The Hershey Aktie

Greetings. Welcome to the Hershey Company's Third Quarter 2026 question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for the Hershey Company.

Good morning, everyone. Thank you for joining us today for the Hershey Company's Third Quarter 2026 Earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks. 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. Actual results could differ materially from those projected. 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 provide useful information for investors. This information is not intended to be in consideration in isolation or as a substitute for 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 President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Dave Hulays. Operator, we can kick it over for the first question.

[Operator Instructions] Our first question is from Andrew Lazar with Barclays.

Maybe start in your prepared remarks, you stated Hershey still has visibility to sales growth in '27 in line with your long-term algorithm of 2% to 4%. So my question, I guess, is what gives you this level of visibility in light of the tougher macro backdrop? And is it increasingly likely we get there solely from carryover price? Or should we expect maybe Hershey to get back to some even modest level of volume growth next year as the company more fully lapse pricing? .

Yes. Thanks, Andrew. I'll take that one. Look, we are confident in the actions we control and the results that are already delivering. So we are holding that 2% to 4% outlook. Now the consumer and macro backdrop, as you mentioned, will influence where we land in that range. I'd like to think about this in what we can control and what's kind of out of our control. The things that we can control, our competitiveness is really driven by refresh media, innovation, programming, Let me talk a little bit about each.

Our media that we've seen in the first half of the year is working, is we've got a good return on investment. We've seen our Hershey brand grow 7% in the last 13 weeks. We have 3 new campaigns so we're getting momentum with the media that we're spending or getting a higher return on investment. So I like what we're doing there. Innovation, we've talked a lot about. We've had really good innovation this year on dot Snack Mix, Hershey Creme bar is the #1 innovation in the last 4 weeks, Reese's Filled Pretzels, Reese's Oreo that we've talked about. That's the largest innovation over the last 52 weeks.

But when we look into '27, we have a 50% increase on our innovation pipeline. We're going to be much more competitive on innovation. Programming. We talked about tentpole events like March Madness, more back-to-school. We have seen improvement on those in double-digit growth. So we have more programming against those big events next year. We also believe that our Salty business can definitely produce more for us in '27 both on the top line and the bottom line. And tell you we have great RGM strategies that include low single-digit carryover pricing next year.

Now those things that are out of our control, our consumer spending, which is certainly pressured by higher gas prices and overall cost inflation. And as a result, if the category is a little lower than expected, then we would expect to be in the lower part of the range. That's kind of how we're thinking about next year.

And then along the lines of the -- becoming increasingly competitive, I guess when we strip away the year-over-year timing and sort of macro dynamics and 1 of the pushbacks we get consistently and I'm sure you hear it, too, is the Hershey, despite all of the activity this year in the market is still losing market share. I guess, at its core, why do you think this is? And how should we expect share to progress as we exit this year into '27? .

You bet. In the third quarter, we saw retail performance was generally in line with expectation. We had some momentum. Profitable share, I would tell you is at the center of our strategy. and stronger innovation pipeline in the right spaces and more all those things that I talked about, effective media, broader merchandising and distribution, those are things that are winning. When we look at this year, competitors have increased short term, I'd say, short-term news-driven activity. And it has been an innovation opportunity in the category.

That's what makes this category so rich and vibrant. And I am confident the investments we've made in R&D, innovation, in our pipeline for '27 and '28 make us much more competitive. I've seen the innovation myself for '28. It looks fantastic. '27, like I said, it's 50% more than '26 and that's how this category is competitive. It is fresh ideas, innovation, and I feel really good where we're going with this space. And it is in those spaces that matter most for the Hershey Company.

It's in those areas like premium, suites, functional and better for you. So we have a complete package going into '27.

Just to add, right, we had some release strength in the quarter and share performance did accelerate as we were in July and August until we ran into the tougher restore comparisons in September. that will continue through the balance of the year. And that is why we called that out and how we're thinking about Q4 performance relative to that category. But our performance will look good, continue to be strong on a 2-year basis for...

Our next question is from David Palmer with Evercore ISI.

I've heard -- I'm sure you've heard from investors about Hershey's price gaps and how they might be too wide versus competitors and how that might be the key driver of what's going on here with market share amid a category that might also be hitting some walls after years of cumulative price increases. Could you comment on whether there might be a price value issue and what are your consumer insights showing you there? What are your retailer discussions telling you? And how does that inform your strategy from here on pricing?

Yes. Thanks, David. Look, I think pricing remains rational. This is how we're looking at it. The category overall is healthy. I think that it's not a category that promotional activity really drive to the bottom, it's not 1 of those tools that you see in this category. Category growth has been driven largely by innovation and new ideas. We are, though, investing in consumer value through pack and price through targeted promotions. We're looking at areas like in convenience as you see a consumer that's under pressure to give more value and drive pricing through bespoke promotions versus overall price decreases. .

It is much more about meeting the consumer where they're at with the right pack and price and then leveraging innovation to drive excitement in the category. It's not about rolling back prices because I think that if you look at the category, it is still rational and as we would expect.

One of the other things that I wanted to ask you about is the pace of innovation. You mentioned how you're lapping or your rises and that's tough. The other thing we hear and you can see it in the data that your competitors have been really active on innovation, both in and out of chocolate in the confectionery space. Could you talk about the 2027 pipeline? How does it look? Maybe you can comment on whether your pace of innovation and effectiveness of innovation might be different this next year than it was this year? .

Yes. Yes. Let me put a little color on that one. One thing I'll ask on the last question. that you had is we do see unit growth in unit -- the trajectory on our volume and unit growth improving. So we're seeing that as expected. So from a pricing standpoint. Let's talk a little bit about innovation. We are innovating like we talked about, Hershey Creme bars is off to a really good start. It's the largest innovation in the category in the last 4 weeks, but that's not the only innovation we have for Q4. We have Hershey rolls, which is a chocolate covered wafer that's hitting the market is fantastic.

We're also launching an opening price point on our icebreakers, gums, refreshment is growing, and we needed an entry price point. So we have a stick gum that we're launching this quarter. Hershey Truffles and Carmel, we have kit kat seasonal shaves. We've got a new dots Buffalo snack mix. We have Res'Coco-field pretzel and we have SkinnyPoparmer Jon-Garlic, all happening in quarter 4. Now when we roll over in the '27, we have -- some of our biggest innovation is going to happen in Q1. We haven't talked about those innovations yet from a competitive standpoint. The pipeline is robust, and it is on our core business. It addresses opportunities for us in suites, in premium.

We have more permissible salty coming out and we have some functional innovation coming. So we're targeting those spaces. So overall, it's up 50%. And I think that's important. It's a significant step up for us, and it will contribute 3x more to the growth in '27.

Our next question is from Peter Gaba with Bank of America.

I wanted to go back to maybe expand on Andrew's question on organic sales into '27, a bit of a math exercise. But just thinking about if we take kind of the implied Q4 of kind of flattish organic looking at Q1 of '27. Obviously, we know the shorter Easter, that kind of being a bit of a headwind. We have the weak bit shifting. I just want to understand kind of the shape or the direction of travel? How we might think about organic sales for next year as we contemplate wherever we're going to land in the range, low end, high end, but just is it kind of more of a back half weighted year versus some of the headwinds on exit rate in Q1.

Sure. So fourth quarter, I'll start with the fourth quarter. It's still being impacted by the tougher laps on Restoro and the C-store softness that we talked about. The innovation has built later. It will build later within the quarter. Within Q4, you're going to see that carry into 2027. And then we are getting off to a strong start, as Kirk said, some of the biggest ideas that we have next year will come early in the calendar. There's a value playbook that we're executing against. So you can think of that as both innovation and price pack activities, and those are intended to address C-store and some of the broader consumer value needs.

So I wouldn't interpret Q4 as a starting point for 2027.

Got it. Okay. That's helpful. And Kirk, going back to your comments in the prepared remarks on '27 earnings, still looking for double digit. I think there's obviously some things that have changed relative to the outlook when you provided in March. So maybe you can just talk about the puts and takes for next year, what might push downside risk into those numbers given where you stand today?

Yes, you got it. I'll give --No, I'll let you take it, Dave. Why don't you talk about the EPS growth.

So we don't see the initial EPS framework as completely off the table. But we would need to see the environment improve. And the areas we're focused on and looking for improvement are freight and logistics, more favorable commodity outlook. We're working on stronger returns from productivity in our demand-generating investments. And of course, there's always a healthier consumer. On the flip side, there would be more risk if there's deterioration in either consumer demand or the cost environment. Kirk called out, we are focused on what we can control. So that means staying agile using data to direct investment towards the highest return opportunities for us.

Our next question is from Thomas Palmer with JPMorgan.

Sorry. I wanted to follow up on this last question from Peter just on the '27 puts and takes. To what extent does the outlook contemplate changes in marketing and/or pricing actions relative to the prior outlook. I know you just noted some potential flexibility there. Just wondering if there are any changes in that low double-digit outlook.

Sure, there is no change to the '27 EPS framework other than reflecting the higher freight logistics and non-cocoa input costs. So we're going to continue to invest. Our posture remains the same invest in growth levers, marketing, innovation and merchandising. And we're doing that to support '27 but also to prep for and support 2028. We'll continue to leverage as you think about EPS, continuous improvement, RGM, tech-enabled productivity levers, and there's a few big ones and maybe I'll call out as we think about where we see big opportunity next year.

So 1 is digitization and factory automation. That's underway. There's a lot of white space we're going after over the next couple of years to drive manufacturing efficiencies. decision intelligence, which is something that's broadly being rolled out, enabling things like working capital and waste reduction. And then logistics optimization, which will include lane and customer order management efficiencies. And so that's -- work that's underway that picks up next year and will carry forward into '28.

Great. I also wanted to ask on Halloween. If I recall a year ago, it was noted as being a bit soft and I think the calendar was part of it. And so there was this expectation for more of a rebound this year in part from the Saturday timing, prepared remarks discussed more flat year-over-year. Just to clarify, how much is simply a reflection of the current macro environment? Or are there execution items we should be thinking about this year that maybe could be addressed next year? .

Yes. Let me take that one. Look, if you look at the Saturday Halloween, about 35% of the seasonal sales happened this week. So that's the impact. So the biggest selling days are still ahead of us. The category is on track in that sense, in a compressed season, meaning the Labor Day was late and then you have a Saturday Halloween. So that's how that shapes up. Hershey's share is up in most classes of trade and the execution is out there.

If you look at kind of the learnings that we had last year, the shipments are up. So the buy to start with was up and we shipped it. The displays are in the marketplace, and we've got great partnerships with our customers. that these final days are important and these big trick-or-treat packs, they are to our benefit. We have a share advantage in the larger packs, and that's what consumers are looking for the last few days. Now when we look at the consumer insights, participation intent is in line with last year. Now we need consumers to show up. We need them, the last few days are really critical. We're starting to see it. So we're keeping an eye on these last few days.

Our next question is from Robert Moskow with TD Cowen.

I was hoping to maybe drill down a little bit on gross margin. There's a change in the guidance that implies I think an exit rate of about a 39% gross margin in fourth quarter. And then for 2027, there has to be a substantial step up. And so I want to know like, is this exit rate, does it -- is it informative of what to think about 2027 at all because I think you'd have to be up like over 200 basis points to hit these EPS numbers. And then secondly, the volume is down quite a bit. And there must be some impact from volume deleveraging on the business. I've heard that your capacity is flexible enough to adapt to that. So is that true? Is that why these 2 things can happen at the same time?

Yes, I'll start with the exit rate. The big difference between the fourth quarter and what we're going to see next year is the timing of Coco hedges. So you can expect things to look different next year as the different hedges roll through, and that's part of the algorithm. On the volume deleverage, yes, to an extent, there is an impact but we expect that volume will get better, we're seeing it get better. And that's also why the productivity initiatives are so important, and there's low-hanging fruit there. .

Okay. And Dave, can you be more specific about seeing it get better? Because the volume is down 10% in the quarter. Where are you seeing it get better? Is it the retail tracking is less bad as you exit third quarter?

Yes. I think we're going from high double-digit -- high teens pricing in Q3 to single-digit pricing in Q4 and we're investing in our brands. So it's not just going to be elasticity. It's our job to drive demand. And where we have our programming and our investment focus, we're seeing the turn and improvement in volume trends.

Yes. When we look at specific brands like Hershey, KitKat, Cadburys, our Kisses line, we see meaningful unit trend improvement. So we'll see that, that trend improvement will continue in Q4. It will continue in Q1 and Q2 of next year as well. So we'll be on a trend of volume and unit improvement. It's not going to be exactly linear but it is -- we're confident that we're going to see continuous progress built on the programming and execution that we have. And look, it is our job to stimulate demand here. And we have got those plans to do that. So we'll see continuous improvement on volume and unit growth.

And I'll just add, we'll provide more color on volume cadence in February's full year outlook. But we believe in top line growth even if volumes don't get fully back to positive. .

Our next question is from Chris Carey with Wells Fargo Securities.

I'd like to ask -- I wanted to ask first about cocoa. You gave some context on supply and demand. Obviously, we're looking at more favorable position for next year. Just what are you seeing in the global crops currently as we head into next year, I'm conscious we've seen a pickup in the forward curves as we kind of look out to 2028, but supply and demand feels in your favor. So I wanted to get a bit more context on what you're seeing and how you're going to be approaching hedging over the next 12 months or so? And then I have a follow-up on the Snacks business.

We're continuing to see El Nino speculation impact market prices. We don't expect cocoa to remain at current levels long term. And so let me just talk about what we're seeing and how we're thinking about it. So we're coming off of a historical surplus of 500,000 to 600,000 metric tons. Inventories are healthier. Supply is more diversified, and we're seeing production increase in new origins. We see satellite data in monitoring. It shows that cocoa acreage is continuing to rise in a number of regions in response to the high prices.

And you're seeing examples of that in Ecuador, for example, biggest export output on record in September. The industry is more agile. And so we believe the market is already pricing in a bigger global decline than last cycle. And we have yet to see the evidence really to support that. So we're remaining disciplined in our approach as far as hedging, and we're leveraging the full tool kit, including flexible hedging instruments.

Okay. Great. On the snack side of the business, the supply recovery clearly just taking a bit longer than expected. Can you just give us a bit of context on why it's taking a bit longer and confidence levels that you can get back to where you want to be in the near term and then just do you think that supply issues are starting to impact any of the consumption that we see, which is still obviously quite strong but are you seeing any supply out of stocks beginning to hit the business? And any context on how you would see that going forward?

Yes. I would tell you that our overall, our salty business can contribute more to the top line and the bottom line, and we'll do so in '27. Our service levels are improving. They're not exactly where we want them to be, but we've made the investments to catch up. So demand is definitely outstripping supply, but we are catching up, and we've made those investments. We have manufacturing lines coming online in the first half of next year.

We've also invested in automation because a lot of the demand is showing up in single-serve and multipack and that just drives a little level of complexity that we needed to invest in automation so that we can deliver those packs that consumers want. I'm confident that we will get there. And some -- a lot of this is behind us, but there's still this capacity coming online that will give us good growth in '27 on our salty business and a more efficient way to get to market.

I'll add, service improves, if you just think about this from a bottom line standpoint as well. We expect to get more efficient use of freight logistics in the coming months. The higher rates will remain a headwind but there's a number of things we're doing there. Kirk mentioned the fill rate improvement. There's a lot of work happening around shipping fall to reduce our reliance on spot rate which is important in salty because there has a greater spot rate exposure there.

And then I talked about it, but there's work going on around optimizing lanes and customer orders. and that will partly offset the bottom line, Again, the inflation impacts. I'll say you asked about constraints in terms of the impact on the full year. And I would say they have pulled growth down. but we are confident we're going to get those back in 2027 as Kirk said.

Our next question is from Leah Jordan with Goldman Sachs.

So Dave and earlier question, highlighted potentially stronger productivity as a lever that could help offset some of the inflationary headwinds that have crept up this year as we look ahead to next year. So Justin, if you could provide an update on what opportunities you still see for productivity, what you would highlight like efforts from this year that can wrap around and benefit next year. And then even somewhat related how are you thinking about mitigation tools outside of hedging for cocoa at this point? Like where are we on that journey as well?

Sure. So we have a strong pipeline. We've got good visibility into productivity and operational levers. Just stepping back, we continue to stay focused on achieving mid-40% margin recovery over the long term. And so all the levers we've used historically, mix, RGM, productivity, we see operational improvement based on some of the things that we learned this year. that will all contribute. The road map is, I would say, multifaceted, but technology is going to play a significant role. So I mentioned some of those technology initiatives already earlier, the digitization of the factory, decision intelligence, logistics optimization, and then I'd just say as far as Coco, it's too early to comment on 2028.

There's lots of time between now and then. But our strategies remain the same, and we continue using flexible hedging structures to capture favorable market moves. We have sourcing flexibility. We built a new chocolate making facility, and we can go straight to the origin as well when appropriate to capture value. So we've got a lot of levers.

Okay. That's helpful. And then for my second question, just on brand investments, they're expected to step up here. again in the fourth quarter. Should we think of that being more of the same of what you highlighted for 3Q? Or any updates to the brands and channels you're targeting? Just curious if there's any change in the approach as the consumer has been soft here recently?

Yes. We're going to continue to invest. The full year brand investment is going to be around 10%. We'll carry forward some of the investment from Q3. We have new campaigns coming out -- that are coming out right now, Cadbury, fulfill, payday or all getting new campaigns with strength and support as well, and those are ramping as we speak. .

Our next question is from Alexia Howard with Bernstein.

Can I just ask about the prepared remarks comments about improving unit volumes as price growth flows on nonseasonal items. Can you put any color around that on -- we've seen it move from down double digits or down high single digits -- a mid-single-digit decline as that price growth has started to slow. Any commentary on that? .

Yes. We are seeing that improvement as pricing moderates. We're seeing that improvement. We're seeing that improvement, specifically on some of our big brands, Hershey, KitKat, Cadbury, our Kiss lineup that continues to improve, and we'll continue to see that improvement throughout next year. And some of that is built into some of the programming. So the path isn't going to be exactly linear but it is -- we're confident that the improvement will continue throughout '27. Anything to add...

Yes, in Q4 specifically, that's partly offset by tough comparisons. And so we talked about REO as being 1 of those.

Yes. In Q3, the operation in the net price realization was very modest. It only began late in the quarter, and you're going to see that continue into Q4, while the programming that we put in place is also ramping up. So we'll give you an update as we get through this quarter, and we start to see more of that. But we did see the gun in the trend, and that's the most important data point that we wanted to provide you.

And then can I just follow up on where are you at on advertising as a percent of sales? And where do you want to be over time? Is there further investment that will need to kick in next year?

Yes. We're going to continue to invest behind brands, behind the innovation and programming that we have. We talked about an uptick in some of that programming and innovation next year. And so we're going to carry forward the investments against those. The other thing we're working on, and you're seeing it come through or we're seeing it come through in our sort of net performance and impact from brand investment is really the efficiency. So Kirk mentioned an 8% improvement in ROI, we have a much more dynamic, more real-time market mix model that we're using to really leverage and stay agile as we're seeing what's working and where we have opportunities to drive efficiency.

So we'll keep that moving forward into next year.

Yes. I would just say our overall posture is to be incredibly competitive around driving awareness for our brands, effective media and marketing spend on top of our investment in R&D and innovation. I think those 2 key areas are important for us to drive demand and we're focused on doing that. And we like what we're seeing in our efficiency and the brand building that we're doing. So we'll continue to invest in those spaces at the levels that we're at.

Our next question is from Peter Grom with UBS.

You touched on some -- you touched on some of the category weakness in September and how that has persisted into October. Can you unpack a bit more around what you're seeing from a channel and category perspective? Has it gotten worse sequentially in October? Or is it broadly similar to what you saw in September? And I guess just as we think about the guidance, what are you embedding from a category perspective through the balance of the year? .

Yes. A couple of things kind of on channel performance. I think the biggest outlier was C-stores. we saw a minus 5 for the category in C stores, I'm sorry, move voice now. We saw that continue into October. So that concern is still on C-stores. But when you look at everywhere else. So every day, candy, men's and gum, the category is a plus 3.7% in Q3. .

Do you want me take that?

Yes.

Yes. So -- if you just -- let me step back and then I'll talk a little bit more about the specific question. So we are seeing the consumer more cautious on inflation gas price -- because of gas prices and interest rates are strained on households. They are making more deliberate choices across channels, more in mass, more in e-com, more in club. C-store has been the challenge. Categories down 5% in September. We have seen that continue into October.

And then as Kirk said, everywhere else, our business is actually up 3.7% in Q3. So when we do step back, we see it at more of a channel and trip problem, not as much a category issue. And so we're focused on value levers. innovation, price pack architecture, surgical promotion, we can talk more about that, Kirk can probably add some color on what we're doing there.

No, I mean, I really think the category is in a decent place with all these consumer headwinds. Obviously, we expected the C-store business to soften a little bit with gas prices. But we still see a robust category. It's resilient across the rest of the category -- I mean, the rest of the channel. So we feel good about where we're at. That informs kind of where we're going and how we feel about 2027 as well. .

Awesome. And then, Dave, maybe just a quick clarification. So just on the '27 commentary, just around the growth or EPS growth, excluding the tariff refund. Just to be clear, we should be taking that $0.25 out of the base for '26 and then growing double digits from there. Is that the right way to think about it.

That's right.

Our next question is from Michael Lavery with Piper Sandler.

I know a couple of questions I touched on this already, but I want to come back to just your thoughts on next year and maybe just make sure I understand when you say that the growing pressure could restrain growth relative to your March expectations. Is that pointing more just kind of to the low end of where you landed originally or really just trying to flag downside risk actually below that. Can you just maybe be specific about how to think about that wording? .

Yes. So let me take the top line, and I'll let Dave talk about EPS growth in the bottom line. From a top line standpoint, we're sticking with the range that we guided to. if the consumer pressure remains or gets worse, then it's going to be in the lower part of the range. I think that's a practical approach to how we're seeing it. We're still seeing a resilient category. We're still seeing consistency. I like the growth drivers in innovation, et cetera. But if the pressures remain and some channels are still under a high level of pressure, then it's going to be in the lower part of the range. And I'll let Dave talk about how that impacts the bottom line and EPS. .

Yes. If today's conditions remain, we could be shy of the original range or framework. We're going to continue to invest in the business for the long term. So we're going to invest behind growth in the things that we talked about earlier.

Okay. That's helpful. And then just back to your comment earlier, committed to mid-40s margin recovery over the long term. Any sense of how we should think about timing for that? And when you say long term, is it likely further out? Or is that within reach? What's the right way to frame just how that trajectory might unfold? .

Yes. So just starting in '27, we do expect meaningful margin improvement in 2027. That long-term ambition is '28 forward. And as I said, we have a rich productivity pipeline that we're going to continue to build and leverage to work towards that and continuous improvement in all those other levers that we typically leverage will be a part of that algorithm. What might affect the timing or the new pieces. So logistics and freight and some of the other cost inflation, if that turns and improves sooner, you'll see some margin move sooner. If it takes longer, it will take a little bit longer for us to get there. .

Our next question is from Nik Modi with RBC Capital Markets.

Kirk, I wanted to kind of revisit some comments you made, I think, last quarter about distribution opportunities outside of the traditional channels, so maybe you can give us an update on that. And could this be big enough to kind of help you kind of muscle through some of this downturn as we go into 2027.

Yes. We talked about away from home being an opportunity, and that continues to be an opportunity. We're doubling down in that space. Yes, and it's really across both our Salty and our confection business. So we're seeing good growth. We'll continue to see growth. That will be a tailwind for us, including specialty retail away from home. Yes, we're creating new partnerships for distribution. It's an exciting space. We have a lot of passion for this. We know it's a great place for growth, but we importantly know it's really a good place for us to build brands. So expect more from us. That will be a tailwind going into '27.

And I'll say we're continuing to strengthen our already strong partnerships in the core channels as well. So we're focused on that as well.

Great. And then just kind of a final 1 for me is just on agentic commerce. I mean it just seems like it's really adoption is getting really out of traction is picking up pretty quickly. And just curious, like how Hershey inducted an agentic-commerce like audit in terms of how your brands show up across all these different platforms? Any thoughts on that would be interesting. .

Absolutely. Yes. I mean this is a really important space understanding. We spent a lot of time with some of our partners to understand how this is showing up, how our brands show up, how we leverage this customers like Target, Amazon, Walmart, we're working directly with them. This is an important space for us and something that I think we're on the front foot with. .

Our final question will come from Scott Marks with Jefferies. .

I have 2 questions that I wanted to touch on the first you spoke about the Hershey movie a little bit in your prepared remarks talking about merchandising plans above initial expectations. Could you maybe help us understand what's the magnitude of uplift we should be expecting from that? And whether that's incremental to the business? Or does it replace otherwise maybe nonseasonal or holiday-type merchandising activity in stores?

Yes. We're really excited about this movie and the story that's going to tell. I would look at -- our Hershey brand right now is having an exceptional year. And it started with how we opened up the year with the Olympics and then how we celebrated the 250-year anniversary. Now at the end of the year, we're going to celebrate the movie. It comes out the day before Thanksgiving. And we've been supportive -- retailers really gotten behind this, and it's just an exciting American story. that's relevant for our time. So we've seen a lot of support, and that's going to show up in store with inventory and displays and a connection back to the movie.

So that you'll see that, that will be an uplift. That will be a tailwind for the portfolio and especially Hershey, which has already had a terrific year, but we like the momentum that will build going into 2027.

And then just 1 last point of clarification from me. In the prepared remarks, you also noted a little bit of the shipment timing headwind in North America confectionery, I believe you've got a little bit of benefit in Q3, can you just remind us magnitude of benefit for Q2, what the headwind was in Q3? And as we sit here today, is there anything we should keep in mind as it relates to Q4 aside from the extra shipping day?

Yes, I'll take that one. So for confectionery, that earlier ship of summer programs in Q2 was largely offset by that strong seasonal sell-in that we saw in Q3. So for Q4, I would say that you think that the timing dynamics are largely a wash against that additional shipping day as well as we will be lapping some lower levels of retailer inventories that occurred in Q4 of '25. So I would say it's largely a wash on the shipment timing dynamics for Q4.

All right. Thank you very much. .

We have reached the end of our question-and-answer session. You may now disconnect your lines, and thank you for your participation.

Welcome back, everybody. And for our next session, really thrilled to welcome back The Hershey Company. With us today are CEO, Kirk Tanner, and newly minted, Hershey's CFO, Dave Hulays. Congratulations, Dave. .

Thank you.

And again, thanks to both of you for coming.

Thanks for having us.

Maybe to kick it off, Kirk, a lot of topics we want to cover today, including second half sales cadence, pricing elasticities, Cocoa, market share, salty snacks execution and sort of the '27 framework. But maybe we take a step back for a minute.

As you laid out at your Investor Day, a strategy around leading the next generation of snacking, right, with '26 and '27, really framed as a period of sort of profitability restoration -- before returning to a more balanced growth algorithm in '28 and beyond.

Since then, you've now reported 2 quarters under that framework, what's giving you the most confidence so far that the strategy is working. And where do you still think investors may be underappreciating the degree of change underway at the company.

Yes. I think you mentioned it yourself. But we started out the year with some clear objectives of deliver profit restoration great top line and invest for the future, right? So profit restoration, we're ready to deliver that, what we committed to for '26 and the outlook for '27 looks good. Top line growth -- the category is performing better than we estimated by about 1 point, a lot of innovation in the category.

We're performing against our top line expectations again. So -- it's important that we deliver what we said we're going to deliver from a top line standpoint and then importantly, invest in future growth. And the investment in future growth was in our investment in R&D for the innovation pipeline, which we know is critical to the category.

Our investment in our brands to create pull around our big brands so that we have our core business running well, plus an innovation pipeline that delivers the growth. So when you think about what we talked about in March at the Investor Day is each of those platforms are underpinned by capabilities. Those capabilities are speed to market with our innovation, customer excellence with our relationships with our customers, building partner of choice type relationships and then building the capability across our confection business, our salty business, international and functional business. And we are on track to deliver against that, and we're in a really good place right now, from what we talked about at the beginning of the year to where we are with 4 months to go. We're very confident in what we've achieved this year and what we have to achieve for the rest of the year.

Great. Hershey delivered another strong quarter in the second quarter. Organic sales and EPS both well above expectations. The full year guidance range raise was relatively contained with the company narrowing to sort of the upper half of the range rather than, let's say, raising the high end. We understand there were some timing items, including merchandising shipments pulled forward into 2Q some A&C weighted to the back half of the year.

I think investors are still trying to understand the framework. How should we think about the degree to which the second quarter upside was sort of timing related versus, let's call it, better true underlying elasticity and consumption that flowed through to the bottom line.

Let me let Dave answer that. But before we get to let Dave answer that, I wanted to just say a few things about Dave, if that's okay.

Absolutely.

So we welcome our new CFO. You don't want me to talk about.

No, go for it. it was great.

This is my opportunity. Dave has been a high-impact leader at Hershey for 15 years and has had every aspect of the business. I think this is a perfect example of succession planning and preparing a CFO for the future. And Dave has worked hand-in-hand with Steve over the years developing, getting those experiences. I worked with Dave on day one from how we operate the business, our commercial planning, our strategic planning. I'm excited to have Dave lead the future and be a partner to me. I just wanted to say that. I think it's important that we have great succession planning around these key roles like CFO, and we have that, and we're excited to have Dave here today.

Yes. Thanks for that, Kirk. No pressure. None taken. Maybe before I answer your question, Andrew, just stepping back, I've had the opportunity to partner with Kirk and with Steve to both developed the strategies that went into the '26 plan and outlook as well as the longer-term outlook that we shared at Investor Day, including the capital allocation strategy and priorities.

So I just want to reiterate what Kirk said, I feel we feel good about where we are with our '26 outlook and where we head from here. Specific to your question on Q2, the top line over delivery was primarily growth-driven, demand-driven on the business. Slightly better elasticities as well as strong performance in foodservice and specialty, which are nonmeasured channels.

As we look to the remainder of the year from a top line perspective, we're continuing to be prudent with our macro assumptions as it relates to the consumer, GLP-1 SNAP, gas price pressures, financial pressure on consumers. On EPS, I would say that there was some timing with media investment. That was a big part of the earnings story in the second quarter.

So that's why you see the impact to moderate as we look to the full year outlook. But we do have a ramp up in media investment that is programmed around all of our activation, our innovation. And our seasons -- and we did plus some of that up where we saw opportunities coming out of the strong Q2 performance.

Great. Maybe following up on that, when a company typically shows this much sort of upside and doesn't necessarily flow through more of that for the full year. Naturally, investors ask whether some of the reinvestment is more, let's say, offensive or defensive. .

In Hershey's case, I guess, is the increased second half spending primarily about maximizing a uniquely strong slate of innovation or innovation, Halloween, The Hershey movie, all the football activations? Or is it also some of it coming from a place of sort of need given you've still been losing some share within key confectionery?

Well, we -- as you mentioned, we have a lot of activity that needs to be supported in the second half with The Hershey movie coming out, Halloween that we're looking forward to -- and then this innovation launch, we just launched Hershey Creme Bars. I think you can find them across the way there, along with Reese's Pieces cookies. So we have innovation that is supported. The upside that we had in the first half of the year gives us some flexibility, but we had already planned on investing at this level in the second half.

We have looked at our opportunities to invest further to really advance our momentum in Q4 and in 2027. So we're evaluating those things. But I think for the most part, we had planned this level of activity based on the shape of the year.

Great. Yes. One question investors keep coming back to is sort of what happens once the benefit from the last round of pricing starts to roll off. Elasticities have remained somewhat better than planned so far. But volumes in North America confectionery area were still down meaningfully in the second quarter, obviously, partly reflecting the price, PPA and timing.

So I guess as pricing begins to sort of anniversary, how quickly should investors expect volume trends to improve -- and what would give you confidence that the business can return to sort of positive volume growth rather than simply better price-led sales growth?

Yes. So we do expect volume to improve at least the trends to improve, as we -- as pricing moderates. I will say as we think about next year, there are macro headwinds we've talked about that are contemplated in our outlook and our framework. There will be some carryover pricing from previously announced pricing on seasons and PPA. We always do or always at least consider in our annual plan, some RGM activity surgically as well.

We're going to see an uptick. We're already seeing it in the back half of this year, but we're planning it over the full year next year is around innovation, particularly in our confection portfolio. And we feel good about how we're seeing innovation impact the category now and our opportunity to do much better and participate at a higher level next year. So that's part of the algorithm.

Soonest, we will expect a few brands to accelerate that volume trend faster because there's differentiated innovation and programming against them. One of them is Hershey. The other one is JOLLY RANCHER and another one is Cadbury. It will be a little bit bumpy in terms of when we see and how we see that volume move because there's a big lap of a big innovation Oreo lap coming up, and there's a lot of dynamics around innovation and merchandising and seasons over the remainder of the year. But we're confident as we move through '27 and as we move into '28, we're confident behind our portfolio expansion an occasion expansion strategy and the fact that, that will translate into a better mix, a better balance of volume and price over the long term.

Great. You've noted that the consumer has been broadly tracking sort of in line with your expectations with SNAP impacts modest so far. GLP-1 trend is also consistent with your planning assumptions. I guess that said, it's still a dynamic environment, especially for lower-income consumers. I guess what are you seeing most recently across channels, sort of pack sizes and occasions. And maybe what's your up-to-date sort of planning assumption around the sort of shape the macro environment can take from here as we think through the balance of '26 and into '27 and obviously now fuel prices back up.

Yes. The consumer has been resilient, and the category is performing well across income cohorts and across channels. If you break it down and maybe start with the low-income consumer. So they're adapting. And there's movement within channels and they're -- there's more frequency going to convenience and online and into dollar stores. They continue to look for lower price and smaller packs as they're doing that, but they're eating more at home.

And actually, that's translating into the low-end consumer -- low-income consumer in our categories actually growing at a higher rate than the mid- and high-income consumer, which is good, showing the resilience of the consumer and of the category. High-end consumers are also adapting more frequency in mass, online, club, larger packs, more value from a price per ounce standpoint. But we continue to see good participation across the all consumer cohorts.

And there are headwinds. We've talked about the headwinds. There's financial pressure. There's SNAP. There's GLP-1. We continue to maintain prudent assumptions within the remainder of the year outlook as well as into 2027 as well. Talked about innovation. We're encouraged by the interest in the ongoing participation and the way that innovation is driving the category and translating into distribution and merchandising within the category, and we see ourselves in a much better position as we move through this year into next year.

Market share remains one of the biggest investor focus areas. Earlier in the year, you called out increased competitive innovation and merchandising, including from both mainstream, I think, and premium players, while also emphasizing that the pricing environment has remained rational. I believe this came up in your commentary around 2Q results as well.

I guess as you sit here today, how would you characterize the competitive intensity in U.S. confection -- and what are the sort of key levers that should drive Hershey's share stabilization and eventual share growth from here?

Yes, let me comment on that and you can pile on. When you -- what I love about this category is its competitiveness. This is a category that is an emotional category that has a lot of meaningful innovation that keeps consumers hyper interested in the category. We saw that competitively in the beginning of the year, a lot of competitive innovation that was gaining distribution, et cetera. When you saw the summer months start coming in, you saw momentum in the Hershey business, if you're tracking the last 4 weeks, you'll see the Hershey business growing faster than the category.

So that's a kind of a tribute to some of our core growth and some of the tentpole activations around smaller, et cetera, like that. Now the second or the last 4 months of the year will play a role in driving category growth with innovation launches as well as some executions around The Hershey movie like we talked about before. But the category is going to remain competitive through innovation and new consumer ideas. That's exciting. That drives growth -- it drives profitable growth through the retailer. It drives profitable growth for ourselves.

It's not about price discount and buy one, get one free, and those kind of elements that show up in other categories. You have to win consumers over with the best ideas and core brand relevance. And that's what we're prepared to go do. That's the investments we made to do just that to deliver a pipeline of innovation that we have for the back half of this year, but for next year.

And we've already reviewed innovation for '28 and '29, so that we can see this pipeline of highly engaged innovation coming. And I think innovation that has purpose that goes after certain opportunities, if it's accessible premium or suites or better for you or functional. We're developing capabilities and skills in those areas so that we can be in the highest consumer growth basis.

I think one of the more interesting shifts in your strategy has been the move beyond traditional seasons into sort of year round, as you call them, cultural tentpoles. Historically, Hershey's been synonymous with occasions like Halloween and Valentine's Day and Easter in reactivating around events such as S'mores, season, football, the World Cup and The Hershey movie. How do you think about the incrementality of these activations? How do you ensure that these efforts create a more durable sort of growth platform rather than sort of a onetime benefit that becomes a tougher comparison down the road, especially since some of these activations are not necessarily repeatable year in and year out.

Yes, cultural moments are so important to consumers and our retail partners. When you walk into a store, you want to see the relevance of what's going on in the world, what's going on in our country here if it's domestic, and that shows up in these cultural tentpole moment. So when I think about what Hershey is great at, season execution, so the core seasons our resources to deploy the best ideas and then activate it with our resources in the marketplace to execute with excellence.

So we had that as a strength. The opportunity was you had these peaks and valleys. So in between the seasons, there were opportunities, and there were big cultural moments like the 4th of July is a big cultural moment. Obviously, we played a role in the -- celebrating the 250, but 4th of July happens every year, and that's relevant for both our confection business especially Hershey with the small season, but our Pretzel business, our salty snack business, it shows up.

When you get into fall football, it's again, it's a repeatable tentpole moment where consumers gather, they celebrate, they party. Our brands belong in those spaces. In the past, we just executed the season, but these moments that are coming are important for the broader portfolio. Now the broader the portfolio that we have, we have more tools to execute against these moments where consumers gather, celebrate and leverage our brands.

But those are those repeatable things. Now we'll opportunistically take advantage of the Olympics or any other cultural moments that fit our World Cup as an example. But this will be a skill ongoing that we build so that we're kind of always on with our capability versus kind of peaks and valleys because our resources are in the marketplace to do just that.

Innovation has clearly become a bigger part of The Hershey story from recent Oreo last year. Hershey's cream-filled bars, recent pieces with cookie, JOLLY RANCHER, premium offerings and functional snacking. At your Investor Day, you discussed a goal for a 3-year innovation to contribute a high single-digit percentage of revenue. What's changed inside the company's innovation process, right, that gives you the confidence that the company can sustain that higher innovation contribution over time? .

Yes. Well, we've built a lot of capability, and we're investing in resources against just that, just being able to go into the functional space, deliberately, we have a partnership with VitaKey that really puts the food science into deliverables against functional health like proteins and other functional solutions. So that's going to be important. You'll start to see those in our products, plus you'll see separately VitaKey comes to life.

I think there's other things that we looked at when we thought about bringing innovation to market, the time it takes, the resources required -- and we saw a need for 2 and 2 things: one, building platform innovation for multiple years, so that you're not just doing a one-hit wonder. So you're building a platform and then you're building on it and then you're building on it in the future. Separately, the time to get from ideation to commercialization is taking us too long. So we've reduced that by 90 days.

And so we've gone through our R&D processes and our innovation processes and we're able to get faster to market with our innovation. So holistically being able to innovate in those spaces where consumers are looking for solutions and have higher growth in the rest of the category and then being able to get there faster is really the area of focus that we have.

Maybe turning our focus to salty snacks. Consumer takeaway remains really encouraging. Reported results in the second quarter were held back more by supply constraints on multipacks and dots as well as some higher freight and logistics costs. Maybe you can walk through exactly where the bottlenecks were, maybe what tons are already in place around sort of automation and capacity and how confident you are that the supply issues are largely behind you as you move through the back half of this year and into '27.

Yes. I can go ahead.

Yes.

Two challenges from a supply standpoint. The first one was Dot's, really driven by the strength of the performance on the core business as well as our snack mix business, which is now an 8% market share within the snack mix category obviously put pressure on supply. We saw that coming. And so there's some automation coming in Q3, and there's also capacity coming online at the beginning of next year.

So -- we see that -- we're addressing it, and that's being improved as we move into '27, we'll be in a much better supply position. That had a knock-on effect on our multipacks, which are multi-brand packs, which suffered from on-shelf issues and holes as we were kind of rebuilding inventory and getting those packs back together. That's also being addressed. We're seeing that improve as we move through Q3 and if you step back and just think about household penetration growth across the salty business across Dot's, high demand it's a healthy business.

It's just a matter of us getting those issues fully addressed as we move through the year. And then we obviously see that upside next year. There's also been some issues that, that has caused from a logistics and freight standpoint. We expect those to be behind us by the time we get to '27.

