HSY - The Hershey Company

Operator: 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. Anoori Naughton: 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. Operator: Our first question is from Andrew Lazar with Barclays. Andrew Lazar: 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. Kirk Tanner: 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. Andrew Lazar: 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? Steven Voskuil: 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. Operator: Our next question is from Max Gumport with BNP Paribas. Max Andrew Gumport: 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. Steven Voskuil: 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. Max Andrew Gumport: 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. Kirk Tanner: 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. Steven Voskuil: 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. Kirk Tanner: 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. Operator: Our next question is from David Palmer with Evercore ISI. David Palmer: 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. Kirk Tanner: 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. David Palmer: 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. Kirk Tanner: 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 plan-full 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. Operator: Our next question is from Leah Jordan with Goldman Sachs. Leah Jordan: 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? Kirk Tanner: 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. Leah Jordan: 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? Kirk Tanner: 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. Operator: Our next question is from Megan Clapp with Morgan Stanley. Megan Christine Alexander: 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? Kirk Tanner: 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. Steven Voskuil: 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. Megan Christine Alexander: 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? Steven Voskuil: 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. Operator: Our next question is from Tom Palmer with JPMorgan. Thomas Palmer: 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? Kirk Tanner: 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. Thomas Palmer: 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. Steven Voskuil: 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. Operator: Our next question is from Peter Galbo with Bank of America. Peter Galbo: 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? Steven Voskuil: 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. Peter Galbo: 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? Steven Voskuil: 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. Operator: Our next question is from Jim Salera with Stephens Inc. James Salera: 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? Kirk Tanner: 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. James Salera: 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. Kirk Tanner: 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. Operator: Our next question is from Robert Moskow with TD Cowen. Robert Moskow: 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. Steven Voskuil: 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. Robert Moskow: 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? Steven Voskuil: 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. Operator: Our next question is from Alexia Howard with Bernstein. Alexia Howard: 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. Kirk Tanner: 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. Alexia Howard: 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. Kirk Tanner: 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. Operator: Our next question is from Scott Marks with Jefferies. Scott Marks: 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? Kirk Tanner: 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. Scott Marks: 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? Kirk Tanner: 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. Operator: Our next question is from Michael Lavery with Piper Sandler. Michael Lavery: Just wanted to come back to cocoa and you said that you could get some benefit if costs fall further, but it sounds like you're maybe also a bit decently committed, and that you're focused with your hedges on visibility and less volatility. Maybe could you just give a sense of how wide a range is still ahead of you? You're forecasting it to be inflationary. That might moderate a bit, but would you be positioned such that it wouldn't be deflationary, or just maybe give us a sense of how wide a range of possibilities are still in front of you? Steven Voskuil: Sure. Yes, I'd be happy to. So the fundamental hedging program, as you said, Michael, hasn't really changed. We're hedged, I would say, to the normal level we would be at this time of the year, given that we still believe cocoa does have some room to fall based on the fundamentals that we've talked about in the past. And so right now, we see it on a full year basis, we see it inflationary, but there is a possibility of deflation. And the way we've structured our program, as many do, we have a mix of some things that are price fixed and some things that allow downside participation. And so between the unhedged portion looking forward and downside participation, there is potential if we continue to see some fall in cocoa that we could see some deflationary, but it just a lot depends on timing and the magnitude. Michael Lavery: Okay. That's helpful. And you've said in the past that around 75% of your portfolio is less than $4, I guess, how does that look after this latest pricing? And then is that sort of the key threshold? We hear $3 from some other snack peers as maybe a key focus point as well. Any sense of maybe kind of where you are sitting today relative to maybe either one of those thresholds? Kirk Tanner: Yes. I think that 75% of our units are below $4. I think that's -- it's an important to understand where consumers are with price points and with the offerings that we have. But I would say that, that's largely the case today. Operator: Our next question is from Chris Carey with Wells Fargo. Christopher Carey: We are late in the call. So I'm just going to ask a couple of clarifying questions, if I could. Just on this conversation around algorithm for next year, kind of similar commentary despite the lower cocoa. Is it fair to say that if cocoa had not come down, you probably would have to take even more pricing into next year, and now you're basically not in that situation anymore. And then -- yes, go ahead. Steven Voskuil: I was going to say no. I don't think at this point, we're not focused on pricing. We've got the price increase we've just announced rolling through. But we continue to work all the other levers as well, whether cocoa goes up, down or sideways in terms of productivity, driving our transformation savings, continuous improvement, et cetera. So right now, we're focused on driving -- continuing the momentum in the business and making sure that we have the good execution on the pricing that's already in the market and focused on a balanced approach to driving the business for the long term. Christopher Carey: Great. I guess, is it fair to say that if cocoa did not fall, you would have to assess whether additional pricing would be needed? And then just a quick -- so just a quick clarification there. And then I think the tax rate came up. Obviously, there's been a sort of reorientation of tax rate. Can you just give a sense of what's going on there and medium-term tax planning and opportunity? Steven Voskuil: Sure. So just back to the first question. In '26, we would not anticipate taking more pricing even if cocoa remained at prior levels. Now long term, again, we have to manage over a long window. So to be on algorithm, we would continue to look at pricing as a long-term lever, but not for '26. Hopefully, that helps. Again, cocoa, we're still executing and making sure the price increases that we've announced flow through. The -- on tax rate, yes, happy to talk about it. It's been a bit of a change this year. In fact, it's probably been a topic every quarter. And we have a couple of things that are happening, a couple of which are unusual to this year and one that we're still working through for next year. But on one hand, we have 3 things hitting the tax rate. One, some adjustments in reserves based on some legacy positions and legacy litigation. We didn't have any of that in the third quarter. But you'll recall in a couple of earlier quarters, we talked a little bit about having some reserve adjustments. The second piece is related to some procurement strategies. So earlier in this year, as we looked at different sourcing alternatives for cocoa, which we pursued, drove great ROI, but had some less tax efficiency than our normal procurement strategies. And then finally, the tax credit strategies, which we've talked about. In the current environment, we just haven't found as many attractive tax credit investment opportunities. Again, we've got ROI thresholds, quality thresholds. And with the movement in the investment universe for those, they just haven't been as attractive given our threshold. So those are the 3 things that have been impacting tax rate for this year. We'll give more guidance on next year's tax rate and some of the factors there when we get to guidance later. Kirk Tanner: Chris, I just wanted to share my point of view on '26 and the pricing questions that you asked. Look, I think if you go back to what we talked about, what '26 looks like from a success standpoint, certainly getting back on algorithm. We talked about the potential for EPS. But I think it's really important to get this message across. We retain the flexibility to invest in our business. We're playing this for the long haul. We have a lot of energy and enthusiasm in the business right now. We want to keep that momentum. There's also a lot of great new ideas to drive growth and health for the business over the long term while we recover our margin that we've gone backwards on. So I think that balance, I think, is what I would leave you with is we still have that flexibility. We're enthusiastic about what we see with momentum, but also the opportunities we have to invest in for the future. So certainly a balance of how we build the business. Operator: Our next question is from John Baumgartner with Mizuho Securities. John Baumgartner: Maybe just sticking with convenience stores, Kirk, just bigger picture, I'd like to hear your observations of the retail landscape for competitive merchandising and promo, just having seen it in your seat across multiple categories over the years, how promo/merch has evolved given the rise of smaller brands, healthy snacks, non-CMG categories. Just how has competition changed for that high visibility merchandising? How do you see confectionery positioned today to compete? And are there any changes you think Hershey can make in terms of either existing spend levels or types of promotion? Kirk Tanner: Yes, I think that's the right question, and I think it is changing. I think, John, you've asked a good question in convenience, if you spend time with the retailers, you'll see certainly, new solutions to drive the customer performance from their standpoint. We've seen a lot of new merchandising strategies, a lot of new ways to deliver value for consumers across multiple categories in convenience. I think it's really important that we play a growth driver role inside the store, and that is delivered across our core innovation, and how we deliver value in multiple transactions and things that consumers are doing. I think that there's also new tools that are exciting. So there's loyalty and tools that retailers are using that we're participating in that drive personalization and loyalty. So there's so many new fascinating ways to grow the business. And again, I'm super passionate about this channel and our opportunities to build brand and build momentum. And it will be a focus point for us moving forward. Operator: There are no further questions at this time. I'd like to hand the floor back over to Anoori Naughton for any closing comments. Anoori Naughton: Thank you, everyone, for joining us this morning. We look forward to our follow-up calls this afternoon. Thanks. Operator: This concludes today conference. You can disconnect your lines at this time. Thank you for your participation.

