trends are reflecting this acceleration. Recall our Easter season which had a meaningful impact on sales in the Q1 was not priced. Additionally, promotional timing and mix related to Amplify, Pirate Brands and International resulted in a modest Q1 headwind. Our U. S.
Business excluding recent acquisitions delivered net price realization of 50 basis points in the quarter. As we shared earlier this year, the late Easter is impacting recent retail performance. Per IRI, year to date Hershey Candy Mint and Gums retail sales decreased 6% versus overall category declines of 5.4% through April 14. This resulted in a share loss of approximately 20 basis points in line with our expectations. We expect our retail sales and share performance to improve in the coming weeks as the full Easter season is reported.
As is typically the case with the late Easter, we do anticipate some softness in May retail sales as consumers enjoy their Easter candy and make slightly fewer everyday purchases. This is accounted for in our guidance as part of the net incremental impact from the long season. Preliminary results indicate a strong Easter season for both the category and Hershey. Hershey Retail Takeaway grew about 15% to 20%, resulting in an anticipated seasonal share gain of approximately 100 and 50 basis points. This was driven by a strong focus on our core brands, purposeful innovation and exceptional retail execution.
Reese and Cadbury are the top 2 brands in the category during the Easter season with a combined market share of over 25%. This share is greater than the next 6 brands combined. And we had one of the top selling new items of the season with our Cadbury shimmer eggs innovation, which contributed to even stronger growth and consumer engagement this year. A special thank you to all of our employees who helped contribute to the success of the season. Another key initiative for us this year is the renovation of our chocolate packaged candy bags, which has just begun to execute at select retailers.
This transformation not only increases branding and competitiveness, but also enables us to secure incremental shelf space in store. Early results are encouraging and we will remain focused on this transition in the coming months. Our Reef Fins innovation is off to a solid start and is generating strong consumer engagement. We are supporting this launch with both paid and earned media as well as merchandising both in store and online. Per end distribution is building and we expect sales to continue to accelerate in the coming weeks.
We are also excited about our summer Reese's lovers promotion, which shifts primarily in the Q2. Our activation of this planned in and out instant consumable in late March generated the largest amount of earned impressions ever for one of our announcements. Our nearly $4,000,000,000 earned impressions were 3 times the amount our competition achieved during the same period. This is a tremendous advantage for us that speaks to the power of this brand and our ability to leverage multiple models to effectively and efficiently drive consumer engagement and grow sales. And this week, after much media speculation, we confirmed that Kit Kat is launching a new product nationwide in December of 2019.
Kit Kat Duos Mint plus Dark Chocolate is the 1st permanent Kit Kat flavor in the U. S. In almost a decade. This item will feature a mash up of 2 iconic flavors with mint cream on top and dark chocolate on the bottom surrounding the light and crispy wafer. More to come on this later in the year.
And as we've shared before, we're leveraging new media capabilities and models to support our portfolio in more efficient ways. Earned impressions are a key piece of this along with targeted media and more efficient content production. This is enabling us to support our brands in a more cost effective manner. In the Q1 of 2019, 12 of our U. S.
Confection brands that represent increased double digits with only a slight increase in spend. We will continue to leverage this model and support the breadth of the portfolio throughout the remainder of the year. We expect dollar investment to accelerate as we move through the year due to the timing of innovation, the lapping of our media efficiency gains from last year, as well as incremental investments supported by our gross margin expansion. Our e commerce business continues to show strong growth. In the Q1, our e commerce net sales grew almost 50% and our online chocolate share grew 120 basis points at our key customers.
We remain focused on winning search and having the right content and portfolio for this channel. Now for an update on our Amplify and Pirate Brands acquisitions. Both are delivering solid growth and are on track to achieve our financial targets. Per IRI, SkinnyPop Ready to Eat Popcorn is growing over 11% year to date through April 14, resulting in a share gain of over 100 basis points. Our focus on improving distribution and shop placement is resulting in consistent gains in household penetration.