Maybe stepping back from the quarter. You laid it on an aspiration to move to the #2 position in U.S. salty snacks with the segment growing mid-single digits organically longer term and ultimately reaching top quartile margins given you're still integrating and scaling brands like Dot's and SkinnyPop and Pirate's Booty, LesserEvil, I guess what are the biggest unlocks from here? Is it distribution capacity, innovation, category adjacency or the One Hershey sort of commercial model.

Well, there's a couple of things. One, the positioning of the portfolio, I think it's really important to just take a step back and say, why is this portfolio working? Why is there outsized growth versus the category? We're going to continue to build permissible snacking. And I think that's the the sweet spot where you look at these brands like SkinnyPop, LesserEvil, Dot's and Pirate's Booty there in this permissible snacking portfolio.

So we see opportunities those brands. We have innovation coming out on those bands or those brands in multiple years that allow us to reach new consumers and new occasions and be more competitive across salty, all again under that lens of permissible snacking.

So we'll continue to invest in that. We're investing in some of the infrastructure like Dave said as well from a capacity standpoint, going through some growing pains as well. But we see a clear line of sight to be the #2 salty player in the space, and we want to own that permissible snacking occasion. We know that's going to grow faster with consumers, and we see a pipeline of innovation and brand building behind those areas. But that will be our main focus.

Cocoa remains central to the earnings debate. You've said you have good visibility into cocoa deflation in '27, even if futures remain around current levels. Your hedging strategy gives you flexibility to participate if markets normalize further. Maybe you can update us on how you're thinking about sort of cocoa coverage, what degree of visibility you have into '27 costs at this point? Maybe how dependent the '27 EPS growth framework is on cocoa deflation versus factors more directly within your control?

Yes. There'd be a cocoa question that's -- we're getting a lot of those throughout the day. We have good visibility into deflation next year from Cocoa. And the framework that we built for 2027 that we shared at Investor Day, we also have good visibility into. It was built with flexibility for uncertainty and some of the volatility that we're seeing today.

And the framework is built, yes, with cocoa deflation being a component, but also with many other components. So mix and normal RGM activity, innovation, driving volume as well as productivity and impact from our marketing investments as well as the execution with our One Hershey go-to-market model now. And I'll just say, as an aside, the ROIs in the first half of this year were up 8% leveraging our new market mix modeling capability. So AI-enabled much more dynamic real-time optimization capability as well as the investments that we're making into the assets, the brand assets and the production and the campaigns.

So we've got more investment in the back half. We expect that investment to continue to work harder for us next year. So it's a balanced story. There will be cocoa deflation that we have good visibility to, but there's also strength in the operating execution and the delivery that will play a role in next year's algorithm.

Great. At Investor Day, I think you framed '27 as another year of strong EPS growth with organic sales within the long term 2% to 4% algorithm. Since then, the operating environment certainly remained volatile and the shorter Easter creates a more modest starting point for North America confectionery as well. I guess, what gives you the confidence that the 2% to 4% framework still holds. And one of the biggest puts and takes investors should be thinking about as we bridge from '26 to '27 on the organic top line.

Yes. I mean, maybe do the puts and takes. So the macro headwinds, we're again being prudent. We're assuming those carryover. There will continue to be financial pressure. There is a shorter Easter, it's 8 days shorter. So if you put those 2 things together, there's moderated growth in the category next year as the big pricing wave rolls off. Now we do have, I mentioned some carryover pricing from seasons and PPA or RGM activities that we typically do. And then innovation continues to be a driver of growth and expansion within the category. We are much better positioned as we move through next year, beginning at the beginning of the year all the way through the end of the year.

So that, combined with scaling up our One Hershey model, which already today is -- we're seeing some benefits from. We feel good about what that means for us from a confection standpoint. Then when you move to salty, LesserEvil becomes organic, and we have strong plans to continue growth on that business. We've got Dot's supply coming online, which will help that business in the multipack business as well. And then the international business, you heard us talk about our anchor market and our focus at Investor Day.

So we did some optimization work this year that's setting us up for additional focused investment and performance next year, I think mid-single-digit growth next year on the international business. So when you put all that together, we feel confident about that 2% to 4% long-term top line algorithm range next year.

Functional snacking, another area you've highlighted with protein bars growing ahead of the category in the first quarter. GLP-1 users still participating in sort of smaller treats and Hershey investing behind one and fulfill and the VitaKey partnership. I guess how big can function ultimately become for Hershey -- and what capabilities do you need to build to compete credibly in a space where product claims, nutrition science and efficacy matter a lot more than, call it, the traditional confection space.

Yes. This is exactly the focus of our investment and our partnership with VitaKey is to deliver something that's differentiated that can stand up against those claims. When you think about functional benefits, consumers are getting more intelligent on what's working and what's not working for them. And being able to have protein that really has an impact as an example. And so our VitaKey relationship, you'll start to see VitaKey in our one portfolio, which has got sustained 12-hour release protein that's more satiating, more effective. That's going to be how we build.

We will build a business that is sustainable, that is grounded in science and that delivers what consumers want. I think that's really important that we do that. The business is small for us today. So it's a big opportunity for growth, and it's 1 of our 4 growth pillars. So we're very committed to it.

International has performed better than expected in the first half, strength in markets like Brazil, the U.K., Mexico remains a bit more challenged and some optimization work you've talked about expected to weigh on the back half. I guess, at Investor Day, you talked about becoming more intentional sort of in anchor markets where Hershey has scale, sort of category relevance and profit potential.

Maybe you can talk about the path to making international a more consistent growth and margin contributor? And how important Reese's international expansion is to that equation?

Yes. It's really -- Reese's is really important to it. Let's start with the markets first. You mentioned Canada, Mexico, Brazil. Those are core markets where we're gaining share. We've got a portfolio that delivers that has meaningful brands in the marketplace. Our anchor market that we're focused on for the future as kind of an expansion is the European market, the U.K. and Europe. It's a huge scaled market over $70 billion in size.

We started with Reese's and Reese's a challenger brand, and it's done very well in the U.K. And so we're going to build around that. This is a very focused international strategy where we can capture the opportunity, one, to build brands and deliver profitability. It is focused versus trying to go into several different countries at the same time in that approach.

The anchor market strategy gives us focus and allows us to build brands and build a portfolio that's relevant for the marketplace that we're in. So we'll continue to thrive in those core markets, Canada, Mexico and Brazil, but look for us to build traction, momentum in the U.K. and Europe is a focused market for us.

You announced One Hershey earlier this year, and it appears to represent a pretty meaningful shift in how you go to sort of market. How is the new model progressing so far?

Yes. The feedback from our customers has been really good. And the focus for One Hershey was just that. It was to show up to our customer partners as one. And before we did One Hershey with our customers and execution at the store, we'd already integrated our supply chain as One Hershey. So our supply chain was ready to deliver against One Hershey -- and then before we went live with it, we also put it into test. We have these resources in the market.

We have these resources in the market that are dedicated to execute exactly where you see Hershey show up seasons, our CMG business across retail, but our salty business wasn't getting that much attention. And so our ability to leverage our resources to show up to our customer and be able to execute across our portfolio is really what One Hershey is all about. And the customer feedback has been really good.

We'll continue to build on it, and you'll see it come to life in tentpoles. You'll see it come to life and how we build our brands, build an innovation pipeline, have customer partnership, our customer planning partnerships for the long term. That is the intention of One Hershey. And so far, so good. .

On capital allocation, you increased the buyback authorization while continuing to invest in capacity, automation brands, R&D, technology and people. You've talked about M&A as a way to enter or scale in attractive snacking white spaces, when internal brands maybe can't authentically stretch there. Dave, now that you're in the seat, I guess, how should investors think any differently about the capital allocation hierarchy from here, particularly M&A versus organic investment versus share repurchase and sort of earnings and cash flow recover?

Yes, I've -- I mentioned this upfront, but I've had the opportunity to partner to build the capital allocation strategy and priorities really over the last few years. So I wouldn't expect there's no change from me in the near term. I love our approach. And it starts with strong cash flow.

We have strong cash flow. We have a solid balance sheet. Our leverage is less than 2x, and that gives us a lot of flexibility to invest in high-return, capital-efficient organic investments as well as pursue in a disciplined way, accretive M&A like we did with LesserEvil. Now we are committed to returning capital to shareholders as well. So we had a 6% dividend raise this year. We have $440 million in buybacks so far this year, and we increased the authorization, as you mentioned, which really just speaks to the confidence that we have in the profit recovery and in the cash flows for the future.

And we'll just continue to balance the internal investment, the M&A and the returning cash to shareholders in that competition for capital as we move forward.

Maybe in our final 2 minutes before we go to the breakout. Kirk, maybe to close, what are you sort of most excited about that you think would get even more investors confident in Hershey's long-term algorithm? .

Yes. So if I look at '26 delivering against what we said at the beginning of the year and unpacking at the Investor Day. And as we move into '27, we are confident in the outlook of where we have talked about the business from a top line and a profit restoration standpoint. Our job is to deliver against that. And where I see the confidence is where we're building our brands, the momentum that we have and the runway that we see in front of both our operational excellence and really the brand growth opportunities.

We've talked a lot about innovation. You can expect us to be an innovation leader over the next several years. But in the short term, delivering '26, delivering '27 and building a pipeline of growth for years to come is really what I'm excited about the long-term growth and profitability of the business.

Good. Good place to break. Please join us in the breakout and join me in thanking Kirk and Dave for being here today. .

Thank you.

Thank you.

Greetings, and welcome to the Hershey Company Second Quarter 2026 Question-and-answer session. [Operator Instructions] As reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for the Hershey Company. Thank you. You may begin.

Good morning, everyone. Thank you for joining us today for the Hershey Company's Second Quarter 2026 Earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, 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 financial and operating performance. Actual results could differ materially from those projected. 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 provide useful information for investors.

This information is not intended to be consideration in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations for the GAAP results are included in this morning's press release. Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil.

With that, we will take the first question.

Our first question is from Andrew Lazar with Barclays.

Maybe to start, I'm curious what some of the sort of key puts and takes in the first half and specifically the second quarter were and where do you think consumption came in for the quarter relative to shipments as I know there's a lot of noise in the data we all get due to holiday timing and such.

Yes, you bet. I'm happy to take that one. And I'll speak to the first half as Easter creates a lot of noise in Q2 as you said, Andrew. U.S. confection retail consumption of about 3% understated our real demand by about 2 points, primarily due to the nonmeasured channel growth and the year-over-year concentration of Easter shipments in 2026. There's an additional point of growth reflected the retail inventory replenishment after levels ran low during the April transition to new pack prices. We expect that gap to be narrower as we look ahead to the second half shipments.

Okay. You mentioned elasticity is running a bit better than your full year assumption. Underlying consumption is clearly better than what we saw for the quarter in scanner data, as you noted. And it seems for the most part that the headwind in the quarter from maybe some of the overshipping in 1Q was more or less offset by some of the shipping ahead of 3Q holiday activations and plans.

So I guess my question is, with the magnitude of the upside versus consensus in the quarter, really on both organic sales and EPS, why there would not be more flow through to the full year guidance? And it's greater investment behind all the activity you have coming, why would that not result in even better organic for the year, especially as the category overall seems really quite healthy.

Yes. Let me take that one. Hey, first of all, we really like our position in the second half to deliver growth, and we think we should look at the business in 2 ways. One, on a 1-year basis, you'll see growth on a 2-year basis, you'll see really good growth. We, of course, encounter tougher comps in the second half, led by the RESISOREO innovation that we had last year. That is still performing very well. but it was a very big success that we're overlapping.

But we have plans so we have some big opportunities to build on our second half with our half 2 innovation and merchandising programs, things like Hershey the crem bars and we have the big Hershey movie also that has been really supported by customers. So we have some exciting programs in place for that. And we have solid visibility into our cost structure. So you should see we should see some good growth on a 1-year basis, and we should see really good growth on a 2-year basis. I think 1 other thing that I'm encouraged by in the second half is we have a robust Halloween plant.

And so we can see those the visibility to that. So we're encouraged by what we see with Halloween.

Yes. I'll just add. We always expected the first half to be weighted to the top line given the laps that Kirk mentioned on the second half the modest guidance increase reflects the replenishment that was expected to happen more gradually over the course of the year, but was largely completed in Q2. And the balance is really just continued prudence for the macro factors. As you said, Andrew, the kind of working in our favor or at least inside our expectations so far. But yes, we want to be prudent as we get to the back half. Still a lot of moving variables.

And as Dirk said, we do have some reinvestment planned on the back of that sort of action-packed innovation calendar.

Our next question is from Max Gumport with BNP Paribas.

A good question. I just wanted to double-click on the second half. Specifically with regard to merchandising shipments. So your commentary includes remarks about managing the timing of 3 key merchandising shipments. I just want to make sure that there wasn't any unexpected pull forward of merchandising items into 2Q relative to your initial plans? If you could offer any color on that, please?

Sure, I'd be happy to. So there was a little over 1 point of shipments for Q3 merchandising that happened in Q2 that was just a little bit ahead of our expectations. However, that impact will largely neutralize against the extra shipping day in Q4, which is why we say the gap will be less material in the second half.

Very clear. And then looking a bit forward at your Investor Day, you provided great targets for organic sales and adjusted EPS in 2027. Can you provide an update on your visibility to these targets now that we're halfway to 26? And also perhaps comment on the interplay between these 2. And I'm specifically curious how dependent your EPS target is on your organic sales outlook

Sure. Yes, great question. So to clarify, the 2% to 4% range that we talked about is our long-term organic net sales growth algorithm for North America confectionery annual growth, of course, could vary based on category dynamics, seasonal timing, et cetera. For 2027, given the shorter Easter, we would see 2% is sort of the starting point for that segment in the '27 framework. On top of that, of course, we expect Salt and international to be accretive to total growth, and that's what keeps us within the long-term enterprise long-term algorithm. .

And then keep in mind, when we set the earnings outlook for 2027, that framework was where we started. So the earnings outlook is based on that. If we now kind of say, okay, hey, we're halfway through the year, how do we feel? I would say based on what we know today, we continue to look at that framework that we laid out is achievable. The environment is dynamic, for sure. particularly around consumer behavior, competition, commodities, et cetera.

But our plan was built with that flexibility and multiple levers to manage through the uncertainty. So we have good visibility into cocoa deflation next year, even if futures remain around current levels. And of course, we'll provide much more detail as we're closer to issuing 2017 guidance formally. But in summary, nothing we see today, commodities or otherwise would cause us to move away from that framework.

Our next question is from Robert Moskow with TD Cowen.

Can we dig a little bit deeper into dots. You cited some supply chain challenges, I think, the manufacturing facilities can you tell us specifically what happened? And is it an easy fix? Or is there something some kind of capital investment that needs to be made to upgrade the facilities?

Yes. Yes, I'll take that one, and thanks for the question. Yes, the dots business is very encouraging, but let me talk about a few specifics on this one. We really like what we're seeing from a consumer standpoint. I think first and foremost, with strong brand health metrics and consumer demand across the portfolio. So we continue to see robust runway for growth with our core brands and dots is leading the way.

Now we have having said that, we have had some growing pains and keeping up with strong demand, particularly the dots business. and that is largely behind us. We saw this coming and we had already increased our investment in automation and capacity with capacity coming online in 2027 and so we feel good about that. Automation will start helping us right now. So that's why I say it's largely behind us because we can see the forecast, and we're in pretty good shape.

And so I think the tough spot, the growing pains are largely behind us, and we're ahead of that for '27. So I feel like that's where we're at with dots and dots continues to be a growth driver for us.

And I'll just add, at the segment level, obviously, operating margin came in a bit below expectations due to those supply chain challenges. And as a result of that, we had to use more spot freight usage, a little bit higher logistics costs and some limited volume throughput versus what we had planned. Again, looking ahead, as Kirk said, we expect to see some margin improvement in the second half as we move to capture that demand and also optimize the supply chain while still having a little bit of a tail of elevated freight and logistics costs.

Okay. Can a follow-up. July 4 was like 1 of these tech events that you called out. How did that go? And did these issues on dots impacted at all? Or is it executed, okay?

No, not really. I think that dots still has got tremendous opportunities around these, especially the salty temple moments. So you'll see that come to life later this fall with fall football. It was not a massive part of our fourth of July execution in the first place. And now that's an opportunity for our future. But when you see the balance of the year, you're going to start seeing dots in a lot of these salty moments where consumers are looking for brands like this. So you'll see some more breakthrough through that. So I feel good about where we're going. It didn't impact us that much for fourth of July. .

Our next question is from Leah Jordan with Goldman Sachs.

I want to follow up on the CoCo comments. You noted that you could see cost deflation into next year, even if they stay at current levels, and we've seen it creep up again here recently. Just curious if you could provide more color on your coverage or visibility on your cost into next year at this point. how we should think about the potential magnitude of deflation we could see? And any views on how you're thinking about cocoa supply? And are you planning any differently as you think about this potential omninew environment this year?

Sure. Well, let me take the first part and Kirk and I can tag team on the Cocoa supply chain question. So we've got good visibility into cocoa deflation next year. I don't think we're at this point in the year, we're going to get real specific on as we will as we get closer to year-end. But right now, we feel good about the deflation we're seeing. We've got a good track record of managing through commodity volatility.

Again, with our hedging, pricing strategies, resilient categories, the productivity and every all the other levers that we routinely use to manage that. So we'll share a lot more detail. I would just say we're in a spot where we didn't typically be at this time of the year and with all those levers available to us as we look to '27.

Yes. Let me talk a little bit about what we're seeing in the cocoa supply. So El Nino, you brought that up. El Nino speculation is certainly impacting pricing today and lately but we do not expect Cocoa to remain at current levels long term for a few reasons. If you remember the '23, '24 cycle, this is very different from that. And a couple of factors that we're seeing. One, we're coming off of historic surpluses. Inventories are healthier supply is more diversified, and the industry is much more agile.

The recent '26 and '27 West African crop data is, I'd say, encouraging after a slow start. So even if some of the origins are impacted by El Nino, we believe the market is already pricing it in. There is plenty of cocoa supply globally. And given that view that there's room for prices to come down, as you can imagine, the hedging strategies we use will allow flexibility to participate in further deflation as the markets normalize.

That was great color. And then I just wanted to ask about gross margin for this year. You slightly lowered the guide, I think, now slightly below 400 basis points versus just 400 basis points before. Maybe you could help us think about the magnitude we should think about there? Or how do you characterize the word slightly. And I guess what are you embedding in the guide for higher logistics cost in the back half? And any phasing we should keep in mind for 3Q versus 4Q on gross margin?

Yes. So we still have as you have pointed out, a significant lift in gross margins in the back half. We continue to see the commodity benefit coming through much more significantly than we did in the first half. And so that remains unchanged. And we're just below 400. We're not materially shy of the 400 kind of use that as the reference point, we used previously a little above, I would say now just a little bit below.

And some of that is just some of the salty components coming through as we work through those challenges. On the other side, productivity is doing really well. And so we're encouraged by what we see. I think we'll have a strong finish on productivity. We just have to work through those optimization components on salty here over the last quarter.

Our next question is from Peter Galbo with Bank of America.

Steve Kirk. I wanted to circle back on the confection piece of it and maybe drilling a bit more on the untracked piece. It's not something we often hear a lot about. And again, if the math is correct, it suggests it was like 200 basis points of growth for the first half. So maybe you can just, again, unpack that untracked piece a bit more. I don't know if it was World Cup-driven, people descended on the Times Square Hershey store? Like what exactly is going on in that piece that we all can see to kind of drive the outperformance?

Yes, happy to take that one. Really, it's not quite that much. The biggest component inside there is food service, and we did see a pretty big pickup on the foodservice side. We also have some specialty retail and some other things that fold into that nonmeasured channel, but probably foodservice was the biggest piece. It also includes some compression of Easter shipments inside that number as well. So those are the factors. I think those are the biggest ones probably to call out. .

Okay. And maybe just, Steve, to your commentary in the prepared remarks, you mentioned that 3Q is still expected to kind of be strongest year-over-year earnings growth period. I think that was always the case, just given some of the comps, but maybe you can just remind us like what's embedded in the base period of 3Q of last year that still drives that pretty material earnings growth for 3Q specifically.

Sure. Yes, the biggest factor is you had the highest cocoa cost last year. And I would say the full brunt of tariffs. And so those are the 2 biggest things we'll be lapping in the third quarter this year. So bigger tailwind in the third quarter than we'll see in the fourth. .

Our next question is from Michael Lavery with Piper Sandler.

I just wanted to touch on international. You called out in the prepared remarks, good momentum there, but there's also some margin pressure and we look back at like 22, 3 and 4, full year margins were above double digits. But last 6 or so quarters, it's running close to flat. Is there a structural change? Is that just some investments? And I guess also, can you just elaborate some on what is working with the top line? And just to give an update on all that.

Sure. I'm happy to take kind of a start through that. Some real pockets that we're excited about, Brazil, the U.K., India, in particular, has were probably some of our strongest performing markets through the first part of the year, demand is running ahead of plan. So I feel good about that. Mexico, macro conditions continue to be challenging. But as we look across international in total, there's probably nothing from a competitive standpoint that were that kind of changes our long-term view that this is a positive opportunity for continued growth.

On the margin side, in particular, you're seeing the higher cocoa costs flow through with a little bit of a delay in international as well as some higher logistics and freight impacting that segment as well. And then as we turn the year, so the first half is very strong as we kind of move to the second half, we are going to continue to do some optimization work to help long-term profitability in the international business. We'll probably share more about that as we get further in towards the end of the year. But that will be that's expected to be a little bit of a drag on margins in the back half relative to the front half will ultimately unlock further margin improvement as we look forward.

So in total, very excited about that business, strong first half, some real pockets of strength, but also we're making choices to set it up for long-term success.

Yes. I'll just add a few things. When we look at the portfolio in these anchor markets. We like what we're seeing. We like the competitiveness, how we're performing in markets like Mexico, Brazil, Canada, the U.K. So we like the performance. We're building momentum. There's certainly some opportunities, and we've seen real progress inside the business.

Okay. Great. That's helpful. Just coming back to buybacks. You seem to have indicated typically, it's 1 of the lower priorities in capital allocation you've obviously been investing in the business. It doesn't look like you've got M&A as that we're aware of kind of ready to get announced. But is there room for more deployment to buybacks for the second half? How should we think about that?

So we always want to be good stewards of the shareholders' capital. And so as he said, I would never call it a low priority. It's probably down the pecking order behind the organic investment and smart M&A choices and so forth. And as you've heard, we've got some great organic investments for waking behind the pack innovation calendar, et cetera. The M&A pipe, we continue to work in that space and want to make sure that we always have capacity but share buybacks puts good tension into the process.

And so as we sit here today, I would say we don't have anything in the back half plan for additional share buybacks, but we're going to remain optimistic and you saw we've got some additional authorization and that just reflects, again, the ability to make sure we're being good stewards of cash, not sitting on it, making sure we're deploying it wisely. So nothing more planned, but we're going to remain optimistic or opportunistic, I should say.

Our next question is from Chris Carey Wells Fargo.

Hi. Good morning, everybody. Good morning. Steve, I wanted to just ask a question about the medium-term targets that you've laid out at the recent Investor Day and in light of the recent rise in cocoa prices. I think there's a dynamic where the year-to-date cocoa prices will have allowed you to be quite well hedged for 2027. That in mind, 2028 prices are tracking around over 2027.

And certainly, your medium-term outlook implies maybe like a low double-digit growth rate from where guidance is today? I realize that can move around based on where 2027 and 2028 land, but certainly strong earnings growth over the next several years into 2028. And I guess my question is, how much of that path into your 2028 aspirations will be dependent on you needing to see cocoa deflation maybe material relative to where your 2026 cocoa coverage is, rather than things that you can control yourselves or potential longer-dated hedging that you could do earlier than normal to give you the sort of visibility to achieve those targets?

Sure. 2028 is a long time away. So we'll have some work to do to fine-tune the outlook there. But philosophically, we have good visibility into deflation for cocoa for 2027. Certainly, we'd love to see it have a multiyear run where we could capture that. At the same time, we're not sitting still basing the whole business around cocoa, right? We want to continue to drive meaningful top line growth.

We want to restore volume over time. We want to bring the best innovation to the category, be the best partner for retailers, and we want to be smart between the lines driving ongoing productivity savings, particularly off the back of our technology and capacity investments. So I would say, as I look to the future, continuing to grow the business and have margin improvement is not solely resting on cocoa deflation by itself. Certainly, that's going to be help for 2027. It's in the plan.

Okay. The second is around margins in the second but you've seen an increase in freight and logistics costs that's part of the slightly lower gross margin outlook for the year. Can you give us a sense of how you're viewing margins in your snacking business in the back half of this year and perhaps more term given some of the dynamics you're dealing with right now?

Yes. We've got some margin pressure in the snacking business in the back half, really principally around those factors as we get further into fully optimizing the supply chain off the back of the investments that Kirk mentioned earlier, we do expect modest margin improvement as we go through the second half.

So we're expecting improvement but we'll be in better shape as we get to 2027, and I'd say we've got the supply chain more fully optimized. Until then, we're going to still have, like I said, at least a tail of elevated freight and logistics, mostly because we're going to spot market to maintain service while we optimize internally.

Our next question is from David Palmer with Evercore ISI.

Just first of all, thanks for the comments on 2027 and including that 2% confection sales growth target. I would imagine that will be a focus area for people at the as confidence grows that you could do that, then that would be reflected in the stock. So maybe that's worth double-clicking about what you think will be needed to achieve that in terms of market share, how much is market share stabilization, a priority and a necessity to do that type of growth? Just how are you thinking about that? And then how if any way are you adjusting to what you've been seeing so far this year?

David, I'll take that one. Yes, I think that's a really important question because I think it drives this disciplined approach to the balance that we're driving in the business. And we remain confident we can make progress on both margin and share over time. So this year, I would just say we are on track to deliver our top line, our margin and our EPS expectations.

Now the market is hypercompetitive. And that the competition in this category really drives the resiliency and the durability of growth. And we're seeing a lot of innovation growth this year. And we're building an innovation pipeline. We have a big innovation plan for the second half. We talked a little bit about it in our comments. And we have a pipeline in '27 and '28 that we have reviewed already that gives us confidence that we're going to build that share momentum. What I like about margin recovery and share performance, is it's in the right place is innovation that drives growth and profitability is a great way to grow the category and grow the business. That's why we have confidence that we can make meaningful progress on both margin and share performance.

I wonder on the topic of innovation versus perhaps these activations or tentpoles that you've been doing this year. has anything surprised you or in terms of the response on the tentpole stuff? And then how would you characterize sort of the give and takes the year-over-year comparables of your intensity of tentpoles and innovation in '27 versus what we're seeing in '26, and I'll pass it on.

Yes. No, that's a really good question. If you think about how we look at the business, we look at our core everyday business, our performance around seasons. We've added this dynamic with tentpoles. And it's really raised our execution on some key things. I would tell you, I would look to the summer execution with the celebration of 250 and our smores performance.

It was exceptional. It gets better every year and the bar gets higher and it's something that we're famous for, but we could take it even further. We added innovation in the space with I don't know if you guys are making mores, but she got to get on board, especially with the Carmel, that is growing our business, plus the execution around the temp pole is good. I expect us to get even better at these tent-pole moments, I think, about fall football. We like them because they fit nicely in between the seasons. But we look at the business just like that.

We look at how we're performing on our everyday business, our immediate consumption business. Our seasons were incredibly disciplined around seasons, and that's why if you think about the first half, we gained share across seasons. We like what we see in the second half with the holiday season in Halloween. So we'll still stay focused on that because that's a huge part of the business. And then supplement the growth with the tent poles. And I can tell you we're getting better at those as time goes on.

Our next question is from Alexia Howard with Bernstein.

Need you for the question. Can we ask about the outlook for volume recovery in the North American confectionery segment? Obviously, price growth is going to slow. Would you expect a fairly rapid improvement in the volume trends as we move into the back half announcing to 2027?

Yes. Let me take that one. Look, as commodity inflation eases and pricing elasticities normalize, we expect volume trends to improve over time. I'd tell you, in Q4, we still have some high single-digit pricing that's tied into the seasonal actions that we've taken. But we look at the coming year, and we expect early signs of improvement coming across especially our Hershey brand portfolio, we have a lot of activity in Q4 with the Hershey movie. So we see that recovering early, Jolly Rancher, our premium bands, including Cadbury, we see some momentum. That momentum will continue through 2027.

Great. And then as a follow-up on continuing with pricing, Salty snacks, you had pricing slightly down this down this quarter. because of the investment in trade promotion, I believe. Is that expected to continue into the back half of the year?

I think from a Cell team perspective, we're going to see balance. Of course, we constantly look at pricing as an equation or certainly strategic pricing understanding inflationary pressures on the business and being competitive and being right with consumers. So it's a balanced approach with that, that's how we take a disciplined approach across all of our businesses. But I think there's not going to be any big surprises from a salt pricing standpoint in the second half of this year.

Our next question is from Peter Grom with UBS. .

Great. Thank you. Good morning, everyone. So I wanted to follow up on an earlier question around '27. And I think you noted the framework still holds based on where things stand today. You have good visibility on cocoa depletion but you also touched on kind of the external volatility that has picked up this year. And I guess I would imagine that when you provided annual guidance 2 years out back in March that you probably embedded more flexibility than usual. So just Serus, given how the environment has evolved, has that level of cushion shifted at all? Or is it really unchanged?

It's definitely been volatile. But I would say is next year more volatile than this year or last year, it's hard to say. But to your point, when we built that outlook, we take account of all the levers that we have inside the P&L to manage across. So that's levers on sales, pricing and volume, but also levers in the rest of the P&L as well as how we think about investments, reinvestment, productivity and so forth. And again, picking on productivity a little bit, it's a place where we've been able to overdeliver for a number of years.

And that make some smart investments in technology and capabilities that will bear increasing impacts as we go forward. So notwithstanding what will no doubt be a very volatile 2027. We still feel that the framework that we articulated earlier this year is still the right starting point for the year.

And then you noted that Snap impacts have been pretty modest, and I think reductions have been better recently they were earlier in the year. So can you maybe just speak to that specifically? And maybe what's embedded in the outlook for the year.

Yes. Let me take that one. We've been staying very close, obviously, to this one. The Snap waivers versus the outlook. I would say it is really it's slightly better. And so it's what we plan. I thought we did a really good job planning for the impact of Snap, and we've been very close to it. Where the difference comes in is the early adopting states had a little bit higher of an impact than the recent states, notably, Texas and Florida.

So they've been on the lower end. So the balance of that has been where we've seen a little bit of upside. But overall, I would say it's in line with what we planned. And that for me running this business, it feels like that's the right approach, being able to understand the macro and plan for it accordingly. And so that gives us the confidence moving forward that we can have a good eye on these macro impacts.

Our next question is from Scott Marks with Jefferies.

I wanted to ask about the cadence or phasing of the top line in the back half it sounds like there's a lot of moving pieces between lapping tensor innovation, some of the new innovations coming out like cream bars as well as the pieces with cookie, Hershey movie, recovery from some of these salty supply challenges. So just wondering if you can give us an idea of the shape of Q3, Q4 across the different segments.

Yes. I'll just say on the North America confection business, it's possible we'll see some periods of negative everyday confection retail sales growth, but we anticipate strong seasonal performance -- and for organic net sales, we expect growth in both Q3 and Q4 for the segment. So we've got some tough laps, but for the quarters overall for the segment, we expect to see some growth. And as we talked about earlier, the second half shipment gap is expected to be less material in Q3 program shipments and the impact of that extra shipping day will help to neutralize that.

So that's about as much color as we're probably going to give on the profile. It's like Kirk said at the beginning, it's pretty action-packed back half given the innovation launches.

Understood. Appreciate the color there. And then second question for me. In the prepared remarks, I think you called out ANC expense down about 3% in the quarter. Wondering if you can unpack that a bit for us? Why was it down? And how should we be thinking about the cadence of the ramp into H2 and as we get into next year?

Yes. Let me take that one. It really is tied to the programming that we have. And the balance of the year, we have quite a bit of programming that supports the innovation launch that supports the Hershey movie and then supports movement into 2027, meaning we're investing in things in the fourth quarter that should give us momentum and get off to a good start in 2027.

So it comes down to the timing of programming and investments against the big initiatives that we have to create demand and to execute against the demand. It's mostly timing. And then the second half, we have good investment against delivering on our core brands, Reses and Hershey. But you'll also see programming around Cadbury, PayDay and fulfill. So we like the investments we're making, and they're tied to driving the growth and keeping the momentum going.

Our next question is from Jim Salera with Stephens Inc.

Maybe to circle back to the conversation around pricing on Salt. I know there's been a lot of table discussions about pricing coming down across the categories, some other high-level large brands talking about taking some net price declines. Can you just give us some color on where your brands sit on the price ladder relative to peers in that category?

Yes. What I would tell you is we've been very prudent and patient with pricing on the Salt business. The pricing gaps have narrowed, but we -- if you look at a piece of history, we've been very balanced in our pricing on our selfie business. and very competitive. And I would say that is our focus. We will be competitive with price points in the categories that we participate in. Now we participate in a premium position with our core I mean, our core brands, especially Skinny Pop and three, they are premium and permissible.

And of course, now with less Revo performing very well. I'd say overall, our pricing structure has been very disciplined very competitive position right where consumers expect it. So I think it's a bit different than the rest of the category. I think we're in a really good place.

And if I could shift gears and ask, we talked a lot about the tent poles and the contribution this year and in the back half of the year, but give us some thoughts on media consumption occasions and everyday consumption on confectionery particularly in the prepared remarks, you highlighted consumer softness persists, but elasticities are still a little bit better. And so you're trying to square is there something we should be on the lookout for given the macro uncertainty that might swing those elasticities either more to negative or anything that keeps you confident that we'll continue to move forward at a better pace.

Yes. The elasticities have been, like we said, they're on track or slightly better. And that's exactly how we look at the business. We look at our immediate consumption business and our execution across convenience and our take-home business. And those are really important core business that we look at. And that's where we've seen stable elasticities or at least against what we've planned. So that gives us the confidence. So that's exactly how we look at it. And then we fold in seasonal performance and then tent poles.

But our starting point is always our core business, and that's our take-home business and our immediate consumption business. And when we talk about those elasticities, those are what we're talking about being on track.

Our next question is from Tom Palmer with JPMorgan. .

Thanks for the question. Maybe I could just start out on just the topic of price gaps in chocolate. They have widened, especially versus a key competitor. In the release, I think some of the volume share changes we've seen were discussed as more being related to innovation could we maybe just unpack what you're seeing in terms of price gap versus innovation as drivers of that share? And then based on your innovation timing, when do you think we're going to start to see a real shift in kind of unit share on your end?

Yes. Let me take that 1 as well. look, first, the year-to-date share dynamics losing my voice this morning. I apologize to everyone. Look, year-to-date share dynamics is largely driven by innovation. Our pricing and our price gaps are largely as expected and our elasticities, as we just talked about, are tracking slightly ahead of our expectations year-to-date. So we watch these price gaps all the time, and we want to be competitive in the market. We will be competitive in the market. We regularly also make small adjustments where we see opportunities. .

And moreover, we'll invest in trade in the second half to support the big innovation and merchandising programs, just like we talked a little bit about so when we go to market with our customers, we support the things that we're putting out on the perimeter that we're selling that we're driving that growth. But a couple of big drivers that I talked a little bit about earlier that are happening in the category, which I really love about this category and the resilience of it is innovation plays a big role. Innovation has played a big role this year. innovation will play a big role in '27 and '28. And I love our pipeline that we have on innovation starting in the second half, going into '27 and '28. So that gives you confidence that we're going to be very competitive and grow the category or ahead of the category.

Got it. And then, Steve, maybe could we put a fine. Could we put a finer point on how we think about third quarter in the context of having the highest earnings growth for the year I mean any sort of range maybe would be ideal. But as a starting point, the absolute level of earnings, should we think about 3Q or 4Q being higher?

Yes, I don't want to get as specific as starting to give more quarterly guidance. But I would say, from an EPS, which quarter, they're probably pretty close across the 2 between in absolute dollar EPS and I'm looking across at a Nuro say did I get that right? Yes. So but that's probably as much color as I think it's reasonable give. .

Our next question is from Steve Powers with Deutsche Bank.

Great. Just 2 quick. Follow-ups, I guess. The first one, Kirk, elasticities, as described, tracking in line or slightly better. I guess does that hold true as you look across performance maybe by income cohort. Just curious if there's any subtleties there? And if so, in terms of the broader revenue growth management strategy. Anything that you might tweak in the program looking forward versus what you've been doing so far?

Yes. I mean I think this is always a dynamic place to look. I look at the channels in which we are participating, and we've got really good balanced growth across channels, across the dollar convenience channels. I would tell you, just the consumer studies that we do, low-income households certainly are feeling more pressure, but we're still seeing a balance across those channels right now. I would tell you, so the elasticities that we're seeing are very consistent with what we would expect.

But we're always paying attention to the consumer and what their needs are, and we're looking at solutions through packaging and other offerings for consumers by channel so that we do stay hyper-focused on delivering what they're looking for and driving affordability. And so that's really still important to us. and part of our ongoing strategy.

Okay. Great. Great. And then just on the upcoming Halloween season, maybe just a bit of a further preview on programming, just kind of what you're planning, engagement with retailers, et cetera? And maybe if there's anything different than what we've seen in the past?

Yes. Look, we took a lot of learnings from Halloween. And we've already started shipping Halloween, so have good visibility to the orders -- and our activation plan with our frontline sales team is really dialed up this year. And I would say we've got great support with our customer partners on bringing this to life. So again, Helane starts fairly early. We even call it summer wind. It's off to a really good start.

So it's coupled to, hey, look, what did you learn from last year how can we reach consumers better, how we can be better partners with our customers. We put those things into place for this year's Halloween and we feel good about where we're going to be.

Thank you. We have reached the end of our question-and-answer session. This concludes today's conference. You may disconnect your lines. Thank you, again, for your participation.

Good morning, and welcome to the prerecorded discussion of The Hershey Company Second Quarter 2026 Earnings Results. I'm Anoori Naughton, Vice President of Investor Relations.

Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil. In addition to these remarks, we will host an analyst Q&A-only session at 8:30 a.m. Eastern on the morning of July 30. A replay of this webcast and our subsequent Q&A session will be available on the Investor Relations section of our website, along with their corresponding transcripts. During the course of today's discussion, management will 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. Actual results could differ materially from those projected.

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 during today's discussion, 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. Reconciliations to the GAAP results are included in this morning's press release, which is available on the Investor Relations page of our website. It is now my pleasure to introduce our President and CEO, Kirk Tanner.

Good morning, everyone, and thank you for joining us. We entered 2026 with a clear objective: deliver 4% to 5% net sales growth and meaningful margin and earnings recovery while continuing to invest in our strategy, capabilities and organization that will support Hershey's long-term growth.

Today, we are narrowing our net sales and adjusted EPS ranges to the top half of our prior outlook, reflecting the strength of our first half of 2026 performance with reported net sales up nearly 9%, organic net sales up almost 6% and adjusted earnings per share up 28%.

We enter the second half with momentum, compelling growth plans and increased investment behind our brands, merchandising and innovation. At the same time, our cost visibility and operating flexibility give us confidence in our ability to navigate evolving market conditions while delivering on our full year financial commitments.

Let me start with the operating environment and segment performance. Our category continued to perform well globally, supported by resilient consumer demand for snacks that deliver either emotional or functional benefits. In the U.S., retail category growth for confection increased approximately 5%. Permissible Salty Snacks grew 17%, Nutrition bars were up 12%, and our business continued to deliver solid results across most international markets in the first half. Consumer behavior, while dynamic week-to-week, is tracking largely as we anticipated.

U.S. consumer sentiment remains soft and shoppers continue to be value-oriented and selective in their spending. The first half impact to our categories from SNAP program changes were very modest. While more state waivers are now in place, household spending reductions have been more moderate than initially observed earlier in the year. We remain prudent in our outlook, recognizing that behaviors may change with seasonality.

Evolving health and wellness trends, including GLP-1 adoption, are also tracking in line with our expectations. Importantly, our portfolio remains well positioned across a broad range of snacking occasions with permissible and functional needs supporting demand and momentum in gum, mints and protein. Turning to segment performance. North America Confectionery delivered 6% reported net sales growth in the first half.

Marketplace demand, which includes nonmeasured channels and Easter shipments was strong, up approximately 5%. Retailer inventory replenishment added roughly 1 point to growth. Elasticities increased slightly in the second quarter as expected with our price pack architecture actions, but remains slightly better than our full year outlook.