Operator: Greetings and welcome to The Hershey Company Second Quarter 2025 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. Thank you. You may begin. Anoori Naughton: Good morning, everyone, and thank you for joining us today. 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. Before turning it over, I would personally like to thank Michele for being an inspiring force. Your clear vision and unwavering dedication to excellence have shaped this company and will continue to motivate us for years to come. So with that, let's get started with the first question. Operator? Operator: Our first question is from Andrew Lazar with Barclays. Andrew Lazar: Michele, congratulations to you. Best wishes going forward. And congratulations to Kirk as well as he prepares to take the helm in mid-August. Michele Gross Buck: Thank you. Andrew Lazar: I guess, my question, Michele, is that oftentimes when a new CEO comes in, it can be seen as an opportunity to sort of rebase earnings and margins to set the company up for the next several years, particularly if it's a situation where there's been, let's say, underinvestment. Kirk will obviously come in, get under the hood and make his own determination. But I guess from where you sit, if we put issues like cocoa and tariffs aside, do you see the underlying health of the business as in need of this sort of a reset? And I guess, more importantly, what specifically did you and the Board see in Kirk that made him the right choice? Michele Gross Buck: Sure. So first of all, I'll reiterate, certainly, as Kirk walks in, he'll have the opportunity to form his own opinion. But what I would share is, as you know, Hershey has been a company that has stated our belief in investments in brands and capability over time to consistently ensure that we can drive sustainable growth. And we have proven that we consistently do reinvest during periods of change. As we got hit by some of the record high cocoa prices early on, we stated that our approach was going to be taking a long-term approach to ensure continued category health, and we've done that. We've continued to spend on our brands, we've invested in technology with our new ERP platform, and then new AI and tech-enabled capabilities that have driven significant efficiency, whether in the transformation program or other places. On top of that, we're seeing top line momentum on the business. We have our profit recovery plans well underway, and we'll talk more about that today. So as I look at the past 18 months where we've faced headwinds, I then also look at the future where I would say I see more opportunity given the fundamentals of cocoa, the direction that they're headed in, and perhaps even with tariffs. So if I put all of that together, I don't see a need to really reset. I think we've been consistently investing, and we have momentum on our side. If I look at Kirk and what made him the best candidate. I mean, certainly, Kirk has 3 decades of experience in consumer packaged goods at Pepsi, a leading talent house. He's got very relevant experience in snacking and then also in beverage, which has many corollaries to our business. It's not only an iconic brand business, it's also a pack type business, ubiquitous distribution across channels. So a lot of similarities. He is also very focused on being consumer-centric, customer-centric and the importance of culture in delivering results. So I think all of that and his kind of performance orientation will make him be a great person to continue moving forward our ambition to be a leading snacking powerhouse and continue to deliver sustainable growth. Andrew Lazar: Great. All right. And then a quick one, Steve. Just it appears at least as a starting point in '25, you're looking for elasticity of roughly 1:1 on the new pricing that was recently announced. Is this a reasonable expectation for '26 as well, at least at this stage, just given the magnitude of the pricing being taken? Or how do you assess elasticity when it's certainly a greater amount of pricing than you've typically taken in a situation like this? Steven E. Voskuil: Sure. Yes, as you can imagine, our teams have modeled this exhaustively. And I'd put up our strategic revenue management team against anyone that's very, very thoughtful in the way we've approached this. And overall, the elasticities are probably a little bit more favorable than what we've seen in history. But part of that is because of the breadth. And there are parts, as we know, parts of our portfolio like seasons that are a little bit less elastic. There are other parts more elastic. And so as we set both the pricing assumption and the elasticity assumption, we did that with a very thoughtful modeled approach. Now we'll be watching it closely. But right now, we feel we've got a good beat on how it will play out for this year and next year. Operator: Our next question is from Max Gumport with BNP Paribas. Max Andrew Stephen Gumport: Michele, congrats as well. I hope you enjoy the retirement. At CAGNY, you observed that if your realized cocoa costs in '26 matched your costs in '24, then you could do $10 plus in adjusted EPS in '26. And I realize we're nowhere near that situation currently, and we also now need to factor in tariffs as well, which were not contemplated in that math. That said, with the announced price increase, it does seem like your pricing will very much close the gap to the total COGS inflation that you have seen in recent years in dollar terms, which with regard to EPS might have an equivalent impact as costs falling back to '24 levels. And also your comment of the price increase and other initiatives supporting 500 basis points or more of gross margin expansion in '26 before considering partial offsets from cocoa cost and tariffs would support that reasoning as well. So I'm hoping you could provide a bit of a finer point on how to read the impact of this pricing for next year and what it might mean for your P&L specifically if cocoa futures were to hold at current levels. I realize there's a lot in there, but I'm hoping for a bit of an update on that. Steven E. Voskuil: Sure. I can definitely give some perspective. So you're right. When we gave that back at CAGNY, talked about $10 and $12 possibilities with assumptions from '25 and '24 carrying forward without inflation. Some things have changed since then, tariffs being the biggest one, right? Tariffs wasn't contemplated at the time of that thinking, and that will continue to be something that we have to work to optimize while also working to see if we can get relief, particularly on the cocoa component of that. But that aside, this pricing move does make a material impact in the right direction of margin recovery for 2026. It does not, by itself, recover all of the cocoa inflation that we have seen up to 2025. So it's a big step in the right direction, but it's not enough to fully compensate for cocoa inflation up to this point. As we look forward, all of the other levers are going to continue to be important. We talked about, in the prepared remarks, smart complexity. You've seen us take our transformation savings up. We're going to continue to look at all of those levers to extract more cost savings and margin points so that we, over time, do fully recover our margin expectations. But this price increase, while significant, doesn't get us all the way to flat year-over-year. Now having said that, some things do feel more optimistic than maybe they did even on our last call. Cocoa has come back some. And like everyone, we're trying to be thoughtful as we execute our hedging program and plan for cocoa next year. It is still inflationary from what we know today, but it's taken a step in the right direction. We'll continue to optimize tariffs. But if we could get relief and either tariffs or cocoa reverts back, either one of those could give us a path to something better than on-algorithm earnings for 2026, which is a little bit different than probably we thought in our last conversation. Max Andrew Stephen Gumport: Great. And then just related to the pricing, how should we think about any need for incremental reinvestment next year to support that price increase and keep the consumer coming into your brands and your franchises? Steven E. Voskuil: Yes, into our pricing assumption, Michele touched on this already, we always want to make sure that we're investing back in the brands, that we're investing on competitive events with our customers. We've got a big innovation calendar already planned for next year. We've got some big tentpole events around Olympics and the Hershey movie. And so we feel like those will be fully funded. And of course, we'll be agile when we get into it. And if we do see pressure in some spots or the elasticities are not what we expected, we can revisit. Operator: Our next question is from Megan Clapp with Morgan Stanley. Megan Christine Alexander: Congratulations to Michele as well. I wanted to ask about the nonseasonal performance in CMG in the quarter. I think you talked to mid-single-digit growth in the quarter. That's better than we've seen previously, and you still have a lot of activations planned for the second half. And I think you were expecting some incremental shelf space alongside some of those plans in the second half. So maybe, a, you could just expand on what you've seen in that nonseasonal portfolio in the second quarter and what's driving the acceleration? And then, b, how you're thinking about second half growth and kind of the puts and takes? Michele Gross Buck: Sure. So first of all, we're feeling very good about what we're seeing on overall chocolate category growth. And there are really 3 key factors that we think are driving a lot of what we're seeing. First of all, innovation. The consumer has really responded to innovation. As the consumer looks for value, significant innovation makes a difference and delivers value. And there's been a lot of investment in innovation across the category. Secondly, we do know that our products provide emotional well-being and comfort during stressful times. And we've seen some correlations as we look at studies that are out relative to consumers' mindset and emotional well-being and where we're seeing growth tick up in the category. We also have had some periods where we were lapping some soft comps, and that helped us relative to every day as well. But I think those overall trends tend to be some of the biggest drivers. And then certainly, we also have seen some nice tick