We have a new marketing campaign launching in Q2 to help continue this strong momentum. We successfully transitioned the selling responsibilities for Pirate Brands to our Amplify team in the Q1. We remain focused on leveraging the same capabilities we used for SkinnyPop to optimize distribution and shelf placement to drive growth. Recent retail sales growth has slowed slightly due to distribution losses associated with the transition, but we are confident these trends will improve as we assume full selling responsibilities. Now for an update on our international business.
Constant currency organic sales grew 3.5% in the Q1 and we continue to demonstrate disciplined investment resulting in segment operating income growth of 14.5% versus prior year. In India, our Kisses launch is off to a good start and pacing ahead of all key metrics. Both consumer and customer acceptance have been strong and we remain optimistic that this platform can be expanded to additional regions in the future. Our Kisses brand is also seeing strength in Mexico behind our Celixion Especial gifting platform. Digital advertising, in store exhibitions and sampling all helped recruit new consumers to the brand and drive growth at 2 times the category level.
This is a great example of a differentiated product proposition that is driving not only a premium price point, but at accretive margins.
So we have good momentum
across all of our key strategies with strong financial results in the Q1. We remain committed to delivering balanced growth today, while making key investments in our brands and capabilities to take the business to the next level. The organizational changes we announced last week will enable us to continue this good progress. I'm excited that Steve Voskuil will be joining Hershey as Senior Vice President, Chief Financial Officer next month. Steve is a seasoned executive with a wide variety of experiences working in CPG, both in the U.
S. And international markets, And he brings a broad financial management leadership with the right blend of strategic, operational and transformative expertise that will help accelerate Hershey's growth agenda. Rohit Grover has been promoted to President International With more than 20 years of experience working in nearly all of Hershey's international markets, Rohit has a proven track record of transforming businesses and cultures to drive growth and profitability. Most recently, he designed and led the turnarounds of Hershey's China business, including restructuring the portfolio and operating model, which has been the largest contributor to our recent international profitability improvements. Jason Ryman has been promoted to Senior Vice President, Chief Supply Chain Officer.
Also a veteran of Hershey for more than 25 years, Jason has while delivering superior quality, customer service, margin expansion and growth for the business. And finally, given the increasing importance of our digital transformation to our future growth aspirations, Terry O'Day will transition to full time leadership of our information technology initiatives. He will continue to lead our ERP transformation, which remains on track. These changes are a testament to Hershey's talent development and succession planning and a great balance of exceptional internal and external seasoned leaders that I am confident will help take our business to the next level. Thank you to Steven Schiller and Patricia for all their contributions to our success over the past several years.
And now I'll turn it over to Patricia who will provide you with details on our financial results. Thank you, Michelle.
Good morning, everyone. 1st quarter net sales of $2,020,000,000 increased 2.3% versus the same period last year, including a 90 basis point benefit from acquisitions, partially offset by a 50 basis point headwind from foreign currency translation. Volume and net price realization increased by 1.7 points and 0.2 points, respectively. These results are in line with our expectations. Adjusted earnings per share diluted were $1.59 an increase of 12.8% versus the same period last year.
This was driven by volume growth, gross margin expansion, as well as marketing and administrative expense efficiencies and shifts. By segment, North America net sales increased 3.2 percent versus the same period last year. The net impact of acquisitions and divestitures was a 1.6. Benefit. This includes 1 additional month of Amplify versus the prior year period, 4 months of Pirate Brands sales as we transitioned financial reporting into Hershey's system and 2 fewer months of Tirol sales versus the prior year.
Volume was a 1.4. Benefit driven primarily by a longer Easter season. Net price realization was a 0.4. Benefit and foreign currency exchange was a 20 basis point headwind. All of these results were consistent with expectations.