We view this as another proof point of the strength of our brands and the relevance of our categories even as consumers remain disciplined in their spending. Our product pipeline and improved core item availability positions us to accelerate demand creation in the second half. We expect a 30% year-over-year increase in brand investment to support growth in both 2026 and 2027, a 30% increase in new innovation items versus the first half, including large national scale launches such as Hershey's Creme Filled Bars, strong visibility into seasonal and tentpole programs with customers, including Halloween and the Hershey movie.

While some upcoming periods will face challenging year-over-year comparisons, we are confident these actions position us to grow on top of last year's strong second half performance in total. North America Salty Snacks delivered 24% reported net sales growth in the first half with organic net sales up 3%.

Performance was below our expectations due to supply challenges on multipacks and Dot's pretzels in the second quarter. Importantly, consumer demand for our Salty Snacks portfolio remains strong. We continue to see attractive growth across permissible snacking, led by brands that are differentiated on trend and highly expandable across occasions.

While these supply constraints modestly temper our full year organic net sales outlook for the segment, we are deploying capital for automation and capacity, strengthening customer programming and positioning the segment to capture the full benefit of demand. International continues to outperform expectations. First half net sales increased 11% with organic growth of nearly 6%, led by strong results in Brazil and the U.K.

While optimizing programs are expected to weigh on second half performance, we now expect full year international organic net sales to increase modestly, improving from our prior outlook for a low single-digit decline. Stepping back, business conditions are evolving quickly. We remain focused on executing our next-generation snacking vision, supported by strategic investments in portfolio, talent and technology that will position Hershey for multiyear success.

We have a unique snacking portfolio today with significant runway to expand into attractive white spaces through brand building and innovation. You will begin to see this more clearly in the second half.

We are activating new campaigns across several brands, including Cadbury, Payday and FULFIL to strengthen consumer engagement and cultivate the same level of brand resonance we have built with Hershey this year. At the same time, our innovation pipeline is building. We are prioritizing opportunities that broaden our reach across occasions, address evolving consumer needs and reinforce our leadership in snacking.

Upcoming launches include Hershey Creme filled Bars, a meaningful new offering from one of our flagship brands and Reese's Pieces with Cookie, the first step in the expanding that platform. We are moving towards meaningful incrementality via high-growth areas starting in 2027.

We also continue to strengthen our One Hershey commercial model and advance our tech-enabled supply chain to drive greater productivity, improve efficiency and create a more agile operating model. Together, these actions will support sustainable market share expansion and balanced growth across snacking over the long term. With that, I'll turn it over to Steve for more details on our financial results.

Thank you, Kirk, and good morning, everyone. We delivered another strong quarter with resilient demand across segments despite supply challenges, while price realization and productivity initiatives drove margin recovery and adjusted EPS growth of 57% year-over-year. Combined with visibility into second half programming, cost savings and commodity deflation, this performance supports our confidence in delivering in the top half of our full year net sales and adjusted EPS outlook.

Second quarter reported net sales increased 6.6% versus the prior year. The LesserEvil acquisition was a 2.7 point benefit and foreign currency translation was a 30 basis point benefit. Net price realization of approximately 12% in the second quarter was in line with expectations, reflecting our strategic pricing actions in the North America Confectionery and International segments. Volume declined approximately 8 points, primarily reflecting elasticity impacts in North America Confectionery and International, partially offset by growth in North America Salty Snacks. North America Confectionery net sales increased 4.2%.

Net price realization was approximately 14%, modestly ahead of expectations due to product mix. Volume declined approximately 10%, reflecting elasticity and shipment timing dynamics, partially offset by retailer replenishment after several quarters of stronger-than-expected elasticity left inventories below optimal levels.

North America Salty Snacks net sales increased 22.9%, including an approximate 22-point benefit from the LesserEvil acquisition. Net price realization declined 3%, reflecting higher trade investment behind new item launches, while organic constant currency volume grew approximately 4%.

Retail consumption, excluding LesserEvil, rose 6.5% in the quarter, led by Dot's, Reese's Filled Pretzels, and variety multipacks. This demand was partially offset by supply constraints and the planned reduction in private label production. We have action plans in place to strengthen second half execution and now expect full year organic net sales growth of 3% to 4% for North America Salty Snacks. International net sales increased 5.7% in the second quarter, including an approximate 4-point foreign currency tailwind.

Net price realization was around 10%, reflecting previously announced pricing actions across key markets. Volume declined approximately 8%, driven by elasticity and the depletion of roughly $10 million in inventory shipped in Q1 to mitigate geopolitical risk, partially offset by stronger-than-planned performance in Brazil and the U.K.

As Kirk noted, our strong first half performance supports our updated full year outlook for 3% to 3.5% organic net sales growth for the total company. Second half plans remained strong while reflecting moderation as we lap robust year ago results, manage the timing of Q3 merchandising shipments and continue to navigate an evolving consumer environment. Moving down the P&L. Adjusted gross margin expanded 350 basis points in the second quarter, driven by pricing, productivity and input cost deflation.

Results were slightly ahead of expectations as North American Confectionery net sales and a $9 million tariff refund more than offset unfavorable freight and logistics costs in Salty Snacks and International. We now expect full year gross margin expansion to be slightly below 400 basis points, reflecting the increase in freight and logistics costs impacting our Salty Snacking segment.

Advertising and related consumer marketing declined approximately 3% in the second quarter, primarily due to efficiencies and the timing of nonworking media in North America Confectionery. Salty Snacks investment increased double digits as we expanded national brand campaigns for SkinnyPop and Pirate's Booty to build household penetration and velocity, while international marketing also grew double digits. We continue to expect brand investment to increase meaningfully in the second half as we step up support for 2026 and 2027 initiatives.

Adjusted operating expenses, excluding advertising spend, increased approximately 5%, driven primarily by incremental capability and technology investments. The adjusted tax rate for the quarter was 24.2%, a decrease of 860 basis points versus the year ago period, reflecting last year's onetime increase in incremental non-U.S. tax reserves. There is no change to our full year tax outlook.

Interest expense was $50 million in the second quarter, and our full year outlook remains $200 million to $210 million adjusted earnings per share increased 57% to $1.90 in the second quarter, ahead of expectations due to strong net sales and gross profit performance, along with the shift of nonworking media investments into the second half.

We now expect full year adjusted EPS growth to land in the upper half of our prior range at 32.5% to 35%. Our outlook does not include potential future tariff rebates. Third quarter EPS growth is expected to be the strongest of the year as pricing net of commodity costs is expected to be most favorable versus the year ago period. Capital additions, including software, were $90 million in Q2, $5 million higher than the prior year period. Dividends paid totaled $286 million, up 6% year-over-year.

The company repurchased $370 million of common shares in the quarter with $270 million remaining under the December 2023 authorization. In June 2026, the Board approved an incremental $500 million share repurchase authorization, reflecting confidence in our long-term outlook, balance sheet flexibility and commitment to return excess cash to shareholders while continuing to invest in the business.

We continue to make strong progress against our key initiatives and our disciplined investments in brands, capabilities, technology and people position us well to deliver long-term shareholder value. With that, I will turn it back to Kirk for closing remarks.

Thanks, Steve. To close, we delivered a strong first half, and we are investing behind that momentum in the second half. Our focus remains on showing up for consumers in the moments and occasions that matter most to them this time of year. We remain confident in our ability to build Hershey for sustainable growth and long-term value creation.

Thank you for your time this morning. We invite you to join us for our live Q&A webcast beginning at 8:30 a.m. Eastern.

Good morning. I'm Leah Jordan, the packaged food and food retail analyst at Goldman. And it is my pleasure to introduce the management team of Hershey. We have Steve Voskuil, Senior Vice President and Chief Financial Officer; Dave Hulays, Senior Vice President of Finance; and Anoori Naughton, Vice President of Investor Relations. Thank you all for joining us today.

Pleasure.Thanks for having us.

So Hershey really needs little introduction. But as a quick refresher, it is one of the largest packaged food companies in the U.S. with a broad portfolio of iconic brands across confection and salty snacking, including Hershey's chocolate, Reese's, SkinnyPop and Dots pretzels. And I think before we get into our chat, I'll do -- I turn it over to Steve for some quick comments.

Yes. Thank you. Great to be here. Appreciate the interest in the stock. This is a unique time in history. We're coming off 2 years of unprecedented commodity inflation and now find ourselves in this unique position to both rapidly recover margins, but also invest for long-term growth. And as we look to this business, we're coming off a period of price-driven top line growth, but know that the best healthy business is going to have a mix of volume and price going forward. And what's great about this business, aside from a resilient category and iconic brands is that we have good visibility into the plan for 2026 and 2027. And so we're excited to get to tell that story today.

I think you see...

Great to have you all. Maybe just to start us off, following up to those comments, Hershey has had a number of headwinds across the industry over the last few years, but the company seems to be emerging even stronger now. You have laid out long-term plans recently at your Investor Day, and you have elevated growth expectations through '27, a return to algo beyond that. So maybe just at a high level, you could just talk about the key drivers underlying your confidence in that longer-term outlook at this point.

Sure. I will start with what you said, Leah. -- we are stronger coming out than we were going in. We had always a commitment to driving a disciplined P&L and disciplined growth strategy. The pressure from commodities in the last few years made that even sharper. And so in addition to regular gross margin focus and growth focus, we've been able to sharpen that, drive deeper cost savings focus and invest into the things that we know are going to drive growth long term.

And so as part of this recovery, we have invested in their brands in a more significant way. We have invested in areas like R&D to make us more long-term competitive on innovation. We have invested in our retail sales team and in particular, the technology that will allow them to be even more efficient than they are so far. We will have the opportunity to invest in innovation.

And so when I look across all of those growth-driving investments and when I look across our ability to continue to manage with discipline, the rest of our P&L and our cost structure, those are the things that give us confidence in the outlook. I'd say our head is not in the fan. We see the macros that you all see. We see GLP-1s, we see SNAP, I am sure we will talk about those. More recently, we see the pressure from fuel prices. But even with all of those and the state they are in, we have confidence in the outlook because we are deep into each of those areas, and they are performing inside the expectations that we set when we established our plan for this year and for 2027.

And then I think we are going to jump right into some of those things that you said we would. So the macro backdrop remains dynamic. Maybe just you could talk about your recent consumption trends you are seeing, how resilient has demand been against those macro pressures and especially things like changing terms for SNAP as well as even GLP-1s?

Sure. So I will come to those macros and maybe just say at the start, we acknowledge how difficult it's been through the first quarter to get a good triangulation on the base business. We are always affected by seasonal timing. We have sometimes shipments move from one quarter to another to respond to the season. And when you look at the year-over-year lap, it's difficult through Q1 to say, hey, what's happening? What's the clear signal on the core business? -- that's going to get a lot easier from here going forward through the balance of Q2 as we start to see the data gets a lot cleaner.

We don't have that seasonal noise and some of the other shipment noise. So as that signal gets clear, you're going to see some of these things play out in real time. From a SNAP and GLP-1 standpoint, inside the company, we've got a pod that focuses on each of these areas. And that pod looks at outside data, it looks at receipt data, it looks at research. And we want to be as much as we can be experts in our categories on those 2 spaces. In fact, by coincidence, our pod on SNAP is actually in Texas this week, doing shopper intercepts, one-on-one interviews with SNAP consumers, understanding how they're making choices and trade-offs, the difficulty of shopping as retailers execute some of these new waivers.

And so that is just one part of the data that we are bringing back inside and then using to test and assess our plans and so forth. As we look across the consumer landscape and notwithstanding those challenges, we believe we have got those consumer pressures embedded inside our outlook. Obviously, there's sort of a defensive piece of, hey, this is happening, how are we going to react?

But there's also the proactive side. In the case of SNAP, how can we partner with retailers to make it easier to shop to find things that are acceptable in the waiver environment and help shoppers find the product in the confection space and ours in particular, that will help that they can purchase. In the case of GLP-1s, you heard Kirk talk about helping with breadth and refreshment or protein to make sure that we've got products that are going to be able to participate in the need for protein. So as we think about the consumer in these dynamics, there's the role of understanding and testing our plans and then also finding ways to capitalize where we can against these trends. And again, as we sit here today, everything is sitting inside the impact that we expected.

That's great to hear. And I know we will all be happy to get past the seasonality to just see the normalized trends. But you have a strong seasonal business, so that's always going to come. And then maybe kind of broadening off of that topic, I mean, demand overall pretty healthy, but you've taken significant inflation-based pricing over the last year or so. What are you seeing in terms of elasticity on the back of that? How do you think about sustainability of that pricing action if we should see more macro pressure on the consumer? Or what other levers do you still have beyond pricing as well?

Sure. So our retail sales team is in stores, multiple stores every single week. And we, as a leadership team, have a meeting every week where we review what they're seeing on shelf, what's happening or not happening on price, innovation, velocities, et cetera. And so we are very close to what's happening on shelf from a pricing standpoint. As we talked about on our last earnings call, and it remains true here, elasticities are playing out more favorably than our original expectations. I'd say it's sort of stabilized at the level that it's at. We'll continue to monitor that, but more favorably than we expected. And we see that because these are iconic brands and emotive brands, they're precious in seasons and family events.

And the category in general has continued to be rational. And so that's one component of how we kind of keep an eye on the pricing side and the elasticity side. We have other levers. Obviously, list price is just one piece. We also look at price pack architecture. And I would say we have a very good revenue management team inside the company that looks at ways to also with -- in partnership with retailers to drive more category sales and category dollars. Some of that price pack architecture, in fact, is rolling into the market as we speak.

Long term, we know that the model of the last 2 years, which is largely price-driven top line growth is not the sustainable model. We want a more balanced price and volume component. That's part of our algorithm. And so that's one of the reasons why these reinvestments back into things that will help drive volume and consumer engagement and retailer support and merchandising are part of our plan going forward.

That's great. And then maybe just building on this discussion around market share. I think there has been a lot of noise in the data that everyone looks at. Maybe you could talk about what's impacting recent market share trends, highlight where you've been winning? And then how do you expect market share to evolve as we move through the year?

Dave, I'm going to give you a chance to...

Yes, sure. So year-to-date market share, overall, I'd say retail has been in line with our expectations. Seasons has been in line with our expectations. Our core chocolate portfolio has been under more pressure. Really, it's about timing of innovation and shelf changes and shelf placement.

We feel good about what we have coming in Q2 from a distribution standpoint as well as the tentpoles and the merchandising. So we feel good about what's coming and us sequentially building back from that share position. The piece that is, I'd say, higher than what we expected is the premium segment continues to do well. We have some plans within our portfolio to go deeper into that segment, but a lot of our premiumization initiatives are going to happen in 2027. So we have that in our line of sight there. But in the meantime, we feel good about the programming that we have at this point for, including shelf resets that just happened in spring in a lot of the food retailers.

The only thing I would add to that is we care deeply, obviously, about market share. And -- but we're also not going to invest unwisely to try to compete in a segment where, hey, it's growing like crazy, but we just have a foothold. So let's spend a lot more money in some place else to compensate. That doesn't fit the way we manage the P&L. We want to drive good ROI, smart investment.

We'll have some premiumization strategies coming later this year and next year that will get at that component in a bigger way, but Dave did a great job summarizing.

That's great. That's a well-balanced approach, and I know you play in many categories. But kind of going back to that discussion around innovation, and I do think some of this in the first half of the year was around timing. It sounds like you've got a lot more on shelf space to come. A lot of the innovation and tentpole events are still on the come. So maybe provide more color. It sounded like premiumization, but maybe of the plans or what you're willing to share today, what can we look forward to as we look ahead?

Yes. I'll maybe touch on the tentpole piece, and then Marie, you can talk a little bit about the innovation that's coming, both exciting.

So tentpole is kind of an opportunity that was always there that we probably didn't take as good of advantage of as we could have. We're great in seasons. That's part of the reason the retail sales team is so impactful as they can help retailers merchandise effectively seasonally. And the notion is, hey, how do we take that strength and leverage it in the shoulders in between seasons, but also not just the seasons, which are the same every year, but things that are culturally relevant and always changing and bringing in new demographics, new consumers, younger in some cases, consumers into the brand. And that's really some of the opportunity in the tentpoles.

And tentpoles will be different every year. This year, we've got some unique ones, obviously, coming up with America 250. We've got the Hershey movie coming later this year. Those are unique. But every year has some unique events that we'll be able to tap into. And it's really to say, hey, let's bring all the strengths we have of seasons to bear on these shoulder seasons and create more goodness in between the big events. And the sales team is energized by this.

I think we're energized because it's going to give us more, let's say, cultural relevance in some of these things. Year-to-year, it will look different, but it's a real opportunity to expand on the strength. Innovation is really important. We've got some good things coming that we can share for this year, including Q2 and beyond, and teas are probably for next year.

Yes. So right now, we have our spring items out. So we've got the Reese's Marshmallow, the Reese's peanut butter and jelly. We've got new flavors across our Suites portfolio and Jolly Rancher that are all hitting the markets or will be in the market over the next -- with merchandising vehicles over the next couple of months. And then as we get to the back half, we'll also continue the news going on core items while we introduce that accessible premium item with the Hershey Krackel bar that will be coming out in time for back-to-school season. And then as we look ahead, the innovation and R&D investments that we're making this year will help us to build to a more -- a pipeline of innovation for '27 that will be more incremental, a bit more disruptive across some of those growth spaces that we laid out at Investor Day.

Great. Yes. I know a lot will still be asking on into the fall as we get closer to '27, it sounds like. But it sounds like you're going to be pushing the envelope, I guess, in innovation in the back half and into next year. We've talked about premiumization, but making balanced ROIC decisions. But I guess if we could take a high-level look like long term, where do you see the confection portfolio for Hershey evolving over time? I think you continue to do really well in legacy brands, right? Hershey, Reese's is still growing double digits even after all of these years, but then there's a lot of opportunity in other categories. So just how meaningful could the expansion into premium ultimately be?

And how do you see that evolution?

Sure. I'll start at the way Kirk did at the investor conference is the core is super important. So despite all of these expansion opportunities and exciting the core is the most important. And so as we talked about at the investor conference, we still have opportunities for distribution on the core. And so that is a big focus. We want our top 70 SKUs everywhere. And as you saw, we still have opportunities for more distribution points for that. So that is job one. That is actually the funding source for some of the investments.

So we want to make sure that we execute that well. Then we look at where the consumer is going, and we talked about premium and premiumization. We don't have permission to play in all parts of premium and premium is a big space. And we're not in the ultra-premium. That's probably not where we -- our brands have permission to play.

But there are parts of premium that we can participate in, some with existing brands where they can push up with permission into that space and potentially with new brands. And so that will get some attention. Again, in the grand scheme of the company, it's still a relatively small bet, but it's a rapidly growing space. Consumers are there, and we should be there as a category leader. Functional snacking is another one that Kirk talked about. We've got one in the portfolio. We've got Fulfill in the portfolio.

This is a place also, again, partly in light of the macros where these brands can get a more focused attention than what we have had in the past. And we believe that we're going to make some smart investment in these spaces, but also take advantage of some of those macros to make sure that we're playing a good role that we have permission to play in the functional space. We'll look at sweets. We've made great progress with Jolly Ranchers. We have more room to grow there. That segment of the category probably softened a little bit, but our opportunity to grow in that space and grow the category in that space is still strong.

And then getting to salty and the opportunities we have in that part. I'm sure we'll get to a question on salty. Anything I'm forgetting there Anoori?

No, I would just say we laid out the 40% ambition. So it's -- we're going to be on a journey. All of those places will play a role, but we haven't necessarily laid out exactly like the contribution. It's going to depend on where the consumer is.

You'll see a big step forward in '27 in all the places that Steve talked about.

Okay. Great. Yes, that -- again, still a lot to look forward to and still doing a lot of strength in the core. So firing on all cylinders there. And then you kind of teed me up the next part.

On salty, you've built up a tremendous salty business over the last few years. You continue to gain a lot of share. You're outgrowing the category and really bucking the trend there. Maybe can you just talk about why is your portfolio resonating in this environment in the salty space? And then how much more opportunity do you see to expand distribution for the brands that you have today or just in growth going forward?

Yes, we love this portfolio and great foresight by the team at the time that got us in with SkinnyPop. And then I think some great additions -- organic expansion but then great additions to the portfolio. And I'll say we're pleased with all parts of it. Even today, as we look at it, there are parts we can do better. So we talked about Pirate's Booty at the investor conference. You have small in the grand scheme of things, but that brand probably hasn't been refreshed in my time with Hershey. And in a way, shame on us, it's a great product. It resonates in kids snacking, where we have permission life.

So even the smallest part has opportunities to grow. But we're in the middle of integrating LesserEvil, and that's going great, right on plan. We'll have opportunities to scale that up. So that will clearly be a distribution opportunity for us, kind of taking the same playbook that we have with Dot's, which was to take a strong regional brand with unique differentiation and basically blow it through our playbook and put it in the hands of our sales team and go to work. And so as I look across all parts of the salty portfolio, I'm really pleased with what they're doing.

They're all differentiated in some ways. And I think that's one of the reasons we've been able to be successful. And in fact, as we think about expansion of that portfolio, we will always be looking for something that's unique and differentiated and sustainably differentiated from others. And it gives us this place, as Kirk would say, to be the insurgent brand inside this space, unlike where we are with confection. And in addition to the top line opportunity in that business, we have a margin opportunity as well. We're still integrating those businesses, especially LesserEvil. We had the benefit a few years ago of putting that business and the confection business on the same new ERP platform, which has driven efficiency. And now with our new One Hershey operating model, that will drive additional opportunities for margin enhancement on the salty business as we have more integrated customer conversations, more integrated activations in store and more scaled resources across the 2 businesses. So yes, very enthusiastic about the salty business.

Great. And you're gaining share, you're doing very well. We have heard competitors adjust their pricing. Maybe just any quick comments around the competitive environment today in that category.

Yes. I would say for us, stable. We know a large competitor has changed the pricing strategy.

We don't look at that pricing or that competitor's pricing as the bellwether for our brands. Again, we're not competing necessarily in the same space as we have a differentiated different role than some of those do. So we don't look at that pricing decision or those pricing decisions as an automatic trigger to the way we think about pricing. We really -- like the other businesses, we want to have a balance of volume and price over time that makes sense, what resonates with consumers and recognizing that we're driving a lot of category growth.

Great. And I think we have to get to cocoa. We don't think that topic is said. But we've seen a lot of pressure from that cost -- input cost for you over the last couple of years. It's come down, providing an opportunity for margin recovery, although we have seen it tick up a little bit here more recently. So maybe just anything you're seeing around the recent movement in the commodity? What's your visibility on your coverage as you look out ahead?

And -- also longer term, how do you think about just mitigation strategies over time, be it hedging, be it sourcing or anything there?

Sure. On the current market, we still meet every other week with our cocoa team out of Geneva and talk what's happening on the fundamentals. And one of the things I think we talked about before, we have more visibility into the fundamentals, whether it's pollinization trends, weather trends, fertilizer use, pod counts than we ever had before. So I guess the good to come out of the high cocoa price. But our fundamental belief is we still are in a supply excess standpoint on the physical side of cocoa right now and in the demand -- still a reduced demand environment.

So on the fundamentals alone, we would say there's probably still opportunity for cocoa to come down from where it certainly where it is, let's say, in the last couple of days.

That said, it's also wrapped up in the financial market and the financial market implications are less easy to call, and that's part of where the hedging program comes in is to say, listen, we will have a strong point of view on what we think the fundamentals are going to look like. And to your point, our supply chain is much more diversified than it was maybe 10 years ago, even 5 years ago. So we're much less reliant on one particular region for our cocoa. But what the hedging program allows us to do is diversify also the financial implications.

And so the fundamentals of the policy haven't really changed the last couple of years. We've got guardrails. We're not trying to corner the cocoa market. We are trying to smooth the impacts over time, give us visibility. So if we do need to make pricing decisions, we have enough runway to be able to work that through our system and ultimately manage that volatility. We've added a few things, a few capabilities we didn't have, the ability to buy direct source cocoa, which we did a few times over the last few years. But fundamentally, our risk management philosophy hasn't fundamentally changed. And I would say, again, with the diversification in our cocoa supply chain, it's probably taken the overall risk level down from like a physical regional dependence standpoint. But anything, Dave, you'd add?

No, we have visibility, good visibility in '26 and into '27 as well, which gives us sort of confidence in the plans that we have. Obviously, there's more hedging to go do, but we have time to do that.

That's great to hear. Okay. And I think kind of building on that discussion, I think when you laid out your plans for '27 and into '26, we're in this path of a margin recovery and you have the visibility on the cocoa side, one of your biggest inputs there. But as a broader discussion, and I know this comes up a lot with investors, as you look longer term, how do you think about your ability to get back to kind of your high watermark of gross margins in that mid-40s range? I mean, as you think about potential shifts, should grow at a faster rate or anything around there? Maybe just long-term path.

Yes. I mean our aspiration is still to restore our margins back into that domain. I want to say we're going to -- I don't want to say we're going to hit the high watermark, and that's like the end goal, but getting back into the domain of where our margins were before Cocoa is still the enterprise goal. Now having said that, we also want to make sure that we're driving dollars. And so one of the things we're doing by driving volume growth is bringing in new consumers and bringing more dollars in as well.

So that will be the toggle as we look forward. We want to get our margins back to the range they were in before, but we also want to bring in incremental gross margin dollars because the dollars allow the reinvestment and so on. As we look at our plans going forward, we're confident in our ability to be able to do that, probably more confident now than we were before Cocoa because of some of the financial discipline that we put in place incrementally as part of the Cocoa pressure we had in the last 2 years. We are leaner behind -- in the back office than we were before. We've got common data platform. We've got, like everybody, right, leveraging AI, not just to drive savings, but really to drive impact and efficiency. Our supply chain teams are constantly looking for ways to drive further savings and integration.

And so as I look across that whole piece, I feel confident in our ability to not only recover margins back into that range, but then to have really good choices and trade-offs around, hey, do I go further? I take that to reinvest on the basis of a good ROI to drive consumer engagement and volume. And these will be the good problems that I think we're going to have for the next couple of years.

Yes. Much better than watching every pod count of cocoa.

So okay, I think as we kind of pull together pieces of the chat, right, there's momentum across your portfolio. There's visibility on cocao, you're managing and executing better than you have. And so as you look at your outlook for '26, maybe just what are the biggest risks you're watching? And if things come in better than you expect, how do you think about those trade-offs today versus reinvestment versus kind of flow-through at this point?

Yes. The things that we are going to watch the most is our execution. The plan for this year is pretty loaded with the tentpoles and the seasons. We want to execute excellently against all of those components. That's sort of job one. We are continually monitoring the macro. So if something changes or deviates in a material way, clearly, that will be something we have our eye on. I think we'll have good visibility into that because of the pods. -- and their engagement and what's happening at the consumer level.

But our job is to really make sure we execute and then also lay the foundations and the rest of the building structure underneath the '27 plans. And I think if we do overdeliver this year, again, we'll have that opportunity to decide how much we drop through for this year or if there are great ROI opportunities to enhance '27. I would say that our plan as we sit here today, we've got a pretty good '27 plan, like we've got a pretty sufficient level of investment.

And so the default isn't going to be to just sort of save it for next year. I think we're going to allow some of that to flow through this year as well, assuming we have that upside. So that answer.

That's very helpful. Yes. No. And always like every company, right, we've got to watch the macro and things are always shifting, but that's very helpful color. Maybe next, you could just talk about capital allocation because it does seem momentum is at your back. You've got a solid balance sheet.

You continue to improve the business. So maybe how are you prioritizing today? How does that change? And then any other broader comments around M&A and how that fits as you think about the portfolio?

Sure. Dave, do you want to talk capital allocation?

Yes. So our capital allocation strategy has always been the same. We -- given the pressure over the last couple of years with Cocoa, we've been very strict with our cash, and we've managed to get back to a point where we're now back to generating cash the way we always have. So with that, we've taken our dividend back up into the range of where we -- where our strategy says we should have it and where we want it. We continue to invest back in the business and feel really good about those investments that we're making there. Leverage is in a good spot, et cetera.

So as we continue to generate cash, we're obviously just considering the options and the optionality around it. And if we don't have strong ROI organic investments to make and if there isn't anything complementary that meets our strict criteria from an M&A standpoint, then we consider giving back to shareholders. And so we've got a bit of activity we've already done around replenishment this year, and we're thinking about that as well as we think about the remainder of the year.

And on the M&A side, I would say, as I always say, we don't want any asset to trade in our space that we don't have a point of view on. And if we have interest to be in that dialogue. And our M&A team is great at connecting businesses large to small. Some of the small ones, we can make early investments to see how it plays out, and we want to be in every dialogue. So that hasn't changed. But what I always say the caveat is we are picky. We want things that are going to drive shareholder value.

We want things that are going to give us a differentiated position of strength, something that is, over time, has the ability to fit inside our margin structure and fit inside our portfolio in a way that's additive and earns its capital, its return on capital compared to the other investments we could look at. So with that said, we're always looking, but we're also going to be very picky about what fits this portfolio.

Yes, I think that makes sense. And I think I have time for one more, and this is one I was hoping we would get to. But productivity has been a big focus for Hershey. I know you talked about a long time, a lot of cost savings. I think one of the big things that came out earlier this year is this shift to a One Hershey model. So maybe can you just tell us what's changing about how you operate today? Why are you making this change now? And maybe any early learnings? I know it's very early, but as you've implemented it?

Sure. There were 2 key enablers to being able to do this. One is the IT system that I mentioned before, getting all the business on one common platform. Before that, it would have been hard to integrate data and integrate decisions. The second was, frankly, the scale of the salty business. We never wanted to get the salty business inside a bigger conversation until it was -- its core was healthy, and we had great discipline and management around that. With those 2 boxes ticked, then when Hershey started to become a reality.

And I'll say this was driven as much by customers as it was by us. Prior to this, we would go to customers and have 3 different dialogues. We talk about functional snacking, we come back and talk about salty and then we come back and talk about confection. And customers were saying, "Hey, can we do this more efficiently? And so it was really a meeting of both those where we can have more impact when we're sitting together at the table representing all these businesses. It's more efficient for customers. And we can leverage the different parts of the portfolio with each other.

And the example we've talked about is 4th of July, big salty snacks time. So we've got a seat of the conversation with our salty snacks portfolio, but we really didn't have a seat on the confection side. I mean you don't think about eating chocolate necessarily on a hot summer day, but our sweets portfolio is perfect in some of these events. And so for the first time, we've been able to integrate those kind of conversations, say, hey, how does our whole portfolio play for an event like that? We'll see it again with the tentpoles. We'll see it again with the Seasons.

And so on that level, the top line level really reached a point of maturity where this made a lot of sense. If you click below that, though, it also makes sense because we also have the ability now with a more integrated supply chain because of that data platform. We have the ability to share scale across marketing resources, activation activity, the retail sales team. And Salty, they never -- they were never neglected, but they have access to a bigger portfolio of capabilities probably than they have before.

And so all of that together, and it wasn't cost driven, but there's some cost benefit and margin benefit to the business as well from that. All of those are the reasons why we felt, hey, this is the time to bring these together. It's really primarily driven by top line growth opportunities with a kind of one [indiscernible] around efficiencies, scaled capabilities and a little bit of cost savings as well.

That's very helpful color. This has been tremendous insights into your business and a lot for us to look forward to. And we do eat smores. I love hot summer day.

Try the caramel one in there. It's very good.

It has lots of options. So I think we'll leave it there. Thank you very much. here.

Thank you. Appreciate it.

Greetings, and welcome to the Hershey Company First quarter 2026 question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for the Hershey Company. Thank you. You may begin.

Good morning, everyone. Thank you for joining us today for the Hershey Company's First Quarter 2026 Earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks,, 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, including expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected. 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 provide useful information for investors. The information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A Reconciliations for the GAAP results are included in this morning's press release.

Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question.

[Operator Instructions]

Our first question comes from the line of Andrew Lazar with Barclays.

I was hoping maybe to focus in a little bit on North America confectionery to start. I think in the press release, you mentioned that lower year-over-year CMG market share due to increased marketplace competition. And I know investors are understandably sensitive to this, just given the significant drop in cocoa prices of late and the concern that this could lead to sort of incremental competitive activity to spur volumes in light of elasticity.

So I was maybe hoping you could dig into just what you're seeing in the marketplace a bit more? And what would you would expect as some of the activations and tentpole events sort of kick in? And would you, I guess, anticipate that Hersey returns to share growth either in 2Q or as we move through the year?

Yes. Great question. Yes. I'd start with competition continues to be highly rational. There's no change in the pricing environment. I just want to start with that. We have seen increased competitive innovation and merchandising from both mainstream and premium competitors. That's what makes this category so attractive to consumers. It's one of the reasons it's so resilient. And so some of that happened a little earlier than we expected.

We feel really good about our position as we exit spring resets in a net positive position across items and key channels and our spring and summer merchandising programs ramp up. Premium chocolate continues to be that segment that grows really well. But we are charging into that space aggressively. And we have plans in the back half of this year to have some innovation, and we'll continue to develop that.

But overall, yes, we're in a competitive environment. We feel good about where we're going. We have momentum planned for the second half of the year that we feel really good about. But it is a rational pricing environment, Andrew.

Great. That's really helpful. And then you mentioned Easter sell-through was ahead of expectation. I guess it looks like maybe share was a bit weaker just in the past few weeks of data. I was just hoping you could sort of square those 2 things for us. And I guess how is Easter share sort of versus your expectations?

Yes. I mean I look at the category in the first quarter. Overall, the category in confectionary was really resilient, growing high single digit. Overall, Easter was good for us. Category sales declined really due to the 2 fewer weeks versus last year, but our sell-through was really strong and outperformed our expectations. I'd say that's the notable part, given that Hershey share -- we're a share leader at the season, and we typically index much higher.

And so the 2 weeks was a big impact on the overall season. But we're very happy with our performance and the sell-through that we saw those exceeded our expectation, and our share was also ahead of our expectations coming out of Easter.

Our next question comes from the line of Megan Klepp with Morgan Stanley.

Great. Maybe I could -- I wanted to start on the macro. When we sat here 2.5 months ago, I think the initial outlook you provided included what you called prudent assumptions, which you reiterated today. But obviously, since then, the backdrop has gotten more challenging. You talked in your remarks, there's elevated geopolitical uncertainty and we're seeing higher gas prices as a result. So wondered if maybe you could just in terms of what you've seen in the macro so far relative to your expectations, particularly on things like SNAP, where maybe you have a little bit more data -- and then just broadly, as you sit here today, do you think the guidance that you have for the remainder of the year still kind of gives you the same degree of cushion on the macro as you thought in the beginning of the year.

Yes, really, really relevant question. Thanks for that. Consumer behavior, let's just kind of start with this quarter and then as we move through the year, but consumer behavior remained really steady throughout the quarter with shoppers making thoughtful choices. GLP-1 trends remain consistent. Net impact was mild given waivers were limited to 5 states and higher gas prices had minimal effects. We continue to monitor those very closely.

But overall, the macro environment is tracking within our expectations of the year. When we talk about SNAP specifically, we realistically modeled the possible effects right from the beginning. In the first quarter, the 5 steps -- the 5 states that were in place, which means the overamp impact was, as I mentioned, pretty mild or minor -- in those states, they affect both the category and our business aligned with our estimates, which gives us much more confidence for the full year outlook.

Now where implemented, we do see considerable consumer confusion and it's possible that, that would improve over time. So we plan for this headwind to increase over the course of the year with SNAP, and we will adjust our plans to meet the needs of the consumer with portfolio pack types but it's in our assumption. I think that's the important thing. We're not seeing anything that's kind of out of how we've modeled the year and our outlook for the year. So I think that stays on track as far as SNAP goes.

Great. That's helpful. And maybe just a related question on elasticities. Last quarter, you talked about planning for around 0.8% even though actuals are running better and talked about that as maybe being potential upside to your expectations for the guidance. This quarter, you talked about elasticity is seeing favorable versus planned levels. So -- has anything changed in April so far? Or are you still embedding that same level of conservatism on elasticity for the balance of the year?

And as we think about the second quarter and what's implied from an organic sales growth perspective, how much of that is just the shipment timing and use reversing versus maybe something more fundamental in how you're thinking about demand?

Yes, I'll kick that over to Steve for that one.

Sure. Yes. On the elasticity, you said , we continue to model what we have before that point. We're pleased is still holding. We have some things that will be coming to market, price pack architecture, for example, hitting shelves right now. So we'll continue to watch that to see if elasticity has evolved as they can sometimes. But right now, right in line with what we've -- better than what we've modeled and expect that to continue. And then relative to Q2 -- our Q2 sales expectations, yes, the biggest piece is on the organic side were the timing issues.

Two parts to that. Kirk said Easter sell-through was strong. And so 1 upshot from that was earlier shipping of some of our spring program, including Smores, for example, which is actually getting activated as we speak. That's earlier than we typically would have seen. We also had a little bit of pull forward internationally at some customers were doing playing a little bit of defense trying to get ahead or often trying to get ahead of potential disruption in the Middle East. So those were the 2 big pieces that sort of pull things forward from our standpoint, nothing structurally different relative to Q2 expectations.

Our next question comes from the line of Peter Galbo with Bank of America.

Steve, maybe if I can -- if I could pick up on the back of Megan's question there on 2Q organic sales. I think be implied, is that confection organic may actually dip negative in the second quarter, just given some of the timing aspects. So I just wanted to press on that a little bit, just as a clarification point.

Yes, it is expected to be slightly down in Q2 due to that timing that we just talked about.

Okay. Great. And then just a broader question, Steve, in terms of just the margin cadence over the rest of the year, obviously, there was a little bit of favorability, I think, on the gross margin side. maybe because of some of the volume, but maybe you can just help us think about gross margin phasing over the back 3 quarters of the year.

Sure. we're expecting in Q2 gross margins to increase by nearly 300 basis points versus the prior year period. So that's where you really start to see the inflection. And then as we get to the back half of the year, we expect something great basis points. And again, we've got the year pretty well planned out. So I'd say we have good visibility to that. But that's how that inflection starts in Q2 and then accelerates in the back half.

Our next question comes from the line of Peter Grom with UBS.

Great. Thank you, and good morning, everyone. So Kirk, in your prepared remarks, you touched on some of the drivers that you believe will keep topline momentum in the back half of the year as you annualize pricing impact. So can you maybe just unpack that a bit more? And maybe more specifically, what's the degree of visibility or level of confidence on that momentum or that momentum can be sustained as you look ahead?

Yes. Good question. Yes, we have confidence in H2, driven by a few things. One, we see a really strong seasons plan for the second half. Our tentpole will deliver a full point of growth Americana, the Hershey movie, we've got a lot built into that, a lot of support from our customers. Resets have been really important. So gains across several channels, mass, grocery, dollar, drug.

So we see a positive position coming out of the spring resets, which is important to us. And then innovation. That -- we've got good innovation. We'll have a big innovation on Hershey's in the fall as well that we're really excited about gets us into that accessible premium space. So that is really important. Now of course, we're watching the macros just like everyone. But when we think about what we can control we feel really good, and we have a lot of confidence in where we're going as we ramp up our execution and deliver against our plan. So we feel good about H2. Again, we'll keep an eye on the macro and control what we can control.

No, that's great and very helpful. And then just a follow-up on snacks. -- a strong quarter at 5%, but I think it's a bit below what we see in terms of consumption. And in the remarks, you touched on plant reduction and private label production and product recall. So do those items account for the entire gap relative to what we see in consumption? And then maybe specifically, any thoughts around how we should be thinking about growth for this segment moving forward, especially just in the context of the implied guidance?

Yes. One thing that I would say on snacks are on our salty snacks is -- that's primarily driven by private label. And so our core brands in salty are up nearly 10%. So that is not the issue. Now -- as you know, as we brought those businesses in, we had a private label business that's getting smaller in our business over time. So that's a bit of it. Our salty brands are doing exceptionally well.

Yes. I'll just say in terms of the profitability side, you really pointed to the 2 things. We had a couple of discrete things, the voluntary withdrawal is actually immaterial in total, but that combined with the delayed opening of the DC meant that we spent more on logistics, trying to -- with a fast-growing business, trying to maintain strong service. And so those additional costs were incurred in the quarter, they're done.

And so now we're in a better spot than we expect operating income to grow and increase by double-digit small speed bump in the first quarter, but passed it and back on track.

Our next question comes from the line of Chris Carey with Wells Fargo Securities.

Can I just follow up on the Snacks margin. So obviously, kind of some discrete headwinds in the quarter, relatively low watermark on margins. You talked about accelerating profit from here. Is that mostly driven by just the sequential improvement in margins as opposed to, say, top line? And then do you still feel good about the margin targets that you had put out there at Investor Day. Just maybe you contextualize that and then I have a follow-up.