up from how we approached instant consumables and some of the choices that we made to really partner with retailers to broaden shelf space and innovation on instant consumables. And we saw some very strong positive results and growth behind those programs. And we think as pricing hits the market that we will only see that growth kind of maintain and become a bit stronger. So we feel really good about what we're seeing. That said, I would say we're not sure that we will see the category stay at the same level of growth that we saw in Q2. Some of the year-on-year comps will get a little bit tougher. Megan Christine Alexander: Okay. That's super helpful. And then maybe just a follow-up for Steve to the answer to Max's question. I think you said if relief in tariffs happen or cocoa reverts back, you could get to better than on-algo for '26. So I guess, is it fair to say at this point, you do expect you could deliver on-algo growth versus the updated '25 guide in 2026? Steven E. Voskuil: Yes. Based on what we can see today, and again, things like tariffs are rapidly moving. But based on what we can see today, yes, we see on-algorithm earnings growth and top line growth for next year. Operator: Our next question is from Peter Galbo with Bank of America. Peter Thomas Galbo: Congrats to Michele as well. Michele, maybe I wanted to take the tariff discussion in a little bit of a different direction. I think last quarter, you started hinting at some conversations that you all had been having as it relates to potential exemption. I think the Commerce Secretary even made some comments yesterday about cocoa potentially getting exemption, or at least in his words. So just curious if you can give us an update there in terms of the discussions that you're having and kind of how you've maybe seen that evolve relative to 3 months ago? Michele Gross Buck: Sure. So I would say that we are even more optimistic now. As we've had conversations over the past several months, we have become increasingly comfortable that the government administration understands some of our concerns about the fact that cocoa can only be grown and sourced outside of the U.S. And so we feel good that they really understand that issue broadly, and we have started seeing more commentary -- more publicly addressing that, like the comments that Secretary Lutnick made just yesterday. And we believe that gives us a lot of optimism. We understand that there are still country negotiations that are underway that have to come to fruition. And so the whole cocoa tariff has to be a broader part of that, but we are optimistic relative to the fact that there are now public statements being made about this issue. Peter Thomas Galbo: Great. And then if I can actually pivot to Halloween. I think in your prepared comments, again, there was a little bit of maybe a pull forward on shipments from Q3 into Q2. Just want to understand that dynamic. But then also, I believe you had pretty optimistic outlook for Halloween. So I just want to understand kind of what's underlying that view as we get into that season. Michele Gross Buck: Yes. So I wouldn't make too much of those accelerated shipments. We see shifts over the years between when Halloween shifts between Q2 and Q3. That's not uncommon. Some years the customers want to set the category a little bit earlier, and that's actually a good thing for us. We think we also may be seeing a bit of this mid-summer wean in. There's been a social media trend around summer wean, which is earlier Halloween celebrations, which has really somewhat taken off with certain consumer groups. So we know that some customers are focused on that. As we talk to customers, we feel really good that there are plans in place to deliver another strong Halloween in '25. Retailers are definitely excited to set the bar higher this year and continuing to deliver an exciting season for the customers. Operator: Our next question is from Jim Salera with Stephens Inc. James Ronald Salera: I wanted to shift gears and maybe ask a little bit on the salty snacks piece of the portfolio, because salty as a category has been pressured this year. And yet it seems like you guys are seeing strength in both Dot's and SkinnyPop, which I think play in kind of different value propositions, one obviously more better for you, one more indulgent. Can you just speak to what you're seeing there that's allowing you to deliver kind of above category trends? And then maybe speak to any opportunities to increase multi-back distribution because that's something you guys called out in the prepared remarks. Michele Gross Buck: Yes. So first of all, both Dot's -- pretty much our entire portfolio in salty snacks does have a permissible and premium halo. Popcorn, clearly, SkinnyPop is pretty obvious. But as you think about pretzels, pretzels are perceived as better for you than many other salty snacks. So even Dot's has a bit of that permissibility halo. Across those businesses, we just continue to see strong consumer acceptance and momentum. As we bought those businesses, they were relatively nascent. So continue to have upside in driving household penetration, just getting more consumers to be aware of the brands, continued opportunities to gain distribution. And now we've really dialed up the marketing with new packaging on SkinnyPop, our Jennifer Aniston program, exclusive flavors on Dot's like Buffalo that have generated a lot of consumer interest and fit into some important tentpole events around sports and football. And then price pack architecture has been another opportunity of just continuing to fill out all the sizes and price points. So between flavor innovation, price pack architecture, engaging with the consumer, there just continues to be momentum. And we've also launched some innovation that is kind of between the seams of some of our categories. So for example, Reese's peanut butter filled pretzels, which has recently hit the market, which is a phenomenal product that leverages our sweet and salty together. And then you hit multipacks, and I'd say that's just another lever of growth. Frankly, multipacks are of significant size in salty snacks, and we're really filling out our portfolio there, both in terms of single items as well as leveraging the breadth of our portfolio to deliver. So we're continuing to expand the SKUs in that space and gain more distribution there. James Ronald Salera: Great. And maybe just one more thought on multipacks. Are you able to leverage some of the innovations that you have and kind of package that together in sort of kind of an innovation-centric multipack offering that would highlight some of the different innovations you have across the portfolio and make that a little bit more front and center and maybe allow the consumer to kind of try all your innovations in one package? Michele Gross Buck: Yes, we certainly can combine across the portfolio. For example, we've done a Reese's one that we put together that included our Reese's animal crackers, our Reese's filled pretzels. So yes, we're doing a lot of consumer insight work to optimize what are the most compelling combinations across our portfolio. And we've really just gotten some of these multipacks into the market. So this is an area where there's a lot of upside ahead of us. Operator: Our next question is from Robert Moskow with TD Cowen. Robert Bain Moskow: And I just want to extend my congratulations to you, Michele, for such a great track record and creating so much value at Hershey over the years. I wish you the best. And I wanted to ask, though, about the instant consumable part of the business. I think you say in the press release -- or the transcript that everyday chocolate as a category was up 6.7%. Your everyday chocolate is up less than that. And I wanted to know how you would gauge your competitiveness in that segment of the market right now. I thought this is the part where you felt like you had more work to do. Are you seeing any improvement? And then one extra thing. I think you said that you thought that the category growth rate may not be as strong in the back half because of comparisons. Can you be more specific what those comparisons were? I don't recall from last year. Michele Gross Buck: Yes. So I'll start on instant consumables. We do feel like we have made progress there, and our numbers demonstrate that in instant consumable, we are now gaining share and growing ahead of the category. We feel good about the actions we put in place relative to partnering on our gold standard planograms, which enabled us to expand distribution, get more breadth of our portfolio on the shelves to make the shelves even more productive. And we think that, that will continue going forward. So we feel good about the program that we committed to and executed in the first half of the year. Take-home is where we have seen some pressure. That's where we've had more pressure on the business, particularly from private label and some of the better-for-you and insurgent brands. And it's one of the reasons that as we launched Oreo, we're really focusing on take-home because we believe innovation is what's really needed to capture shelf space and to capture the consumers' mind share of the take-home set. Relative to year-on-year comparisons, the comparisons are particularly tough in Q4, as that's when we really started to ramp up our big innovation for '25 at the end of '24. So that's really what's driving that lap. Operator: Our next question is from Alexia Howard with Bernstein. Alexia Jane Burland Howard: Congratulations, Michele. Wishing you all the best for your retirement. And welcome to Kirk. First question, could you talk about the pace of innovation and how it stepped up over the last couple of years? It feels as though you're really firing on all cylinders now. And I'm wondering if you're able to quantify exactly how things have stepped up? And are you at the pace that you would like to be after maybe a quieter period during COVID and the global supply chain reductions? Michele Gross Buck: Yes. So you're absolutely right about that. We have dialed up our innovation. We measure our innovation as a percent of net sales and try and target where we think we need to be to really fully leverage that innovation without overleveraging innovation at the expense of the core, because we know the core is highly profitable and want to make sure we're focused on that. Our levels are up significantly versus 2019. What we're seeing in the category, frankly, is a little bit more innovation is absolutely necessary in order to compete, particularly for shelf space, with some of the insurgent brands and also private label. And innovation is also perceived as value from the consumers who are looking for value. So I do think that we've done a really nice job of getting to a good stride as we look to '26, and also getting innovations out there that we do think can really play a sustainable role in the category. If you think about the innovation that we've put forth in sweets, around Jolly Rancher Ropes, Freeze Dried, the Shaq brand, our M&A in Sour Strips, really strategic in terms of hitting new consumers and new occasions. And then also some really big innovation such as the Oreo one that we announced that we think gives us a good blend of news, incrementality and disruption. Alexia Jane Burland Howard: Great. And as a follow-up, it seems to me that there may be some incremental headwinds to consumer demand in indulgent snacking as we enter 2026, the GLP-1 pill version coming out, potential SNAP benefit reduction at the individual state