North America gross margins expanded 60 basis points, driven by favorable commodities, volume and in sourcing of key Easter items, which savings from our complexity reduction efforts, which were slightly ahead of expectations. We continue to expect gross margin expansion to build as we progress through the year as net price realization increases. North America advertising and related consumer marketing spend increased 1.1% in the quarter. Media increases. We expect dollar investment to accelerate as we move through the year due to the timing of innovation as well as the lapping of last year's media headwinds of 4.63.5 points from divestitures and foreign currency exchange, respectively.
Organic constant currency net sales increased 3.5%. Volume increased 4.3 points, offset partially by net negative price realization of 0.8 points. Organic constant currency net sales in our focus markets, Mexico, Brazil, India and China, grew 3% versus the Q1 of 2018. This growth was slightly below 2018 levels, driven primarily by inventory volatility in the Q1 of 2018. We expect that year to go organic growth will be comparable to full year 2018 levels.
International and other advertising and related consumer marketing declined 14%,
in line with our expectations
as we continue to right size our investments to drive more profitable growth. Total Hershey adjusted gross profit increased 4%, resulting in an adjusted gross margin of 45.7%, an increase of 80 basis points versus the Q1 last year. These gains were driven by favorable commodities, volume, efficiencies from our complexity reduction initiatives as well as margin for growth savings from our international markets. 1st quarter adjusted operating profit of $471,000,000 resulted in operating profit margin of 23 point 3%, an increase of 160 basis points versus the Q1 of 2018. Gross margin gains and continued SG and A discipline drove favorable operating profit results.
Moving down the P and L, interest expense of $37,000,000 increased $8,000,000 versus Q1 last year, driven by incremental debt associated with recent acquisitions. Full year 2019 interest expense is expected to be in the $150,000,000 to $160,000,000 range, in line with our previously stated guidance. The adjusted tax rate for the Q1 was 22% versus 24.9% in the year ago period. These gains were driven by tax reform regulation releases, benefits of employee share based payments and continued use of investment tax credits versus the quarter of last year. We continue to expect our full year 2019 tax rate to be approximately 17%.
1st quarter other expense was $6,000,000 an increase of $4,000,000 There is no change to our full year 2019 estimate of approximately $105,000,000 to $115,000,000 This reflects the higher investment in tax credits as well as additional expense associated with our pension assets due to December's 2018 stock market performance relative to our long term million. The company repurchased $150,000,000 of common shares in the Q1. This completes the October 2017 $100,000,000 authorization, while $410,000,000 remain on the July 2018 $500,000,000 We also repurchased $49,000,000 of common shares in connection with the exercise of stock options. Total capital additions, including software, were $93,000,000 in the Q1. For the full year 2019, we continue to estimate that CapEx will begin the $330,000,000 to $350,000,000 will be in the $330,000,000 to $350,000,000 range.
As a percent of net sales, this remains slightly higher than our long term target target as we continue to implement our new ERP system and to invest in core capacity. We continue to return cash to our shareholders with 1st quarter dividends of $146,000,000 This was our 3 100 and 57th consecutive quarterly dividend on the common stock. To summarize for the full year, there is no change to our full year reported net sales outlook. We continue to expect net sales to increase 1% to 3%, including approximately 0.5 point net benefit from acquisitions and divestitures. We expect full year FX impact to be negligible based on current exchange rates.
Reported net sales growth is expected to be slightly higher in the in is anticipated to be slightly higher in the first half due to the impact of Easter. Full year reported earnings per share diluted are expected to be in the 5 $0.60 range. There is no change to our full year adjusted earnings per share diluted range of 5 $0.63 to $5.74 an increase of 5% to 7% last year.
Due to the gating
of sales growth, gross margin gains and the timing of promotions and investments, we anticipate strongest EPS growth in Q1 and Q4. We continue to take a balanced and disciplined approach to building our brands and evolving our business model for the future. We have strong cash flow and a healthy balance sheet that gives us flexibility to make the necessary investments to drive long term shareholder value. That concludes my financial discussion. But before I turn it over to Michelle, I just want to say that working with Michelle and all of our Hershey colleagues has been an absolute joy.