Yes, the margin will improve on the basis of just not having those onetime issues. That will be the biggest factor. We are going to have some amortization that will come along with the LesserEvil acquisition. So that's sort of in the base and there's some mix impact with LesserEvil in the mix at a kind of total salty level. But those are expected. And aside from that, you kind of on the core business, we'll continue to see that margin improvement over the course of the year.

Okay. And just a follow-up on the spring resets. A lot of exciting activity from here. Can you just give us a bit more insight on some of the key wins how you expect those benefits to come through and some of the timing.

Yes. Yes. I think about those 2 things, space in the number of new facings, new SKUs that we have in the sets across the primary channels across mass, dollar, drug and grocery, that's a big part. So winning at the shelf is the first thing I think about, and we're in a positive position there.

The second is the support that we're getting from retailers on the perimeter with our tentpole events. I think the combination of both winning at the shelf and winning on the perimeter supported by our retail sales team is really get, but it really is both winning across DMG and Salty for both shelf space wins and perimeter into. And we're tracking that. We're very disciplined about looking at that every single week. So we feel really good about where we're going.

Our next question comes from the line of Leah Jordan with Goldman Sachs.

You noted a mild impact from higher gas prices on the consumer. But just if you could provide more color on how your sales have trended in the C-store channel specifically and how you think about potentially supporting that channel if these macro challenges sustain?

Yes. We made those comments early in Q1, right, we saw a very little impact because it was a later event. I think it really comes to how high the prices go and how long they stay. C-store is the right question to ask. We look at that as well, and our confection business continues to perform in line and we look at things like our immediate consumption business. And those continue to do well through this time.

Again, we know that this is a little longer issue that could have a bigger impact. But right now, we see that performance standing in check. And so we feel good about that. But we're always staying focused on that and looking for other things that we can do with our retail partners in the convenience channel to keep the business part in mind. We know that when high gas prices happen, frequency goes up with consumers. So they come to the gas station more, they buy less. They are purchasing less, but the frequency goes up, that keeps the channel robust, at least with our category.

And again, we continue to see results as expected right now. So we're feeling good about it, but we're very stay focused on and stay very focused on that.

Okay. Great. And then just a quick follow-up from an earlier question. Just seeing if you could provide more color on your visibility maybe around cost for packaging and freight specifically. I guess what have you actually seen in higher costs so far? And then what are you baking in for the back half?

Yes, I'm happy to take that one. So far, we're really not seeing a big impact. Again, in the hedging program and our commodities team, some of these impacts and commodities are managed through that group. And so we've got good visibility really through this year and in some cases, even beyond. And so now having said that, like Kirk said, if it looks like it's going to be prolonged and it's going to be significant, then we'll be looking further out at some of the implications. But right now, from everything we can see, we're in a good spot, feel well covered for 2026.

Our next question comes from the line of David Palmer with Evercore ISI.

I wanted to ask you a couple of questions on the merchandising front and some of the stuff you touched on in your prepared remarks and back at the Investor Day, you talked about the evolution of pack types and shelf sets and I know some of that was planned maybe more into the fall. Like I think you said the stand-up bags versus take-home where maybe something that would get increased distribution into the second half of the year.

But -- you mentioned some stuff earlier on. So maybe you can give a summary of maybe what you're doing now and what's coming? And then as far as promotions, I wonder, are we going to see in scanner data more display year-over-year in the data as you're more all months on, so to speak.

Yes. The right questions. When you get down to the details of how we execute at retail, I think that's really important, David. We start with the number of SKU gains that we are getting across mass, grocery, dollar, and we're building that into kind of the pipeline. We are deploying the stand-up bags versus LifeLab bag.

So that is something that is consumer preferred. It elevates -- we've tested that, that is well received by consumers, and it just drives visibility and is something that makes the category easier to navigate, shop, accessible, all those things that category management drives. So that's the first. So we're looking at how productive the shelf is. We're measuring on-shelf availability just as our customers do, and we go over that every single week. So that intensity around the shelf is really important.

The second area is this perimeter. And what does tentpole activation on top of seasons. And we measure inventory points of interruption on the floor amount of inventory that we have on the floor and location in the store. And I think that helps us drive what's incremental, how this delivers against the plan, how much growth we're getting into this space and what new occasions we're driving, new occasions are like as we come into the celebration of the 250-year celebration of our country for the 4th of July, we are bringing Hershey Kisses our Hershey bars platform, our smores platform and our dots pretzel platform into that.

So we're going after that new occasion being a part of that celebration in a party that's incremental to what we have done in the past. And that's really the element of what tentpoles brings, it is more activation on the perimeter, getting into more occasions and more moments that consumers are celebrating. And the combination of those 2 things is what we give us a lot of confidence for the second half of the year.

I just wanted to get a sense from you. I remember last Halloween, you were talking about how you maybe had some regrets about some bits of execution, maybe pack types you're promoting and some other things. But it's bigger picture, it feels like seasons we such a rich harvest for Hershey. You guys were leaning into it, particularly during the COVID era.

And maybe some of this is just an error that happened where seasons, the going was good, and you got a lot out of it. But I'm wondering how you're thinking about seasons going forward, not just Halloween, but is this going to be something that kind of tracks with confectionery growth overall for you? Or how do you think about seasons going forward?

Yes, we have a great foundation for seasons, but I think that we can be even more disruptive and looking for what consumers are looking for. As we go into Halloween even this year, we feel really good about what we learned and then what new things we can bring to consumers that they are looking for that make that season even more robust.

So we -- that as a leader in seasons, it's on us to be much more thoughtful about where consumers are going, continuing to modernize it, but we're building from a very strong base. But as I look at seasons in the second half, we feel really good. We can see customers, we can see what's landing and you can evaluate, "Hey, are we going to have a really good season? Is this going to be an okay season." We're feeling really good about the back half seasons with what we've been able to partner with our customers with.

Our next question comes from the line of Tom Palmer with JPMorgan.

Sorry to kind of be the third person to ask here, but I did just want to maybe clarify on the expected headline organic sales growth slowdown in the second quarter. I appreciate you've really highlighted it as more shipment timing than anything else. But could we just kind of quantify the specific items that are driving the slowdown. There was 2 points for, I think, ship ahead in the first quarter, there was maybe some Easter timing to consider? Is there anything else? Just could we kind of quantify like underlying maybe what 1Q with you if we strip out some of this timing?

Yes, you've got the biggest pieces. We said slightly down in Q2 due to the timing. Easter sell-through was strong, so the Q2 impact is bigger than anticipated. That end up a little bit in international that we talked about are really the 2 biggest drivers of pulling forward.

Yes. Let's just share a little bit of how I think about it. So the Easter was timing issue, right? So we saw that. We saw sell-through go really well. That pulled a few of our programming into quarter 1. But then if I look at what success looks like that overall consumption trends are staying consistent. So once you get through the overlap in April, you'll see momentum pick up in May, and you'll see momentum pick up in June. So you think about those consistencies, if you remove those onetime events, I think you've got -- you're going to see very consistent performance on consumption, sell-through and execution. So I'm looking at April the impact of Easter, May with some momentum certainly building, getting back on track in June following that.

Okay. And then a question on the spring shelf resets. Maybe frame it relative to past years. Is this more impactful, more changes than we've seen recently?

Yes. We feel good about what we're seeing from an increase versus a year ago versus what we've seen in the last couple of years. So I'm confident that this is a win for us. It's a win for the portfolio that we have, plus some of those we made for making the gondola much more shoppable and inspiring for consumers. So when you package it all together, number of facings, standup, merchandising, and how we were merchandising with category management insights, I feel really good about where we're going this year versus last year, yes.

Our next question comes from the line of Robert Moskow with TD Cowen.

A couple of questions about innovation. I wanted to know what are your expectations for this Hershey premium product you're launching in the second half and Hershey's struggled to introduce viable premium offerings in the past. I think there's questions out there about how far the brand can stretch. So I'm trying to figure out how big of a bet it is? And then I have a follow-up.

Yes. Well, overall innovation, we feel really good about. When we talk about Hershey, this elevated experience. This is a truly elevated. And maybe, Robert, if you were at Investor Day, you had the opportunity to try this. I absolutely love products. So hopefully, you love them. I know I -- all right. Well, I love them. They're they're an important part, right?

I think that when you look at innovation, it is a collection of those things. So we have high expectations for that brand. And we think it's right in the sweet spot of what Hershey can deliver. And that's on deep consumer research and understanding and testing. So we know that we have the opportunity with Hershey to nail it and knock it out of the park with that innovation. But we also look at innovation and totality. So across our portfolio, across our suites portfolio with Jolly Rancher. We also continue to see Reese Oreo be as add on the Hershey innovation, and you see that plus then we have a big Hershey experience with Hershey movie coming out in quarter 4, but it's the collection of those things is how we model and build our business.

It's not reliant on one thing. It is the collection of those things that make the business strong. Having said all that, we have really good expectations for this elevated Hershey experience. And we are launching a product that consumers in the testing have loved.

Got it. Okay. My follow-up was about sweets. Can you tease out sweet performance in first quarter and what your expectations are for this year. The data shows that the Shack product line is down substantially. The sweets portfolio had been growing 20% plus. I just want to get a sense of your confidence that you can capitalize on the strong consumer demand for -- especially among young people for this segment?

Yes. I mean our biggest brand in sweets is Jolly Rancher and Jolly Rancher performed very well within my opening comments. It performed much faster than the category. So that continues. There was some really good innovation on Heat Wave, et cetera.

Now we've launched a new item with the Shack lineup that will give us some momentum later this spring and in the summer. So we feel good about where we are with sweets, Jolly Rancher will continue to be a hero in the space. We've got a strong program around Twizzlers this summer. And we have a robust pipeline in '27 and '28 across sweets, that we'll share. We've shared some of the Suites portfolio and the innovation that's coming. So we're going to continue to invest in this.

When we talk about investing in R&D, there are some specific areas that we're focused on. One is premium, 2 is sweets, 3 is better for you. And you'll see us continue to make that pipeline much more robust in the future. And we've seen that. We're -- that is in our R&D right now, and we've seen that pipeline, so we feel really good about where we're going.

Our next question comes from the line of Max Gumport with BNP Paribas.

I wanted to return to some of the macro headwinds you're watching. So 2 of them included the accelerated health and wellness trends and increasing GLP-1 adoption. Can you just provide an updated view on what you're seeing there and also how you're looking to navigate your portfolio through these headwinds?

Yes. Thanks for the question. I was just going to go back to 1 of the key drivers of the confection category in particular, is that this is an emotional category. It is a treat, not a meal. And I think that's playing out with GLP-1 users and the overall health and wellness trends. Consumers on these drugs, specifically GLP-1, continue to enjoy the category in smaller portions. We know that.

Our research supports the confection category is relatively insulated compared to other food categories. Our framework for estimating the GLP-1 impact includes scenario assumptions for both the near and the long-term horizon for adoption rates. So we have been monitoring calorie reduction, user lap rates and other behavior changes. Now the accelerated adoption rate alongside affordability and new formats are well contemplated in our outlook. So we spend a great deal of time understanding this. It is in our outlook. It is in line with what we've seen and what we expect, but we'll continue to do this.

But this is something that we are continuously monitoring. But overall, again, the category is about a treat. It's still being enjoyed through this. Again, it's about 40 calories per day, 2 to 3 servings per week for the average American on confection. So that's just the scope of what we're seeing. And so that gives us the confidence of where we're going here with this macro. Great.

And then just returning to price elasticities. It sounds like everything you're seeing is quite a bit so far. It's running better than planned. competitors have followed, retailers have accepted the price elasticity response to just consumers are not showing a worse reaction than peers. But can you just provide a bit more color about how this informs your view of your performance from here? And also how it factors into the 2% to 4% organic sales growth target you gave for '27 just a month ago.

Yes, sure. I'd be happy to take that one. So yes, as I said, elasticities are running favorable. They have so far, they continue to -- and it just points to the resilience in these categories, especially in instant consumable,, refreshment and seasons, we've talked in the past how seasons are so precious to consumers. So as we look out, we don't see a material change. It doesn't change as we think about the outlook for the year, we're not changing the guide so we're still inside the earlier guidance, even though the Q1 results look strong.

And it's partly because we still have that price pack architecture hitting shelves as we speak. And we know elasticities can move. So I'll say we're being a little bit cautious there. But we'll continue to monitor it over the coming quarters, we'll be in a better spot to take a look at the guide at the midyear mark. We'll have most of the price pack architecture in place at that point and have a better B. But we're really encouraged by what we're seeing so far and the resilience of the consumer in the category.

Our next question comes from the line of Jim Salera with Stephens Inc.

Kirk, you mentioned tentpoles are poised to add a full point of growth this year. I'm wondering if you can offer some detail around the retail execution, given there's a much higher frequency compared to traditional calendar with really just the seasons and I imagine there's at least some kind of different messaging, whether it's marketing or in store that's going to call attention to kind of the unique test of each of those tentpoles. Please walk through how the sales force is dealing with that and maybe how the marketing team is calling attention to each of those unique occasions?

Yes. I think that is a great question. This really brings the best of demand creation and and demand execution or demand fulfillment. So these moments like the fourth of July is typically where we did not participate, right? This -- between salty and sweet, we have this great opportunity to participate in these big moments of celebrations that are relevant with consumers. So that's kind of the -- that's the motivation, the inspiration behind it. Now what we've done is we've worked with our customers. We put the demand creation together with the marketing -- and then what we do is we bring that to life like we've never done before at the 4th of July, and we've activated that with our sales force.

Our customers are encouraged by this because, look, it just makes these events bigger in-store. It brings more retail theater to the store with our big brands like Hershey and dots. And that makes the overall season better for the retailer. So that is kind of leveraging our strength as a business to bring more relevance to these holidays. And it gives us a chance to capture some of that share, that share of that occasion. This allows us to go from a season into a tentpole into a season into a tentpole, again, and that allows our sales force to be constantly focused on how they develop those big moments in retail. And our customers are very supportive of this. It gives more for the shopper to engage with. But this is -- I would say this is playing to our strength.

Do you have any sense for how much of a gap there is between some of the tentpoles and the traditional season events. I just wonder if there might be a concern of some overlap, if somebody stocked up on Hershey [indiscernible] or LesserEvil popcorn ahead of what would otherwise be kind of a seasonal purchase window?

No. I mean there's enough view that we're measuring incrementality and the breadth of our portfolio allows us to play in these tentpoles and seasons without being redundant or cannibalizing each other. We are the #1 season executor in CMG. We have the largest share of seasons. So when you bring tentpoles to life, we're bringing them to life with different brands, different opportunities, and we're making them as incremental as possible. I would tell you a big collaborator in this is our customers. Our customers own the categories as well. And this is leveraging the best of what we have and the best insights that they have, and that's really what the magic is.

But right now, I feel like there's a really good cadence. So you'll see this summer, you'll see us execute the 250 anniversary. You'll see us execute more and summer travel then you're going to go into Halloween. And there's a nice gap between those to have the sell-down and then the build for Halloween, it really makes sense for retail.

Our next question comes from the line of Alexia Howard with Bernstein.

Can I ask about the Reese's expansion in Europe. I know a while back, you mentioned that in the U.K., the household penetration was in the high teens, I believe, but that was a while ago. Where have you got to now? I believe you may have gone into some other countries in Europe with Reese's. And at what point do you start to think about actually putting plant manufacturing capacity into that region?

Yes, great question. We continue to see Reese's drive in the U.K. and other European countries. Our plan is to continue to develop that. We have a win with Reese's plan that is working. We see innovation off that platform. And that is a real platform in the U.K. We're today leveraging a couple of things. We are leveraging imports, and we're leveraging local manufacturing for some of the products. The plan is to scale Reese's internationally, especially in the U.K. and Europe.

Once we scale, then we'll look to in-source. I think that's the natural progression of of how we build that business and make it much more profitable. I would tell you what we've learned in the playbook that we've learned in the U.K. and Europe is allowing us to take at other places. So I was just recently in Brazil, -- it's starting in Brazil, having the same impact. Brazilians love peanut butter. And so it is -- again, we'll run that playbook and allow us to build that platform also working in Mexico.

Now we manufacture in Mexico, so it's a little closer to home. But those are the playbooks that we are developing in one country or one market that we're able to take into other markets. And Reese's has been very exciting for us in that regard.

Great. And then just to follow up on Rob Moskow's question, innovation, are you able to quantify where you're at in new products as a percent of sales introduced over, say, the last 3 years? And are you at the level that you think you want to be at? Can you sustain the level or do you need to go higher?

Well, I think that's a great question. From it's a high single-digit level of contribution to percent of sales for us. There's always opportunity. And I would tell you that our innovation strategy is one of focus meaning we are innovating in those places that we have the greatest opportunity for us that is premium sweets, better for you. I think I would think about that also in concept of growing our core brands.

Our core continues to grow faster than the category. And so when you have a healthy core business in Reese's and Hershey, your innovation is even more meaningful. So again, innovation will be focused. It will -- I think there's always more for us to do, especially when we get more breakthroughs with sweets and premium and better for you, that will give us even further traction as we develop the portfolio.

Now on the salty snacks side, we continue to innovate as well. Also, really important part of building our portfolio. We just recently launched the snack mix behind the Dots brand, and that's done exceptionally well. So again, that same model of healthy core and then innovation that's more disruptive in nature in salty, where we're taking the snack mix category and disrupting it with Dots and seeing a lot of traction with consumers there.

I would tell you, this company is very focused on raising the bar on innovation, and we have a lot of momentum in front of us.

All I would add there is 1 of the reasons you talked about incremental R&D investment coming to help build that capability and build that muscle for the future.

Our next question comes from the line of Scott Marks with Jefferies.

First thing I wanted to ask about in the prerecorded remarks, you noted that the Hershey and Reese's brand nonseasonal grew pretty materially. I think you called out 11% and 10% growth there. Could you help us understand the drivers behind that? I know you called out March Madness as tentpole, but is there anything else kind of helping support that strong performance?

Yes. There's a couple of things. On our Hershey campaign, if you remember, during the Olympics was very well received, and that gave a lot of lift to the Hershey brand. That, I think, is really important. On Reese's, Reese's was the center of our big tent pole event for March Madness. So that allowed us to build inventory and get traction on the brand. But when we look at programming behind creating demand for Hershey -- brand Hershey's and Reese's, this is an example of how it comes to life and works, and it works on the core. So this is -- Q1 is just an example of how that can come to life.

Okay. Clear on that. And then second question from me in terms of how you're thinking about the cocoa market and outlook 1 of your chocolate competitors earlier this week said that they believe current prices fairly reflect where supply and demand are globally. Just curious if you can give us an update on your thoughts around the cocoa market and how you're thinking about the go forward from here.

Sure. Yes, we still remain in the view that long term, Coca could remain above some of those really lower historical levels that we've seen. Now we'll see how it plays out. So I'd say long term, we probably have a somewhat cautious view. In the near term, we continue to anticipate a larger surplus in '25 and '26, partly the diversification of the supply chain, strong crops, declining demand, continued expansion in new origins and so forth.

So if that happens, if we would see Coco fall, as we talked about at the investor conference, we have ability to participate, particularly in '27 and beyond in that downside. And so those would be things that could trigger upside opportunity to our '27 and '28 outlook.

But we're watching the space closely and I believe making sure that we're managing the business for the long term in terms of hedging, but also in structures that allow agility to participate in downside.

Our next question comes from the line of Michael Lavery with Piper Sandler.

Just picking up on '27 there. I know it was only a month ago, you gave a preliminary outlook there. But any thoughts on? And maybe in particular, could you help contextualize how to think about some of the risks from higher oil-related costs, maybe how much are of COGS that impacts or just how to think about what to watch there.

I'm happy to kind of take that. I think -- and we talked a little bit about the conference in general about things that could go up upside or downside for '27. We kind of broke them into controllables and non-deal. I think that basket is still largely the same. The things that we can control around innovation and media, ROIs, tentpoles as we just talked about, elasticity to some degree, and of course, continuing to deliver on productivity and cost savings.

I think all of those things, we continue to have high confidence in our ability to manage and execute. We do have some factors outside of our control. We just touched on cocoa being one that could be -- could potentially be an upside. We'll see where the market goes. And then the macro headwinds and, of course, competition. So far -- and I'll come to oil.

As Kirk said earlier, from a macro standpoint, there's nothing we're seeing that's sort of outside the bounds of what we would have talked about back at the conference. We didn't expect those areas to get better in '27, and that's factored into the outlook.

With respect to oil, in particular, it's pretty small exposure for us. The bigger impact would be indirect through packaging and so forth. And those impacts take time. So it does go back a little to what Kirk said how high and how long would the oil price impact last stage sitting here, we wouldn't change anything as we look to '27 and beyond.

Okay. That's helpful. And just a follow-up back on the '26 outlook. You had pointed to elasticities remaining favorable as a potential driver of upside to guidance. And it sounds like that's so far sticking and staying true I guess what's some of your thinking on holding it then? Is it just that it's a little bit early still? I know you mentioned some price pack architecture, can you just still coming? Or are those maybe more significant than we might appreciate? Or how do you help us think about some of that?

Yes. I think it's just being cautious. As I said, we're really pleased with the start to the year. I feel really confident about the balance of the year, items that we can control, elasticities as they can move around, but we like what we see and our projection is still strong, like we just talked about oil prices kind of a new macro to keep an eye on it. And in general, there's still a lot of movement and evolution in those macros. So I think it's just a prudent approach.

By the time we get to the midyear, Mark, we'll have a lot more visibility on all of this and be able to take potentially a different position.

Our next question comes from Steve Powers with Deutsche Bank.

Just first, a quick follow-up. Kirk, I think you mentioned earlier just in talking about the snacks growth rate that your choice is to you prioritize some of the noncore nonbranded parts of the portfolio was a bit of a notable drag on the top line relative to consumption. I guess just want to frame how big that noncore part of the portfolio is today and whether that is something that we should keep in mind as a drag that will continue or if it was more just isolated this quarter?

Yes. There will continue to be a drag, and then we'll continue to communicate kind of where the brand performance is versus the private label. I mean, this is something that as planned, and it's something we're working with our customers on. So we feel really good about that. I think our focus is on driving meaningful volume and growth with our branded products, and we like where we're going. We are driving a significant amount of the growth in the category.

So if you look at Salty, the drivers of growth are definitely Dots, Skinny Pop, LesserEvil. They're driving exceptional growth. And we see that continuing. Now, part of the private label, yes, that will be a drag. But overall, we'll be in a really good place, full year on both top line and bottom line for our salty portfolio.

Okay. Perfect. And then I just wanted to ask on functional snacking. I don't think we've talked about it yet on this call. It was one of the higher growth platforms. I think you you highlighted and we discussed at the Investor Day, just a little perspective on how that part of the business is situated as we go into the balance of the year. And I guess maybe from your perspective, if perhaps that is a higher priority for incremental investment attention, then maybe on the outside, it's perceived.

Yes, absolutely. And that's a big growth. I mean the business is relatively small compared to the rest of our business. That is an area that we are investing in. This is a space that consumers are -- they're in. And we're seeing a high level of growth reflected in our earlier comments -- that will be -- that will continue to be a part.

Now our job is to build this business to be a much larger, more influential part of our business. And we're doing just that. We're investing in R&D. We're updating our formulas. You'll see really good brand work across one and fulfill -- we've also entered into a JV with VivaKi, which is -- has breakthrough protein delivery that we really like to see and that R&D will be meaningfully different. And we know that we have to be differentiated in this space, and we feel really good about where we're going with the protein and functional business -- and right now, we're seeing high mid-single digit -- or double-digit growth on our business today, and we know we can build that for the future.

So more to come from us on this area. It's small, mighty part of our growth, and you'll see the investment in innovation, and we'll have a lot more to talk about for some of these breakthroughs that we're working on. SP1.

Our next question comes from the line of Rob Dickerson with Jefferies.

Great. Thank you. I'm a BTIG now. But I appreciate the shout out. Yes, Steve, I just wanted to come back to the margin but more specific to confection. I mean, obviously, there's been a lot of volatility over the past few years for pretty well understood reasons, clearly did better in Q1 versus last year's Q1, but then there's some shift in Easter and there's reinvestment, their optimizations coming.

And so I'm just kind of curious, I guess, it's more specific to cadence, but also for the rest of the year, but also just kind of relative to history, right? If we kind of exclude the past few years, your confection margin was somewhat stable, let's say, quarter-to-quarter. Clearly, some seasonality differences, but somewhat stable. So I'm just curious, like as we think through kind of this year, right, with Cocoa coming down? And then also, I guess, into next year. Is there kind of a perspective that, yes, like I think the next few quarters, there should be more stability?

Or should we see it like they're going to come down a little bit in Q2 and then really ramp as we get through the back half of the year? And I have a quick follow-up.

Sure. Yes, we are going to see some movements still [indiscernible]. Our challenge always is season, season timing, I feel like forever, we'll be talking about seasonal timing quarter-to-quarter variability related to that. But as we look through the balance sheet, there's nothing big change you have we have more tentpoles to plan for more activation to plan for. But we're going to -- particularly as we get to the back half of the year and we start lapping some of the higher priced cocoa and commodities. We're going to see that step up. And so we're not -- we're going to see that play out over the course of the year. I would say there's nothing unusual to really point out in that sequence.

Okay. So if we think about kind of where the gross margin cadence kind of planned for the year. It would seem like kind of plus or minus, let's say, kind of the op margin and confection would kind of follow. Is that fair?

Can you say that again, I'm not sure I totally understood your question.

Gross margin, right? You spoke earlier [indiscernible] as implied in Q2 and then the back half, I'm just curious, like is the cadence kind of the trajectory on North American confectionery margin -- operating margin should kind of basically track with gross margin.

The difference is where they will disconnect is the investing in media, which will pick up certainly in Q2 and and even in the back half. So that's the disconnect team, say, gross margin and operating margins as expected. So that's all part of the plan for this year. So that's where the 2 will have some deviation.

All right. Great. And then just a quick follow-up, which you just touched on. SM&A came in a little bit light in Q1, I think relative to expectations, but it sounds like expectations for the year haven't changed. And then just given timing of shelf resets, what have you, you've spoken to? It sounds like that SM&A will then be kind of ramping as we get through the year? Is that right?

Yes. You got it. Yes. The expectation for the full year is unchanged, still expect to see double-digit increase in marketing and advertising. We did have some movement between Q1 and Q2. Some of that was delayed nonworking media development, which slipped into Q2. And then we've also tuned a little bit more towards spring activations in the working media. So -- but overall, for the full year, no change in expectation.

Our final question this morning comes from the line of John Baumgartner with Mizuho Securities.

Kirk, I just wanted to come back to premium chocolate. At Investor Day, there was reference to Brookside, and that seems to be differentiated when it was acquired, but you ended up stalling out on competition. And then in premium trade up, the Hershey's blessed, that was a play on texture, but that faded after a few years. So I'm curious, when you speak to breakthrough now, is the plan here to essentially sort of outpace and out texture or competitors in the mass market and reset expectations for the mass market? Or is the target more so new consumers and channels that maybe have not been a traditional focus for Hershey? How do we think about that balance there?

Yes. I think those are really relevant. I think about premium, I think about accessible premium, consumers are looking for new experience. that's not changed. We have three brands that we love for this. One is Brookside, as you mentioned, we'll innovate on Brookside. We're seeing growth in Brookside. We also are investing in Cadbury. Cadbury has a lot of potential in this market. It is a premium experience and it's accessible as well. And we'll innovate on Cadbury as part of that. So you've got between Brookside and Cadbury, there's really good momentum.

And then like we talked about, we're building some accessible premium on our Hershey's brand and we'll have new brands that we talk about later in this year for next year that create this great experience for consumers. So indulgent premium really targeted towards Gen Z consumers. So we feel really good about where we're going with our premium business and being a part of that. But I think there's -- it's it's a small part of the business today.

So when you think about pure premium, it's about 5% of the total category. Now there's a lot of growth because there's a lot of experience inside premium, and that's drawing consumers to that. So we are definitely going to be in that space and leading in that space through some of our key brands that we have.

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

We look forward to catching up with many of you over the coming days and weeks.

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

Good morning, and welcome to the prerecorded discussion of Hershey Company's First Quarter 2026 Earnings Results. I'm Anoori Naughton, Vice President of Investor Relations. Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil. In addition to these remarks, we will host an analyst Q&A-only session at 08:30 a.m. Eastern on the morning of April 30th. A replay of this webcast and our subsequent Q&A session will be available on the Investor Relations section of our website, along with their corresponding transcripts.

During the course of today's discussion, management will 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. Actual results could differ materially from those projected. 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 on the company's SEC filings. Finally, please note that during today's discussion, 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 in consideration 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, which is available on the Investor Relations page of our website. For certain forward-looking non-GAAP measures, we are unable to reconcile to the most directly comparable GAAP measure without unreasonable efforts, including an ability to reasonably [ ascertain ] earnings per share. It is now my pleasure to introduce our President and CEO, Kirk Tanner.

Good morning, everyone, and thank you for joining us today. We kicked off the year strong and are on track to hit our financial targets for 2026. We are laser focused on fueling core growth and making bold moves in brand investment, innovation, R&D, technology and talent to drive our business to new heights. Four weeks ago, at Investor Day, we laid out exactly where Hershey is going and how we will get there. Q1 reflects solid progress against that plan. Our core performed well, our newer bets showed real traction, and our teams delivered at retail as One Hershey. We feel good about where we're headed and our full year outlook is unchanged.

Let me walk you through the details. Net sales in the first quarter increased 10.6%. Organic constant currency net sales increased 7.9%, reflecting the resilience and relevance of our categories and brands, our investments in media, and innovation and execution of cultural and seasonal [ tentpoles ]. Within our North America confectionery segment, price elasticities were comparable to what we saw in the fourth quarter of 2025 and favorable versus planned levels. This was offset by unfavorable winter weather and consumer macro pressure, which we are monitoring closely. SNAP program changes had a mild impact on our categories given the limited states where waivers have taken effect.

As we discussed at Investor Day, a strong core is our top strategic priority. We see continued consumer demand for confection even as shoppers make more deliberate choices about their spending, investments in media, merchandising and innovation across our iconic brands are driving growth. Hershey's and Reese's delivered first quarter nonseasonal retail sales lift of 11% and 10%, respectively. [ Jolly Rancher ] takeaway increased nearly 5%, outpacing the sweets category. We've also seen strong demand for gum and mints as the category benefits from functional snacking tailwinds, including GLP-1 adoption.

Retail sales for our third largest confection brand, ice breakers, increased over 8% in the quarter. While consumers are facing budgetary pressures, candy and snacks remain an affordable way to bring joy to cultural celebration with loved ones. Valentine's Day category sales increased approximately 3.5% with Hershey gaining nearly 25 basis points of seasonal share. Easter consumer participation was in line with last year and sell-through exceeded our expectations. [ March badness ] tentpole merchandising delivered a 10% to 15% increase in display activity and a double-digit increase in net sales. Functional snacking is one of the high-growth platforms we discussed at Investor Day, and we are off to a solid start in 2026. Protein Bar portfolio consumption increased 17% in the first quarter ahead of the category, driven by targeted marketing and momentum in the club channel.

Our North America salty snacks segment continued to demonstrate strong momentum in the first quarter. Retail sales, excluding LesserEvil, grew by nearly 10%, resulting in a nearly 25 basis point share gain. [indiscernible] Pretzels achieved a 13% year-over-year increase in retail sales. Reese's [indiscernible] Pretzels added 130 basis points to pretzel category share. [indiscernible] snack mix made a strong debut capturing over 200 basis points of snack mix market share in the quarter, indicating encouraging early consumer reception. LesserEvil retail sales grew more than 65% fueled by high trial and repeat rates and expanded distribution. We are encouraged by this early performance and focus on building on it through continued distribution expansion, adjacent category entry and brand building investment.

In the International segment, Brazil and the U.K. showed category strength, while Mexico continued to face economic and regulatory headwinds. Our anchor markets delivered mid-single-digit organic net sales growth, excluding shipment timing. We maintained or grew market share across key regions, thanks to favorable pricing elasticity seasonal and innovation performance and distribution gains. Looking forward, we remain confident in our full year targets for organic net sales growth of 2.5% to 3.5% and adjusted EPS growth of 30% to 35%. We are closely tracking SNAP program changes, health and wellness trends, choiceful consumer spending and broader macro pressures, including gas prices and insulation. We believe our current outlook appropriately reflects what we know today.

Let me speak to how we plan to deliver in the balance of the year. Following spring resets, we expect velocity improvement from increased shelf spacings, optimize shelf placement, new price pack architecture and key innovations, including Reese's Oreo in the take-home aisle. In [indiscernible] snacking, we project meaningful distribution growth for core items and continued [indiscernible] snack mix expansion, updated Pirate's Booty media and packaging accelerates in Q2 with consumption improvement expected in the back half. This summer, we are activating [indiscernible] and summer suites at retail, continuing Reese's nostalgic flavor mashups and launching social influencer campaigns around Pokemon's 30th anniversary and Christian [indiscernible] ahead of the men's soccer surge.

Looking to the second half, 3 demand accelerators give us confidence in maintaining top line momentum as we begin to annualize 2025 pricing actions. First, seasonal consumer participation in Halloween and holiday should remain resilient as people continue to prioritize meaningful cultural occasions. We are expanding assortments, bringing salty into seasonal displays, introducing new value-priced and gifting options and increasing seasonal brand investments to drive further share growth.

Second, cultural. We have even more moments to activate, starting with summer. We are celebrating America's 250th anniversary, back-to-school and fall football, executing across the full portfolio as One Hershey. This includes special packaging, increased retail presence and category merchandising. And this Thanksgiving, the Hershey movie is a once-in-a-generation moment for our brand, that will activate across stores, online and beyond. To give some perspective, Americana and the Hershey movie are expected to contribute almost 1 percentage point to company sales in 2026.

Third, innovation and brands. Our innovation pipeline includes an elevated Hershey bar, new protein and 0 sugar offerings, a multi-textured Reese's pieces item and new forms and flavors across suites, refreshment and salty. Reese's ran new creative during March Madness, earning over 1.5 billion impressions ahead of a full campaign launch in the second half. Pirate's Booty and Jolly Ranchers new campaign will build through the year.

Taken together, these demand accelerators, seasonal, cultural, innovation and brand investment reflect the strategy we laid out in March. Q1 gives us a solid foundation to build from and we continue to see upside from strong marketplace execution. I'll turn it over to Steve for more details on our financial results and outlook.

Thank you, Kirk, and good morning, everyone. Our strong first quarter performance across net sales and profit reflects the resilience of our categories, the relevance of our brands, disciplined investments and executional excellence. Reported net sales grew 10.6% versus the same period last year. The LesserEvil acquisition was a 2-point benefit and foreign currency translation was a 70 basis point tailwind. Net price realization was approximately 10% reflecting our strategic pricing actions in the North America confectionery and international segments. Volume declined approximately 2 points better than expected reflecting continued resilient consumer demand and earlier than planned shipment timing in the North America confectionery and international segments. Earlier shipments from Q2 contributed around 2 points to sales growth in the first quarter. North America confectionery segment net sales increased 8.3%.

Net price realization was approximately 12%, slightly below our expectations, reflecting seasonal mix. Volume declined approximately 4% as price elasticity, reduced Easter shipments due to the shorter season, and one fewer shipping days were partially offset by earlier shipments of our summer activations planned for Q2. Net sales for our North America salty snacks segment increased 26%. The LesserEvil acquisition was a 20 percentage point benefit. Organic constant currency volume growth of approximately 5% reflects performance across [indiscernible] Reese's filled pretzel and Skinny Pop, partially offset by the planned reduction in private label production and a voluntary temporary product withdrawal during the quarter.

Net price realization was neutral in the quarter in line with our expectations. International segment net sales increased 16.1% in the first quarter. Foreign currency translation was an approximate 7-point tailwind. Net price realization was around 12%, reflecting previously announced pricing action across key markets. Volume declined approximately 2% reflecting elasticity impact, partially offset by stronger-than-planned performance in Brazil and the earlier shipment timing. Inventory stocking in the Middle East and Asia Pacific, driven by actions to mitigate near-term global shipping disruptions contributed approximately 5 points of volume growth in the first quarter and is expected to reverse in Q2.

We remain confident in our full year net sales outlook of 4% to 5% growth and organic net sales growth of 2.5% to 3.5%. The Q1 timing benefits from earlier shipments and Easter timing are expected to reverse in the second quarter. For the first half, we anticipate organic net sales growth in the range of 3% to 4%.

Moving down the P&L. Adjusted gross margin decreased 80 basis points in the first quarter as expected commodity inflation and tariff costs more than offset positive net price realization, productivity and transformation program savings. As we have previously discussed, we expect a meaningful recovery in gross margin to begin in the second quarter. This improvement reflects continued net price realization and productivity benefits as elevated commodity costs from the prior year period are lapped.

Our full year gross margin outlook remains an improvement of approximately 400 basis points. Advertising and related consumer marketing investments increased approximately 6% in the first quarter, temporarily lower than planned due to timing in North America confectionery media production investments and better alignment with spring activations.

We continue to expect advertising and related consumer marketing spend to increase double digits versus the prior year across our segments. Operating expenses, including divisional and corporate expenses increased to 2.2%, reflecting capability and technology investments. Increased investments were partially offset by lower compensation and benefits costs, lower consulting fees and transformation program savings.

As discussed at Investor Day, we expect to continue to drive productivity and make the right investments to support the long-term health of the company, all while strengthening our brands and building capabilities across the organization. We remain on track to deliver $100 million in savings this year, the final year of our AAA initiative. These savings are expected to be realized mainly across cost of goods sold.

This quarter, we delivered $26 million, and we expect these benefits to continue building throughout the course of the year. The adjusted tax rate for the quarter was 25%, an increase of 60 basis points versus the year ago period, driven by foreign rate differentials and increased state taxes. Looking to the full year, we continue to expect a full year tax rate of approximately 25% to 27%, while other expenses are expected to be approximately $15 million to $20 million. Interest expense was $50 million in the first quarter, and the full year outlook remains in a range of $200 million to $210 million.

Adjusted earnings per share increased 12.4% in the quarter. We expect second quarter adjusted earnings per share to increase at least 15% as pricing net of commodity costs improves while business reinvestment increases year-over-year. There is no change to our full year adjusted EPS outlook of up 30% to 35%. In the first quarter, capital expenditures, including software were $115 million, $31 million lower than the prior year period. Our full year capital expense outlook remains in the range of $425 million to $475 million. Supported by a strong balance sheet and confidence in the underlying business, we increased our dividend by 6% earlier this year.

During the first quarter, we paid $288 million in dividends to shareholders. The company repurchased $69 million of common shares in the first quarter as we offset dilution from equity compensation grants in 2025 and '26. We are operating in a dynamic environment, and we continue to believe our full year outlook incorporates prudent assumptions on macro headwinds, including the implementation of SNAP waivers, accelerated health and wellness trends and increasing GLP-1 adoption as well as ongoing financial strain on consumers amid elevated geopolitical uncertainty related to the Middle East.

I am encouraged by the resilience we are seeing across our brands and portfolio, solid consumer engagement in key cultural moments and the incrementality from our new growth factors. Our biggest brands are growing faster than our categories. As Kirk laid out, we have exciting plans for the second half to maintain momentum. We have solid visibility into cost deflation in 2027, which should enable us to deliver margin recovery while accelerating investment to build our next billion-dollar brands and enhance next-gen capabilities.

I remain confident that our disciplined approach to investing in our brands, capabilities and people will enable us to create value for our stakeholders for many years to come. With that, I will turn it back to Kirk for closing remarks.

Thanks, Steve. We are navigating a dynamic environment with a strategy we believe is right for the long term. Q1 shows the plan is working. The team is executing, and we remain focused on delivering on our financial goals and driving sustainable growth.

Thank you for your time this morning. I invite you to join our live Q&A webcast beginning at 08:30 a.m. Eastern available at thehersheycompany.com. Thank you very much.

Please welcome to the stage Anoori Naughton, VP, Investor Relations.

Good afternoon, and welcome to Hershey's 2026 Investor Day. I'm Anoori Naughton, Head of Investor Relations, and I want to thank all of you for joining us here at the New York Stock Exchange and to those of you who are joining from webcast.

Before we begin, please note that during today's presentation, we may reference certain forward-looking statements and non-GAAP financial measures. We believe these measures provide useful supplemental information for investors, but they should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in the appendix of today's presentation, which can be found on our Investor Relations website.