level in terms of what SNAP can be spent on and soda and candy maybe coming out of that. How are you thinking about that as a potential impact next year? Obviously, the innovation, the marketing are obviously going to counter that. But is that something that we should be factoring in? Michele Gross Buck: Yes. So I'd say, first of all, relative to GLP-1s, we continue to see no material impact in '25. Certainly, we are always monitoring very closely. But at this point, we're not expecting it to be significant in '26. We broadly look at the consumer trend as it relates to health and wellness. As you know, there's been, over time, a continuous pressure of consumers being more and more interested in products that have those types of benefits. And as well, we always watch kind of the national conversation around health and how that may evolve and change anything. So we're closely monitoring that to make sure our portfolio has offerings that appeal to all consumers' desires. As it relates to SNAP, the way that the rollout is slated, we aren't expecting material impact in '26 and '27. Frankly, given the choice of reducing SNAP or removing CMG, we're less concerned with removing CMG, because it does still give the consumer SNAP dollars to fund their groceries, but they can also choose to spend on confection. As we look beyond '27, it is something that we are monitoring to factor into our planning. Operator: Our next question is from Leah Jordan with Goldman Sachs. Leah Dianne Jordan: Just wanted to go back to the pricing discussion, see if you can help us understand the phasing of the pricing actions you're making in the back half and into '26. And I guess, ultimately, why does taking this magnitude of pricing make sense now given the assumption for 1% elasticity as it's often just better to keep people in the category versus trying to win them back later? Michele Gross Buck: I mean, I'll start and throw it over to you. So certainly, I think pricing makes sense as we look at the continuous pressures that we've had from cocoa pricing on our P&L. We are committed to margin recovery and pricing to cover inflation over time. So that is part of our long-term strategy. We've said all along we were going to watch prices. And certainly, if we could delay taking an increase, do so, but we think that's important. We also believe we're still delivering, and we know we're still delivering compelling value across our portfolio. Over 75% of our items are under the $4 price point. And frankly, we're in pretty good shape on that as we look at where we are relative to the other snacking options in the marketplace. As we think about 2025, in particular, in terms of impact of pricing, if you think about the rest of the year, we have about 40% of our second half orders that aren't impacted by pricing, given the predominance of seasons in the back half. So between seasons and then also the support behind Oreo and the momentum there, we're not going to get as full an impact in the back half. Steve, I don't know if you want to talk about anything more broadly going forward. Steven E. Voskuil: Yes. I would just say that for this year, the impact is about 2 points to the enterprise on the top line. And then obviously, most of that is going to be in the fourth quarter. And then as we look to next year, it's more mid-teens impact. About 80% of the profit benefit will happen in '26, with a little bit of flow-through to '27 on seasons. And the first season to be impacted will be Easter '26. So hopefully, that gives you some idea of the profile. Michele Gross Buck: The other thing I would just add is we view pricing as a strategic way to allow us to continue to invest in our brands and to drive the long-term health of the category with new capabilities, et cetera. Operator: Our next question is from David Palmer with Evercore ISI. David Sterling Palmer: Congrats, Michele. And also congrats to Kirk, and welcome. A quick follow-up on the pricing. Does that mid-teens pricing, is that inclusive of tariff-related pricing? I'm assuming so. And if so, what happens if we do see that exemption from cocoa in the near term? Does that get adjusted? How should we think about that? And I have a follow-up. Steven E. Voskuil: Sure. Yes. Just to be crystal clear, the pricing has nothing to do with tariffs. This is strictly a catch-up on cocoa component. And as we said, we're not fully caught up even on the '25 inflation yet. David Sterling Palmer: All right. So are you currently having discussions where you're talking about 2 different levels if we see -- I mean, is there a dual track discussion happening on that through year-end? Because I would imagine there's one window. So how are you thinking about that? Steven E. Voskuil: Yes. I think it's too early. This is now in the market. As we talked about earlier, we want to make sure we execute this with excellence, see what the elasticities look like, and then see what happens. We said we have some optimism relative to tariffs going forward, particularly on cocoa, and we'll continue to watch the cocoa markets, but too early to think about that next step. David Sterling Palmer: And you mentioned 80% of that would flow through next year in the previous answer. If we just were to back up and just look at that North American confectionery price mix flow through in '26, what sort of flow-through should we be expecting from that level of pricing in '26? Steven E. Voskuil: I think we're going to begin to see mid-teens. Again, overall for U.S. CMD, we'll start from the first quarter. And then obviously, as we talked about with Easter being the first season, there will be a pretty quick start with the new pricing next year for that business. David Sterling Palmer: Got it. So we should be expecting double-digit price mix to be flowing through in '26, starting in '26? Steven E. Voskuil: That's right. Yes. Operator: Our next question is from Michael Lavery with Piper Sandler. Michael Scott Lavery: Congrats as well, Michele. Just wanted to come back to the color you gave on the 2026 gross margin recovery. Can you give a sense -- you've talked about how it reflects the pricing and the cost savings. But can you give a sense of what assumptions that reflects for cocoa and maybe how much you're already covered for 2026 at this point as well? Steven E. Voskuil: Sure. Yes, we won't share specifics on coverage for 2026 other than to say our policy hasn't changed. We continue to follow our policy. We still have an expectation, as we talked about, that cocoa is ultimately going to come down. So we're factoring that into our thinking around coverage and the structures that we're using to hedge. But we are still, based on what we see today, seeing inflationary cocoa for '26. And again, part of that's based on some of the hedging benefits that we carried into '25 and off that base into 2026. Now we'll watch closely what happens with cocoa in the balance of the year, and that could move around. But right now, we're expecting it to be inflationary. Michael Scott Lavery: Okay. That's helpful. And just as far as a follow-up on the tariff mitigation. You mentioned you're not obviously pricing for that yet. You said that you will mitigate your tariff exposure over time if they endure. Is that just pricing? Or do you have other levers? What do those plans look like? Steven E. Voskuil: Yes. Right now, we're focused on what we can do in the supply chain. We've got the benefit of a very agile supply chain. We've invested a lot in agility, automation, a lot of cross-border opportunities. And so we're going to continue to optimize the supply chain part of this. We've done some of that already. I will say for this year, the impact is relatively small. But as we go forward, that's going to be, I'll say, the principal focus until we see what happens with tariffs long term. Michael Scott Lavery: Would that be just a different country of origin shift? Or what supply chain flexibility is there to impact the tariffs? Steven E. Voskuil: Yes. I mean there are impacts of where we manufacture. We've got capacity here in the U.S. for some things. It's a mix of what we in- source, outsource, and what countries that is located in. So it's sort of all of those things. Operator: Our next question is from Scott Marks with Jefferies. Scott Michael Marks: Again, congrats, Michele, on a great career. And congrats to Kirk coming in and taking over. I wanted to ask a little bit about the cocoa supply dynamics. You made some comments in the prepared remarks around some investments in new origins. You made some comments about Ivory Coast seeing an increase in fertilizer usage. So just wondering, as we think about maybe the go-forward supply, how much recoveries may be expected to come from that West Africa region relative to how much is expected to come from sources outside of the West Africa region? Steven E. Voskuil: Sure. I mean, as we talked about, I think overall, we feel there are good signs on the cocoa market, some of which we're seeing now and some we expect. You saw data recently that grinds have come down substantially sort of high single digits and could be heading lower. Butter ratios have come down from their peak, suggesting some inventory building there potentially. The current crop, we continue to expect a modest surplus and see next year's main crop looking quite strong. So I'd say all of those feel good at this point. As we talked about in the prepared remarks, we're seeing more fertilizer use, some better agriculture practices as it's more profitable to farm cocoa. And then to your question, I think we're going to continue to see the origins outside of West Africa continue to invest and play a larger role. Of course, we've been pivoting into that space already as many others have as well. And I think those other origins have responded by investing more and kind of picking up some of that mantle of a bigger role. We also have seen more recently speculators have reduced positions and so forth. So I think we can get to a potential larger surplus without further recovery in West Africa and new origins growing double digits and demand continues to decline. So I think we could see more of a fall in the second half. Scott Michael Marks: Got it. Appreciate the answer on that. And then last one for me. Just you made some comments about convenience stores, obviously, traffic still being down, but you were still able to grow parts of your instant consumables business there. Just wondering, as you think about maybe the go forward in C-store, what kind of response have you had from convenience retailers in terms of some of your new initiatives and innovations? And how are you thinking about the outlook for that space? Michele Gross Buck: Yes. I mean we've had very strong results from the retailers relative to those new initiatives. As we shared in the script, some of the gold standard planogram has certainly resulted in significant category growth for retailers. And we always go to the retailers with programs that we believe will not only grow our own business, but will actually grow their category, because that's a win-win for both of us. And we know that we've seen significant high single-digit growth in the categories where we've put those plans into place. So there's a lot of momentum with the programming in place. On top of the momentum we already have, we have innovation coming in the second half, which should further advance the momentum and growth that we're seeing on the portfolio there. So even if there are continued declines in trips, I think what we feel good about is that we've been able