One of the reasons I feel so upbeat at the end of my Hershey time is the confidence I have in this business and in the team to take the company to the next level. I know Steve will be a great partner to Michelle and the rest of the team in delivering against our aspirations and making it already great P and L even stronger.
Thanks, Patricia. I am pleased with our strong start to the year. The actions we are taking to drive core confection momentum, to capture growth via incremental portfolios and regions, and to invest in our brands and capabilities, we'll continue to drive this business forward. I believe this dynamic environment and accelerated pace of change creates tremendous opportunities for us to engage with our consumers in new and innovative ways to grow today and into the future. We remain focused on achieving balanced sales and earnings
growth
to continue delivering peer leading shareholder returns. We have a portfolio of beloved brands, and an amazing team of individuals that are excited and proud to come to work every day. We are pleased with the progress we are making, but we also have a healthy degree of dissatisfaction that drives us to continue pushing to elevate the business to the next level. And we are committed to doing this in a way that is consistent with our values and purpose. Patricia, Melissa and I are now available to take your questions.
Everything, Patricia, and best of luck in your next endeavors.
Thank you.
2 for me. Michelle, I think your previous guidance suggested that Easter would benefit annual sales by about 50 basis points, which implies about 200 for the Q1. I didn't hear a number in your prepared remarks, maybe I just missed it. But is it reasonable for us to think that Easter helped the Q1 by around 200 basis points on the top line?
Yes, that is reasonable. The growth in the Q1 definitely driven by Eastern or International business.
Okay. Thank you for that. And then, I know you don't give quarterly guidance, but you did just give some cadence. So I wanted to ask a follow-up to that.
I guess I'll just ask
the question directly. The Street for the second quarter is looking for a bit under $1,800,000,000 in sales, around $350,000,000 in EBIT or operating income. Are these numbers really unreasonable to you given the Easter timing headwind? I just wanted to get a sense of whether the Street is at least modeling this within sort of the range of what you're thinking?
Patricia, do you want to? Ken, again, we don't give quarterly guidance, so I would absolutely not comment on specific numbers that The Street has in their model. We were just trying to give you some help because with Easter, FX and divestitures, we just really want to help you understand the cadence of our sales kind of that is impacting first half, second half. And then a little bit about just the rhythm of EPS that we expect. And we don't have anything further to say and certainly no comments on specific numbers that The Street is modeling.
Okay. Thank you.
We will take our next question from Bryan Spillane. Your line is now open.
Good morning, everyone. Good morning. Just wanted to ask to tie together, I guess, a couple of comments around gross profits and gross margins. You talked about it maybe building more later in the year, but you also pulled in a little bit of the benefit from in sourcing some of the Easter products. So can you give us a sense of, I guess, is like a 60 basis point gross margin expansion as a basis point year over year sort of what you would see maybe for the balance of the year or for the full year or is this quarter maybe the strongest in terms of gross margin performance?
Just trying to get a sense of where gross margins land for the year.
So this is Michelle. We feel good about the progress we're making on gross margin and we expect that our full year gross margin expansion will be at or slightly above what we delivered in the Q1. So as you mentioned, there was the discrete benefit of about 20 basis points. So I think thinking about 60 as kind of the run, the base run rate is a good way to think about it. Recall that we will get more price realization in the Q2 with our new packaged candy bags.
There's also some packaging costs which are limiting the amount of that gross margin. But as we go through the year, we anticipate that that gross margin will ramp up a bit off of the run rate that you mentioned. Is that helpful?
Yes, that's helpful. Thank you.
We will take our next question from Robert Moskow. Your line is now open.