So we're very excited to be here today to share our strategy to lead NextGeneration snacking. As the agenda shows, you will hear from Kirk Tanner, Chief Executive Officer; Stacy Taffet, Chief Growth and Marketing Officer; Andrew Archambault, U.S. President; Jason Reiman, Chief Supply Chain Officer; and Steve Voskuil, Chief Financial Officer.

The team will walk you through our strategy with a discussion around the strength of our core snacking portfolio and growth opportunity, the evolution of our retail execution through One Hershey. We will then pause for a brief break and then return with our tech-enabled supply chain capabilities and finally, how all of this comes together in our growth algorithm, capital priorities and our approach to value creation.

We will conclude this afternoon with a Q&A session. For those in the room, we invite you to join us for 3 immersive breakout sessions afterwards, followed with by a cocktail reception with our executive team. Now before I turn it over to Kirk, let's enjoy some of our exciting media and social activations.

[Presentation]

Please welcome to the stage, Kirk Tanner, President and CEO.

Good afternoon. Yes, this is where you go. All right, let's get this started. Thank you for being here. The New York Stock Exchange, how fun is this? Did you walk into the lobby and smell chocolate? Okay. I would like to also thank those that are joining us online. You did not smell chocolate, okay? But today, you're going to have the opportunity to really hear about our story, our strategy, and I have a beautiful team of leaders that are going to help execute that, plus you get to shop, okay? We have shopping bags. You can shop. Get ready for Easter or whatever, pick out your favorites.

So I want to talk a little bit about what I've noticed over my career of successful leaders and successful companies that are in the consumer space. I'd like to characterize them as the 3 Cs. The first C is consumer, consumer obsession. Companies that are obsessed with the consumers and exceeding consumers' expectation are the ones that win.

The second C is customers, building partnerships of trust with retail partners and having that mutual sustainable, profitable growth is key. And the third C is colleagues, investing in our people, their careers, their capabilities, their performance. And I can tell you, after my first 7 months at Hershey, these 3 Cs are alive and thriving. We have a rare purpose-driven growth company focused on delivering top-tier performance for all of our stakeholders. And I am truly energized by what's ahead and what we're going to share with you today. So let's talk about that.

So joining me today, I have Stacy, Andrew, Jason and Steve, Together, we're going to share our long-term strategy called leading the NextGeneration of snacking. We have a strong foundation with significant headway for growth. And Stacy will talk about how we're building the NextGeneration portfolio of the future with brands, consumers, love. Andrew is going to talk about this thing, we've been calling One Hershey, a commercial approach to bringing our brands together and executing with excellence across retail. Jason will illustrate our supply chain, our investments in supply chain, how we're modernizing it to deliver a speed, a supply chain with agility and efficiency. And then there's no better person to bring it all together than Steve. He will bring how we're going to perform from a financial perspective and metrics over the short and long term.

So let's get started. We are emerging stronger than ever after unprecedented cocoa inflation pressure. And why are we doing that? Because we invested during this time. We invested to drive growth for the future. And where did we invest? We reinvigorated our core brands with core innovation like Reese's OREO. We started to build this fantastic snack portfolio in permissible snacking. We also invested in IT talent and technology talent and infrastructure so that we could move faster with speed.

We changed our -- and we transformed our cost structure. I think this is really important. As we think about that productivity pipeline that we can invest back into our business. So these 4 key investments allow us to move faster and further coming out of unprecedented inflation. I think that's really important. So let's talk about our portfolio a little bit. I love the structure of this portfolio. It is differentiated and where we play is very intentional. So let's start with U.S. confection. We are the leader in this space. This is a resilient growing category that's driven by core growth and innovation.

When you look at permissible snacking and nutrition and functional, these are terrific growth areas for the Hershey Company, gives us high growth, and it gives us the opportunity to expand into more. Internationally, we have markets where we have built our brands in our core markets, where we're seeing high single-digit growth and gaining share. When you look across this portfolio, it is a portfolio built for growth. When we think about internationally, I think it's important that you look at where the growth is, our track record of success, so I look at Canada, Mexico and Brazil. We've built portfolios of strength, and our go-to-market is excellent, and we're gaining share. that's important. But our focus is going to be on delivering growth in those markets and focusing on markets that have scale, categories and profit potential. Markets like Europe and the U.K., where we have a right to win. And the work is already underway.

Our brand Reese's, now Reese's is one of our core brands in the U.S. Internationally, Reese's is an insurgent brand. It's something consumers haven't experienced yet. And it's breaking in. We've built a business over $300 million internationally with brand Reese's in recent years. So work is underway. We are positioned to lead the NextGeneration of snacking. Now when you look at the snacking landscape, the opportunity is large, and the bar to win is high. Companies that move faster, stay closer to the consumer and execute the best in execution. Those are going to be those companies that win. And Hershey is built for that. And the actions that we have taken and those investments we've made, put us in a strong position to lead.

So we're going to talk about this a lot today. I'm sure you're going to ask a lot of questions about this macro environment. It is dynamic and changing and evolving, right? Consumers are continuing to lean into health and wellness, GLP-1 adoption continues and is accelerating. The conversation around this food policy is continuing to evolve and change. So we can look at that left side. We're looking at that left side and saying, "Well, how do we win? How do you play offense?" At Hershey, we are leaning into the opportunities that matter most right now, premiumization, functional, better-for-you and a stronger omnichannel execution, be great digitally. We are focused on where the consumers are moving and changing, especially this Gen Z consumer and generation.

So let's talk about where the growth is going to come from and how we see our business today. So that strong foundation on the left, I want you to think about it as building on a foundation of growth. So moving from a mainstream chocolate powerhouse, it's our superpower, it's our strength to a total confection leadership position, leaning into premium, better-for-you and sweets. So from chocolate to total confection leadership.

So today, we have a fast-growing Salty business. I love our brands in Salty. And there's so much more we can do. We are in a few high-growth subcategories. We have the opportunity to expand into more permissible snacking categories to drive that growth. And that's our expectation. In front of you, in fact, you have a Dot's Snack Mix. That's us taking Dot's into Snack Mix away from just Pretzels. So that's an example of what we're doing.

Today, we selectively play in protein. And this is a growth vector for us in the future. We're investing in R&D and capabilities to make this even stronger. This will be -- continue to be a trend. Functional delivery is important to consumers.

Today, we have a sales force that is primarily focused on delivering our confection portfolio in retail. We've just announced One Hershey. One Hershey brings our total portfolio together so that we can reach more customers with our brands and build a beautiful sweet and salty portfolio together. We have built strong capabilities in digital and built this foundation. And in the future, we're leveraging AI to solve our biggest opportunities. I think that's really important. And we'll talk a lot about that today on those use cases.

So our strategy is on three pillars: NextGeneration portfolio, how we see the retail of the future and a modern supply chain. So with our portfolio, it is about building our core portfolio and driving growth. Our brands Reese's and Hershey are growing faster than the rest of our business right now. They are doing exceptionally well.

Now that won't be enough. So we need to lean into those faster-growing categories like premium and sweets. In retail, our focus is on commercial excellence, out executing our competition at the moment of choice or the moment of truth or whatever moment you want to call it, truth or choice, we're going to be there with excellence. In supply chain, it's all about outproduce with efficiency, agility and productivity and keep that flywheel turning. And that's what we're doing with our supply chain. The output of this is sustained, differentiated financial performance.

All right. So let's talk about the portfolio in two halves. Maximizing the core is critical. Modernizing our brand building, Stacy is going to talk a lot about that. Increasing portfolio effectiveness and sharpening our portfolio for where it should play with consumers and building our next billion-dollar brands. On the right side, it is about what's next. It is about increasing our innovation into those spaces and making the right investments across technology and R&D so that we can sprint into those places. And it is building new brands that are complementary to the portfolio and selectively looking at targeted M&A that also drive incremental growth for our portfolio and are a complement to our total portfolio.

So we're talking about leaning into the growth. Where is the growth? One, our core is growing, but there are growth spaces that are moving faster functional, better-for-you, sweets, permissible salty, premium. And internationally, we have incremental opportunities to grow profitable growth in focused markets. So this is the structure of it today. 33% of our growth is coming from those areas on the right. In the future, that's going to be 40%. So we're going to lean more into the growth while growing our core.

Now we'll talk more about this today, and Stacy will break this down into exactly how we do this. When you look at this display, this to me is like movie night solution. This is One Hershey bringing our salty and sweet together. One Hershey is a real unlock for growth. It combines our total snacking portfolio into one impactful approach to commercial excellence. In addition to investing in this retail capability, we're investing in away from home, omnichannel, digital and other emerging channels.

One Hershey is one voice to our customer. It makes us easier to do business with. It allows us to bring our very best, our resources and merchandising in the store with our sales team, and it elevates our role as advisers to our retailers. Now this is a holistic approach to selling our portfolio and sweet and salty together is definitely a one-two punch.

Supply chain, when I think of an elite supply chain, I think of Jason Reiman right there. 30 years with the company. Just celebrate, let's give Jason, 30 years with Hershey. Who says we don't do recognition at the Hershey Company, 30 years. You're going to hear from him today, but Jason has built an amazing supply chain, and we continue to modernize it. And we think about things like precision demand fulfillment as a competitive advantage.

In supply chain, we're investing in technology and automation that enable better service levels, precision, faster speed to market. And of course, this is that productivity machine that allows us to be more efficient. Now a world-class supply chain protects what consumers want most. They want the highest level of quality, great taste, affordability and more access to a broad portfolio. And that's what supply chain does. It is an enabler of our strategy.

Technology is critically important. We have spent a lot of time and resource against building talent, building an infrastructure so that we can leverage technology and AI to solve our biggest opportunities. And we're going to talk about these individually today across our portfolio; speed to market and ideation and R&D; commercial, how we leverage tools in the field to drive efficiency; with supply chain, real-time decision-making that make the entire supply chain more efficient and automatic, all coming together. This is enabled by our overall investment in our digital foundation and talent.

Now let's talk about this team. We have a world-class team. I have the privilege to working side by side with elite top-tier talent that are focused on the consumer and the customer. And we divided our organization into a model of demand creation, commercial excellence and demand fulfillment because that's how we see the world.

We see it's our responsibility to create demand for our brands that consumers love, execute with excellence with commercial excellence with our retail partners and then fulfill with speed and precision. And that's how we're structured and organized. So let's talk about our strategy and where the focus is. I want to take a little time on this slide.

So first, the first pillar that unlocks this differentiated result is to expand our leadership in our confection business in North America. That is from moving from margin recovery in '26 and '27 to margin expansion. It is expanding our leadership in confection in North America. First objective. Second objective is leverage our fastest-growing portfolio in Salty, landed in permissible Salty Snacks to build to a #2 share position in the category. That is critically important, and we're on the way to doing that.

Third is to drive an incremental growth and profitability internationally in our key markets, while focusing on new markets that have high growth and profit potential.

And finally, driving upside growth with our focus on a differentiated functional portfolio by building capabilities in this functional snacking world. So that is our four areas of focus in our strategy. What does that deliver? So on the left, you see this period of '26 and '27, restoring profitability, delivering organic, net revenue at 2% to 4% and having double-digit EPS growth.

In '28, it's more a balanced revenue growth algorithm focused on unit growth, occasion growth, volume growth, all in balance with revenue, delivering organic revenue at 2% to 4% and EPS 6% to 8%, all while delivering top-tier shareholder returns. There's a few things I want you to take away today. We have a unique snacking portfolio that is focused on growing our core business while expanding into significant white spaces. Now this is all driven by extending our confection leadership in North America, reaching that #2 position in Salty, focus on permissible snacking, unlocking growth with our One Hershey commercial model and furthering our tech-enabled supply chain to drive greater productivity and efficiency. We expect to deliver earnings recovery by 2027 and set the business up for long-term growth.

So today, you'll hear from Stacy, Andrew and Jason on how we out-market, out-execute and outdeliver to achieve our goals. Then you're going to hear from Steve on how this all comes together in our long-term algorithm. And with that, I'm going to turn it over to Stacy to talk about our unique portfolio. Thank you very much.

Thank you. good afternoon. I am thrilled to be with you to talk about our amazing portfolio. Look at it, isn't it beautiful? And how it's positioned for growth now and in the future. Over the next 25 minutes, I'll talk you through the opportunities in front of us, and how we'll capitalize on that opportunity by maximizing our current portfolio and innovating into new spaces. Snacking has been a remarkably consistent growth category, delivering 3% or higher annually pre-COVID with broad participation across categories. That trajectory didn't break under pressure. Even amid meaningful headwinds, the category has held at 2% to 3%, anchored by the rise of better-for-you and functional segments and the proven durability of emotional categories like chocolate. As we look ahead, we expect snacking to reaccelerate through economic stabilization, Gen Z purchasing power and the scaling of new on-trend categories. Hershey snacking portfolio across sweet, salty and protein categories allows us to participate in nearly 1/4 of total U.S. snacking today.

Our categories are attractive and growing ahead of total snacking driven by their functional and emotional consumer value. And we have significant headroom to meet even more snacking occasions. We've demonstrated we can scale outside of core chocolate by deeply understanding consumer needs in different snacking occasions. Through this model, we took both SkinnyPop and Dot's to #1 positions in their respective categories. And we have substantial upside in International that we'll realize by focusing on three anchor markets where the category is attractive, our portfolio is relevant, and we have the right to win. The markets are Mexico, Europe and the U.K. and Brazil, where we see robust per capita consumption, strong growth and premiumization potential. In these markets, we'll drive share by building our global iconic brands through localized marketing, targeted innovation and supported by an optimized route-to-market execution. And then across the rest of the world, we'll see growth through asset-light execution that lets local demand lead.

So we have lots of opportunity for growth. Step one is to maximize the impact of our current portfolio. There's three ways we plan to do that. First, modernize the way we build our brands; second, better leverage our portfolio for incremental impact. And third, we'll invest in scaling our next set of billion-dollar brands. So let me set a little context before I talk about brand building. It's really important we understand the consumer and the culture they're living in.

Let's face it. Consumers are living in a chaotic world, full of sensory overload and complexity. And that pace of life has led to high levels of stress and even loneliness. Younger generations are spending hours and hours on social media, and it's only making them more isolated than ever. As a result, they're seeking meaningful human interactions. And little joyful moments to lift the every day. That's why our purpose is so meaningful. Our brands exist to create more moments of goodness. It's not just what we do, it's what the world needs right now.

This profound mission is why I am so passionate about our amazing brands. So far, our brands have grown by being ubiquitous with high reach, high awareness, high distribution, but what got us here will not necessarily get us to the next stage of growth. In a highly competitive market, it's not enough to be just visible and available.

Our next advantage isn't more reach, it's more resonance. Reach gets you seen, but resonance gets you chosen. Our brand building model focuses on driving that resonance through five pillars. Elevating our consumer understanding by linking market signals with household level insights, building brand strategies that address consumer opportunities and barriers, telling meaningful and consistent brand stories across a modern and influential media ecosystem and measuring the impact in real time, enabling quick and effective resource allocation.

We're anchoring to clear measurable outcomes that can enable us to track and accelerate our progress across key metrics and drive productivity. An example of productivity is how we're using AI for content generation, media buying and performance optimization. So far, we've seen a 50% reduction in cost per asset versus traditional agency models, a reduction in creative time lines from months to weeks and the ability to localize our content to multiple markets in just days.

Our first example of using this model was our Reese's OREO launch campaign. This social-first campaign was anchored in cultural insights and relied on audience, targeting and real-time optimization. It generated billions of earned impressions and delivered 1.5x the effectiveness of previous Reese's campaigns. It also resonated with our growth audience. Reese's OREO has a 147 index with Gen Z, and that's one of the highest in the confection category.

I don't know if you can read some of these comments, but I certainly love my job. When I see people saying things like, this is the greatest day of my existence. And this helps make 2025 slightly more livable. The second way we're maximizing today's portfolio is to sharpen each brand's role in meeting consumer needs and occasions. We've renewed our insights work and map demand to the most important drivers of choice, functional and emotional needs.

Three terrains emerged, boost, connect and treat, and within those 12 distinct spaces, shaped by degree of nutrition orientation. It became clear there was material overlap in how we activated our portfolio. Our confection brands were clustered together, and we had gaps across large growing demand spaces. Our new strategy architects our brands to win across the demand landscape by minimizing overlap and positioning them to best deliver against the driving functional and emotional needs of the space. By extending our portfolio beyond just treating, we've tapped into a $300 billion total addressable market. And our ability to capture more occasions means more consumers, buying more units more often.

Take Hershey's as an example of how we're activating this approach. The brand is anchored in everyday comfort, a space driven by daily routines and the need for simple, familiar comforts in a hectic and uncertain life. We plan to increase our share of occasions in this large and important space by leaning into relevant moments big and small, and encouraging consumers to choose a little bit of happiness by choosing Hershey's.

First, we'll embed the brand in everyday rituals and consumption moments, seating Hershey's where little moments of comfort are needed. A mom putting a Kiss in her child's lunch box to show her love, college roommates sharing a cookies and cream bars as they study for a final, a caramel-filled indulgence enjoyed by a couple after a long day's work. More everyday moments means more units. And yes, those are all examples from my life.

We'll also make sure Hershey's is top of mind when people come together to celebrate big cultural moments like sporting events and holidays. We launched our new, It's Your Happy Place campaign at the Olympics, telling the story of how happiness is the real gold and capturing the hearts of millions of Team USA fans. And later this summer, when everyone's watching the World Cup, we'll celebrate our very own hometown hero and one of the stars of the Men's National team, Christian Pulisic. These will be holistic campaigns activated through our new brand building model where we surround the consumer across all touch points. But to give you just a flavor, let's watch the films that anchor these two cultural events.

[Presentation]

So we plan to use this approach across the entire portfolio and it will enable us to scale our next brands to $1 billion. Dot's, KitKat, Ice Breakers and Jolly Rancher stretch us beyond treat into the growing boost and connect demand spaces. They have momentum already, and we have plans to aggressively invest in innovation and consumer engagement opportunities.

On Dot's, we plan to expand to new formats and pack types and find opportunities to disrupt additional snacking categories, the way we're doing with Snack Mix. KitKat is a global powerhouse. We are relaunching the brand in the U.S. next year with an improved product and a big marketing push to drive reappraisal and take ownership of the modern break. Ice Breakers is in a category that has tailwinds with growth cohorts like GLP-1 users. To capitalize, we're launching new more portable formats and exploring functional benefits.

And finally, Jolly Rancher will continue to grow with Gen Z as the brand brings its bold iconic fruit flavors to additional markets, forms and eating experiences. To complement the growth in our current portfolio, we will be innovating for the future of demand. This means building technical capability to deliver advantaged organic innovations as well as continually evaluating opportunities for M&A. We'll be focusing our efforts against four territories, where we see $1.5 billion of incremental sales opportunity over the next 5 years. These territories are grounded in our understanding of white spaces in our demand map as well as consumer dynamics that impact how preferences are evolving.

We'll also continue our efforts in core brand renovation to defend product superiority and create incremental and exciting new takes on existing favorites. We're leveraging more technology and AI across ideation, concept testing and commercialization. And recently, we introduced our new Velocity Labs enterprise, which allows us to move fast to meet the evolving needs of consumers. We're using this capability to capitalize on emerging trends, test and optimize and market and drive excitement around limited time drops. Taken together, this will result in our 3-year innovation contributing a high single-digit percentage of revenue, and that's an industry-leading number.

Now let's get into the territories. The first is premiumization. Across CPG categories, premium demand is accelerating, driven by higher income consumers and Gen Z purchasing power. The brands that are winning offer a combination of indulgence, quality, better-for-you credentials and elevated packaging.

Our pipeline is focused on bringing new benefits to the segment. Democratizing luxury with accessible brands and price points, creating expressive social-first indulgent experiences that resonate with Gen Z and expanding our permissible portfolio. Functional snacking demand is also growing significantly as consumers prioritize nutrition and wellness benefits and seek to get more out of their snacks. We have a robust innovation roadmap that includes the following: better-for-you offerings that reduce sugar and other ingredients without compromising taste, performance-focused propositions, such as our reformulated one bar with a stack claim of complete protein plus fiber plus low sugar, customized nutrition that leverages our JV partner, VitaKey, and its proprietary technology, enabling precision time release nutrients like protein and fiber.

Just imagine a snack that can deliver benefits where, when and how your body needs them. And what we call Snacking Plus, which adds functional ingredients to favorite brands like Ice Breakers and LesserEvil to drive new consumption occasions. The third territory is multisensorial. We know consumers, and Gen Z in particular, are increasingly drawn to unexpected flavor profiles and textures, fueled by a social-first food culture that celebrates discovery and novelty. Our offerings will include adventurous on-trend flavors, new-to-the-world textures and playful interactive forms and exciting new eating experiences that marry global tastes and cross-category fusions.

Finally, consumers increasingly expect offerings that feel personal and occasion-specific and are willing to pay a premium for products that are bespoke. The need for gifting is universal to show care and connect with the people you love and consumers are increasingly turning to confection to meet this need under rising economic pressure. Our plan includes an array of curated assortments for a variety of occasions, just as a Dot's wing flavor pack for the football season as well as elevated gifting offerings for everyday celebrations like birthdays and big seasonal moments.

To enable this pipeline, we're making a significant investment in our R&D capabilities. A 25% increase will fund talent and technology to enable ingredient and recipe enhancements, advantaged taste delivery and nutrition science. With this is a renewed commitment to product superiority and quality. We continuously review recipes behind our most beloved brands to ensure every size, shape and flavor continue to deliver the experience consumers expect and that every ingredient earns its place.

As part of that process, we're making some updates to our products. We're enhancing our KitKat recipe to deliver a creamier chocolate, transitioning our sweets portfolio to colors from natural sources and ensuring that all Hershey's and Reese's offerings are consistent with their brands, classic milk and dark chocolate recipes. We're also investing in technical capabilities in areas like protein quality and delivery systems with the goal of differentiating our product claims and driving advantage.

We will continue to complement organic innovation with M&A to go after white spaces within snacking. When we have a gap in capability where our brands cannot authentically stretch to an attractive space, targeted M&A is a great solution to help us enter or scale efficiently and lower our risk exposure. For example, we recently added LesserEvil, which is an on-trend brand with strong credentials and the ability to enter new categories, which allows us to scale our Salty Snacking platform even faster.

As a result, our portfolio of the future will be more diversified and geared towards the fastest-growing segments of snacking with a larger position in functional snacking, better-for-you and premium, sweets, International and salty where the market is large and growing. I'll leave you with this. Snacking is a large, resilient and growing category. Consumer needs are evolving and the opportunity for Hershey's is significant. We have a clear actionable road map to capture that opportunity, and we are actively shaping our portfolio mix to support sustained long-term growth.

Thank you very much for your time today. And now I'll turn it over to Andrew.

Thank you, Stacy, and good afternoon, everyone. Pleasure to be with you here today. You saw on Kirk's opening, we talked about the operating model, demand creation, commercial excellence, demand fulfillment. It was the slide with our beautiful headshots on it. And Stacy just took you through what our plans are for NextGeneration demand creation growth. I'm going to spend the next 15 minutes talking about our commercial capabilities and why they're going to deliver disproportionate core growth, but also growth in disruptor categories that we're in, salty, functional protein and the future of the portfolio that Stacy just shared.

If you think about our commercial capabilities, reality is the delivering now. And we have a lot of proof points in the market in our current results. I encourage you, all of you to go to our breakout session this afternoon. You'll see a lot from the team on what is actually in the market and coming to the market quickly. It is the foundation for why we believe now is the time to leverage our One Hershey, go-to-market model that Kirk talked about. And all of this is in support of our short-term and long-term algorithm goals, which is top line growth. Marketing and trade reinvestment and getting more working return from what we invest in the market and ultimately, margin restoration.

In simplest terms, our commercial goals and resource support three things: Availability, affordability and activation at retail. Now this is probably not any of your first Investor Days. You hear a lot of CPG companies talk about those 3 As, so to speak. The difference for us is that we've got a lot of sophistication in our commercial work. And then we're -- we have meaningful trends happening in our categories, predominantly better-for-you, functional and premium, which is why our categories have more disproportionate growth than others. So when you put those two things together, we think our take-home aisle and our digital aisle are going to have several years of growth, and it's a difference.

Secondly, we have world-class revenue growth management capabilities. And you'll continue to see that in our evolving price pack architecture. That allows us to drive value to the category, but also address affordability with a lot of flexibility with pack types and price. And we have a world-class retail team, 1,100 people that are in the market today that are already executing and driving our activation. The opportunity is that we're able to use technology, gain productivity and leverage their time to spend more time on our portfolio and outlets, take away time that has nothing to do with selling and essentially deliver a better return for every retail asset we get from a retailer.

And that's what our customers demand. And when they get that, they usually reward us with more and more assets, and this model is going to allow us in a One Hershey model to get that greater return. So let me start with availability. Some of us, as you may know, had portions of our career in other industries, mine for one was beverage. If you walk down the beverage aisle today, you -- regardless of the company or the brands, you largely see package uniformity. You'll see the immediate consumption packages look the same.

The take-home packages look the same. And it's, in some ways, a fairly easy aisle to shop. Confection is a different story in that regard comparatively. You've got a lot of SKUs. You see a lot of package differentiation and variety is important, but the ability for a consumer to navigate that is just in a different cycle than it is in other categories. Our data tells us that 23 plus percent of the time. Shoppers are going to spend less than a minute, trying to find what they want. If they can't do that, they're going to move on. So we've got to be on the forefront of what that aisle looks like.

You'll see later today, we're taking some leadership roles in our stand-up packaging. So moving from lay-down bags to stand-up bags, bringing a much more billboard effect to the aisle. What that does is it allows consumers to understand not only what they're buying, but they over time, what our price slope and curve is.

We're trusted experts in this space today. So when retailers ask us to help them redefine the aisle, when we combine our new standup packaging, a cleaner architecture plus our other gold standards, we're seeing a 19% lift in confection and a 12% lift in our salty portfolio. So these are some of the reasons we see core portfolio growth in front of us. The other interesting distinction is because there's so much proliferation of SKUs, our 100 top revenue-producing items are only in about 60 ACV in the total marketplace. Again, big distinction from other categories. What that simply tells us is we're going to get that to a 90% ACV and get more growth from core because, again, we're going to bring more uniformity to the aisle.

And then finally, we see category expansion in the sense of Zero Sugar is in the early innings in this category. Better-for-you, we're only in 8 share with a huge runway of growth. Premiumization is ongoing. So there's a good way to get price and mix. So we're already a leader in some of these areas. We are the leaders in Zero Sugar. And ultimately, we see retailers taking from less productive categories into our aisle. And there's, from our assessment, easily 4 feet available to expand in these faster-growing areas.

The structure of our hierarchy and architecture really important. The point of doing this well is that we can address everything from an opening price point all the way to a value per piece and have a very curve that consumers understand. We can also address portion control and we can also address calories per piece. And bringing this standardization to the category in the aisle over time, it just means we're going to get more household penetration and much more conversion.

Our ultimate objective, and you heard that from consistently through Kirk and through Stacy is, we want everything on the aisle out of the Hershey portfolio to have a clear reason for existing, a clear occasion that it impacts and that it can be done at scale versus subscale and just having the aisle clogged with items that ultimately won't produce in the long run. A couple of more examples. We're entering into single-serve in some of our faster-growing and premium brands. The single-serve option in Dot's. We're going to -- we're already launching a single-serve option in Brookside. Again, these aren't inherently different from other CPGs, but for us, they represent a real meaningful move into high-margin areas like the front of the store, strike zone and convenience retail. We just simply have more headway in those areas than others.

And then finally, we can go in other channels. We're particularly excited about the on-premise. There's a lot of opportunity to drive trial in the on-premise for our brands. In fact, our Dot's new package was just available on Delta Airlines from a trial perspective. So with a good price pack architecture, we can definitely run our affordability curve better. What I would remind everyone is we're very intentional about that. 75% of our portfolio today is still at $4 or below.

And then we're introducing things that we see that are important to consumers at macro scale. One of those is a variety pack at an opening price point. And then a $5 seasonal offering that we'll put in the market this year, particularly for the dollar and value channel. So because we have flexibility and because we can produce an architecture that is working and going in a value way, we can have price and mix and margin to what we do.

So we're going to balance revenue. We're going to balance units. We're going to balance margin. And then we're going to activate again, I thought Stacy did a really good job of talking about some of the great assets we receive essentially as we commercialize and then bring them to retail.

To begin with Reese's OREO has been and is a cultural phenomenon, two mega brands come together. What's been very interesting is when we merchandise those brands together with core Reese's and core Hershey, we can grow out of both. And predominantly, this product hasn't really hit the aisles yet. We largely launched this off-aisle. So we now go into resets -- in the reset season we're in today.

Pokémon, we're in the 30th anniversary of Pokémon. So we now have parents and children, two generations. It's a wonderful partnership and asset for us. We've activated it at back-to-school time. Where we've activated it, we see a 10% lift in velocity and we see repeats because the collectability of this is important to consumers. As importantly, we had 120 million plus impressions on what Gen Alpha and Gen Z care about, which is effectively TikTok, Snapchat, Meta. So again, great assets means that we can be very resonant.

Twizzlers, it's a 100-year-old brand. Again, by watching social media, we didn't invent the dirty soda or dirty pop phenomenon. It's largely been on reality shows and online, but -- and hopefully, you got to sample it earlier today in the Velocity Lab that Stacy talked about, we brought a product to market. We didn't test it in focus groups. We tested it with consumers in a limited time offer, and now we know that it's going to work and we can scale it really quickly next year.

So I think there's many of these opportunities where even our legacy brands will benefit from how we look at the world. So putting it all together, availability, affordability, activation. It's one of the reasons that Dot's is, maybe it's #1 in the Pretzels category, a category that hasn't had much growth. We do have #1 and #2 share, respectively, on confection, salty and digital. And yet, we still have so much headroom versus our brick-and-mortar share for lack of a better term. Reese's did $100 million in 5 months, again, largely off shelf. It drove 8% of the category growth, and our sweets business last year delivered at 3x the category growth rate, and we're in 8% share. So again, when I think about the proof points of why our core portfolio is right for growth, those are the reasons that give us a lot of confidence.

So we talked about, as Kirk mentioned, now it's time to put this all together. We're going to put confection leadership together with our disruptor brands. What I would say here is I get a lot of questions sometimes of why now? Why is this the time to do it? And what I would share is, Hershey's already been on this journey for a while. Some of it starts with the portfolio. So it's been a really intentional M&A strategy. Obviously, no SkinnyPop, Pirate's Booty and Dot's and now LesserEvil.

In addition, our supply chains and systems are already all integrated. So the same processes we use in one category, we use in the other. Our retail teams have actually already been selling both categories in convenience retail for the better part of 2 years. And finally, and maybe one of the most important reasons, our customers have just been asked for it now. They see the growth of Hershey over time being a total snacking company. Obviously, they're trying to unlock value in really important areas and because the portfolio now is at scale, they're asking us to bring them advice across broader snacking than just core confection.

And some of those proof points have just gained us total snacking advisorship in some material CR customers, convenience retail customers and mass customers. Some other benefits are fairly obvious. We no longer just stay category-to-category investment we can bring portfolio investment, which means we can unlock more. We already know that these categories merchandise well together. There's a lot of cross basket. So that just makes sense. We talked about the tentpoles we're going to invest in.

Again, there's no reason to execute a tentpole on just one side of the portfolio when consumers are buying the total portfolio. And we have a retail team to do that and execute it without having to build it. And finally, we'll get some real investment and ROI back from our trade that prior to this was directed in just specific areas versus the total portfolio. So we'll reduce redundant programming, we'll have better development costs. We'll just get a better ROI on what we put into the marketplace.

This is what we want to see in market. Again, Kirk shared this as, call it, the ultimate movie night, I think the point being is these products are brought together already, our brands are beloved already. These being beacon end caps at the end of the aisle, produce growth for those that even walk ] the aisle. We see 5,000 opportunities in small format alone just to bit with the strike zone together with our brands, and probably 1,500 to 2,000 more in the next year just in large format. So again, the way we can show up in market just looks very different. It produces just a better ROI for everyone involved.

Our tentpoles. We're a seasonal leader, you know that, because you've seen the last 5 years of annual share growth in seasons. We're going to do near $3 billion or over $3 billion in retail shortly in seasons, yet there's spikes in the business when you do that. Tentpole brings you a much more even and always-on approach to our brands. And the reality is there's cultural moments all the time. Every year, we'll produce cultural moments.

We have a fairly interesting one next year where Valentine's Day and Super Bowl happen to be on the same day, hasn't necessarily occurred before. But if in our prior model, we would have gone to retailers to talk about this important event in two different teams, and we would add half the value out versus what we'll bring to the market for Super Valentine's Day next February.

A couple of other proof points in market now, obviously, in March Madness, I think I heard Kirk Sarah Izen picked the same final 4 teams I did as well. So I'm in that camp because Braylon Mullins has hit a shot around the world. And clearly, now you know, I'm a Yukon fan. But very important, but the point is we would have merchandised just Reese before. Now in the marketplace, we've got the entire -- our entire portfolio. We have Shaq-A-Licious, which is relevant. We have Dot's, which is relevant. And even some of our own hosting of parties for NCA, all our brands were represented because they were represented at retail, and we can buy them.

We'll do an amazing job of stores like we always do, but this year gives us the chance to do that in 250th America Way of the Country. We'll add salty offerings to this as well. More than likely in everything we do in the future, you will always see more of the portfolio. Again, they go together. They're in the baskets already, and we have the retail team to do it. So that expansion feels natural to us, but the occurrences and the amount of times that it will grow will be much greater than we've seen before.

So why can't we do it at retail? One of our big advantages is technology. Obviously, we're all benefiting from speed and productivity and technology in our world. We have handheld technology that we've always had. It is leading in that area, but 3 things have changed. One, we can get salty data and sales insights into our iPads overnight, which we did. We also are using AI dynamic routing, so our reps are no longer just going to a set of outlets that it was on their list. They now go to highly productive ones. They can change at any time. It's iterative. We simply remove a lot of non-selling drive time and a non-selling productive prep time, unproductive prep time.

Finally, we've got visual identity on our iPads. You'll see a demonstration of this later today, where we can literally show a retailer exactly what would be in their store on a visual screen, here's the footprint size. Here's the quantity, here's what it will retail at. Here are the turns, here's the margin, and they're getting an order much faster. So technology is going to simply without raising our costs, predominantly get us in more outlets, touching more of our portfolio, and that's the goal.

And then again, along our trade in our marketing investment. We already have a target out this year to get 15% of nonworking trade converted to working trade. And one of the main reasons we'll do that is because, again, we'll have programming that is no longer separate but in one spot, where we'll get a greater return, we'll get a greater velocity, so will the retail partner, and you'll hear about one of those examples in the breakout today.

We're using AI to track all of our promotions in the confection world, they're already doing 80% of it. We'll get to 100% of it with salty this year. It means things like in the past where it might have taken a few analysts to look at a 2 for 5 promotion and say, "Well, is that worth repeating a month from now in two other channels." We're getting that back in minutes. And so we're adjusting our promotional strategy constantly in a much more iterative world and by channel, which gives us less waste, greater return, better margins.

So we put it all together, we feel very confident, this is the right strategy. Our confection business is going to benefit from ACV growth. It's going to benefit still from tentpole growth. It's going to benefit from category expansion, especially in the areas that we see are fast growing. Our Salty business is going to benefit from increased distribution because it's still behind some of the distribution points in our confection business. And we're going to reach new occasion, new consumers through new occasions and packaging.

So as I leave you too close, we already have leading commercial capabilities today. One Hershey is going to unlock a lot more of that opportunity. And finally, we'll be in more doors, more occasion, more outlets using technology to leverage our cost and our speed and we see just significant opportunity in front of us. We have the teams, we have the model, we have the capability. Most importantly, we have the portfolio to win.

So thank you. glad to spend some time with you today. I look forward to some Q&A, hopefully, with some of you in a little while. We're going to take a short break. And then when we come back, Jason Reiman, our Chief Supply Chain Officer, will take you through that third important part of our operating model, demand fulfillment. Thank you.

[Break]

Please welcome to the stage, Jason Reiman, Chief Supply Chain officer.

Good afternoon. All right. Welcome back from your break. Did everybody get to enjoy some of our great tasting products. Any favorites out there. The Dirty Soda. All right, straws, wiser straws, there we go. When Kirk opened up, he talked about how we're emerging stronger as an organization following the cocoa inflation. I would say one of the reasons that we're emerging stronger is because of the investments that we're making around modernizing our supply chain.

You heard Stacy talk about how we're generating demand by connecting our consumers with our iconic brands to create more moments of goodness. Andrew talked about retail excellence, and how we're working with our retail partners to bring together salty and sweets to make sure that we can drive that One Hershey approach an advantage. I get the privilege of leading our demand fulfillment. And when people ask me what the core of my job is at a basic level, what is it that I'm supposed to do? It's to make sure that every time a consumer goes to buy our product, it's available. It delivers against that high-quality experience they expect from our brands. It also has to be a value, some consumer will spend their hard-earned money on, and they have to see it as sustainable.

Now there are two important roles in the supply chain. The first is we have to drive growth through an efficient and agile fulfillment process. The second is we have to fund the future through productivity so that we can reinvest in our brands, and our capabilities and in our margin. And while our supply chain is stronger, we can't be complacent. We have to look at how we reinvent the supply chain, looking at how we source our products, how we think about our network, and how that network needs to evolve and then also thinking about how we leverage technology to take it to the next level from a productivity standpoint.

Towards the end of my presentation, we'll go deeper into that on how we are leveraging technology to help modernize our supply chain.

And when I say that we're stronger, it's because of the investments that we've made. We've invested in core brand capacity like Reese's. That's enabled innovation like Reese's OREO. We've also invested in chocolate resiliency in a modernized chocolate manufacturing plant right in Hershey, Pennsylvania. We also have multi-category assets. We're able to produce our Salty Snacks in-house. And we've laid the digital foundation with a digital backbone as well as our S/4 investments, and you heard Andrew talk about how that creates synergies, and how we bring that sweet and salty portfolio together.

And I'm really excited about how we're looking at technology to help drive productivity into the future. But first, let's start with our ingredient resiliency. And ingredient resiliency is all about making sure we have long-term sustainability. It's making sure that we have reliability of those ingredients and it make sure that we have affordability of those ingredients. We do comprehensive assessments of both social and environmental opportunities on all the ingredients that we source. But when I talk about ingredients, there's no more strategic ingredient to us than cocoa. And when I think about cocoa and our capabilities, I think about a competitive advantage. And that advantage comes from our team, our process and our technology.

We've invested in more market intelligence, more information, gaining insights on what's happening. We've invested in technology so we can have a better understanding of where supply and demand changes are happening. And we have a sophisticated tool set for hedging. And when you combine that with our market intelligence and our disciplined process and governance around how we manage our commodities, it allows us to ensure that we're going to deliver against our plans. We're able to reduce volatility and that we have prices that are competitive versus our peer set.

And one of the ways that we measure that value is through a systematic -- as comparing versus a systematic buying approach. And you can see over the last 10 years, our teams have outperformed that systematic approach. We're able to do that because we have disciplined processes and governance. We're able to leverage our market intelligence, and we're able to take advantage of our category strategies based on the dynamics of the market. That's what creates the advantage.

Now the world is ever evolving. And we need to be able to anticipate change that's happening to make sure that our supply chain remains resilient. And one of the structural changes that you're seeing is in cocoa production. Just 5 years ago, Cote d'Ivoire and Ghana would represent almost 2/3 of the world's cocoa production. Today, they're less than 50%. You have new markets emerging areas in South America, like Ecuador, which has increased their production by over 50% over the last 3 years. And you've had Brazil state their aspirations to double the amount of their cocoa production as well. Now this means two things for us. It means that we have to make sure that we have the right capabilities to take advantage of where our beans are sourced, and we're doing that through some of our R&D investments.

And second, it also says that at the current cocoa prices that it still remain above historical levels, it will encourage more cocoa production, which actually is good for long-term supply. But we also take a long-term approach to cocoa. And one of the ways that we do that is through our Hershey Income Accelerator program. That program develops long-term contracts with farmers in Cote d'Ivoire to make sure that we put in good agricultural practices, help them improve productivity and overall family income. We're also investing in R&D. And one of the areas that we're investing in is behind the cacao tree resiliency, ensuring that it's resilient against disease and drought.

And we continue to invest around direct sourcing from origin as well as our ability to look at cocoa alternatives. Once we have a resilient supply network, we can turn in to how we think about an agile network. And when I think about agility, I think about making sure that we have the right capacity for growth. We have the right capabilities to meet the needs of both our consumers and customers, and we have the right resiliency to ensure service as well as be able to manage through disruptions. From a capacity standpoint, we've continued to invest behind our core brands like Reese's, Hershey's, KitKat, Jolly Rancher.