to still drive our business and drive conversion despite where trips are. Operator: Our next question is from Chris Carey with Wells Fargo Securities. Christopher Michael Carey: One quick modeling question, then something more strategic. On the modeling dynamic, which, well, just has an impact on your model, the tax rate coming up for the year, some evolution of tax credits. Steve, is that a permanent dynamic going forward? Or is that unique to the year? Just maybe a couple of sound bites on what drove that evolution and how durable it is? And then I have a follow- up. Steven E. Voskuil: Sure. Yes, happy to take that one. The tax has been a challenge. We talked about it in the first quarter call as well. And I think as we get to this point in the year, it's been even more of a challenge. It's very hard to say what is, in the tax world, as much as changing right now, what is permanent. And so I can talk about what's happening now and how we think about it for '26 a little bit. But the biggest factors right now are a couple of things. One is, we've talked about before, our teams are being very creative in areas like cocoa sourcing and procurement. And those drive a great ROI for the company, but there are some tax consequences relative to our overall rate that are a bit dilutive. So that's one factor. And I would think about that as -- I don't know that I'd say it's sticky, but it's certainly a piece for this year, and I would imagine we'll see some of that next year. A second piece, and you mentioned the tax credit strategy. The tax credit strategy is impacted by 2 things. One is our income is lower. And so there are limits on how much tax credit availability we have with that income level. And second, with all the change in the world of tax right now, some of the returns we're seeing on tax credits just aren't up to the standard that we look for when we pick those investments. And I would see that as also being sticky. I think in the near term, there's not going to be a big change. And that's why you see the dial down between other income and expense and the tax rate kind of going in the opposite direction. And all of those together probably give us a 250 basis point headwind on economic tax rate right now that I would expect to carry forward into 2026. So that's the way I think. Beyond that, it's difficult to say. I mean, this is an area that's still evolving pretty quickly. Christopher Michael Carey: Okay. Very helpful. Regarding 2026, it's a bit of a multilayered question, so apologies, but you have these great initiatives in place that are going to give you what sounds like a gross 500 basis point benefit to gross margin. When you think about the offsets which would get you in that sort of algorithm earnings growth next year, is there a way to frame how much you're thinking about that, which is tariffs relative to lingering cocoa inflation relative to the pricing that you're taking? And then just connected to that, one of your peers reported last night, and we're seeing some, I guess, impact some months forward of more substantial pricing, which has been taken in Europe, and some of the elasticities, which are starting to emerge. Are you able to leverage those pricing actions in market and the volume impacts that we're beginning to see from an elasticity standpoint to, I guess, better serve you as you think about your own elasticities ahead of this kind of like substantial and appropriate price increase going into next year? So thanks for the gross margin and elasticity. I appreciate it. Steven E. Voskuil: Sure. Well, maybe helpful on the EPS side, taking the first part of your question and just kind of walk through some of the puts and takes on '26 EPS. And again, kind of starting to say we can see a path now to being on-algorithm. And if a few things were to break, potential for more than that. But if I just step back on EPS, obviously, we're going to have pricing coming through next year. We're going to have increased productivity and higher transformation savings. That was one of the things we called out on the call this morning. We'll see some greater scale in our core brands. So this is part of that smart complexity initiative that we referenced, being very thoughtful about how we leverage the core and drive the core. And that also leads to some margin accretion. And then we'll continue to press on tariffs relative to the cocoa exemption, and that's sort of out of our control, but continue to lean there. As we talked about on the last question, tax is going to remain high. So I don't see that being any better next year. I probably look at that as a push to next year. And then on the other side, the delta, obviously, we talked about incremental cocoa inflation. Elasticities, we'll see what we're going to see there. But along with those elasticities, we'll have some absorption impact into the P&L. That is factored into our outlook in that 500 basis points, but that's something we have to account for. And then tariffs can also be a negative if they would happen to go the other way. So those are the kind of big moving pieces inside the puts and takes. On the elasticity question, I think right now, we want to see how our assumptions in the market play out here. And like I talked about, I think, in an earlier question, we'll pivot if we need to, if we see something concerning on elasticities. We're investing behind our brands, strong innovation agenda. So everything is in place to make this a success, working closely with our customers, but we'll remain agile as we see this in the market. Michele Gross Buck: Yes. I mean at the highest level, I think Steve said this before, but we feel good about being on-algorithm for '26. And as we look at the puts and takes in the marketplace, we think that there are multiple paths to us seeing EPS be well into that double-digit range, pending what happens with tariffs and cocoa costs, which, of course, are the 2 biggest factors. That is with current cocoa and tariffs as they are that we achieved that on-algo. Operator: Thank you. There are no further questions at this time. I would like to turn the conference back over to Ms. Naughton for closing remarks. Anoori Naughton: Thank you all for joining us this morning, and we look forward to connecting over the coming days. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Operator: Greetings and welcome to The Hershey Company First Quarter 2025 Question & Answer Session. [Operator Instructions] At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Senior Director of Investor Relations for The Hershey Company. Thank you. You may begin. Anoori Naughton: Thank you, and good morning, everyone. Thank you for joining us today for The Hershey Company's first quarter 2025 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remark. 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 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 for the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi. Thank you. And I appreciate the help on your 2Q tariff expense. Just appreciating the fluidity of the situation and that you're taking some mitigating actions including trying to get an exemption. Is there a rough way for investors to think about the risk ahead if an exemption doesn't immediately come through? And I guess I'm trying to quantify what might not be currently quantifiable, but I guess any help in thinking about the level of risk in 3Q and 4Q might help to diminish some of the uncertainty on the stock? Michele Buck: Steve, do you want to take that one? Steve Voskuil: Yes. You bet. Thanks for the question, Ken. Yes. So for Q2, I'd say we have enough clarity this year that 15 to 20, as you'd expect, we've got a lot of inventories. So that mitigates some of the impact for Q2. As we look to the back half, as you said, I'll start by saying it changes constantly and that's part of the reason for not sharing it in the release. But if we look at the unmitigated impact for Q3 and Q4, and of course, we are going to mitigate, we'll talk more about that in a minute. But the unmitigated impact could be up to $100 million per quarter for quarter three and quarter four. If you break that down, two-thirds of it are either Cocoa or the Canadian retaliatory tariffs. And those are the two areas where, as you can imagine, we've got the most effort focused on influencing government action, using every lever at our disposal to get those tariffs changed, particularly with respect to Cocoa. But that's the impact of unmitigated. And as we've talked about in the past that we're going to use aside from the lobbying and the influencing and so forth, we're going to use every lever in the toolbox for whatever amount of tariffs remain as we go forward in the back half of the year. And we'll be in a position to share more specifics about those actions and kind of get to the mid-year mark. But as we've said before like all of the levers are on the table as we look at mitigating both Cocoa and that incremental tariff component. Michele Buck: Yes. And Ken I just add in all that work is well underway, exploring every lever productivity, pricing, sourcing, manufacturing changes, all of that? Ken Goldman: Got it. Okay. That's very clear. Thank you. And then a quick follow-up. You said to expect 2Q EPS to decline by less than 1Q, just on the Easter season timing and some ERP reversals. 1Q was down obviously pretty heavily over 30%, but the Streets modeling 2Q down less than 2%. Again, I know there's some uncertainty here, but how would you like us to think about the magnitude of that decline just in light of some of the tailwinds and headwinds you mentioned? Steve Voskuil: Yes. So I'll give you a couple of things. In total for the first half, we expect EPS to be down about 30%. So if you kind of take the full year guide at mid-30s, also implies the back half probably down about 40%. If we go a little bit deeper on the second quarter, as you mentioned, the net sales side will be very strong with the long Easter and the lap of the deload last year with the ERP change. For the second quarter, we expect gross margin to be down about 700 basis points and that includes that small tariff component that I mentioned earlier. And we also expect SG&A dollars will be up meaningfully. And part of that is last year, we didn't spend much on marketing and so on as we came out of the ERP transformation. So you can expect that this year, we'll have high teens year-over-year SG&A growth in the second quarter, just reflecting that bigger lap. So gross margin was probably the biggest change relative to the Q2 outlook. And as you mentioned, there's some noise there with the new ERP system and basically how we manage commodity cost to the P&L across the quarters. But on a full year basis, it has no impact. Ken Goldman: Thanks so much. I appreciate it. Steve Voskuil: You bet. Operator: Thank you. Our next question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks so much. Last quarter in the prepared remarks, you mentioned an outlook for balanced top and bottom line growth in '26. And on the call last quarter, I think you mentioned an expectation for earnings growth next year even at current Cocoa levels. In today's prepared remarks, you mentioned some actions that you'll take next year, but don't go as far as to discuss earnings next year. And I'm just curious if you're thinking on that front has changed. Steve Voskuil: Yes. I would say our thinking hasn't changed. We still see a path to earnings growth next year even with tariffs as we currently understand. And now I will say, the next breath that path is