Brian Spillane, he's a smart guy. He took my question. But
let
me try a different one. Can you talk about the market share losses in the Q1, which is just 20 basis points? And I guess, I thought I heard you say that you picked it up in the early phases of Easter, I guess, related to your Easter seasonal activity. Can you talk a little bit more broadly about just candy, mint and gum in general, your innovation plans? Is that enough to get you back into a pattern of share gains overall for the year or for next year?
I think most people's perceptions of the innovation pipeline is it's okay, not super and a lot of concerns
to is in line with our expectations. We expected a little bit of a slower start on share due to the timing of some of our innovation and our promotions. But we continue as you look at the trend that you're seeing in share with a continuous kind of improvement in trend as we go through the Q1 here, You're going to see that continue. As we get through Easter, we think that you'll see the retail takeaway, the share and the sales kind of true up and line up together. And then obviously following that, we have some of our biggest programs for the year, including the chocolate packaged candy reinvention as well as Reese's Thins and the Reese's lovers activations.
So we've got a pretty balanced plan with a lot of activation, but from a retail takeaway perspective, more of that begins to hit Q2 and beyond for the year. We're continuing to drive a balanced approach to driving our business. We feel great about the innovation we have this year with the chocolate packaged candy packaging effort, which hits about 500,000,000 dollars in the portfolio, Reese's Fins and Reese's lovers promotion on our largest brands by far. And then obviously just announcing a new item within Kit Kat, one of our other core brands. So we believe we do best when we have a really balanced approach where we are winning on multiple levers, which includes seasons, pricing, innovation, good marketing on the core.
And we're going to continue to drive that. And we anticipate that as much as there is a lot of competitive innovation, we think that overall, it will be in line in total with prior years.
Thank you.
We will take our next question from Jonathan Feeney. Your line is now open.
Thank you so much and good morning. Two questions for me. The Easter share you quoted earlier, I think, was 150 basis points. Is that Easter share on a through April 14 basis? Or is that what you know about the totality of Easter this year versus the totality of Easter last year?
Like, are you comparing with some non Easter weeks in that number, that share number, 1st of all? And second of all, I know there's a lot going on from a takeaway standpoint. What I mean, what level you gave us a year to date takeaway number. Clearly, you're way outperforming that. In the 6 days approaching Easter, that's not in that takeaway number.
What's a good U. S. CMG takeaway number mid May that would give us the sense you were on track back towards your plan? What is that number, so I understand that you guys are on track in the next month?
Thank you
very much.
So let me start with your question around Easter. The share gain that I quoted is what we anticipate for the full season based on what we know year to date and across the business. And that's really looking full Easter this year versus full Easter last year. Relative to takeaway, somewhere in that 1.5% to 2% range on a year to date basis, I'd say would be a good benchmark.
Thank you very much.
We will take our next question from Steven Strycula. Your line is now open.
Good morning and congrats
on a good quarter.
Thank you.
So this Easter shift is really breaking my calculator here. I'm trying to figure a few
things out. But, Patricia, I was hoping you'd
help me out here
a little bit as I think about the organic think about how that flows through the year directionally is the first part of my question.
Steve, you broke up a
little bit. I'm sorry, you were
just asking about what the kind of organic sales were actually during the quarter?
Yes. Just what the cadence we should think about throughout the balance of the year. I think it's a little bit noisy because of Easter and a lot of investors have been asking me this morning just how to think about front half versus back half in 2Q? And then I got a follow-up.
Yes. So, as we said, we expect that because of that Easter, we would expect that on an organic basis, it will be higher in the first half than the second half just because of
the long Easter. Is that what you were getting at? I
can follow-up offline.
Okay. Yes. If you think about it, the organic growth was about 2% in the quarter. We had a 2.5%
Sure. Yes.
I think there's some background noise. But so the other fundamental question I had was to piggyback off of Rob Moskow's question is to think about the incrementality of innovation this year relative to prior cycles that you guys have had. How do you think about what you're bringing to market and how that pairs against cookie layer crunch, Hershey's Gold and what's so different about the packaging this year that should drive better conversion at retail relative to the past? Thank you.