From a capability standpoint, we're able to produce in-house Pretzels and popcorn. And this has allowed those brands to scale to the #1 position in their categories. And when I think about resiliency, it's about making sure that we have modernized chocolate producing assets, and we built a world-class modern chocolate-making facility in Hershey, Pennsylvania, and it's our first fully digitally integrated facility in the network.

But our network is never static. It's always evolving. When I think about our chocolate network, I think about scale and efficiency. No one can make our products more efficiently than we can, but there's always opportunity to optimize. There's always opportunity to add new capabilities to that network. When I think about sweets, I think about how we leverage our current assets to bring new forms, flavors and textures. And a great example of that is Jolly Rancher ropes.

With Jolly Rancher ropes, we're able to use an existing technology to bring a new form to Jolly Rancher that actually resonates with the younger consumers. And then when we talk about the salty network, this is where it really gets fun because we've been investing ahead of that growth to make sure that we can continue to accelerate growth in those categories. In the future, we see more geographic expansion that allows us to be closer to our customers and help us provide a better margin. And from a functional snacking standpoint, we continue to work with outside external partners to bring new products to market even faster.

Now there's always a balance on how we look at the network between internal and external manufacturing. And our partners that we leverage externally are an important part of our network. They allow us to bring innovation. They allow us to scale our brands. In chocolate, it's mature and well balanced. In Salty, we've actually gone from 100% external manufacturing to over 80% internal over the last 5 years. 100% external to over 80% internal over the last 5 years. What this has allowed us to do is actually accelerate the growth of these businesses. It helps ensure that we have the right quality of our products, and it helps us to improve our margins.

And now let me talk about how we're investing in technology to fund the future. And when you think about technology to fund the future, everyone needs a best friend at work. And my best friend at work is Deepak, our Chief Technology Officer. Because in supply chain, nothing really moves ahead without technology. And Deepak and I have partnered together to look at the key parts and key aspects of our supply chain, how we source, how we make, how we deliver, and how we plan. We've implemented technologies in each of these areas.

From a sourcing standpoint, we're investing in spend visibility, so we understand where we are versus our competition, and should cost modeling. This allows us to give sharper category strategies to our sourcing team. From a make standpoint, we've implemented connected worker. This allows every worker or every operator on our factory floor to understand the efficiency of how our line is running. And if there is a problem, what are the root causes, and what are the corrective actions you take to make sure that we get it fixed immediately.

Now let me take you into two other examples of how we're looking at deliver and plan. From a delivery standpoint, we've implemented something called precision assortments. This is our ability to create assortments that have the right brands and the right count, unique to every store. So you're basically leveraging the geo-demographic data from each store to help bring our immediate consumption products, and it starts with how we would work with our sales team to actually create the unit based on that data.

We've actually invested in automation on how you assemble these units and think about LEGOs that get put together to create these merchandising displays, and that we're able to bring that to market to actually create that store of the community type of feel. This is an area I called simplified complexity because we're able to do more precision assortments in an actually simpler way. And it will allow us to reduce our lead time by 50% from the conception to the delivery of that unit. And it will ultimately allow us to drive more sales by having our product in more locations.

The other technology I want to talk about is decision intelligence. And think about decision intelligence as sitting at a layer above our supply chain. It's taking information all across our supply chain. And it's sensing what's happening, it's making sense of it, and it's creating an automatic response. And we're seeing some good results from our investments in the technology.

An example of how this might be used, if you think we're -- you're on a factory floor. And our production is actually running ahead of our plan, and we needed to expedite packaging. This would automatically send that signal to make sure that, that packaging was sent to the line because it was sensing that was happening. Now there are thousands of decisions that happen every day across complex supply chains. And we see decision intelligence as an opportunity to increase productivity by $50 million and reduce our inventory by $100 million over the next 2 years.

I said one of our most important jobs was fun in the future. And we do that through our productivity. If I take a look at our pipeline for productivity for 2026, I'm feeling fairly well, but what makes me feel even better is that these investments that we're making in technology help us ensure that we have a pipeline for 2027 and beyond, and that helps us fuel the flywheel. The more productivity that we can generate, the more we can reinvest back in our business, the more we can invest back in our business, the more we can grow. And the more we can grow, the more opportunities we have to find productivity. I hope you've got a sense for how we're investing and modernizing our supply chain, and how we're looking at technology to help create better resiliency, better agility with our network, and that we're able to help drive growth for the business as well as fund its future through productivity.

And with that, I'm going to turn it over to my good friend, Steve Voskuil, to wrap this all together.

Good afternoon. I'm a little disappointed because I thought I was Jason's best friend at work, but I'm not going to take it personally. It's great to be with you today. By virtue of my spot in the batting order, I also have the privilege today of tying everything together. And so we're going to build up the story that ultimately leads to NextGen financial performance. And we're going to do it methodically. So I'm going to walk through each segment. For each segment, I'm going to go through top line drivers. I'm going to go through bottom line drivers. Then we'll synthesize all of that into a look at the enterprise P&L going forward, again, top line and bottom line. From there, we'll push that through to cash flow, and we'll talk about our capital allocation framework, which many of you have seen before. And finally, we're going to conclude today with what we believe is a really compelling investment thesis for this company at this point in time. So that's where we're going to go. I want to make sure that you have some clear takeaways here as well.

And I'll give you two meta takeaways that I would start with. One is, and you heard it from Kirk right out of the gate this morning, we are stronger today than we were two years ago before we faced some of the commodity inflation we had to deal with. This was not two years of playing defense. And this was two years of investing in talent, investing in our brands, investing in our supply chain, as Jason just said, and investing in innovation and R&D capabilities. Now we're going to take that to another level, but this spot we're in right now is stronger even than we were before we face those challenges. The second key takeaway is that we're not going to use -- or we're going to use the commodity recovery period to be thoughtful and create advantage that will be durable on the top line and bottom line.

So with that, let's get started by taking a look at the segments. And here, I think it's always good. Let's start with the end in mind. And just as a reminder, the end for North America confection is to be the undisputed leader in this category. That means we want to be the market share leader, we want to be the innovation leader, we want to be the best at retail execution and partnering with our customers, and of course, we want to have the best products, most delicious products and best innovation.

In Salty, we're already -- it's already our fastest-growing segment, and the opportunity for us here is to strive to be #2 in Salty Snacking. We've already gone from 5 to 4. 3 is within reach, but we want more. We want to be a strong #2, and we're going to talk about how we do that.

Third, we want to have our International business return to its rightful place as both a strong grower and with a profitable and investable P&L behind it. And then finally, we've touched on functional snacking, which will serve as an additional lift for initially North America confection, but also eventually the Salty Snacking business.

So let's start breaking down the businesses, and we're going to start with what matters most, the North America confection business. Nothing is more important than our success in continuing to drive and build this business on both the top and even the bottom line. So we're going to -- as you know, our guidance for this year is around 3% organic growth, we expect long term, this business can do 2% to 4% organically. And you can see here some of the drivers behind that. Strong ROIs against our brand building. You heard all day about our brand building in this space. We've got a lot of investments, but also we don't make those without requiring strong returns. You've heard about our focus on innovation, including a differential investment in R&D to set up not only innovation now, but innovation and the credentials behind innovation in things like nutrition science for the future.

And then I would call attention to probably 3 and 5 on this page together. On 5 strategic pricing is always going to be important to us in this category. It will look different in the future than it did the last two years, where we know we've had price-driven growth out of necessity due to high commodity costs that we had to deal with, but we're going to balance that in the future with number three, which is driving occasion and unit growth as well as price. And long term for this business, we know the healthiest position is a top line that has the balance of both strategic pricing and thoughtful unit and occasion delivery.

On the bottom line, we know this business can get back next year into the space it needs to be from an operating margin standpoint. You can see the levers here, and you've already heard the team talk about many of these continuing to leverage strategic pricing in the future will be a factor, leveraging our scale and network optimization off the back of some of these capability investments that Jason just talked about. Tech fueled productivity even in the SG&A area as well as premiumization, and you can see also where we're going to invest, areas like continuing to improve our recipes to go where consumers are going with their evolving palates, innovation, R&D and, of course, brand building.

So Salty. Salty, as I said, we want to get this business to a strong #2 position. That means from an organic standpoint, mid-single digits this year and a strong mid-single-digit grower from here forward. To do that, if you look across the bottom, a couple of areas we're going to focus. Of course, we're going to focus first with our core brands in Salty. SkinnyPop and Dot's are fantastic. They're differentiated. Dot's in particular, is on a tear, and we're going to continue to drive growth in those brands. In addition, we're going to drive into spaces where we should be, especially categories that have shown an opportunity for us to disrupt and bring something new. As you said, in front of you, you have our mix -- our Salty Snack mix. That's a good example of a category that was due for some renovation and some updates and some clear branding to take it to another level.

Pirate's Booty is another. That's a brand to be honest, we probably should be doing more with already. And now we're going to have an opportunity to reinvigorate that brand and relaunch that brand into the big space of permissible kids snacking, which we have a right to play in, and we have the assets to win.

And then third, LesserEvil. LesserEvil is a great acquisition. It is doing so far everything we expected it to do. But you'll recall that when we bought that business, as much as we love the brand, and we love the spaces it's in, we also have aspirations to take that brand elsewhere. One of the unique things about that brand is its portability.

And so as we think about the future of permissible snacking, this is an opportunity for the LesserEvil platform to take us into that space. When I look at profitability, again, we want to have this business get over 20% from a margin standpoint, and we know there's a big player in this market that has a margin structure that looks very different than ours, has much greater scale. It's probably not credible for us to be targeting that margin structure, but we want to be pushing up towards the top quartile of margin players in this space. And we do believe that's within reach.

To do that, we've talked already about some of the opportunities here. Scale is a big one for this business as we now, again, bring in LesserEvil as we execute One Hershey. One of the smart things we did, again, a couple of years ago was get this business onto our new ERP platform, and that has unlocked enormous opportunity to continue building scale and driving automation. We're going to continue to extract all the synergies that we committed to, not just in the LesserEvil deal, but in the other M&A deals that we have put together to build this business. And as you heard Andrew talk about, retail execution is also a great opportunity for this business.

So let's talk about international. Last but not least, again, we want to move out of the challenging period that we have and get back to it from low single digit, eventually solid mid-single-digit growth. It's no secret. This business has been the most impacted by the commodity cycle. Part of that is because it's more premium positioned in many markets, and we have more elasticity impact. Some of that is the focus on cocoa in these markets.

And some of it, frankly, is our lack of scale in some markets in particular, but as you heard from Kirk, the opportunity here is to refocus, don't miss the opportunity to look at this business critically and say, okay, how can we set it up for stronger future performance. By focusing on core markets where we know we can bring the things we're good at, cultural relevance, scale, great marketing and great network execution. That will also follow through from a profitability standpoint where we get this business, again, back up to the profitability that we've had before and then leverage the skills and the strength of our overall business to drive it further.

So what does that do then for the enterprise? We've put together here a framework. So you can see a little bit how we think about where value is created in this business. As you've heard today, you were in great categories. They are strong, resilient categories. In those categories, we have iconic brands. Among those iconic brands, some of our biggest brands outperformed these great categories. So right there, an excellent starting point for value creation.

We have identified white spaces that we have a right to win in, that we already have brands that can play in, and we have the ability with our retail team to execute against. We talked about balanced revenue growth. International and Salty will definitely be volume-driven growth, but as we bring the North America balance and confection, enterprise top line growth, it's also going to be more balanced between price and capturing units and occasions.

We're going to continue to reinvest and we're going to continue to bring class-leading margins. And while we're confident we'll get back into the margin range of the past quickly, what's probably two more important points to take away here is that, one, we see that not as the end goal, but as the new platform for modest expansion thereafter. And second, while we love gross margin, it's a great indicator of the value of our brands. We're also not going to target fixate only on margin, we want to capture incremental profit dollars into the business from these white spaces where we're going. All of that leads to strong cash generation and then puts in our hands to our disciplined capital allocation to drive value for shareholders.

If you look at the top line, again, just to break this down and we've talked about it a bit already, right now, we're coming off a period of out of necessity, price-led growth to a period where we're going to begin shifting the balance between strategic price and also occasion and unit growth. So that by the time we get to 2028 and beyond, we've got a much more balanced top line delivery.

On the bottom line, we're going to see our margins next year, be back into the range, I would call it, the historic ZIP code for this business. Again, not as the end goal in itself, but to establish a new place from which we can continue to drive scale and productivity to take it to another level.

We know that we have some investments we're going to continue to make to do that. And we're also -- we also don't have our heads in the sand about headwinds, but as we look at the tailwinds and we look at the ROIs that we're going to get off the back of these investments, we believe that will more than compensate for the headwinds.

I have to take a minute to celebrate the transformation savings that we are in the process of delivering. As you know, by the end of this year, we will sunset the transformation program. And by the time we're done, we will have over-delivered the savings and underspent the onetime cost to do it.

And you can see on the screen, it's split between Jason's area and supply chain and also across SG&A. Perhaps the best thing in here, though, is that we have sustainable tech-enabled productivity that is going to continue to the future and not just continue in its current form, but again, serve as a base for further expansion of technology. And as Jason said, and you heard from Andrew as well, this is not a sort of pipe dream of the future. These things are happening already. We are already optimizing our trade spend. We are already leveraging integrated demand planning. We're already using holistic customer investment tools to manage our spend both in supply chain and SG&A. And we're going to be able to build on that for the future.

This is the slide, maybe the only slide you care about in my presentation, but -- and my feelings aren't hurt, but just to stop for a second. So 2026, as you saw this morning, we are reiterating our guide for the year. 2027 is going to be another year of sort of catch-up from an earnings standpoint. It will be outsized earnings delivery for next year. And longer term, we see 2% to 4% organic on the top line, and 6% to 8% on the bottom line. Now I will also say we're never satisfied, and we're always going to be pushing for more. We are a show it, don't tell it team. And so we're going to continue to leverage all the tools that you've heard about to drive performance.

We know when we do this, we'll generate a lot of cash flow. In fact, we generated a lot of cash flow even in the last two years with commodity inflation. What this does, though, is it allows us to level up. And so you can see, we'll have the earnings growth recovery, certainly will flow through. In addition, we'll have the transformation savings carrying forward. And as Jason said, 5 years ago, we were talking 1% productivity savings, now we're talking 3%. And technology beneath that will allow us to do even more.

Working capital, we don't even talk about working capital that often. In the last 5 years, we've dropped our cash conversion cycle by 40%. Brenda continue to press on that, and we're going to continue to press on that, and we're going to be very good stewards of the investment we make into the supply chain.

That leads to our capital allocation playbook or framework, and here, looks a lot like what we've had in the past. We want to first and foremost, invest in the business, both organically and inorganically, and I'll touch on M&A again, in just a moment, but here, we know these are the -- these ideas are the best return in most capital efficient things we can do to grow the core business, and we're going to always make sure that's fully funded. Second, we want consistent dividend growth, growing the dividend roughly in line with earnings over time, a payout over 50%.

We want to maintain a strong balance sheet because a strong balance sheet allows us to be agile and to pursue, weather the tough times, but more importantly, pursue the opportunities for growth as they present themselves. And then we love share repurchase because share repurchase puts tension in the rest of the equation. If we don't have great returning investments, leveraging the shareholders' money, we're going to give it back. As I said, we don't often do retrospectives on M&A. Internally, we do it all the time. In fact, with the Board, we do a deep dive every year of every asset on here, even the ones back to 2018. But we thought it would be helpful to just take a look back.

A few years ago, I think we had an earnings call, and we get the question, "Hey, how do you think about M&A? What's your appetite for M&A?" And I said, "We have a big appetite for M&A." And when you look at this in totality, you say, okay, yes, you've done a fair number of deals. If I was going to characterize it today, I'd probably say it a little bit differently. I'd probably say we have a targeted nutrition plan for M&A because we're picky.

We're looking for things that are going to make us stronger, going to make us more capable, unlock things that we can leverage with our own strengths. And as you look across those middle 3 rows, I'd say that's where we focus and that's where you should think about us focusing our M&A attention. That's the place where -- and I think we have a great M&A team. We don't want an asset to trade in that space that we don't know about, have a point of view on, have a value estimate for and make sure that every conversation we're part of when we want to be.

We're not perfect. And so you'll see here not everything has met our financial hurdles, but I would say even the two that we've missed, it might have been a case of a little before their time because as you've heard today, those are brands we're leaning into for activation as we look to the future. So as we kind of pull this section together, I want to share with you what we believe is a really compelling investment thesis for this time in history. I've said, we've got great categories. We've got iconic brands. Inside those brands, our biggest brands are growing even better than the categories, and we want more big brands.

We have a lot of headroom for expansion into these white space areas and not without having the right brands already, having the capabilities, the retail execution team to be able to do that. Such that 40% of our portfolio will evolve into those faster-growing areas. We have an opportunity for structural margin improvement beyond recovery. A lot of that backed by technology-enabled capabilities that we've invested in over the last two years. We're also always going to have this mix of strategic pricing being important to this business, but an ever-growing focus on balancing that with unit and occasion capture.

And finally, we know when we do those things, we generate significant cash flow. And we want to be the best capital allocators in our space. So as you listen to all of this, I would say it's a unique point in time, but it's not a terminal point. It's a point of departure for NextGen financial performance.

And so with that, I think we're going to get ready for some Q&A, and I look forward to your questions.

[Operator Instructions] We are now ready to open it up for Q&A. I'm going to invite Kirk, Stacy, Andrew and Jason to join me on stage, and then we can get started. So I will direct the mic runners. There's 4 of them scattered around the room as we conduct the session. For the benefit of everyone in the room, if you could please -- before you ask your question, if you could please state your name and the firm that you represent. [Operator Instructions]

Okay. So we can start here with Michael.

Thank you, Michael Lavery, Piper Sandler. Great long-term color, also helpful to have a little more view on 2027. Obviously, it's a little early and much earlier than you would normally do that. So can you help us put it in a little bit of context in terms of what unknowns you recognized, maybe any vague idea of how much cocoa coverage you have because that's really a big consideration. And just a little bit of kind of building blocks for how you got there.

Yes. That's terrific. Steve, do you want to take that.

Yes, I'd be happy to.

Plays right off your last presentation.

You bet. So in terms of cocoa coverage, I say we have good visibility. So I don't think we feel comfortable putting up a slide without having good visibility into that volatile commodity. As we think about other puts and takes, we talked about price, obviously, we're going to have some carryover pricing benefit. We're going to have some investment areas, much of what you've heard here today. But we're also going to have productivity continue at the pace that Jason talked about. And so I'd say those are kind of the fundamental building blocks inside 2027.

We'll share more color obviously as we get further into the year. As far as the headwinds, what I would say is, we talked about this on an earnings call, whether it's SNAP or whether it's GLP-1s or Maha, we have teams internally that do nothing but obsess on those things to understand them, be in the markets, in the case of SNAP, take real-time feedback and feed it back into the team so that as we're looking at planning top to bottom, we have the best available information available as we set these kind of outlooks. Now we'll be wrong. I don't know where we'll be wrong, but we have -- we run scenarios, and we have the best available point of view that we try to incorporate into the outlook.

And just a follow-up, if I can, on the pricing piece of that. You mentioned there's some carryover. Obviously, the pricing environment has gotten a lot of attention in food and beverage and CPG. Can you give a sense of some of your considerations? It sounds like you clearly expect some positive pricing what, if anything, could change your mind is you've got volume momentum that suggest the consumer isn't pressing, but how do you think about just the pricing dynamics and maybe the retailer relationships and how that all adds up together.

Yes, let me take that for a second. Steve, you can join. We have a disciplined pricing approach. And Steve talked a little bit about it. But one, pricing to cover inflation. And so we were very patient in '25 and -- '24 and '25 to not pass all that pricing on, and we played the patient approach to recover that in '26 and '27. So that you can see the structure of that and it shows up in the algorithm, but that disciplined pricing is to cover commodities, and then other use other tools like mix things that drive mix or premium or single -- our immediate consumption business. Those drive positive mix. And so those are all tools that we're using.

We work with our retail partners on this. They also buy cocoa. They're in the market. So they see these things in real time. We also remain nimble with the competitive landscape, and we have tools to stay competitive. So this is a high-intensity operating environment that we live in, and we talk about these things every single day. So -- but in principle, pricing -- disciplined pricing is important. And to protect the affordability for consumers is really top of mind for us. And I think you saw that in Jason's -- not Jason's, in Andrew's presentation that 75% of our portfolio is still under $4, and we want to continue to drive that affordability.

Max Gumport with BNP Paribas. First, just on the conversation on '27. It sounds like a more balanced view of organic sales growth and also a nice outlook for organic sales growth of 2% to 4%. Can you talk about what's giving you the confidence in unit occasions, helping contribute to that growth?

Sure. I'll start, and Andrew or Stacy, feel free to jump in. We'll see the pivot on the balance on the top line evolve over the next couple of years. We'll start to see it in '27. We're going to see more of it in 2028. And so we'll start to see the seeds of that come through in '27, largely off the back of some of the things that we've talked about here in terms of new occasions, et cetera. But Stacy, or Andrew, do you want to add anything to that?

Yes, I can. I think there's a couple of things. So when I talked about that demand map, right? That enables us to really understand the drivers of choice. And every time someone is reaching for a snack and to position our portfolio to incrementally capture that. That comes to life in sort of the everyday moments that people are choosing snacks, and we will activate that through our pack strategy, through where our products are available and communications. And then these big moments, we -- Andrew talked about tentpoles, but having a full calendar of occasions that people can enjoy our products, not just seasons, but when they get together for other reasons as well. So having that plan and that discipline around how that portfolio works together around that gives us confidence.

Alexia Howard with Bernstein. I think there was a comment in the prepared remarks about more geographic expansion in Salty Snacks, and I think it's about the international markets. Could you talk a little bit more about that? Where are the opportunities? What kind of products? And then my second question is about Cocoa supply chain resiliency. I know you've alluded to that, but what more can you do to ensure that if weather patterns remain more volatile going forward?

Okay. Yes. So I'll take the first one with International Salty. Yes, we're starting with Canada. I think that's the close in, and we'll expand there. And then we'll look for other opportunities beyond that. Internationally, we're focused on confection markets that have scale, and that where our brands can be insurgent, and we can build that scale. And we have a track record of doing that. That's our first priority, going after those large markets like that. Jason, do you want to talk about cocoa?

Yes. When I think about cocoa, one of the things that I talked about was that there are more markets that are actually in and growing cocoa. So you're seeing volumes come out of those different places, like Ecuador, Brazil will increase. You're actually seeing it out of other countries in West Africa. So one of the core things that we're working on is how do we work on programs that help with the farmer and make sure that we keep farmers engaged over a longer term so that Hershey Income Accelerator program is really about making sure that we're engaging with them over the longer term so that they can have the right tool sets on good agricultural practices, what they're doing on their farms to make them more productive. And then we're also working on collaborations across the industry to actually make structural change in some of those markets as well. So you might have heard about together cocoa, which is a collaboration that we're doing with other brands to actually make structural changes to how we look at cocoa?

Rob Moskow, TD Cowen. A question for Jason. This will be an unusual year for volume sales for chocolate, probably high single-digit volume declines. You're making up for it and obviously, with dollars being up a lot. But how have you managed the supply chain through this kind of transition period. And you mentioned capacity expansion, has that been difficult to have volumes down while expanding capacity? And then what are you doing to plan for '27 and '28?

Yes. When I think about what we're seeing right now, we're actually seeing some of our conversions a little bit better than what we had expected. So as we're looking at that, we're making sure that we're staying ahead of where the actual consumption is, making sure we're bringing those insights back in through our planning processes and then making adjustments in our network.

I talked about opportunities to optimize as well. So there are times where we can either adjust how we apply shifts to certain lines or how we look at how we're bringing some of the, I would say, some of the things that we're doing around the planning for those lines. So we might take a line offline and run a more productive line during that time that we could have a better cost structure on. So those are the things that we're kind of managing around right now, but in most cases, right now, our plans are fully utilized.

Pete Galbo from BofA. Kirk, I wanted to ask about One Hershey and just the feedback you've gotten so far from both the retailers and maybe internally within the organization. Just was it a push from your end? Was it a pull from the retailers or salespeople? Just more background in the decision-making process and kind of how you land it there?

Yes. I mean a combination of both. When we talk to our customers, they want a partner that's easy to do business with, a partner that brings the very best insights and a partner that executes with excellence inside their stores. So I think that's really important. So when you talk to customers, they're asking for it, when you look internally, Andrew talked a little bit about this. So we've been building the capability for a while. So our SAP investment brought both businesses together. Our supply chain has been integrated across salty and sweet.

So this was the last step in doing this, and this is really playing to our strengths. Our strength is we have 1,100 sales reps out in those stores covering 75,000, going to 80,000 outlets and making a difference. And if they can make a difference across salty and sweet and especially as we're building these seasonal events and these tentpole moments, that all works in concert to drive growth. And it felt like this is the right time to do it. And we've communicated that with our customers, and we'll continue to work and refine that. But this is really playing to your strengths.

David Palmer, Evercore ISI. I would love to get a sense from you about the top line drivers and just how you think the things will play out in terms of the proportions of all the stuff that we saw today, there was a lot of things. There was activations, more frequent windows of activation, ACV opportunities for many of your top brands and pack type optimization and things you're doing working with retail and then you talked about other opportunities and many of which would be helpful in terms of your market share in chocolate. The premium chocolate area, we hear about Dubai chocolates and the like doing well, and those are things that maybe don't feel as near in. So like maybe you could give us a sense of how you think about the sequencing of all this stuff and the proportions of all this stuff.

Yes, that is a dynamic question. Thank you. Thinking about the landscape how do we start with where the core brands are growing. And Reese's and Hershey are doing exceptional. They're growing faster than the rest of our business right now. And that's supported by relevance. So you saw Stacy's campaign around Hershey. There's a new campaign around Reese's. There's innovation across Reese's, it's really working. You'll see innovation later this year. You'll taste the innovation this afternoon in the innovation breakout on Hershey. So when those two brands are working, I think that's a good place to start. And then you go into those places that are growing faster.

Sweets is one of them. So Jolly Rancher is delivering growth. There's also innovation coming out on Jolly Rancher. And so you think about the components of our portfolio working together our core, new growth spaces. You'll see some premium also in our -- with our R&D today, this afternoon, you're going to see that. We'll continue to grow that. And then our salty business. It's well outperformed, although it's relatively as an enterprise, it's small, but it's small but mighty. It's delivering upside growth. It's driving the growth for the salty category because it's really positioned in permissible snacking and the categories that are growing inside of salty.

So that adds fuel to the core and the confection spaces of growth. So that's a building block. Then our international business, we can gain share with the portfolio that we have that gives us some upside growth. And the last is an area that's going to be longer term is in this functional space. These are small brands, but they'll grow double digits this year, right? So that gives you a fuel. But I always start the story with our core. Then I look for innovation, our salty business, what's happening internationally, and then functional and then you have the growth landscape. But if your core is not doing well, it's a tough story, and we're doing very well with our core business.

Tom Palmer, JPMorgan. This question is probably going to be longer than I intended, but you're coming off the end of a multiyear cost savings plan, both productivity and AAA savings. It seems like there are still plans for productivity, but maybe not the same kind of cutting that we've seen over the last few years. One is maybe on the forefront once we get past this 3-year program, a new one worth introducing? And then second, as we think about productivity going forward, how much of it is kind of driven by the types of reductions we saw in the past versus maybe more AI-driven and technology-enabled?

Yes. I think -- I'll let Steve and Jason jump in. But productivity is a capability that the organization has done an exceptional job building in over the last several years and that capability from running more efficiently. And productivity is going to come from truly understanding demand and executing against that demand and that efficiency productivity is going to deliver a lot. But I'll let Steve and Jason, a little bit more about the future...

Yes, I will speak about macro, and maybe, Jason, you can talk supply chain. On the macro side, we don't have plans today to announce a new program. As exactly like Kirk said, this needs to be the muscle, everyday muscle. What's true though is the muscles are stronger today than they were two years ago before that program and one area is adjacent. The second thing is because more of it's technology enabled than it was in the past, kind of to your point on, there's more opportunity to lean into the AI and the technology tools than we had in the past too. So I'd say those are two differences. But Jason, do you want to just comment on the supply chain side of that?

Yes. One of the things that we've been investing in is making sure that we're able to get the data. The data is your critical asset and how you leverage technology and AI and the increased automation. So I actually think that the investments that we've had around S/4, around some of our planning systems and the technology have positioned us in a place where we can actually accelerate that through the use of automation and AI.

Steve Powers from Deutsche Bank. If we could go back to One Hershey, I guess the question is, do you have the organization and the incentive structure to deliver on One Hershey today? Do you need evolution there? Because it's going from a kind of a siloed structure and mentality. So one is more integrated. So just maybe comment around that.

You bet. Now Andrew has led the One Hershey integration, the thought leadership behind us. We'll let Andrew take that question.

Yes. I mean we obviously started with structure and that was an important one. I think a few points. One, our relative size, this isn't a new model for CPG, there's many CPGs that goes to a full portfolio. And the good news about us is I always think about it, like if you take front end, proteins at the front end, salty is at the front end, confections at the front end. We've got 6 to 10 brands there already, but we could easily have north of 12% to 15%, similar to displays and the like. So these things go together already. And then we follow the structure of our customers.

Largely, as you move up an organization with a customer, they're managing all of potentially all of total snacking or snack and beverage and where we saw a split inside of a customer, we would split from a structure perspective, but most importantly, we wanted the leadership of our -- of all of our teams, speaking about our total portfolio because that's who they're interacting with.

From an incentive perspective, over time, we'll get closer to it. I think we -- from a positive perspective, we were already in a One Hershey incentive model, largely driven by COVID in the past and other good reasons. This gives us a chance to move a little more into the business units, but the way we can track, and the way we can see it is very clear.

So regardless of how fast we move to say an incentive only on a salty or protein, we know the results in those disciplines immediately. So again, very natural for us. I mean, the last point I'd make to is again, customers would ask us, hey, look, if you're advising on the front end today, we need you to advise in the shape of your company. And the shape of your company is turning into salty leadership, protein leadership, I mean we agree with that. And I think that was my -- among all the other good reasons, that was my primary one for this is, listen to our customers and make a good choice.

Chris Carey, Wells Fargo. Steve, you made a comment, we'll be pushing for more where a show I don't tell it kind of company. I wonder if you could expand on that comment when you say pushing for more better in-market execution from a top line standpoint, better savings, better capture of the cocoa goodness. I wonder if I could just get some insight on that.

Yes. I guess what I'd say is we're never satisfied just saying, okay, hey, that's the algorithm. Let's just land the plane in the algorithm. We do start with the top and say, okay, what's the full put you kind of heard what's the whole potential of the business, segment by segment, okay? Then what's the full potential of what we can do on cost savings and productivity. And the full potential is not intended to be the full potential for this year like max it out and then cater the next year. The full potential is, okay, over a period of time. How do we extract the most from this business. And so as we set our long-term outlook, we're sitting in a place where we believe over time the business can consistently deliver, but we're never going to be satisfied unless we're trying to extract everything we can out of this business going forward. So again, I'm not trying to put a finer point on it than the long-term algorithm, but our incentive, our goal is to constantly be pushing for the full potential of the business performance.

Megan Clapp with Morgan Stanley. Just a question on confection, and it's a bit of a hypothetical theoretical question, if you will. But just given all the pricing you've taken, obviously, as margins recover, there will be a period where if we look at kind of profit per unit, it will be elevated versus probably anything you've seen historically. So just would love kind of your thoughts on how you think about the resilience of the portfolio through that transition period before we get to a bit more volume growth going forward.

Sure. Let me to take that one or you want to start, Andrew?

Sure. I'm happy to start. I think first on pricing, as I've learned at the company, the historical rate, if you start the cocoa commodity, like in the historical rate was 2,200 to 2,500 metric tons. So in the world we're in today, even with the return back to better pricing, it's still not at a historical level. So I'll start with the pricing we took was has shared many times. It was not net of commodity. In fact, a lot of credit to productivity and all the decisions made to not do that that quickly so you can protect the length of the brand.

So secondly, we didn't peanut butter spread. We did a very surgical look at pricing, and we thought about that by package, by type, and we're fortunate because we're flexible across a lot of packages and model. And then you've seen the category be pretty resilient. I think the competitors have been very rational. And our opportunity is we're also going to bring in pack types into different occasions that we haven't naturally been in, and I mentioned a few, especially in immediate consumption, snacking and protein, where they're white space for us.

So the restoration of pricing, I think my part personally is our pricing is in a good spot. Now the final piece is we'll always watch the market. And as a category leader in confection, being a category leader in our pricing is a natural return state, but if it isn't producing the balance we want, then we're fortunate to have levers in whether it's promotional depth frequency, innovation, pack type. And that's how we think about it. So at current state, I think we've been very responsible about how we've approached it. Again, we're not pricing net of our commodity costs, and then we're thinking about the long-term health of our brands.

Yes. Just say we got to earn it all the time. So the brand activation, the brand investment, the partnership, the tentpoles, we are not sitting back and placing prices in a positive spot. We are reinvesting to make this durable and sustainable, and again, come out stronger.

I look at where the category is today. It's one of the highest performing snacking categories, so it's performing very well. I think you have to look at the emotional nature of the category. This is a treat category. And then if you look at the durability and sustainability over a long period of time, how resilient has it been? Very resilient. And you say, well, there's something else going on. Pricing is a component, execution is a component. But this category delivers these moments and they're affordable moments. It's not an overwhelming amount of moment. So it's 40 calories a day basically for U.S. consumer. So it is in a sweet spot of a category that just brings that small uplift, and I think there's something to the sustainability of that.

Jim Salera with Stephens. I want to go back to Salty Snacks and talk about the opportunity there. Obviously, looking to be this #2 position in the category, that implies category growth from where we are today, from market share growth, I would hope can you break down mix of what you expect kind of embedded for Salty Snack category and then your brands on top of that? And maybe the volume mix component as we move forward on Salty Snacks, particularly as the largest player in that category has talked about maybe being more strategic on pricing and seeing some net price reductions this year.

Yes, I can take that, and Andrew can jump in as well. But when you look at the Salty Snack category and where our brands are positioned, they're positioned in permissible spaces, at least from the mindset of the consumer, higher growth. And then we have some disruptive brands. I would say Dot's has been disruptive in the Pretzel category, completely changing the face of the category and now becoming the #1 player. We see that momentum continuing. We see that we have opportunities build organically in the category. So new spaces in permissible snacking. So snacking is dynamic across multiple formats and multiple brands.

We see an opportunity to extend our brands into new places. We talked a little bit about dot snack mix. That will be a big thing. That is an approach. We'll also look for thoughtful M&A if that helps drive incremental growth. What I like about Salty is we're building something. And when you build something, you can be choiceful about those moves you make so that you stay in the most relevant consumer spaces.

Now price mix is also going to be important. We've been very patient, and we're in a different place than our competitor when it comes to price mix. We're in a really good place with a volume and consumption, and we still have so much runway for household penetration with these brands. That gives us so much excitement about what we're building. But I would say that encapsulates a lot of what -- how we're thinking about our salt business. Anything else to add?

I think you hit it. I mean, the average unit price for us in this has been very moderate and the ability to use price mix here given our relative size, especially in these smaller, if you will, pack sizes that get you to immediate consumption, gives you a good ballast against any price, but we've -- again, if you look at our brands, they've been very thoughtful and responsible because the goal is growth versus if we're sitting in a much bigger share growth area, but I think, this is another place where we'll do the same things that we do. This is a very thoughtful approach and moderate price mix together.

Scott Marks from Jefferies. During the presentation, you made a comment about the, I think it was the top 100 confection SKUs only being in 60% ACV currently with plans to reach 90%. Just wondering if you can help us understand maybe what was holding them back previously from reaching those levels? And what's changed now such that you can expand into the rest of those distribution points?

Yes, thanks for the question. Very simply, just a lot of customized sets in the world across channel, more so than you may see in any other category. So again, some other categories, if you look at a set, it doesn't differentiate so much between the drug channel, the convenience retail, and meeting convenience retail small format, but large store grocery mass. Ours just had a lot -- just a lot more differentiation. And again, these are also -- these SKUs produced. But when we really looked at the number of SKUs doing the highest portion of your revenue, that customization just didn't give you the ACV scale that you might see in others. It's really somewhat that simple. .

And then we also just our shopper studies and consumer studies say bring some conformity to the aisle, make it a bit easier for me to approach this category, and I'm going to participate more. So those are the two reasons that we think we can get that to a much better ACV rate. And then we'll move on to the next 100 and the next 100 and just get a better scale. It's not about less SKUs in the sense of, it's keep the SKUs that produce for occasions, produce good revenue, that's what we want on the shelf. And let's not necessarily fill it over time, with things that might have been just a customization for the category.

Peter Grom from UBS. So I had a question on category growth. There was a slide that talked about U.S. snacking growth. I think it showed pre-COVID 3%. You outlined an expectation for 2% to 3%, call it, '25 in the next couple of years? And then going back to 3% plus in '28. So I know you touched on some of the drivers, but can you just outline or share your level of confidence that growth will reaccelerate? And then I guess, as you look across the various subcategories, is that reacceleration broad-based? Or is that concentrated into just a few?

Yes. The resilience of this category has been over a long period of time, and the fundamentals, I think, are in place. With core growth, we look at the business where the category is healthy. How do we make our contribution to the category fuel the growth. So we think of two things of how do we get our big brands working with consumers and our retailers. So that's job #1. So we'll have to invest modern brand building, things like that. Innovation, as you've seen, is a big driver in this category.

So innovation will play -- continue to play a role. It's another area that we're investing in, in our R&D. We have room to get better. And you'll see some of it today in our R&D session. You'll see some of the thinking around how we go into sweets, what our look in premium, how accessible premium looks, and how we elevate our brands, all that drives the growth. I feel really good. If I look at the history of the category and its performance and then I look at how dynamic the situation is today, I see a lot of promise for where brands are resonating with consumers and where innovation is coming through. The combination of those two things keep the category very vibrant over time.

We have time for 1 last question. We got Leah.

Leah Jordan, Goldman Sachs. I just wanted to follow up on the premium comments you guys have made today and just in the last question as well. Some of that may come from M&A, but just if you can provide more detail on the opportunities to go more premium within your existing portfolio? And then how do you think about balancing the extension of the brand, making distinct products, but also keeping the brand cohesive and have its core qualities? And then finally, just any thoughts about potential cannibalization as you kind of further extend these brands as well?

Yes, this is a great question for Stacy.

I love it. Yes, we see it in a few areas. So across the whole breadth of the portfolio, we do have a good position in premium. We've talked about salty. But for chocolate in particular, which is what I spent most of the time talking about, we see a few different areas. One, we do see opportunities for premium in our core brands. So for Hershey's this afternoon, some of you are going to experience the innovation. We're bringing more cream filled bars. We're bringing more truffles.

You're going to start to see how we elevate the brand, and as we brought those through things like Velocity Labs and limited partnerships, there's a lot of demand intake for those brands and they're willing to pay a premium. We still want to anchor in the promise of Hershey's and that little bit of happiness, but a little bit more of an elevated experience with an accessible brand is something that consumers are looking for. So we see opportunity there.

We also have premium brands that we're going to invest in, in a way that we haven't in the past. In the U.S., the Cadbury brand has actually perceived its quite premium. And we have opportunity through innovation, media, distribution on that brand. Same with Brookside. That brand has a lot of momentum. And with additional investment and pack types, we think we can see room there well. And then finally, we are innovating, and we will have some new branded propositions. I mentioned Gen Z a lot. There actually aren't a lot of great premium chocolate brands that focus on indulgence, quality ingredients for that consumer. And so you're going to see some innovation from us in that area as well.

Great. So before we conclude the broadcast, I'd like to turn it back to Kirk for some closing remarks. Kirk?

Yes. Thank you. Thank you for your engagement today. I really appreciate what you bought. You brought a good energy, lots of great questions. And it's an important time for us. This is about the next chapter of growth. But before we close, I want to leave you with a few points on how we're thinking about the road ahead, how we are winning as the NextGeneration snacking company.

At our core, we are a company with a very clear identity. We know where we should lead, where -- we know where we can lead. And just as importantly, we know where we should not play. That clarity allows us to focus our resources where they matter most and drive consistent, high-quality growth. What gives us confidence isn't a single initiative. It's the combination of momentum across our categories, strength of our brands and the discipline we bring to execution.