narrower. It's more challenging and it's going to point to the importance of the mitigation of the actions that we're going to take as we get further into this year, but we still see a path to earnings growth next year and that balanced growth formula for '26. Andrew Lazar: Got it. Okay. Thank you for that. And then I know your pricing actions this year have been a bit more nuanced, right, in an effort to sort of gain some incremental shelf placements, maybe especially in the instant consumable space. And I'm curious if you're seeing any benefits there as of yet? And if so, how do you I guess, or how should we think about the progress you expect on market share as a result of that specifically in CMG in the coming quarters? Thank you. Michele Buck: Sure. So Andrew, thanks for the question. I guess a couple of components of that. First of all, if we think about instant consumable. We have seen already some improvements in trips in C-Stores. So January and February were the worst months. Then we started to see a little bit of moderation. In April, we started to see some green shoots on our instant consumable business as we've started to see some signs of incremental merch placement that are having an impact and as we've said more of that to come as we approach the back half of the year. We have visibility to some incremental programming as we look forward into the summer and fall. And we also, of course, know that we have very strong robust innovation that will really help to drive the business. So while we haven't built into our numbers any other further potential upside. We do think as the consumer continues to be more pressured and air travel pulls back, we will likely see some increase in car travel, which could benefit C-Store, though we haven't built that in. As we look at market share, yes, we're very pleased with where we are on a year-to-date basis. We had anticipated all along that Q1 would be a little bit softer, Q2 stronger given the shift of Easter. We're really pleased that our year-to-date share is now positive as we've captured that positivity of the later Easter. And we continue to expect share to be neutral to up in the second half, driven by our continued outperformance in sweets where we're really pleased with the momentum we've got there. Our business was up 10%, up 100 basis points in share. And then we've seen continued strength in seasons and we anticipate continued improvement in the trends in chocolate and refreshment given the programming to come. Andrew Lazar: Thanks so much. Operator: Thank you. Our next question comes from the line of Max Gunport with BNP Paribas. Please proceed with your question. Max Gunport: Thanks for the question. There might be some rounding involved with this question. But at the midpoint, your guidance seems to apply that pre-considering tariffs. Your expectation for EBITDA has gone up modestly. So if that's correct, just any factors you're seeing that have made you a bit more optimistic on the base business or really is there just some rounding going on in terms of the what we might be seeing in the guidance? Thanks very much. Steve Voskuil: Yes. Thanks for the question, Max. It is really rounding. Fundamentally, we're still aligned with the outlook for the significant change. Max Gunport: Great. And then on the US consumer and snacking pressure in particular. So the prepared remarks had comments about the softening consumer sentiment and value seeking behaviors you're seeing. And it sounds like that's really what you would attribute the weakness in snacking that we're currently seeing. But I'm wondering if you're also seeing any impact from changing consumer preferences and healthier eating. I think those are the types of dynamics that have helped inform some of your recent M&A actions. I'd be curious to get more color on what you're seeing on that front. Thanks very much. Michele Buck: Yes. So let me start by saying, yes, overall, certainly, we're seeing, a weak consumer, consumer confidence down. Fortunately, we aren't really seeing that impact show up in our categories. CMG has held up incredibly well. Part of that is, of course, chocolate in particular plays a very important emotional role in people's lives. The connectivity they have to the brands, especially in troubled times and especially in our seasons business. As we look at Salty, certainly the business has held up really well relative to it being premium and permissible. And we've also been really very pleased to see that elasticities have held up really well in the category. On a year-to-date basis, everyday chocolate pricing is up 8%, volume is down 4.5%. So we think that's really another good indicator of the category holding up incredibly well. Max Gunport: Great. Thanks very much. I'll pass it on. Operator: Thank you. Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Thanks. Good morning. It looks like seasonal chocolates going to be strong in the first half as you had expected. I wonder, it looks like you have bigger plans for everyday chocolate heading into the second half. I think you mentioned that you expect improvement there. Do you think you can get to growth in your nonseasonal chocolate business in the second half? Michele Buck: Yes. We are feeling good based on the plans that we have that, that is going to come through. We've mentioned before, very strong innovation that we haven't yet announced in the back half of the year that we think is going to be certainly a key driver. We have and are expecting low-single-digit growth in everyday CMG. David Palmer: That's great. And then on non-chocolate or sweets, you're doing really well there. I'm sure maybe now you wish you were bigger in that category at this very moment, but I wonder how you're thinking about that strategically. Is that category having a moment with perhaps some new forms out there really driving growth for you and you're gaining a lot of share or maybe do you think this is a platform that has legs like long-term? This isn't just a moment where you're getting some hits with forms, but rather this is a category that should outperform chocolate over the long-term? And I'll pass it on. Michele Buck: Yes. So I absolutely believe that this is not just a moment in time on sweets. It has long-term growth potential. Some of what we're seeing is a strong interest in consumers and in their palettes for these types of products. Some components of that are generational and demographic as we see younger consumers and also young diverse families being big consumers of this segment. And I think we've also seen in this segment the power of great innovation and really creating growth, whether it's the new brands that we've put in the marketplace like Shaq, new forms like J.R. Ropes or Freeze Dried and we have further plans to continue to grow and innovate there. David Palmer: Thank you. Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question. Robert Moskow: Hi. Thanks. I saw the news about the ribbon cutting at the Reese's chocolate processing facility and I know that you're now at the tail end of your billion dollar expansion plan for chocolate expanding capacity. But Michele with Cocoa futures really stubbornly high and a weaker consumer environment, I would imagine the volume outlook for chocolate must be lower than what was originally expected a few years ago when the capacity expansion started. So forgive me if you've talked about this before, but if you and Steve could help square those two things, like if the plan was, say, to expand capacity on chocolate by 10%, but volume has got to be lower than what you thought. How do you still make that capacity expansion work for you financially? Michele Buck: Yes. So this new plant really allows us to be much more agile and gives us flexibility across the network. And, what we are producing at this plant is chocolate paste, which gives us stronger control over our supply chain and more vertical integration. So we came into COVID capacity constrained. And, as you know, we had several periods of time where we weren't able to meet demand, especially in seasons. And the billion dollar investment really helped to get us caught up, and we're already seeing that benefit show up in seasons where our growth has been significantly higher because we've really been able to capture some of that, and that's what's been able to gain share every season for the last eight. And also on Reese, that's where we're most underdeveloped or under leveraged on capacity. We're now able to invest for even bigger innovation. Robert Moskow: Okay. Thank you. Michele Buck: Thanks. Operator: Thank you. Our next question comes from the line of Jim Salera with Stephens Inc. Please proceed with your question. Jim Salera: Hi, Michele. Hi, Steve. Thanks for taking our question. I wanted to maybe drill down on something that we've been hearing recently from HHS in talking about potentially putting some restrictions on what people can buy with SNAP dollars. Two part question. One, are you able to quantify what percentage of your sales are purchased with SNAP dollars? And then do you have a sense for how wide ranging some of those restrictions might be? Because it seems like the administration's focus is really around artificial ingredients or highly processed food. And if I just think about the ingredients in a Hershey's Kiss or a milk chocolate bar, there really aren't that many. And so while it might fall under candy, it might still be included given that it's basically natural. Just any thoughts on that and if you could quantify what the potential impact that might be? Thank you. Michele Buck: Yes, absolutely. So first of all, we're watching how the implementation plays out to get full clarity on exactly how it will work. But based on our current understanding, we don't anticipate a material impact to our business. First of all, we don't over index to SNAP relative to the category of food in general. In fact, only about 2% of SNAP purchases are candy, which is well below many other categories like Soda, Salty Snacks, Desserts. And so we see pretty similar buying matters between SNAP and non-SNAP households and certainly in Salty our portfolio is premium and permissible. So we don't anticipate that, well, the overall category may have an impact. We don't think that, that will impact us. And as it relates to kind of the broader -- your question around natural ingredients at kind of the Maha components of all of this. Our highest priority is always around safety and quality of our products. And we proactively try to stay ahead of where regulation might be headed and we've been ahead of some of the changes that have been needed like propylparaben banned in California. We were ahead of Red Dye No. 3. So we've had work underway on natural coloring for quite some time. Chocolate should be less impacted, you're correct, if you look at the ingredient labels, a lot of our products really are pretty simple natural ingredients. Some of the areas that might be impacted by this are mostly in the sweets portfolio. Jim Salera: Okay. Great. And then maybe just as a follow-up to that. In your conversations with your retail partners, do you get a sense that when they're putting together the planograms that they kind of have an eye towards maybe favoring products that would broadly fall under kind of snack food but have less exposure to artificial ingredients or things like that and could that potentially be a benefit as we think about shelf resets as we move into the back half of the year? Michele Buck: I mean, I think it could be. I think they're always going to look at what is going to have the highest velocity and make their shelves as productive as possible. Perhaps some of it could be can every manufacturer move as quickly as needed to be on top of the changes but they will always focus on what consumers want and we know that the importance of focusing on health and wellness and functionality as well as the value of indulgence will continue. Jim Salera: Great. I'll hop back in queue. Thank you. Operator: Thank you. Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question. Peter Galbo: Hey, good morning, Michele and Steve. Thanks for the questions. I just wanted to circle back actually on Ken Goldman's initial question around kind of the tariff thinking. And Michele, maybe just even from reading in the prepared remarks it reads to me like maybe there was a big internal debate as to whether to include the impact of tariff for full year in the guidance versus just for 2Q. So just maybe help us understand the thinking a bit more around what the internal discussion was on just 2Q versus the full year and kind of how you came to this conclusion relative maybe to some of your peers who have put it in for the full year. Michele Buck: I wouldn't say that we had -- we certainly had discussion, but I wouldn't say we had massive internal debate. Steve, maybe you want to talk about a little bit more. Steve Voskuil: Yes. No big debate. And peers have done a lot of different things, so there isn't one formula for how this has been handled. I think the challenge is in discussing A) we always want to be transparent and so that goes to the answer to Ken's question around visibility to everything we know at the moment knowing that it's subject to still a lot of change, particularly on this front. And the second piece was the mitigation activity. It's one thing to talk about an unmitigated tariff impact, it's another talk about fully mitigate work with our mitigation actions in-year and contributing. And so without those two pieces matched up, it's sort part of the story. And so we want to give you the pieces as best as we know them. And as we get to the mid-year mark, we'll talk more about that mitigation and probably have a better view of the net impact as we go forward. And then in the meantime, hopefully, some legislative action will make that unmitigated impact fall lower anyway. Peter Galbo: Got it. Okay. No, thanks for that. That's helpful. And Steve, I think in your prepared remarks there's are some moving pieces just as we try and think about revenue phasing maybe more so in the back half of the year. But I think if I read it correctly, snacks kind of on an impacted basis exited at a pretty healthy rate. I know there's some wonkiness in the comps on confectionery in 2Q, but maybe you can just help us on the revenue phasing in the back half of the year? Thanks very much. Steve Voskuil: I don't think there's anything surprising in the back half of the year relative to the profile on the top line. Michele Buck: Should be in line with the long-term of 2% to 4% across the quarters in the third and fourth quarter and in line relatively across the segment as well. Peter Galbo: Okay. Thanks very much. Steve Voskuil: Thank you. Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Steve Voskuil: Good morning. Michele Buck: Good morning. Alexia Howard: Hi. So can I ask, first of all, about the more precise timing of this big innovation in Reese's in the fall? When is that due to happen? And you mentioned that you expect it to be the biggest innovation ever on the brand. I mean, that's a pretty big statement. You probably can't tell us what the innovation is, but what is it that gives you confidence that it might be the biggest innovation ever for that brand? Michele Buck: Well, we are consistently innovating and investing in our iconic brands, specifically to give consumers what they're asking for. And sometimes they know what they want. Other times, we're trying to provide some things that we think they will want. But this innovation is something that they've been asking more for quite a long time. So and based on all of our early planning around that, all of the research that we've done, that gives us a pretty good feel for size of innovation. That's what gives us the confidence relative to the size. Relative to timing stay tuned. It will be hitting in the fall and we're really anxious for all about it and try it. Alexia Howard: Great. Thank you. And then just a follow-up on the additives question. I know, for example, you have Red No. 40 in Twizzlers still. Can you quantify what proportion of your overall sales still have additives in them that would be on the list that's going to be, I guess, banned in 2027? Michele Buck: Yes, it's largely going to be our sweets portfolio, some refreshments. And then anything else that's coated chocolate. So if you think about Cadbury Eggs, for example, will fall into that bucket. So that should give you a feel for the size. And then relative to the ingredients, obviously, it's a relatively small total percent of our ingredient costs. But we feel good about our ability to be compliant based on all of the work that we have under already. Alexia Howard: Great. Thank you very much. I'll pass it on. Operator: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Steve Voskuil: Good morning. Michael Lavery: As you talk about readying some of the options, just you know, at least contingency or hypothetical planning for 2026. You called out pricing, price pack architecture, demand shaping and sourcing strategies. The price pack architecture and pricing are fairly straightforward. Can you just maybe give a sense of what some of the demand shaping and sourcing strategy changes might look like? Michele Buck: Yes, certainly. So as we really think about some of the mix opportunities. So as we're looking at demand shaping off, the inflation of Cocoa, certainly, we have options across our portfolio in sweets, in salty, in parts of the portfolio that are less Cocoa intensive. And so those are some places that we focus. From a sourcing perspective, we are already doing work in that area for competitive reasons. We don't want to get into much detail in that area but we have options in terms of how we -- how we source that also help us to take advantage in price, basically generate sales. Michael Lavery: Okay, that's helpful. And just on Salty Snacks, you've announced the LesserEvil deal that would add a little bit to your scale. In the commentary after the Mars Kellanova deal was announced, the Mars CEO pointed to one of the benefits being diluting their exposure to Cocoa by adding a large Salty Snacks portfolio. That's from a company that also already has a pet food business. It would seem like some of that logic could apply to your case as well. Do you have sort of any scale ambitions, maybe almost for their own stake in salty or I know you laid out some of your M&A criteria at CAGNY that touched at least a little bit on that, but how do you think about just how that business might evolve? Michele Buck: Sure. So this really goes back to back in 2017 when we laid out our vision to be a snacking powerhouse. And really what that was all about is how do we really leverage our core capabilities to maximize incremental -- get to incremental consumers and incremental snacking occasions. And we do that really by leveraging white spaces that we think are on trend with consumers. So we have a large chocolate business. We love our chocolate business and we want to continue to grow that. But we also know that if we get into white spaces like sweets, better-for-you and salty, it adds incremental consumers and occasions. So that's really the role and what it plays. Certainly, within that, as we've said, we're always looking for really great brands that we think can be sustainable and grow over time that are high margin and high growth. We feel really good that we have a good track record of finding those given the scale that we've achieved with SkinnyPop with Dot's. And we like that LesserEvil specifically is very focused on new benefits, ingredient focused snackers and it extends our reach with younger, more diverse demographics, especially young families, which opens up a whole new range of opportunity for us. So we see it being a better-for-you platform that can really be extended and scaled across categories and forms. Michael Lavery: Okay. Great. Thanks so much. Operator: Thank you. Our next question comes from the line of Megan Klapp with Morgan Stanley. Please proceed with your question. Megan Klapp: Hey, good morning. Thanks for squeezing me in. I guess I wanted -- if we were to put tariffs aside, maybe a follow-up to Andrew's question earlier in 2026. I just maybe wanted to take your pulse on whether or not if we put tariffs aside, you would feel -- you would have felt better about the ability to grow EPS next year. And I guess I ask because in the prepared remarks, Cocoa is still high, but it has retreated and it doesn't seem like your stance on the outlook for Cocoa prices has changed at all. And then, Michelle, I think you did mention elasticities have been a lot better than the minus one you were assuming in the guide. So if we were to put tariffs aside, again, I know it's challenging and who knows what will happen, but I guess in the base business, do you feel better about the ability to grow earnings in the base business absent tariffs? Steve Voskuil: It definitely feels better without tariffs. So I say that unequivocally. Do we still see a path though and feel a level of confidence about a path to earnings growth. If you take tariffs to the side with the base business, I think, yes, based on where Cocoa prices are today. And again, that's going to require some aggressive action that as Michelle said earlier, those actions are teed up. We'll talk more about that as we get further into the year. But from a base business standpoint, our view hasn't changed for '26 headwind. Megan Klapp: Okay. That's helpful. Thanks. And then maybe just a quick follow-up, the -- as it relates to tariffs, the $100 million that you cited unmitigated, does that assume that we -- for Cocoa in particular, does that assume we stay at that 10% paused tariff rate for -- some of the countries were a bit higher initially. So does it -- can you just clarify whether that would assume we stay at the 10% rate? Steve Voskuil: Yes, it does. Megan Klapp: Okay. Great. Thank you so much. Steve Voskuil: Thank you. Operator: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question. Thomas Palmer: Good morning, and thanks for the question. Steve, if I heard right, I think when you're answering Ken's question about tariffs, you noted that two-thirds of the exposure is Cocoa in Canada. And maybe just some color on the other areas where you would see impact and to what extent you think there could be, I guess, exemptions or whatnot for those types of items, because it sounded like the exemption discussion was more around Cocoa and perhaps Canada. Thanks. Steve Voskuil: Yes, you bet. So we have other raw material import inputs that are imported aside from Cocoa. China for us is not huge, but China is still in that calculation as well. And so those are -- those by comparison to Cocoa in Canada are meaningful, but so much smaller. So I said, we're looking at exemptions everywhere we can, but focusing on the most impactful pieces first. But we do have raw materials that come from other countries as well that also still have some tariff impact. And they're not off the table from mitigation. It's just we're looking first for the biggest