Yes. So I feel really good about our innovation this year. And I would say, if I look historically, I think either improving our core or staying close
to the core with a key purposeful benefit.
So if I think about the chocolate packaged candy, it gives us a notable improvement in shelf awareness in a category that is a very challenged category shop. So I think the first benefit starts with that and then second in terms of the usability of the package at home. So it's really a lift across a very big piece of business that is a very close in product improvement benefit. And I think that tends to those types of things tend to perform very well for us. Reese's spends, likewise, it is a variation of a Reese's cup with a new shape.
And if you think about our portfolio, one of the interesting things about Reese's, we have all different kinds of cups in different shapes and different ratios of chocolate to peanut butter and everybody has their favorite and Thins offers a benefit of permissibility and a totally different eating experience on our biggest core brand. So that proximity to the core tends to lead to a more sustainable approach. So where we find some of those innovations, I tend to feel the best about those. So I'm pretty bullish on what we have for this year.
That's great. Thanks.
We will take our next question from David Driscoll. Your line is now open. Great.
Thank you and good morning, everybody.
Good morning, David.
Patricia, I just wanted to say thank you so much. It's been a pleasure to work with you and we wish you all the best. On to the I want to follow-up on some of the questions related to the top line. So just to be super clear with CMG takeaway down 6% in the Q1, shipments up 1.6% excluding M and A, volume is a big driver there at 1.4. Is there any implication to the Q2?
Is there any shipment pull forward into Q1 that would affect Q2 because of those numbers?
David, there's not. If you think about the way Easter and the seasons work, especially given the timing this year, you're shipping the season in the quarter before a lot of the takeaway occurs. So there's a little bit of a disconnect between the shipments and the takeaway. But there is no pull forward, it's just the natural flow of how that business works that you're shipping. And then some of the biggest takeaway for the season comes in the couple of weeks, those 2 weeks right before the day of the holiday.
And so that's really the dynamic. And if you look at past years, you'll see that every year that's the way it works.
So again, David, you can just expect it by the end of April, the share, the takeaway and the sales will all be trued up together.
Okay. That's really helpful. My last question is just on pricing. You have expectations that pricing is going to increase as the quarters go forward. Has retail acceptance of your pricing plans been has it happened to the fullest extent?
Do you have any concerns about the implementation on pricing, whether it's the list price increase or whether it's getting your new packaging on shelf? Does everything on the pricing plan kind of full steam ahead?
Yes. Everything relative to the pricing is that we're seeing in terms of the phasing for the year. Remember, Easter wasn't priced, so that's a big piece that as we get later through the year really where the pricing impact kicks in. We've looked at price points, retail price points, where we are in our elasticity and conversion models and that's in line with what we expected as well. So all looking good.
Thank you so much. I'll pass it along.
We'll take our next question from John Baumgartner. Your line is now open.
Good morning. Thanks for the question. Michelle, it sounds as though the momentum around the media impressions is fairly solid. But I guess my question is really more about the conversion on those because I mean you've been working through the efficiencies for a while, but the share in chocolate is still down pretty consistently. And I know your brands are always very responsive to traditional media, but maybe digital is showing us less impactful.
So I mean, are you seeing any data points that would suggest otherwise? I mean, I'm just trying to square the media shift with the market share we've seen in Nielsen data.
We continue to optimize the right balance across earned and paid impressions and also within the paid, what is the optimal level of TV versus digital and getting tighter and tighter on the digital relative to addressable and programmable media that allows us to reach the exact right person. So I feel good about the progress we're making there. We continue to optimize and implement as we learn and go along the way. But we feel good that we are continuing to see strong ROIs on the spends that we have and continuing to optimize based on those.
Can you give a sense for where digital is right now as a percent of the total bucket and where I guess the long term target is?