We're building on a position of leadership, while also expanding into the spaces where we see real durable opportunity. You heard throughout the day, we were evolving to become even faster, more integrated, more capable as an organization. And that's showing up in how we innovate how we out market, out execute and how we connect with consumers. And it is supported by a supply chain and that is not just an enabler, but a competitive advantage.

At the same time, we are managing the business with a clear eye on value creation. We're balancing near-term performance with the investments required to sustain growth over the long term. Now that discipline is what we believe will drive stronger returns and greater resilience over time. And we're excited about what's ahead, and we're confident in our ability to execute. We are balancing revenue and growth with investment in the future. In 2027, we talked about recovering our earnings and then '28, taking our growth even further.

Hershey is a strong performance-minded company. This is a company that is focused, that is evolving and that is positioned to out-deliver. So thank you for your time, your engagement and your continued interest in Hershey. We're going to break and take you to our breakout sessions. Please enjoy those and engage with us, and we'll have further conversations later today. Thank you so much.

So we will now move into our breakout sessions, where you'll hear from members of our Hershey team on topics, including branding, commercial capabilities and innovation in R&D to bring to life a lot of what you've heard from us over the course of the afternoon. So each of you, if you turn over your badge, you'll see a brand logo on the back of the name badge. Please follow the signage in back of the room with the corresponding image on the back of your badge to go to your next designated breakout room and we'll rotate through the three sessions.

Greetings, and welcome to the Hershey Company Fourth Quarter 2025 question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin.

Good morning, everyone. Thank you for joining us today for The Hershey Company's Fourth Quarter 2025 Earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks 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. Actual results could differ materially from those projected. 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 provide useful information for investors. This information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP. Reconciliations for the GAAP results are included in this morning's press release.

Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil.

I will now invite Kirk to begin with a brief introduction.

Good morning, everyone. Thank you for joining us. Before we get to questions, I just want to recognize our team and what they accomplished in 2025. Through skillful execution we strengthened our market position, we invested for the future, and we closed out the year with real momentum, all while navigating serious headwinds like cocoa inflation and macro volatility. Heading into 2026, I am confident. Our portfolio is resilient. We're looking at 4% to 5% net sales growth and meaningful earnings recovery. And that gives us runway to invest in innovation, brand building and execution to drive growth, and we are going after it.

Thanks for attending the call today, and we're ready to take your questions.

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays.

Maybe to start, I appreciate obviously the [indiscernible] category is typically not one that is a pass-through category, and that Hershey and others are still hedged well above where current spot rates are for cocoa at this point. But I guess just given the precipitous recent decline in the commodity, I guess, is there a risk maybe this time around that we could see some price deflation at some point, by either Hershey or competitors to sort of better match go-forward cocoa costs? And, I guess, how do you account for that sort of possibility in the guidance?

Yes. Thank you for the question. our competitors in the category are sophisticated, and they're large like ourselves, and they likely have coverage for more certainty in their business. And private label remains small here in the U.S. So that's kind of the first point. But there's a big conversation around how we think about pricing and the price of cocoa, et cetera. I'd like to make a few points here.

So first, we don't take pricing lightly, and we've been very patient and played the long game when cocoa market searched to balance consumer needs. Our actions that we've taken are anchored in consumer insights and the brands remain affordable and accessible. 75% of our portfolio is still under $4. The pricing we took in '25, I think this is important, does not fully cover our cocoa cost inflation in 2026. So we are on a recovery path while also adding significant fuel to our growth with investments in marketing, innovation, R&D, really to keep that momentum on the top line going, and keeping the category exciting for consumers and keep that growth moving into '26 -- or beyond '26, into '27, '28.

And then recently, pricing on our snacks business, I think we're in really good shape. We had 18% growth on our snack business in Q4 on double-digit volume growth. Let me get a drink. Sorry, Andrew.

Yes. So -- yes, that's kind of in a broad response to what we see in the market. Certainly, the deflationary momentum on cocoa takes future pricing pressure down. That's how I think about it.

Got it. That's helpful. And then just a follow-up. I guess regarding elasticity, it's great to see that it's thus far coming in more favorably than you anticipated. I guess I'm curious as to what maybe do you owe this better outcome? And is the company building in some flexibility in the plan, should elasticity increase as we've seen maybe in some other markets for some other players?

Yes, let me start and I'll kick it over to Steve, so that -- I think his voice might be stronger, right. Anyway, look, we're encouraged for what we've seen so far. So we announced pricing in July. We started taking pricing mid-September. And so we've gotten information that it's informed and our information is informed on what we're seeing right now, and we're encouraged by what we're seeing right now.

Yes. And I would say elasticities don't stay static. It fluctuates over time. While we're experiencing elasticities right now that's favorable to our original outlook, we continue to plan for around [ 0.8 ] to account for these fluctuations as there's still some price pack changes to roll in. There are still some channels rolling shelf tags through. So it's going to take a little bit longer, I think, for everything to fully adjust.

Of course, our goal is to do better than that. So with the strong activation calendar that we have, some of the investment that we have, our goal is to do better, but the guide allows for some of that upside to flow through.

Our next question comes from the line of Megan Clapp with Morgan Stanley.

I'll maybe start with a question for Steve to give Kirk, maybe give you a little bit of a break. So another question on cocoa, but more related to the margin framework. So I think in the prepared remarks, you talked about stable rates across the broader, commodity input basket. Just given the [ percivitous ] decline we've seen in cocoa, how should we think about cocoa within the framework? Were you able to kind of capture any benefit from what we've seen over the last month? Or is this really a tailwind as we think about '27?

And what I'm really just trying to get at is, I think you're implying 41% gross margins and '26, obviously, a really nice recovery from '25, but still well below where you've been historically. So based on where cocoa's gone, is it kind of reasonable to expect continued progress kind of back towards those historical gross margin levels in '27?

Yes, happy to take it. We're glad to see that the cocoa financial markets have finally begun to reflect some of the fundamentals that we've been describing really for the last 18 months. As we look out, we continue to anticipate a larger supply surplus in '25 and '26, driven by supply expansion in some of those new origins we've talked about, as well as a contraction in global demand. So I'd say we're optimistic as we look to the future.

That said, there's market volatility still, as prices are trying to find that new equilibrium. And I think we still believe that new equilibrium is likely to be above what we've seen in historic levels. Our hedging program has in great shape for 2026, and we're hedged above current market levels. So if you kind of extend current market levels flat, that would suggest that we still have some upside for further deflation in 2027. So we'll talk more about that as we give more 2027 and '28 perspective at the conference. But as we look ahead, we see more possibility for upside there in the future.

Okay. Great. And maybe kind of a related question. A lot of discussion in the prepared remarks about the increased brand investment you're doing in 2026, including a double-digit increase in advertising. So as you look out to '27, how should we think about kind of the durability of the increased brand investments you're making in '26? And as you mentioned, as gross margins hopefully kind of continue to expand as cocoa deflates, how do you think about kind of the need or desire for incremental reinvestment beyond what you're doing in '26?

Sure. I mean, I think I would think about the things we're doing in '26 are, in some cases, multiyear investments, that are going to lay a foundation for not just '26, but '27 and beyond, while still delivering great growth in the present. We're really focused on fueling demand creation through things like scaling some investments in R&D and innovation, brand building, the retail sales team and the technology around that. That sets the portfolio up and really focuses on household penetration expansion and capturing new consumers, recapturing some of our lapsed consumers.

So -- so the investments are a mix of things they're going to deliver today, but also things that are laying a foundation, a multiyear foundation. And again, as we look to '27, '27 is also going to be a year like '26 of driving growth, but also margin recovery. So that balance will be present in '27 just like it is in '26.

Yes. We'll go into greater detail at our investor conference in March. Really unpacked this brand building, our investments in R&D. The solution here is to have sustainable long-term top line growth. And those capabilities and investments that we make are really important and we'll unpack that in March.

Our next question comes from the line of Peter Galbo with Bank of America.

Steve, I actually was hoping maybe we could unpack the quarter a little bit. You had some pretty nice upside in the gross margin, I think, even relative to your own expectations to the tune of like 250 basis points plus. I know you outlined maybe some of that in the prepared remarks of the buckets. But maybe you could just give us a little bit more detail on the upside in the quarter between kind of tariff cost saving, volume deleverage, where those kind of buckets stood?

Sure. Yes. You're right. We had a few hundred basis points of better performance in gross margin than we expected in the fourth quarter. And there are a couple of things in there. Obviously, volumes were strong. So we got a little bit more leverage. But probably the single biggest piece was tariffs.

Now if you think about tariffs in two ways. Tariffs on our products, which we have high visibility to, and we'll talk about that as some of that is still sitting in inventory to come out in Q1. But we also pay tariffs on some of our suppliers' items. And that was an area where we anticipated paying more tariffs on some of our suppliers' materials then we ended up paying in the fourth quarter. And that was one of the, I'll say, surprises to the upside or the positive for the quarter.

Offsetting that, we had a little bit of [indiscernible] headwinds, inventory [indiscernible] headwinds, but that was the biggest piece for the upside.

Got it. Okay. And Kirk, the prepared remarks had a notable on kind of Hershey and [ Reese's ] having a true campaign for the first time in 8 years. I was commenting to Anoori this morning, like I've seen the team USA at, it's great ad copy. But just like the impetus kind of for why now, why this, why now on both those brands, again, given it's been some time would be helpful?

Yes. Thanks for that question. This is the year [ of ] Hershey, and we're investing in [indiscernible] as well. But -- when you look at the campaign, it's your happy place with Hershey's. That really builds on the connection and love that consumers have for the brand. And staying relevant with consumers on big brands is so important to fuel our growth.

We've got a full year planned on both [ Reese's ] and Hershey. You'll see innovation on both. There's big innovation coming out on Hershey. And then of course, we have the movie celebrating [ Milton ] Hershey and really the great American story success story of the Hershey Company coming out in the fall. So it really is an action-packed year that really celebrates these two big brands, and that drives growth for us.

Our next question comes from the line of Peter Grom with UBS.

I wanted to ask on the '26 guidance and understanding a lot has changed over the last few months as it relates to cocoa, tariffs, elasticities. But I kind of wanted to bridge from the expectation last quarter being on algorithms to maybe being a little bit above that, post tariffs to now kind of expecting 30% to 35% earnings growth? And I ask that more in context of trying to understand degree of cushion, or flexibility in the guidance just given the expectation for such strong growth?

Yes. Let me address just the momentum on the top line and let Steve talk about the EPS portion. But if you think about what's different between now and when we talked last, is the momentum in the business, and it's across the portfolio. So we've got real strength in our CNG business and continue to see that. And then fundamentally, how we're investing in our brands and delivering innovation, that gives us the confidence on the top line. And then our Salty portfolio has been really -- got a lot of tailwind. It's really positioned with consumers in the right places.

Again, we saw 18% growth on -- organic growth in quarter 4 in our Salty business. And that's double-digit volume growth. So we see real help there. And the combination of our Salty and Sweet portfolio gives us the confidence to deliver the top line, which also, of course, helps our earnings. So that's different.

And then on EPS, Steve can talk, and that's through the levers there.

Sure. We're -- it's a good spot to be in for a change where we have two of our biggest risk, cocoa and tariffs fully understood, at least up to the moment for the year. So that's a good place to start.

On top of that, since we last talked, we've got a better view. We get new data every day on elasticity, we feel better about what we're seeing. We haven't, as we said earlier, [indiscernible] build all that potential upside into the plan, but we -- we believe we've got a good balanced outlook on elasticities. We've got strong operating plans that Kirk and I have been through in detail in the last few months, and we're excited about those. And at the same time, we're balancing that with understanding the headwinds from the macros and making sure that we've got a balanced view of how those could play out for the year.

As we think about the gives and takes that we sometimes focus on what's in our control, and what's outside our control in our control, as we said earlier, we want to do better on elasticities. And we've got strong programming and brand engagement to do that. We've got investments in innovation, media, in-store activation. And then the ability, which we've done a great job of delivering on productivity and cost savings. So we've got very high confidence in that set of controllables.

But there are things out of our control, macro headwinds, which, again, I believe we've got a prudent outlook for competitive response. Again, we're not seeing anything today that's causing concern, but these are the things that we will certainly keep an eye on. I think a key as we think about the '26 guidance, that we have flexibility to respond to what's going to change and challenge. And so we've done a good job of being agile in '25, and we will do the same in 2026.

Great. And then maybe just a follow-up on Salty. There was a competitor this week that talked about affordability, price reductions that they're seeing expanded shelf-based distribution. I know there's some subcategory differences. But just curious how you see that playing out for the category and maybe any implications for your business as well?

Yes. Our Salty business has got a lot of momentum, like we talked about, 18% double-digit growth for the full year, and really healthy volume growth. Customers reward space on performance and velocity. That's the fundamentals of the category management. And so we are -- as well, we're expanding with our customers and customers need our growth.

If you think about the category, the Salty category was relatively flat last year, and we grew double digits. So we provided a lot of growth in the category, and we'll continue to do that with our customers, and we'll be rewarded with space gains and addition -- including support for the innovation that we bring out on our Salty business. So I feel really good about the fundamentals of where we are with our Salty business, and that momentum will continue.

Our next question comes from the line of David Palmer with Evercore ISI.

I want to hit on that line of questioning you heard earlier. People right now are going to be wrestling with how to think about earnings into '27, which is ridiculously early. I know but people are going to clearly be imagining $10 or more in earnings in '27. Just thinking through where cocoa is today and likely it could be in the [ 4,000s ] for that upcoming year just based on how you might be hedging this year into that year.

I'm just wondering like things that would maybe not make -- we don't want to get ahead of ourselves in terms of flow through, things that could hold back that flow through to get to those types of numbers, price elasticity moving over [ 0.8 ], I would imagine would be one. But other wish list types of reinvestments? Any thoughts on that would be helpful. And I have a follow-up.

Sure. As you said, we'll unpack this more in the Investor Day. I agree with you. I think we all agree the external factors as we look out seem to be improving. Cocoa, one of those, we'd agree that today, if you were to [indiscernible], you'd probably say that looks like a potential tailwind for 2027. But it's still volatile. It still hasn't found its new normal, and we continue to watch it.

On the other side, we are going to, as we said earlier, continue to make investments in the portfolio and products that are going to set us up for multiyear performance. And so we feel good about what we have in the 2026 plan. Some of those are going to carry over into 2027. We are always going to balance the margin recovery and the growth. So don't think about that investment has taken away that margin recovery. But it's a balancing factor to make sure we enable long-term growth.

And then as we talked about earlier, we're going to watch those macros very closely. We'll get more data on [ SNAP ]. We've got a lot of data coming in on GLP-1s, just like many [ of you do ], we have a team of people who does nothing but study and analyze these macros to understand the impact on our business. And so we have built in, what we believe is, the best information today into that guide, but that will be a place we'll watch as it develops over the course of this year and we get more data.

And just -- I don't want to front run your Investor Day. But Kirk, you obviously have been in the CPG space for a while. You have fresh eyes on this business. You obviously have a chance to -- do you have a say in the plan for '26 and '27, in terms of how we should think about the type of growth activations and the things that you're doing? The levers that we will see more of perhaps than that we've seen in the recent past. Any thoughts on that, just tease the Analyst Day a bit.

Yes, let's tease it out. But hey, look, first of all, we'd love to see you all on March 31 in New York. We're excited to share that. I'm excited to share the plan.

So 2026 is really the first chapter of our next generation of growth. And then really -- and what we'll kind of share with you is the portfolio that we're building, the -- look, we have a terrific portfolio today. We'll continue to invest in that portfolio, and we're going to double down on our strengths. And those strengths will fuel that top line growth while we return earnings to our shareholders, and we'll bring that to life in -- at the Investor Day. And we'll be very articulate about what investments we're making, what capabilities and what outcomes we expect, but you'll see that really come to life. We're really excited to share that with you.

Our next question comes from the line of Leah Jordan with Goldman Sachs.

There just seems to be a lot of attention and excitement about the innovation and activation plans in a lot of your commentary today. So seeing if you could provide more color on the plans you have for the coming year, key timing we should think about? And then I think ultimately, how do you think about growth and innovation versus core for the coming year?

Yes. I think it's a balance. We just talked about some of the investments we're making on Hershey's and [ Reese's ]. I think that quality core growth is really important. And there's innovation in those places as well. But innovation is so important to the category, and we've had some really good innovation as of late. [indiscernible] has been a really nice tailwind for us, and that continues through most of this year where we have -- 2/3 of the year we'll have that being a real positive to us.

And then we have a pipeline of innovation that we're launching across our sweets and chocolate portfolio that we're excited. Plus we have really good innovation on our Salty business. And so innovation on our Hershey brand, Dot's brand, SkinnyPop, JOLLY RANCHER, you'll see all that innovation. We'll share all that innovation and our upcoming Investor Day, but it is robust.

And then if you think about '27 and beyond, it's important that we have a pipeline of innovation that continues through '27. And that's why we're making continued investments in R&D so that we can be it -- come to the market faster with the most relevant consumer-facing ideas, and we'll share that pipeline as well.

Okay. Great. We'll look forward to that. I think for my follow-up, I just wanted to go back to the gross margin discussion, specifically around this year and the cadence. Thank you for the color on the 400 basis points, we should expect for the full year a little bit of pressure in 1Q and improve thereafter. But any more color on the puts and takes we should think about in the magnitude of that improvement as we go through each quarter?

Sure. You bet. I can take that one. As we kind of look through the flow of the quarters, we're going to see -- the first half is going to be -- or excuse me, Q1 will be the strongest from a top line standpoint. We're going to carry the momentum out of the fourth quarter, feel really good about our visibility in the first quarter on the top line. But margin and earnings are going to remain under pressure because we still are going to have higher cost inventory. We're still going to have tariffs in that inventory. So we'll see margin and earnings pressure in Q1.

As we go to Q2, the top line growth is going to moderate slightly, but you're going to see an inflection from a gross margin standpoint. And we expect to see double-digit EPS growth for the balance of the year from there. Of course, we know we got tougher comps in the second half, but we factored that in as we think about this flow.

So think about momentum carrying through the first half on the top line, second quarter inflection from a profitability standpoint. And then we'd expect to see our brand investment up double digits across the quarters, and this reflects some of those investments we talked about earlier.

Our next question comes from the line of Max Gumport with BNP Paribas.

Clearly, elasticity so far been encouraging. And I'm not expressing my own view here, but one that you hear from some investors. I think there's a narrative out there that once you get through this pricing cycle you'll be unable to grow your chocolate volumes for several years. It's similar to what we're seeing in other packaged food categories currently. I realize we're a long way away from that point in time. But I'm just curious what pushback you'd offer to that narrative? And if there's any historical presence you're focused on?

Yes. Let me break it down. Look, we like where we're at with really the big categories across our Confection business and our Salty business. The Confection category has been very resilient over time and it remains resilient. It is an emotional category that consumers look for. And if you think about where the growth is right now in retail, it really is around functional and emotional brands. And so that gives you confidence to see that continue to grow.

And if it just look historically, it's been a very resilient category, it's a really good category. On the Salty side of the business, I think it's really important to be in the right places in the category. Permissible, better-for-you, portion control. Those are areas that continue to leverage growth. Consumers are willing to pay for that. That's where the growth is, and that's where our brands are positioned in the category. Give you a couple of examples.

SkinnyPop is doing exceptionally well. It's a real relevant, popcorn very relevant with consumers today and will be long term as we see those consumer trends and what they're looking for. Dot's Pretzels really shows how you can reinvent a category and drive growth. Dot's is now the #1 pretzel in the category. And it is about tying into the relevance of what consumers are looking for. That -- of course, you're going to hear more about kind of the long term at -- and I'm really plugging this Investor Day. So I hope you're off coming. But we'll walk through kind of the long-term plan and how we see the categories and how we see the sustainability of that over the long-term horizon.

And I think we'll have an opportunity there, too, to talk about how we can play offense on some of the categories that are going to see more growth. So we know sweets, better-for-you. Premium, some of the functional products that we're going to talk about, I think we're going to have a really good story about how they can lean into the volume story as well.

Great. And then in Europe, where I realize you don't have much of a chocolate presence, but it's a market where we an interesting corollary because in Europe, we saw chocolate pricing get taken earlier in a sizable way. And initially, [indiscernible] were quite encouraging as you're seeing in the U.S. currently for your own chocolate business. But in the middle of '25, we started to see pricing fees ramp up meaningfully in Europe ahead of where the industry expected them to be. So I'm sure you're studying consumer behavior over there even if you [indiscernible] much of a presence.

I'm curious what your learnings that you've taken? And if there's any factors you're seeing that make the consumer in Europe, and how they approach chocolate different from the U.S. consumer?

Yes. Thanks for that question. Yes, and we are definitely studying that. Look, we've taken a very patient approach as we've -- the impact of cocoa and the pricing. So we've taken a very patient approach through the lens of the consumer. The categories, though, in the U.S. look very different than Europe. There's more brand differentiation. If you look at the brands across the portfolio, there's a lot high level of differentiation. There's a variety across the portfolio. And the top players have higher market share.

Europe has a concentration of chocolate tablet bars and private label. But there is a very distinguished difference between the brands in the U.S. and the role of each of those brands play in the confection category. So there is a big difference. And the category skews premium in Europe, and SKUs mainstream in the U.S. Relative affordability is still a key component of the category. Again, we mentioned that 75% of our portfolio is under $4, very accessible to consumers.

Our next question comes from the line of Jim Salera with Stephens Inc.

I wanted to ask a little bit around [ SNAP ] as we roll into '26, there's some incremental rule changes, I think, both on work requirements and some states restricting what you can buy with SNAP dollars. Just walk us through, I guess, first, the overall percentage of your portfolio that is exposed to snack dollars? And maybe how you're thinking about those changes in 2026, since they're all relatively new to the program?

Yes. Thanks, Jim. This, SNAP. Let me just give you what we know on SNAP and how we're seeing it. Look, our early assessment in the states where waivers are in place is still pretty noisy. It's been just since January, and we're looking at winter storm implications. And really, the difference across retailers as they implement it. We've proactively spending time with customers and consumers in these states to get ahead of the choices they're making. And we are readying our strategies to deliver for them.

We have factored the SNAP waiver adoption into our outlook, and we'll continue to monitor that and provide updates over the course of the year. So to date, only 2 states have implemented SNAP waivers for candy of the 12 states that have waivers approved. So in total, throughout the course of the year, there will be 12 states that are impacted, 2 states so far. We'll gather those insights. Again, it's pretty early days. But I would tell you, it's a manageable headwind and it's contemplated in our outlook.

Great. And then shifting gears a little bit. You called out the 10 different cultural and seasonal events this year to boost engagement. Are you able to quantify how much of an incremental uplift we should see from kind of that more filled calendar relative to what like a normalized year would be?

Yes, I think it looks -- if you kind of look at our outlook, it's reflected in that outlook. Look, it continues to make our top line robust. And because some of the kind of the background on this is we have excellence in executing seasons. So we gained share across the seasons last year. What makes it so great is we have the consumer-loved brands, coupled with great execution in the marketplace with our retail sales team. This gave us insight is like we have the opportunity to be a part of more cultural moments and the Olympics starting this weekend, is really the first of those.

But we'll show up for NCAA Final 4, and will show up in the summer, celebrating 250-year anniversary of our country. Our brands are expected by consumers to show up in these big cultural moments and connecting our brands to these cultural moments gives us the license to have more activity throughout the year in these cultural moments in addition to seasons. And it has this almost always on approach where you can see our brands, our Salty jour Sweet brands together in the marketplace celebrating these moments. And kind of that's the background of that.

Our next question comes from the line of Tom Palmer with JPMorgan.

You discussed plans for double-digit [ A&C ] increases? And then unless I missed it, your answer to Andrew suggests that your pricing plans, some of which have not rolled out still hold I did want to ask on promotions. How do you consider the possibility of stepped up promotions later this year, and maybe balancing the optionality of promotions versus allocating towards marketing dollars?

Yes. So let me ask -- let me answer the advertising and the investment we're making there. So we got great programming around building our big brands like we talked about, Hershey and [indiscernible]. Plus we have these programs, these cultural tent-pole moments that we will support throughout the course of the year. It is a balance of delivering pull and push. So you think about that demand creation, we're very cognizant and we have great return on these investments to deliver that, and that delivers the top line.

And then from an execution standpoint, I would tell you that the category remains very rational from a pricing standpoint. We'll continue to leverage promotion to drive excitement with consumers and deliver that right price point for them. And we'll be in concert with the execution across our seasons in these tent-pole moments throughout the year. But I would expect overall, a very rational category.

Yes. And I would just say on the first part of your question, just to be clear, all the pricing has been sold in. So that's not a risk. There's nothing else pricing-wise, that's going to drop.

In the prepared remarks, there was a comment about expected low single-digit sales growth for international. I wondered if maybe you could provide some color on expectations in the other 2 segments? And then also, there was a comment about profit recovery for international. And I wondered to what extent that might reflect incremental pricing actions because they were relatively modest as we look at 2025?

Sure. I can take maybe the segment piece first. So just to share a couple of headlines. So organic sales growth on the confection segment, around 3%. Salty snacks, mid-single digits, international down low single digits. So that's the organic top line.

From an EBIT standpoint, we've got all double digit across the segments year-over-year. So that's some of the highlights on the segments.

On international, we've taken a lot of price this year, and that's part of what we're seeing in terms of some of the volume impact from that. We play in the premium part of the market. We've got cocoa intensive products. And so we've been, in some cases, stronger on pricing in order to make sure we're setting up a good, strong future P&L. We've been very thoughtful about trying to focus on the markets where we believe we have the best case to win, and making some choices on go to market to that, again, are thinking about the future and the profitability.

Despite the challenges, we've had some wins in the international market. And we'll talk about some of those and how we're expanding on those when we get to March. But we do have a mix of, sort of, recovering for cocoa pricing and then also optimizing the portfolio itself to make sure that as we look to the future, we're investing behind our big brand like [indiscernible] and also our core markets with a streamlined route to market.

Yes. Let me add on a couple of things on international. Look, I'm really bullish on the opportunity that we have internationally. I look at our track record right now just from how we're performing in the markets, our key markets, and we're gaining share, gaining share across Canada, Mexico, Brazil, the U.K., I think those are really important proof points that we have the opportunity to do that. We're going to bring a focused strategy on our international business in March that really articulates how we're going to make investments and why we have a right to win in these markets. But more to come.

Our next question comes from the line of Michael Lavery with Piper Sandler.

I want to come back to guidance. I know you laid out some of the flexibility, or ways, that you're trying to allow for risks and capture those. But curious, not to get too greedy, if there's expectations where you can point to potential upside? And maybe also specifically how to think about buybacks? I know you said there weren't any in the last quarter, but you mentioned the authorization that remains. Are any of those included in the outlook for 2026?

Sure. So I'll come on to buybacks. On the upside, we touched on some of these already. I mean it's elasticities were to hold in the sort of space they're in now, that would be a potential upside. Even the macros, although our outlook is to expect the macros like SNAP and GLP-1 to have a growing impact across the quarters, which I think is reasonable. If that is slower or less impact, I think that's upside to what we've tried to prudently build into the outlook. Things like the performance on innovation, media, all these in-store activations and [indiscernible] that we've talked about. Again, our goal is to execute all those to try to beat the plan, but those would be potential upside. And then as always, we want to exceed our productivity and cost savings goals.

So we've got, what I think are good challenging objectives there to go get, but our supply chain teams are fantastic, and they're going to go hard against trying to beat those. So I think those are all the kind of things we would point to. When I look at it in total, I feel like as we look at the guide, it's balanced. We're trying to recognize there are upsides and opportunities to beat in some areas, but also there are still some unknowns that we want to make sure we can contend with. And that's where the agility piece comes in.

On buybacks, I'll just maybe just say our capital allocation strategy is kind of resetting back to normal a little bit. And so without some of the pressure, cash pressure in particular on tariffs and cocoa. And so as you can tell from the guide, our focus in job one is to make sure we're funding the business and driving good, smart long-term investment in the organic business. Maintaining a posture of agility relative to inorganic growth opportunities, and we're integrating [indiscernible], that's going very well. We're going to continue to look for those sort of opportunistic places.

You see CapEx kind of normalizing again back into the space where it should be. You see us focused on working capital efficiency like we are every year driving savings, dividend returning to growth, which is very important to us and pleased to see that. and we feel good about leverage and where we're at in the trajectory on leverage. So all that kind of comes then down to the repurchase. And as we've said in the past, share repurchase is a great way to put tension in the capital allocation equation, right? We're not going to warehouse the shareholders' money if we can't wisely invest it for the future, we're going to give it back. And so that conversation is now back on the table because we're going to have strong cash flow. We've got great investments supporting the business. And as the year progresses and we get a little bit more perspective on some of these macros and everything else, we'll reintroduce that conversation.

That's great color. And it sounds like you might be having an Investor Day soon, but -- and I'm sure you'll get into this in obviously much more detail. But as you lay out some of the investment opportunities and the reinvestments you're making this year, just at a high level, maybe can you give us a sense of how much we should expect a near-term impact versus longer term? And how that kind of fits into your thinking?

Yes, I'm going to punt the details of that [indiscernible] investors. What I would say is all of these investments have something to do for us now and are going to have things to do for us for the future. You can imagine investments in R&D. The near term on R&D investment may not be as big as we're going to see in '27 and '28. But even so we'll get some early insights from that. And so we'll unpack that more. But think of these as multiyear investments, but they do have benefits even as we get to especially the back end of this year.

Yes. Let me just add. These investments are all about driving growth, top line growth, sustainable growth, modernizing our portfolio. So those are fundamentally what's backing this growth is to fuel and keep heat on our brands with consumers, launch innovations that are relevant and do the R&D so that we can continue to modernize our portfolio for the future and staying relevant is so important. So it really is about fueling growth.

Our next question comes from the line of Alexia Howard with Bernstein.

Can I start with the price elasticity in international markets versus the U.S. Do you have views on why the trends seem to be worse in the international markets, and why they're better over here at the moment?

Yes. Yes, let me take that question. We discussed a little bit, there's a big difference between the two categories for starters. The category in the U.S. is highly unique. The category is very differentiated across the portfolio. There's a lot of runway by brand across the landscape in the confection category in the U.S. versus a high chocolate tablet bar market in Europe, along with the impact of private label.

So you think about affordability, also is a real big lever. And the category is affordable. It skews mainstream. Our portfolio is still mostly under $4. That, I think, is a really big difference. But the resiliency has been really positive for the category here in the U.S. And what we've seen so far, we're encouraged by.

I would say, specific to our portfolio in international elasticities, keeping in mind, we are premium market positioning. So we see some more elasticity there. We're relatively limited in scale in some regions. And not a market leader. So those are factors with our portfolio, in particular, that drive higher elasticity.

Our next question comes from the line of Matt Smith with Stifel.

Steve, you called out an increase in both marketing and operating costs through the year. It sounds like marketing up double digits is fairly evenly phased. But is there anything unique you'd call out on the operating costs? And with operating costs growing in line with sales, is this a level of investment that as you exit 2026, allows some future leverage from SG&A?

Sure. So I think across the quarters, I would guide to say it's probably going to be pretty even. There are going to be some -- and again, I'll go back to things like R&D, [indiscernible] build a little bit more in the back half. And we'll unpack that more when we get to Investor Day, too. But I think overall, it should be up across the quarters.

With respect to leverage in '27 and beyond, again, I'll go back and say, while we're investing in some of these investments, our multiyear investments to set up a future of growth, we are also aware of the margin recovery story that we need to continue in 2027. So we have always two things going on at once. We're looking to make smart long-term investments in the business. But at the same time, we want to fuel that investment with productivity and savings. And so we kind of say, hey, we're investing for demand creation but we want to drive demand fulfillment efficiency as well.

And so -- and we're very good at that. And so we're going to continue to drive supply chain efficiencies. We're going to drive efficiencies between the lines like we've done with the transformation work. And continue to drive there, too. So our goal is, over time, we are going to see leverage across all of those lines.

Our next question comes from the line of Robert Moskow with TD Cowen.

I had a question about like just trying to understand how you forecast all of these macro factors at once. Like you have the SNAP cuts from a federal level, you have the waivers at the state level. You have the GLPs and then you have elasticity from higher pricing. And I think you've done a really good job of keeping things pretty conservative on the elasticity assumption. But the models that your team is working on, Steve, like can you figure out the cumulative impact of all these things at once? It sounds just like a lot to put into models that probably don't have a lot of historical precedents for that.

Yes. I mean, it's a challenge for sure. In each one, and we said this before, we've got -- we've got a small team on each of these, really trying to dig deep. And in the case as Kirk said, in the case of SNAP, we have people on the ground working with retailers to understand exactly how this is working out on shelf. What retailers are doing, what we're doing. And so we're trying to get firsthand information to build into these models.

And at the same time, we do try to run scenarios and they come up with a risk balanced view across these macros to try to come up with an assumption for the outlook. And I know we'll be wrong. I don't -- we've tried to be prudent and balanced in the way we look for, and project these out. But taking the best information that we have. We get smarter. Every month that goes by, we'll have more data. And I expect as some of these programs -- or excuse me, some of these things like SNAP, more states get involved, GLP-1s adoption gets easier, we're trying to predict different ways that could play out. And then again, how our portfolio can play offense against some of those challenges.

Okay. And that was kind of my follow-up. You said that you're working with retailers in a couple of states where the waivers are happening. Like can you be more specific on what playing offense means? Like what kind of things can you do?

Sure. You want me to take that one?

Yes, I can jump in. I like playing offense. [indiscernible] this exactly. Yes. I mean a lot of it has to do with, yes, when you work with customers, affordable price affordability still remains a really important part in driving other channels, too. So we have a big convenience business driving our immediate consumption business, driving availability of those top SKUs are incredibly important.

But I just go back to -- how do we drive the insights around the affordable price points, unique packages. Those are solutions with our customers. Again, 2 states out of the 12 states have been implemented. It's early days. We'll continue to discuss this as we get greater insights, and we'll talk about the tools that we're leveraging to curtail this headwind.

Our next question comes from the line of Scott Marks with Jefferies.

Two questions from me. The first one is on cocoa. I think previously, you had said that you were hedged for '26 above the rates you had locked in for '25, but that you also had some flexible hedging structures. So given the comments today around stable commodity basket, should we assume that means that your cocoa cost in '26 is actually in line with that of '25?

So yes. So cocoa is up just a little versus 2025. And when we said before is it's hedged above current market levels. So it's not hedged materially above '25, just hedged above our [indiscernible] trading right now.

When we -- just like we did last year, we've got a variety of hedging structures, and some of those structures allow us to participate in downside. So even in we have a little opportunity. It's not like it was last year to participate in downtime, but there's still a little bit there that if cocoa continues to decline, we'll have some potential. And then, of course, as we look to '27, placing hedges today would mean that we'd have deflation between '27 and '26. So we're watching that space. And again, we've got a very structured hedging policy to take advantage of that.

Understood. And then second question, today, there's obviously a lot of discussion around focusing with innovation and media behind some of the largest brands. And I think over the past maybe 1 year, 1.5 years, there was maybe a little more emphasis on supporting some of the smaller brands within the chocolate portfolio as well. So wondering if you can just kind of share how you're thinking about some of those tail brands and how we should be thinking about investment in those going forward?

Yes. This is really about world-class portfolio management. And we announced obviously Hershey's and [ Reese's ] big investment across those. That gives us a lot of momentum in the business, and that drives a lot of growth. We do have a beautiful portfolio across our Confection and Salty brands. And there are other tools that we're leveraging to grow those brands. So we are paying attention to the entire portfolio, and we're clear about each brand and the role it plays in our portfolio so that we can get to the consumers in a more targeted way. So it is a balance of both. It's not a trade-off between our large brands and our smaller brands that have lots of potential. We're investing across our portfolio. But it's very deliberate about the opportunity of each brand and the role it plays in our portfolio.

We'd like some of those small brands to become the next billion-dollar brands. And leveraging -- we're going to continue to leverage nonworking media to support new brands and occasions as well.

Our next question comes from the line of Chris Carey with Wells Fargo Securities.

I just wanted to ask one follow-up on cocoa. Just as you think about 2027, how aggressive can you be about hedging the current drop. And if I heard it correctly, did I hear that, you don't need to take pricing in 2027. That's how you're viewing current levels right now? And then I have a follow-up.

So there's a couple of things in there. We're not going to get specific about 2027 hedging, but we will be very thoughtful. We have a program that gives us some structure in how we attack that. And -- but that's probably all we're going to share relative to that.

Relative to pricing, I think where cocoa is trading today, looking ahead to '27, it probably takes some pressure off pricing in the near term. We've taken price. We're going to execute and activate against that. In a broader sense, pricing is part of a long-term strategy, but it's only one part. We have mix and innovation and other ways to drive value price pack architecture. And so in the long term, we look at all of those things through the mix. It's just we happen to be in a case more recently because of cocoa to have to rely more on price.

Okay. Great. And then one quick follow-up would just be, when you think about volume, obviously, margins are recovering nicely. Do you have a view on where you want volumes to be as we look out over the next 18 months? And when you think volumes can get back to kind of flattish to positive?

Yes. I think Kirk kind of touched on this earlier. As we get -- we're going to be digesting the price increase in 2026, activating against it. As we get further out and we look to 2027 and beyond, our goal is to get back to a more balanced mix of price and volume. And we know we've got parts in the portfolio that even with some of the macro headwinds are set up for volume growth, sweets, better-for-you, premium, the functional products. And that's not the same we can't get volume at the core, just to say that even if you look at the macros, there are places where our portfolio can play stronger from a volume standpoint.

So again, this is something we'll also unpack more when we're together in March as we look out past '26. But recovering to, we've got equipment ready to go to make more candy. And so we're anxious to be able to deploy it against volume.

Yes. Let me just add just a couple of things. Yes, volume unit growth, occasion growth is really important to us. And we'll build on that. And we've got plans, of course, in '27 and '28 that we'll share. But it really is coming down to delivering that consumer occasion and driving growth in that. And we'll do that in a variety of ways, but that is a really important lever for us.

Our next question comes from the line of John Baumgartner with Mizuho Securities.

There was a comment this morning about investing in your protein portfolio. And it's been 6 years since the acquisition of [ One bar ]. So I imagine Hershey's gained some decent understanding of the category by now. How do you think about participating in protein as a theme? I mean to what extent do you view protein as sort of the hedge to retain consumers gravitating to healthier snacks? And I guess especially since we've seen numerous cases already of snacking flavors applied successfully in the protein space.

Yes. I think that's really a good question, really relevant for what we're talking about. Investing in our protein business. We have a really strong outlook for our protein business this year. We've invested in a lot of R&D around protein and fiber and things that our consumers are looking for.

I look at the total snacking universe and functional snacking is a reality, and we have to participate in that space. And we are. And we really like what we're building with [ One and fulfill ], and we'll continue to add resources against that and see the growth coming through. Yes, that is an area that we'll focus and build on for the future.

And then maybe to follow up on that, Kirk. Just considering how Hershey built the Salty snacks portfolio through M&A. I guess what's the feasibility or interest level to use balance sheet to expand similarly in protein? I mean does your interest level rise to build the portfolio of brands in subcategories? Or should we just think about future protein efforts really just anchored more to the [ One bar ] brand?

Yes, it's a big white space, and there's so much traction from consumers. I think you have to really be open to two, I mean both, right? Growing organically. We see lots of potential for the brands that we have. But we're also open for those opportunities that build our portfolio. So I would say we're open for that approach.

But the first thing, the things that we can control right now are, let's grow these businesses, let's innovate in these spaces, let's get thriving brands and then we'll be open for opportunities in the future.

Our next question comes from the line of Bingqing Zhu with Rothschild & Co Redburn.

My first one is try trying to follow up on the volume question. Because your 2026 guidance, 2.5%, 3.5% organic sales and 10% pricing, that embedded quite a meaningful volume/mix decline. I appreciate that you're early in the year and the elasticity is favorable so far. But how much volume decline are you confident absorbing before you would it reconsider pricing, and maybe link more towards promotion and price to support the volume? So -- and then I have a follow-up, please.

Sure. I mean the volume impact of the pricing that we have taken is embedded in the guide. And so we except that we don't like it. We want -- as we said several times, we want more volume growth. When we're together in March, we're going to talk more about that. But the volume impact of elasticity that we have inside the plan has been factored in.

In our plan between marketing dollar, promotion dollars, investments. We believe we have the agility inside the plant to be able to deploy to protect sensitive areas and respond if we see a concern. As we sit here today, as Kirk said, the market has been rational. The competitive environment is stable. So we don't have any particular pockets of concern. Elasticities are as expected. And so it's not a little better. And so -- but we're ready inside the plan to respond if we need to.