So I want to say digital is about 40% of our total media investment. And in terms of long term target, I would say we continue to learn as we go. But at this point in time, we believe that mainstream media, given our very broad household penetration, will continue to be an important part of our mix, given it's pretty efficient media. And within digital, as some of the capabilities evolved in terms of more capability about around programmable, we'll continue to adjust to that. But there's a lot of blurring of the lines in terms of playing across the entire wheel.
Thanks, Michelle.
We'll take our next question from Rob Dickerson. Your line is now open.
Great. Thank you. Two quick questions. First question is just on organic sales cadence again for the year. I think you just said in the remarks that you'd expect basically organic sales to be a little bit faster growth terms in first half versus second half.
It sounds like second half, right, would get more of the pricing in both lists and then mix effect from the new innovation or at least the stand up bags and the thins. So I'm just curious if there is to be more pricing in the back half of the year where organic sales would be slower. I'm assuming kind of ex Easter. Does that imply that your models are baking in some material volume elasticity in Q3 and Q4? Or is it more of just an Easter effect in Q1 versus what you expect in the back
half? No. Our models do bake in that elasticity in the second half. When we take a price increase, that's historically how it works. And the data we have based on history is exactly what we are banking on.
It's also what we're seeing year to date where prices have hit. But you're absolutely right. In the year we take pricing, you see a big increase in the amount of our revenue that comes from pricing and you take a hit on volume as the conversion then builds.
Okay, great. And then just in terms of margin, I think you said you'd expect gross margin to build a bit just given partially the pricing benefit as we move through the year. Operating margin was up almost 100 and 60 basis points in Q1. Should we also expect operating margin to kind of build throughout the year or I'm assuming given higher SM and A brand investment that operating margin would likely be expanding, but at a slower rate relative to gross margin for the remainder of the year? That's all.
Yes, I would say no. That should not be your expectation. There can be a lot of noise on a quarterly basis. And no, while there should be a build in gross margin, do not think about operating margin that way.
Okay. Thank you.
We will take our next question from Ken Zaslow. Your line is now open.
Hey, good morning everyone.
Good morning.
Just have a question on clarity. I think I'm just confused. I think you said in the quarter that it hit your expectations where you thought it was on both sales and EPS. And then in the last quarter, you said that your sales accelerate through the second half. Now I think and your sales growth obviously was 2.3, your guidance is 1.3, 1 to 3, but now you're saying that the 1st and 4th quarter are going to be the highest.
What changed if nothing changed? And I just don't understand. I'm sorry.
So relative to sales, we said our sales was in line with our expectations.
Our EPS So sales in
the Q4. It's supposed to build through the year, right?
So it might be the confusion between our reported net sales growth where it's going to be higher in the second half due to divestitures, which we talked about. And then the organic piece is higher in the first half due to Easter.
And on the EPS side, we can say that all right.
And then on the EPS, it was higher than we expected, as we said on this call. Q1 was higher than expected.
Okay. And then my real question is, can you talk about your e commerce progress? What share do you want to get to? Where are you how far are you away from what share you're looking to get and get to? And then what is the difference between your digital spending 3, 4 years ago and now?
And where do you expect that to go? And I'll leave it there.
So I think we want to continue to drive share and gain share in e commerce. I think the benchmark we would look at is we would want to be at least comparable to our bricks and mortar business, but I would say that I also think there's an opportunity with our capabilities for us to have a higher share than bricks and mortar. So that's certainly what we are shooting for. And we're pleased that in each of the past several years, we've continued to gain over 100 basis points of share on our chocolate business in e commerce. So we want to capture as much there as we can.
And then digital spending, what percentage of your spending is on digital? And where do you expect that to go? I'll leave it there.
Look, for total digital advertising, from a media perspective, it's about $40,000,000 if we just look at media. Obviously, there are a lot of other investments in terms of resources, people, all of that.
There are no further questions at this time. I will turn the call back to our speakers for any additional remarks.
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