Okay. And then I have a follow- on pricing. So in the prepared remarks, you mentioned pricing to 10% in 2026. If I recall correctly, I think a few quarters back in Q2, when you announced the price increase you expect to be mid-teens in '26. So that's a bit lower than what you previously guided. Can you provide more color on that please? Does that mean you maybe wrote back some pricing you originally planned? Or what does that mean?

Yes, we haven't rolled back any pricing and maybe just a misunderstanding of we're talking by segment or we're talking overall company pricing increase, that might be where the misunderstanding is. But we've realized that the pricing that we had announced earlier in 2025, as we said earlier, the more recently announced pricing is already in the market. So from a pricing standpoint, everything is on track and the thing has been rolled back. And we're all in execution mode.

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

Thank you all for your questions, and we look forward to catching up with you over the coming days and weeks.

Yes. Thank you very much.

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

Good morning, and welcome to the prerecorded discussion of the Hershey Company's Fourth Quarter 2025 Earnings Results. I'm Anoori Naughton, Vice President of Investor Relations. Joining me today are Hershey's President and CEO, Kirk Tanner, and Hershey's Senior Vice President and CFO, Steve Voskuil. In addition to these remarks, we will host an analyst Q&A-only session at 08:30 a.m. Eastern on the morning of February 5. A replay of this webcast and our subsequent Q&A session will be available on the Investor Relations section of our website, along with their corresponding transcripts.

During the course of today's discussion, management will 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. Actual results could differ materially from those projected. 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 during today's discussion, 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. Reconciliations to the GAAP results are included in this morning's press release, which is available on the Investor Relations page of our website.

It is now my pleasure to introduce our President and CEO, Kirk Tanner.

Thanks, Anoori. Good morning, everyone, and thank you for joining us today. I want to start by expressing my confidence and enthusiasm as we enter 2026, a true inflection point on our journey towards a stronger, more ambitious future. We're carrying meaningful momentum into the year with a clear and focused commitment to accelerating sustainable sales growth, restoring margins and positioning Hershey for the long-term success as we execute the first chapter of our strategy. In 2025, our team demonstrated remarkable agility and execution, successfully navigating a year marked by unprecedented cocoa inflation and broader macroeconomic volatility. We led through disciplined execution, strengthened relationships with our customers and delivering impactful innovation. These efforts drove top line growth and market share momentum in North American Confection and our Salty Snacks business, reinforcing our confidence as we look into 2026.

Now turning to our business performance. Total Hershey net sales increased 7% in the fourth quarter, and we delivered 4.4% net sales growth for the full year. The retail environment for U.S. snacking remained steady during the fourth quarter as consumers continue to spend selectively, prioritizing products that offer either emotional or functional value. Retail takeaway for the U.S. confectionery category accelerated in 2025, reflecting durable consumer demand.

For the year, confection was the third fastest-growing U.S. snacking category behind only nutritional bars and meat snacks. Hershey's U.S. confection retail sales growth was in line with the category in the fourth quarter, reflecting the strong performance of innovation, holiday programming and execution and favorable price elasticity. For the year, Hershey built upon its strengths and achieved annual market share gains across instant consumable chocolates, sweets, mints, and seasons. We're excited about 2026, and our plans will continue building on our areas of strength while accelerating within take-home chocolate and increasing our activation around key cultural events.

In 2025, our U.S. Salty Snacking business had an exceptionally strong year. Retail sales growth accelerated in the fourth quarter to 15.6%, resulting in an 11.3% increase for the full year. SkinnyPop ready-to-eat popcorn and Dot's Pretzels remain two of the fastest-growing brands among all top salty brands with retail sales growth of 8% and 21%, respectively, in the fourth quarter versus the prior year.

Moreover, our investments to meet growing demand for variety paths contributed nearly 2 points to the total retail growth in the quarter and 1.2 points for the full year. Our Salty Snack business gained nearly 40 basis points of share in 2025. Sustained organic growth along with the recent acquisition of LesserEvil, position us to have the third largest portfolio in the U.S. Salty Snack business. Thanks to our on-trend brands, considerable scale and robust capabilities, we are confident in delivering industry-leading growth over the long term. In 2025, the International segment achieved full year organic constant currency net sales growth of 2.2%, demonstrating resilience in the challenging market conditions.

Our teams maintained a strong focus on executing in our key markets, as shown by market share gains across Mexico, Brazil and the U.K. Additionally, Reese's continued to see robust international expansion, recording double-digit growth for the year and exceeding $300 million in net sales outside of the U.S. We are also delivering on our efficiency and transformation programs, strengthening our cost structure to fuel investment in our brands and capabilities.

Our AAA program has generated over $300 million in net savings over the past 2 years, above our plan and is projected to deliver an incremental $100 million in 2026. At the same time, our procurement team did a remarkable job navigating volatile cocoa markets in 2025, using agile hedging and sourcing strategies to significantly reduce the impact of cocoa inflation. These programs enable us to expand capability building investments in talent and technology and deliver differentiated performance into the future.

Looking ahead to 2026, we are operating in an environment where categories offering emotional, functional and experiential benefits remain strong. Three quarters of our portfolio sales at a price under $4, making these benefits widely accessible.

At the same time, we're monitoring several factors, including policy changes, consumer financial pressure and evolving health and wellness trends, which we believe we have planned for appropriately. Our strategic priorities for 2026 are clear: deliver top line growth at or above our market categories; drive sustainable margin and earnings improvement while increasing investments for sustainable growth in '27 and '28 and continue evolving our strategy and organization for the future.

Let me offer more detail across each of these. Our first priority is to drive sustainable top line growth. We have an exciting calendar of innovation launches and cultural activations backed by increased brand investments. Our plan gives us confidence in delivering between 4% and 5% net sales growth in 2026. Our innovation pipeline is strong with launches planned to meet a range of consumer needs and occasions that will drive category excitement and growth. Reese's OREO continues to outperform expectations, and we have increased production capability and capacity to meet sustained demand throughout 2026. We are introducing Shaq-A-Licious SLAMS, a multi-texture gummy that delivers a unique playful, sensory experience. We are launching Jolly Rancher Heatwave, which brings heat to the bold and adventurous palate.

In Salty Snacking, we are reformulating SkinnyPop White Cheddar and other dairy items to enhance the consumer experience and drive penetration in this key popcorn segment. We also have groundbreaking innovation coming from Hershey, Dot's and our protein portfolio. We look forward to sharing more details about these in our multiyear innovation road map at our Investor Day in March.

In 2026, we will activate 10 major cultural and seasonal moments with our strong in-store and online presence. Our campaigns began this weekend with the Olympics, followed by Valentine's Day, March Madness and Easter and continue with a scalable experiential calendar across seasons and new events throughout the year. This year, we will boost our media investment by double digits. During the first quarter, we will initiate new media campaigns for our 2 leading brands: Reese's and Hershey, making the first such launches in 8 years. We also continue to invest in Reese's and Hershey's internationally to accelerate trial on our largest global brands, New Pirate's Booty media and renovated packaging are also currently entering the market as we refresh and energize our third largest Salty Snacking brand.

Turning to our second priority. We are meaningfully restoring margin and earnings while reinvesting in our business for future growth. We will execute our pricing, productivity and cost savings programs with excellence and expect to deliver approximately 400 basis points of gross margin recovery in 2026.

We have been monitoring the impact of elasticities, particularly in January when seasonal interaction is lower. Our elasticity outlook has been modestly adjusted to reflect results that have been favorable versus our original forecast. However, we also acknowledge that numerous factors can affect elasticities over time, so we remain cautious. In 2026, we expect to deliver an incremental $230 million in efficiency and transformation program savings. These programs enable investment and technology to further strengthen our capabilities across consumer data insights, demand forecasting, commercial investments and supply chain agility. They will also further differentiate our industry-leading retail execution capabilities. Our annual plan also includes scaled investments in R&D, innovation and brand building. These focused projects advance our long-term brand and portfolio objectives and strengthen our execution capability for future growth.

Our third priority is to continue evolving our strategy and organization for the future. Next month, we will unveil our long-term vision focused on delivering sustained value to consumers, customers and shareholders in this dynamic marketplace. You'll hear more about our portfolio and capability-building initiatives that will advance our global snacking leadership.

In 2026, we will begin executing against this strategy by evolving our partnerships, strengthening our technology infrastructure and making foundational investments that position us for long-term competitive advantage. I'll now turn it over to Steve for details on our financial results and outlook.

Thank you, Kirk, and good morning, everyone. In 2025, we've delivered on our full year financial objectives while navigating a dynamic business environment with operational excellence and disciplined cost management. We achieved consolidated net sales of approximately $11.7 billion, an increase of 4.4% versus the prior year with organic constant currency growth of 4.2%. While earnings were pressured by unprecedented cocoa inflation and tariff volatility, we provided strong support for our brands, prioritize the strategic acquisition of LesserEvil and took decisive action with strategic pricing and cost efficiency and productivity programs.

These initiatives, in turn, supported top line momentum and material profit recovery and set us up for strategic investments in 2026 that will ensure our strong performance against our long-term algorithm.

Turning to the fourth quarter. Consolidated net sales increased 7% to $3.1 billion, with organic constant currency growth of 5.7%. Net price realization contributed approximately 9 points of growth partially offset by elasticity-driven volume declines in the North America Confectionery and International segments. Acquisitions added 1.2 points to grow reflecting the contributions from LesserEvil and Sour Strips. By segment, in the fourth quarter, North America Confectionery net sales increased 5.3%. The Sour Strips acquisition was a 40 basis point benefit. Net price realization was approximately 10 points, in line with our expectations. Volume decreased approximately 5 points as the impact of price elasticity was partially offset by strong performance on innovation and holiday programming as well as the benefit of 1 extra shipping day.

North America Salty snacks segment net sales increased 28% in the quarter with organic constant currency growth of 18.2%. Volume growth of approximately 14 points was driven by core distribution and velocity, innovation and the expansion of variety packs. The planned reduction of sales to private label customers was a mid-single-digit headwind to volume, largely offset by earlier shipments of New Year, New Me programming and 1 extra shipping day.

Net price realization contributed 4 points primarily due to lower promotional investment versus prior year. The acquisition of LesserEvil contributed approximately 10 points to segment growth. In the fourth quarter, the International segment net sales increased 0.4% to $256 million. Organic constant currency net sales declined 1.9% as net price realization of approximately 2 points was more than offset by a 4-point decline in volume.

Net price realization reflected strategic price increases in key markets around the world, partially offset by investments in portfolio optimization and distribution routes to support future growth. Volume declines reflected price elasticity and an approximate 4-point headwind from the timing of shipments.

Moving down the P&L. Fourth quarter adjusted gross margin was 38.3%, a decrease of 650 basis points versus prior year. This decline reflects commodity inflation, incremental tariff expenses of approximately $30 million and lower volume partially offset by net price realization, productivity and transformation program savings. This was ahead of our expectations, reflecting tariff policy relief and strong supply chain performance. Advertising and related consumer marketing expenses increased 4.2% in the quarter versus prior year, reflecting increased investment in Salty Snacks and International partially offset by reduced agency fees and higher media efficiencies in North America Confectionery.

Adjusted operating expenses, excluding advertising and related consumer marketing expenses, increased 12.6% driven by higher incentive compensation, partially offset by transformation program net savings. Our AAA transformation program delivered approximately $160 million in net savings in 2025, slightly ahead of our target, driven by incremental supply chain savings. We remain on track to deliver an incremental $100 million in net savings in the final year of our program in 2026.

Interest expense for the quarter was $48 million. The adjusted effective tax rate for the quarter was 23.4%, up from negative 13.7% last year, largely driven by fewer renewable energy tax credits versus the year ago period.

Turning to capital allocation. We continue to prioritize reinvestment in our business, including M&A in 2025. We completed the acquisition of LesserEvil in November 2025, which strengthens our better-for-you snacking platform and positions us to capture incremental growth in this fast-expanding category. Capital additions, including software, were $138 million in the fourth quarter, bringing the full year investment to approximately $455 million.

During the quarter, dividends distributed to shareholders amounted to $271 million, resulting in a total of $1.1 billion for the full year. We did not repurchase shares in the quarter with $470 million remaining under our current authorization.

Now let me share some perspective on 2026. We expect full year 2026 total company net sales growth of between 4% and 5%. Net sales related to the acquisition of LesserEvil is expected to add approximately 150 basis points to growth. The impact of foreign currency is expected to be immaterial. Total company organic net sales are projected to grow 2.5% to 3.5%, driven by announced pricing, innovation, increased brand investment and a strong activation calendar partly offset by a low single-digit decline in the International segment due to elasticity and strategic portfolio decisions supporting profit recovery.

Net price realization is anticipated to be approximately 10 percentage points. As Kirk mentioned, we now expect slightly lower sensitivity to pricing actions than previously planned. Our 2026 outlook also incorporates prudent assumptions for potential demand headwinds, including accelerated health and wellness trends and increasing GLP-1 adoption, government policy changes and ongoing consumer financial strain.

First quarter total company net sales are expected to increase by high single digits, reflecting the momentum we carry in from Q4. The benefit of an earlier Easter and favorable year-over-year comparisons in the convenience channel. For the full year, we expect adjusted gross margin recovery of around 400 basis points with very good visibility into our cost basket, we anticipate a low single-digit decline in our total cost of goods sold in 2026.

This represents the impact from elasticity-driven volume reductions, net of cost absorption, stable rates across our commodity and packaging basket and modest increases in labor and other manufacturing expenses, net of savings generated from our productivity and transformation initiatives. In the first quarter, we anticipate our overall company adjusted gross margin will continue to face pressure due to consumption of higher-cost commodities and tariff costs, a significant recovery is projected to begin in the second quarter.

As Kirk discussed, we are balancing our commitment to achieving the full profit potential of our business with our focus on long-term sustainable growth and strong margins. In 2026, you will see us increase our budgets for R&D, innovation, brand building and our retail sales team. We will talk more about these and expected returns at our Investor Day in March. Advertising and related consumer spending is expected to increase double digits versus the prior year as we support momentum across our business. Investment will be up across both working and nonworking media as we develop creative in support of our long-term brand and portfolio objectives.

Operating expenses, including divisional and corporate expenses, are expected to increase in line with sales. This reflects increased investment in capabilities, talent and technology, partially offset by favorability in incentive compensation and incremental transformation program savings. Below operating profit, we expect our full year 2026 adjusted effective tax rate to be approximately 25% to 27%. Other expense, which primarily reflects periodic costs relating to pension and other benefit plans, is expected to be approximately $15 million.

Finally, interest expense is expected to be between $200 million and $210 million. Our 2026 adjusted EPS outlook is for a range of 30% to 35%. In the first quarter, we anticipate earnings to decline low single digits, reflecting residual commodity and tariff pressure and elevated investment levels, which are expected to more than offset strong top line growth. Adjusted EPS is expected to grow by double digits each quarter throughout the remainder of 2026.

Our capital allocation priorities remain consistent. As discussed, we will continue to prioritize business reinvestment in 2026, including the addition of attractive accretive brands like LesserEvil. Capital expenditure is projected to be in the range of $425 million to $475 million for the year, inclusive of technology investments that aim to strengthen our supply chain and commercial capabilities with prudent investments.

Given our strong cash flow and our confidence in future business performance, we are raising our dividend by 6%. Moreover, we will look to evaluate opportunistic share repurchases to return excess cash and enhance long-term shareholder value. We are looking forward to sharing more details on our long-term strategy and capital allocation priorities at our Investor Day next month. With that, I will turn it back to Kirk for closing remarks.

Thank you, Steve. In closing, I want to thank our team members for their unwavering focus, execution and agility in 2025, which has resulted in the strong momentum we have today. We have clear visibility into our strategic brand and capability investments, solid operating plans and an improving cost outlook. We are confident in our ability to sustain our positive top line momentum, achieve significant profit recovery in 2026 and deliver long-term growth and sustainable value creation for our shareholders. We look forward to discussing this in more detail at our Investor Day on March 31st.

Greetings, and welcome to The Hershey Company Third Quarter 2025 Question-and-Answer Session. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin.

Good morning, everyone. Thank you for joining us today for The Hershey Company's third quarter 2025 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, 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. Actual results could differ materially from those projected. 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 provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations for the GAAP results are included in this morning's press release.

Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil.

With that, we'll open it for the first question.

Our first question is from Andrew Lazar with Barclays.

Maybe to start off, I'd love to dig in a little bit deeper on your commentary around 2026. The company is looking for a non-algorithm top and bottom line year. This is consistent with the commentary you provided last quarter. Since then, cocoa costs have moderated significantly, even though Hershey still looks for year-over-year inflation. The company slightly lowered its tariff estimate and base momentum certainly appears to be continuing, if not accelerating. I think in the prepared remarks, you made mention of sort of earnings recovery over time. And in fairness, you still need to see what elasticity looks like as the pricing flows through. So I guess I'm just curious how you sort of balance these various factors as you think through how next year could shape up because as you know, there are some expectations out there for maybe much more significant year-over-year EPS growth next year.

Yes. Thank you, Andrew. I think that it's an important topic to get the morning started. Yes, if I think about '26, I look at where we're at right now. So the momentum in the business right now, I'm really delighted with the balanced growth that we're seeing across our portfolio. So I feel good about that before going into 2026. And I think it's important as you take that momentum into 2026. I think defining what success looks like is really important for us for 2026. And for me, that is looking at where the category is, and how we're growing with or ahead of the category while we build back that margin to its full potential. Now we won't do that just in 1 year, but we'll do that over a few years. But it's really important that we -- one, we grow, and we are doing exceptional at the category level, building back margin. And so what does that do? It puts us on our long-term algorithm. That long-term algorithm in the top -- from a revenue standpoint of 2% to 4%, that is sensible. We think that's where the category is going to be. Now in a shorter Easter category generally from a historical standpoint, it's been around 2%. So when you think about the top line, that's where we land. Now on EPS, back on algorithm, I would say there is some potential for some upside. But we do all this in '26 with the approach of playing for the long term. So we're going to continue -- we're going to invest in our business. We're going to invest in our brands, while we build back margin and compete at the category level. That is success for us in 2026.

That's really helpful, appreciate that. And then just quickly, I know it may be far too early to really opine on this with any accuracy. But I guess what are you seeing thus far from an elasticity standpoint? I know there's more pricing still to flow through. And I guess what's your expectation for elasticity in the context of your guidance for next year?

Sure. I'll take that one. I mean it's early days. And so we'll know more the next time we talk. The category continues to be rational. And everything we see so far, nothing gives us concern or is deviating from our expectations. Most of our pricing is reflected, as you said, other competitors' pricing still flowing through. We saw early in the year, other competitors taking prices. We saw premium go up. We saw private label go up. And so everything that we're seeing as our pricing has come to shelf is lining up within expectations. As you said, next year, that elasticity is a big assumption. And I know we've had some folks who said, well, are you being a bit cautious or conservative in the way you're thinking about that elasticity as we planned at minus 1. But we feel like it's an appropriate kind of center cut as we look at the plan for next year. This year, it's been running a bit better with the price increase that we've taken into this year. But this year also has a few positives coming along, whether it's long Easter, the merchandising benefits that we had early in the year, the significant innovation benefits. And so when we adjust for those as we think about '26, we think that minus 1 is the right place to plan from. So -- but we're watching the space closely, nothing at this stage gives us concern.

Our next question is from Max Gumport with BNP Paribas.

Great. Just following up on that elasticity response, and I realize it's early, but if you can just focus on the everyday business and give us a bit more color on what you're seeing in these first few weeks, particularly given the comments around double-digit growth across the everyday business over the past 5 weeks, what you think that means for elasticity? I realize it's early, I realize you're planning on the minus 1, but just any incremental color that would be helpful.

Yes. I would just say, again, no concerns on what we're seeing so far. If you look at everyday CMG where the price increases hit, we're up double digits in the last 4 weeks. So I feel good about what we're seeing so far. But more to play. We'll have more to say the next time we talk.

Great. And then on competition, I think there's been a narrative that some competitors are not following, and you just touched on this. But when I look at the data, it's not as clearly that's the case. I think if you look at your largest branded competitor, while their pricing might not be as high on a year-over-year basis, it looks like perhaps 2 are simply moving at different cadences with them moving harder earlier in the process. I think if you go back to where you all were 4 years ago, it looks like you're actually still just catching up on pricing relative to that period. So with that backdrop, I'm hoping you can provide a bit more color on what you're seeing to be competitive pricing environment right now.

Yes. Look, I think that's an important point and had the opportunity to look at the competitive landscape and look at our pricing cadence as it relates to -- look, we -- I think we put -- the most important thing for us is we put the consumer first. We look at our business. We do it on the cadence that makes sense for our business and our consumer. And we are working with our customers to make that happen in the most deliberate way so that we can continue to deliver for our consumers. And that, I think, is really important. Now the cadence, yes, is probably a little different from historic purposes. But I look at it from what is the best solution for the category, our consumer and for our business.

And a pretty significant part of our price increase, and you mentioned this, was catching up to what happened earlier that competitors have done. So there was a time in history where everything moved in lockstep. Now I think everyone is more precise, more strategic as the way they execute pricing and it leads to different phasing. But overall, we're not concerned about price gaps across the portfolio.

Yes. And I would say one thing to look at is this category has been very resilient and rational. I think that's really important when you look across the industry. That gives us the confidence that we're making the right decisions, and we don't have concerns at this time.

Our next question is from David Palmer with Evercore ISI.

In the prepared remarks, you noted Halloween has been disappointing. I'd love to get some color about how much is -- by what sort of level has it been disappointing? And you've noted Friday, Halloween, warm weather. Have you seen similar headwinds with those types of dynamics to what you're seeing here, or do you -- you're reflecting on this? Do you think there might be something going on with the consumer, the customers in terms of their focus on the seasons, the competitive environment? And then relatedly, you said that you're using this opportunity to analyze the trends and to adjust the product lineup and marketing strategies for future seasons. So just curious about what you're thinking as you reflect on this so far.

Yes, David, thank you for the question. I think it's certainly timely. I'd start with -- we're pleased with the strength in the overall business with more balance across our portfolio. And we mentioned our everyday CMG business is growing double digits the past 4 weeks. So there's certainly some interplay that we typically see. We'll say the season did get off to a slow start. And I think you have to look at historically when Halloween falls on a Friday, about 1/3 of the business is sold the last week. So I think it's really important. Having said that, yes, there are some opportunities for us. I would say it's not broad-based, but there are some opportunities for us to go to school on the consumer insights, our customer insights so that we can improve on every season, including next year's Halloween. So we will look at pack types, offerings, opening price points, product mix, all that through the lens of the consumer. Yes, I think this is an opportunity for us to go to school and get better with each season.

And just a follow-up on, you noted that cocoa is going to be inflationary in '26. Does it feel like retailers are sympathetic to where you are with your pricing and your input inflation? You seem to have hedged very well in '25, maybe somebody didn't out there and their timing of their pricing might be mismatching yours. And so I'm wondering if there could be some noise out there with regard to competitors and other pricing actions that could affect near-term results? And I'll pass it on.

Yes. No, thanks, David. I think it's really important one that we have relationships of trust with our customers and building those are critically important to me and our entire organization. We have that customer mindset. And with this pricing, we have worked hand-in-hand with our customers to find solutions to meet consumers where they are. I would say from a cocoa standpoint, it's still 70% higher than it was in 2023. So I think that just grounds us all in where cocoa is today. I know there's -- we're optimistic with some of the movement recently. But if you just look back, that's really important to understand. But I'd say with pricing, very planful approach. I have a fresh set of eyes on our approach and our communication to customers, our partnership with customers, and I've had the opportunity to talk to a lot of our customers myself. And that is something that's really important that we get that right with our customers.

Our next question is from Leah Jordan with Goldman Sachs.

I wanted to ask about innovation. It's obviously been working well this year, especially in the back half here. So as we look to '26, could you provide some color on how you're thinking about the pipeline there? What are the key focus areas? And how are you thinking about balancing growth in the core versus innovation into next year, especially as we're going to lap some strength here in the back half?

Yes. I think that's a really good question. Innovation is so important to the category. Consumers are continuously looking for it. The recent innovation that we put out with REESE'S Oreo has been really the top driver of growth from an innovation standpoint in the category. So something to look at and be excited about. But when I step back from that, I look at our core business even in Q3, where our core business was close to 5% growth without REESE'S Oreo. And that says something about the balance of what we expect. Now we're going to have the benefit of most of next year with REESE Oreo, and we'll continue to build on that momentum and find exciting ways to connect consumers with that innovation. Having said that, we have a robust pipeline in 2026 of innovation and 2027. So we feel like we're building this pipeline of innovation because that's, again, engaging with consumers is important, all while balancing your growth with your core business. I think that is really important. And that's kind of how we see this. We cannot rely just on innovation to drive our business. It's a balance between the 2. And if I look at Q3, we have struck that balance with a really good innovation.

That's very helpful. And maybe just a quick follow-up here. It sounded like there was increased brand investments in the quarter. Maybe you could just talk about where you're making those investments, and what you're seeing in the competitive environment broadly? And do you see a need to make more investments just in the current environment?

Yes, I think it's important to invest. I think there's a smarter way to invest in brands as well, right? So there's a more efficient way to invest in brands. I think that, obviously, with Halloween and the holidays, we've invested in some digital marketing to drive performance, drive flow-through, et cetera. But will -- and I would say we've had some fun with some innovation with REESE'S Oreo as well. So those investments have given us some momentum and really are on strategy for how we think about our business going forward.

Our next question is from Megan Clapp with Morgan Stanley.

I wanted to come back to the commentary on 2026 and Andrew's question at the beginning. Last quarter, there was a comment on the call that there were multiple paths to EPS being well into the double-digit range in 2026. I think the biggest factors mentioned at the time were what happens with tariffs and cocoa costs. And I understand, Kirk, I think you said there's still upside to the algo. But as you think about some of those puts and takes today, and would you say that anything has changed that would affect that view? Cocoa has obviously come down. Maybe you're a bit more covered for 2026, though at this point? And broadly, any visibility on potential tariff relief as well?

Yes. Thanks, Megan. Again, to comment on the potential upside for EPS, I'll let Steve kind of go through the puts and takes that you asked. Thanks for the question, Megan.

Yes. As Kirk said earlier, above algorithm performance is definitely on the table. There's a handful of things that we're going to be watching really closely, especially as we finalize the plan. Consumer demand, of course, the health of the consumer right now, big focus. Right now, we're optimistic on that for next year, but we'll be watching that. We talked about innovation. I feel really good about our innovation, Oreo continuing, a lot of tentpole events next year. So we think that's going to be a big year for innovation. Elasticity, of course, as we touched on in the question earlier. And then as you said, cocoa and tariff relief. We're feeling marginally better about cocoa. I think when we talked last time since then, it's moderated a bit, and we're in the process of layering in our hedges according to our program, and we'll have more visibility when we talk next time. But net-net, feeling a bit better from a cocoa standpoint. And tariffs, ongoing changes week to week. I think the first prize we were hoping for a blanket exemption is probably not in the near-term cards, but we've seen significant acceleration on trade deals. And so now that cocoa and other commodities we can't make here are part of that third annex as those deals come in, we're optimistic we could see some positivity there. For now, we've modeled $200 million incremental on tariffs and still have in our model cocoa inflation for next year. But I would say that level of inflation is moderating, and we'll know more when we talk next time. So overall, it's not that much different from last quarter other than maybe a little bit more optimism on tariffs and cocoa.

Awesome, that's super helpful. And then maybe just more near term on the implied 4Q. It does seem like most of the increase in the full year top line guide was driven by what you saw in the third quarter. I think depending on rounding, implied 4Q is maybe a little bit below where the street is modeling, maybe part of that's due to the international shipment timing. But could you just maybe give us what you're expecting for the fourth quarter explicitly and whether the outlook for North America confectionery has just changed at all just given the puts and takes between Halloween and Everyday?

Sure. Yes, most of that impact is international shipment timing. From a U.S. CMG standpoint, we see the momentum continuing. As Kirk said, we're directing some additional investment to help Halloween sell-through and performance and also get holiday off to a good start. So that's a little bit of why the EPS doesn't follow the sales on the back half or the guide up on EPS is a little softer than it is on the top line. But we also watch as we always do, the timing of cocoa hedges, which was a favorable for Q3. We're not expecting quite that same level of favorability as we close out the year. So -- but yes, on the top line, that international timing is probably the biggest thing. We expect CMG momentum to continue.

Our next question is from Tom Palmer with JPMorgan.

I'm going to maybe stick to Halloween for a second. You noted the slower start to Halloween and that when Halloween falls on a Friday, there can be this last week waiting. If we do get 1/3 of your Halloween sales in the last week, would it be more on track with how you're thinking about it, or do you need even more of kind of a disproportionate catch-up when we think about this year? And in particular, I want to make sure like how this relates to kind of what's embedded in guidance?

Yes. I think that to get straight to it, I think it still would be somewhat soft. I think that we would walk away saying that Halloween by itself is going to be a little soft in the season. I do think there -- the interplay between our core brands is happening, and we're seeing some of that in the insights that we're looking at. I think that's obvious. We also have a big innovation out there, and we have core packs that are performing well. So the interplay between Halloween, the season and our core packages certainly is something we're going to school on, and we can talk about later. But let's see where the week comes in. And then we will share the insights and some of our action plans moving forward. But winning at the season is critically important to us, and we continue to build on our capabilities through insights and the actions that we need to do to move the business forward.

Okay. And then just, look, I think on the cocoa commentary, I want to clarify, one, at some point next year, your cocoa costs likely turn deflationary even if they're up for the full year. And I'm curious your views on pricing as inflation eases. I don't think you've historically given back pricing, but we are facing kind of unusual levels of both inflation and potentially deflation. So I wanted maybe a clarification on how you're thinking about it this time.

Sure. On the first part of your question, yes, I mean, the expectation right now with where cocoa is, I would hope, as we get deeper into '26, we'd start to see some deflation. Again, we'll have a better picture of that profile when we talk next time. But just based on what we're seeing right now and looking year-over-year. And again, giving back price, I guess I'll start with a comment from earlier. We're still seeing cocoa up 70% from where we started the cocoa inflation journey. And so we haven't fully recovered from that. And so -- and again, pricing is not the only lever. We are driving the transformation program. We're driving savings. So we will continue to use every lever at our disposal to do that. But at the same time, we want to make sure that we're investing in our brands and that we're driving good partnership with retailers and making sure we're helping to, again, grow at or above the category. So we're going to have a focus on balanced recovery, as Kirk said earlier.

Our next question is from Peter Galbo with Bank of America.

Steve, not to belabor the pricing dynamic point again, but I do think some of the hesitation maybe is stemming from the fact that one of your peers operating in Europe kind of talked about a need maybe to solve some price gap issues. You obviously have a peer that competes both in the U.S. and Europe. So the translation of that dynamic happening in Europe, back to the U.S., is there kind of a future where the same thing happens. So maybe it would be helpful just compare and contrast just the structural factors that might make the U.S. market where you operate different from that pricing standpoint. And I think that would help clarify a bit of the fear that's out there that, hey, there's all this pricing that's coming in the market, but with cocoa coming down, are they really going to be able to kind of hold through?

Yes, you bet. So I do think it's 2 different markets, and I think we have to be careful kind of taking the assumptions from one and applying them to another. The U.S. category, CMG has been very resilient. It's been very rational. And we just aren't seeing today any major price gaps that are causing us concern. Obviously, we're watching consumer health. We're partnering closely with retailers to make sure that the category stays healthy and growing, and we want to be part of that with our innovation and brand investment, et cetera. But it is a different situation here than what you're seeing in Europe. And that rationality here, I guess we have no reason to believe that's not going to continue based on everything we're seeing even in the market right now.

Great. Super helpful and clear. And maybe as a follow-up, Steve, I actually wanted to ask on international. I know you had the shipment favorability dynamic, but it was actually a loss-making quarter in that business. So I guess just applying that forward, right, if you don't have the favorability on shipments in Q4, like should we be expecting, I don't know, the next couple of quarters that you might still be playing catch-up to get back to profitability, or how we should think about that segment specifically?

Yes, it's a great question. We don't always have time to talk about international. I think, yes, we're -- I mean, it's a challenging market because a lot of our business in international is cocoa driven, and even cocoa intense in some markets where the percent of cocoa is part of the advertising. And so it feels more of the brunt from cocoa. It will also eventually feel more of the recovery when we get to the other side. We've been more aggressive on pricing in international, but because we're a smaller player in some of those markets and our products are positioned in a more premium way, the elasticity impacts are also more severe than what we model here in the U.S. That said, we're optimistic on the business. And in fact, we're growing share in all but one probably of our core markets right now. We feel good about that. We've had a great result in Brazil. And yes, profitability isn't there right now, but we still are optimistic about the market and our ability to grow and eventually return to profitability. So despite the numbers, we're optimistic on the future, but we have to work through the cocoa challenges there a little bit more intensely than we do here in the U.S.

Our next question is from Jim Salera with Stephens Inc.

I wanted to maybe shift gears a little bit and ask on salty snacks, given the strong performance you guys saw there. I think you mentioned in the prepared remarks, you did 14% year-over-year increase in consumption, saw share gains in salty, particularly driven by volume, which is in pretty stark contrast to a category that's been anemic kind of at best this year. Can you just walk us through what are kind of the driving factors there? And maybe any commentary on 4Q about how we should think about that business kind of closing out the year and anything we should be aware of maybe on the innovation side?

Yes, Jim, thank you for the question. Look, our salty business, I'm really excited about this. We continue to build capabilities with our salty team and our salty business. And I look at where we are in the category with our brands, and how important that is. So with SkinnyPop leading in the popcorn category, it, of course, went through a refresh. It's got a new look, and it's delivering against growth. It's also -- we're working on portion control and multipack is working. So we see a lot there. But again, it's grounded in permissible snacking, premium snacking, and that makes a difference. When I look at our pretzel business in Dot's, Dot's really has made an impact on Pretzels. Now Dot's is the leader in the Pretzels category. For a young brand, that's pretty impressive. It's hitting on a lot of marks with consumers. It is definitely in the right place in the category, and it's helping the category grow. And then I think we still have a lot of opportunity with Pirate's Booty. It's in Puffs. Puffs is the third largest part of the category, and we're just scratching the surface. So it's over a $4.5 billion category. We have an opportunity to play in that with a mom preferred loved brand. So the collection of brands that we have in the right places with permissible snacking allow us to grow ahead of the category. We'll continue to build on that momentum. We'll continue to look to our salty business to scale that and build our capabilities. But having a lot of experience in this area, I'm really optimistic of where we can take the salty business.

Great. And maybe just any commentary you could provide on innovation and to the extent that you can maybe point us in a direction for 4Q, I mean, should we expect kind of continuation of where we're at now, acceleration? Just any thoughts around that to close out the year.

Yes. Yes. Yes, we see the same -- the momentum moving forward into 2026. We have some innovation on Dot's that I'm really excited about. We also have innovation on SkinnyPop in that -- across the portfolio. We've looked at multiple areas across kind of all 3 brands actually. And there is a pipeline of innovation across our portfolio. So yes, more to come on the launches of the innovation. But yes, we have a pipeline that will drive growth and delivery. And there's some exciting things across Dot's, SkinnyPop and Pirate's Booty.

Our next question is from Robert Moskow with TD Cowen.

Two questions. One is, Steve, when you're giving the factors that might determine whether there's double-digit potential, you mentioned several. But is it fair to say that elasticity is probably the most -- the biggest and most determining factor? And since it's hard to predict, would you consider providing a wider range than normal for 2026 guidance to take that into account? And then I had a quick follow-up.

Sure. Yes. Great question. I would say elasticity probably is the biggest -- I mean, obviously, cocoa is huge as well. But elasticity is one we'll be watching very closely. From what we see now, like we talked about earlier, not concerned, but we'll be watching it closely. On the range, it's an interesting point. I think that's something we'll give some thought to between now and the time here and giving guidance, depending on what we'll see. I think we will see more on elasticity. We'll have a better view of cocoa by that point. Maybe tariffs, maybe not, but it's a good point, something we'll probably think about.

Okay. And in doing a deeper dive into these price gaps that emerged, what we really found was some pretty sizable ones in king size in the convenience channel after you raised price between you and your biggest competitor. But I think your competitor raised prices since then. So is it fair to say that, that gap does exist, but it's just kind of temporary and will close soon?

Yes. I would say I don't want to get down to pack type by pack type retailer sort of detail. But like I say, we have all of that. We've seen what you're talking about on king size. We look at every packing of retailer. Right now, there are some gaps in places. Some of those gaps are closing. Some of those gaps may hang around for a while. But as we look at them in the aggregate, there's nothing that's concerning us at this stage. Recall, there is this sort of give and take, and we talked about it before about the cadence of the follow can take a little while. Sometimes we choose to take a little while to follow. And so this is part of the category, which is still rational. It just doesn't fall in a perfect cadence all the time.

Our next question is from Alexia Howard with Bernstein.

Can I ask about the C-store channel? I think Rob mentioned it. It seems as though you were having some trouble with that earlier in the year. It seemed to be in recovery, I think, over the last few months. Is that still going fairly strongly at this point? And then I have a follow-up.

Yes. Thank you. I appreciate the question. I'm really passionate about the convenience channel. I just had the opportunity to be at NACS in Chicago and talk to a lot of our customers. Look, I think about the performance of the category in convenience right now and CMG is performing at a plus 6. So pretty healthy cadence in CMG right now. I think there are still some opportunities for us to get stronger. And we are hyper focused on [ IC ] and our ability to execute, and we've rolled out these gold standard merchandising plans. We've built this innovation pipeline. We're building on tentpole moments, all with the lens of delivering for our convenience customers. So there is a level of intensity that we're putting against the convenience channel because we know it is a priority. We know [ IC ] is a real priority for us as it's a big brand builder and an area where we can continue to grow our brand. So we're going to show up strong. We like the momentum that we have. We still think there's opportunity for us to get better, and we'll do all that with the partnership with our convenience customers.

And as a follow-up, there's been a lot of questions on innovation. Are you able to put any numbers around that in terms of percentage of sales from new products introduced either over the last year or last 3 years? And how that's ramped over time because it seemed as though innovation dropped off in the years immediately after the pandemic.

Yes. innovation is such an important lever for sure. But I think being consistent with innovation is also important in balance with your core business. I'd tell you one thing that I really liked about this last innovation that we launched with REESE'S Oreo, especially in convenience as we're talking about that channel is. We co-merchandised it with our core brands, and we saw our core brands elevate with innovation. And I think that is just a testament to the execution that we have in the marketplace, not just highlighting our innovation, but bringing our core along with it, I think, is a really good thing for us to do. It's a fundamental that we believe in. And so that, I think, takes the total portfolio into account. I think innovation is critical. Consumers are looking for it. But if it can help build your core brands as well, I think you're in a much better place.

Our next question is from Scott Marks with Jefferies.

You've made some comments today about monitoring the consumer health. And I think we've heard from some of your peers about more broadly just weakening U.S. consumer sentiment. So just wondering if you can share with us your thoughts around what exactly you're seeing with the consumer, and how you're thinking about that as we head into the holidays and 2026?

Yes. I think that's an important topic, and I've had the opportunity to talk to a lot of our customers as well. I think the consumer certainly is continuing to be challenged. It's a challenging consumer market, and there's a lot of headlines that have been talked about driving that concern. But I would say, our category remains resilient. I think that's an important thing to think about. So the impact of consumers, how that interacts with the category and how it's reacting to our business. I think those are the dynamics we look at. But I would say, in large part, the other consumer is certainly under pressure. Our category is showing up resilient, I think really importantly. And then as we look into '26, we see the category running at historic levels with those pressures. So I feel really confident about where we're at in light of a challenged consumer.

Appreciate that. And then just a follow-up question. We've also started to hear from some of your peers about expected headwinds from changes to the SNAP program, both policy changes, which could be more structural and then maybe more temporary government shutdown-related issues. Just wondering if you can share with us some context around how you're thinking about potential SNAP headwinds for the business?

Yes. I think it's an important one. Again, a live discussion that we've had with our customers and understanding the impact overall of SNAP. If you just take a step back and look at SNAP, about 2% of SNAP dollars are in the category, the CMG category specifically. Right now, we've seen -- I would say we haven't seen a large impact, but it's early days. I think if you look into '26 with the dynamics between the state and the federal government on SNAP, we expect it to be a minimal impact right now on the category. But it's something that we're continuously watching and trying to understand. I think it comes down to the behaviors of consumers that are in the SNAP program, and how they choose to spend those dollars, but we will stay close. But I would say in '26, it will have a minimal impact to the business from what we're seeing right now.

Our next question is from Michael Lavery with Piper Sandler.