impacts. Thomas Palmer: Great. Thanks for that. In Salty Snacks, there was a, in the prepared remarks, a note about a 5% to 6% volume headwind from fewer shipper days, excuse me, fewer shipping days and also a planned reduction in private label. I don't think that private label commentary had been in previous. So is this a new headwind to think about in 2025? And just any framing of the impact, just given the shipping date timing, it seems like this could be maybe approaching a mid-single-digit headwind at least in 1Q. Thanks. Steve Voskuil: We do some private label manufacturing in the popcorn space, but it's sort of subject to what we're doing in SkinnyPop and the brand business. And so to the extent that business and it did for the first quarter, it continues to grow strongly. Then by design, we do less private label and redirect that manufacturing towards our branded products. So salty is part of the longer-term strategy as that business grows. So it's a headwind of a sort, but it's also a reflection of the core salty business growing. Thomas Palmer: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question. Leah Jordan: Good morning. Thank you for fitting me in. I just wanted to ask about international as it came in ahead of your expectations. When we talked last quarter, it seemed like that competition was increasing in several regions and we had heard recently that not all players were passing along costs. So just seeing if you could provide an update on the competitive environment there and has anything notably changed? Michele Buck: Yes, as we look at our business, certainly, we've seen strong growth on Reese's, which has been a key investment for us in those international markets. So we're seeing strength behind media activation and distribution wins in particular. And we also saw strong organic sales growth in Brazil where we were up double-digits behind a strong Easter and innovation. And the competitive environment there really did tend to normalize. So that was -- it's certainly still very competitive, but it normalized, it didn't get worse. And so I think that helped some of the strength that we've seen in some of the markets. And we also -- we also just performed really well. We had share gains in India, in Brazil and our Mexico spicy business. Leah Jordan: Great. Thank you. And just one follow-up. In the prepared remarks, you also noted that you're not planning any buybacks for this year. I know it's very dynamic. We've talked about a number of things around tariffs and your mitigation efforts. But should the year play out better-than-expected and the tariff headwind goes away, what's your appetite for reengaging on buybacks versus other investments in the business as you think about capital allocation this year? Steve Voskuil: Sure. I mean buybacks remains in our capital allocation philosophy. I'd say it's good because it puts tension on all of the other choices. So from a long-term capital allocation strategy, no change in terms of the role it plays. In the near-term, M&A is episodic. We have opportunities when they come up. It's not always that frequent. And so this year, we've put the focus on that. But going forward, as we look more broadly, long-term share repurchase will continue to play a role. And if I can go back just to mention Tom's question on private label, I said SkinnyPop capacity, but it's actually Dot's capacity in pretzels that we were talking about there. So my apologies. Michele Buck: Yes, that's enabling a private label of deprioritization. Steve Voskuil: That's right. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Christopher Carey: Hi. Good morning, everyone. I wanted to ask about the efforts that you're making on reformulation and price pack architecture, which certainly seem interesting. Can you expand a bit, maybe give us an early -- some early insights on the evolution of your thinking over the past few months, what's worked, what hasn't? And perhaps maybe give some insight on where you think you can perhaps gain some advantages out of this maybe price pack architecture allows you to offer more value and drive some more consumption, maybe there's ingredient changes you can make to capitalize on new trends. And so really just looking for a bit more insight on successes you've seen and where you expect to press on reformulation and also just again from a more proactive perspective, how can this turn into a bit of an advantage for you potentially? Michele Buck: Yes. So we have price pack architecture actually going into the market now. So we're continuing to work on more, but I don't want to give the impression that that hasn't been a lever that we've already pulled. I think one of the benefits of price pack architecture, as you mentioned is, it's not a direct price point increase, but rather, it's kind of a combination of sizing and price, which can tend to offer perhaps a better value perception for consumers. And so I think that's always an opportunity if done well and we always try and balance how much of our price realization should come from that lever versus a strike -- strike price increase. So that was really as part of our earlier August '24 pricing announcement that we did some PPA. We'll share more about our future plans on our full plans going forward. And as we think about, I guess, the competitive advantage component, the investments we've made in our supply chain really do enable us to have a lot of agility and flexibility, both in terms of being able to execute PPA, which involves sometimes the changes in packaging and being able to efficiently do that. And also lets us really look at the formulations to make sure that we're providing the highest quality products at the best cost possible. And so that would be a competitive advantage is using our R&D folks, our supply chain to make sure that we can really deliver those reformulations, get them in the market as quickly as possible and do them incredibly well to continue to satisfy consumer demand. Christopher Carey: One quick follow-up would be just around the evolution of your thought process on mitigation tools. As you noted, there was probably a bit more of a focus on our RGM and other revenue growth management and other mitigating factors. But as Cocoa has lingered, how does -- how does pricing come into the equation? Has there been any evolution in your thinking of how large the sorts of tools that you'll need to kind of mitigate this over the next 18 months have become. So just any evolution of thought process there over the past few months would also be helpful. Thank you. Michele Buck: So I guess I'd start by saying, from the very beginning, we have taken a holistic approach as evidenced by the transformation program that we put in place, which was really about attacking costs. So we did some of that already over these past couple of years. We did take pricing, but we also did take a measured approach to balance the short and the long-term. We didn't want to overprice if Cocoa were to take a massive retreat. But for us, it's never been a concern about an ability to price. So we've always had confidence in that. It's just kind of wanting to balance that short and long-term component at the top and bottom line across the P&L. And so we're encouraged that we've seen some retreat of Cocoa, but clearly, Cocoa hasn't retreated as much as we would all like. And so at this point, we're ready to activate even more of the levers that we've been doing work against and have had underway and we look forward to sharing more about that over the summer. Christopher Carey: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Scott Marks with Jefferies. Please proceed with your question. Scott Marks: Hey, good morning. Thanks so much for fitting me in. The first question would be based on commentary, it obviously sounds like you're expecting Cocoa and prices to either remain status quo remain elevated. Let's say, for instance, Cocoa prices in the market do come down, whether it be next year or the year after, how would you think about reinvesting in the business to ensure a long-term health of the chocolate category? Steve Voskuil: Yes. And so we will -- again, that's my dream come true, right, Cocoa prices come down sharply and that's the choices that we have. And so we always invest behind our brands and want to make sure that we're investing in capabilities, technology, the brands, relevant marketing and innovation. So that hasn't been curtailed in this environment. And certainly if we came out and when Cocoa falls, we'll revisit that to make sure we're doing our best to invest in those areas but they haven't been short changed here and then we'll have the opportunity to deploy cash back to shareholders we talked about earlier, have more opportunities for capital allocation. So that's how we're thinking about it. We look forward to having that opportunity. Michele Buck: And even with the cost cutting we've done to date, we've done some of that with a lens of where can we get net savings, but at the same time be investing in technology and capability that let us emerge even stronger. So tools that let us be even more efficient in terms of how we're spending our investments in the business, in marketing and in trade, those types of things that both save money, but also give us kind of a longer-term benefit. So we look forward to those as well. Steve Voskuil: All of that will allow us to emerge even stronger than we were when we came into the commodity pressures. Scott Marks: Understood. And then second question for me. You've spoken a bit about some of the C-Store trends. Wondering if you can just share anything on maybe performance or trends you're seeing across other channels as it relates to your categories? Thanks so much. Michele Buck: Yes, I would say we're continuing to see a consumer focus on value that's showing up in areas like migration to club, certainly dollar continues to be really strong online because of the value that it offers. So depending on who the consumer is, all consumers looking for value, each of them in different ways that best suit their specific needs. But we haven't really seen a significant change in some of those channel trends aside from the ups and downs that we see in C-Store. I think take home overall as a segment has across the board been quite strong with mid-single-digit growth there. Scott Marks: Got it. We'll pass it on. Thanks so much. Operator: Thank you. Our next question comes from the line of Bingqing Zhu with Redburn Atlantic. Please proceed with your question. Bingqing Zhu: Hi. Thanks for taking my question. I have a question about the competitive landscape in the US chocolate. I think in the previous order of the quarter before, you mentioned the intensified competition from smaller player. Can you comment and provide more color on what you're seeing in terms of the competitive situation in the US chocolate, both from a smaller player, private label and maybe even some premium player there, please? Then I'll have a follow-up. Thank you. Michele Buck: Yes, I would say we haven't seen significant change in the competitive landscape versus what we have been tracking throughout the year. We had expected some increased competition, certainly from the largest players in terms of innovation, we knew that there will be some of that coming, smaller players in private label have been softening a little bit in terms of the momentum in the marketplace. They're certainly still out there but in aggregate, there's been a little bit more internal sourcing across them. And then certain brands like Feastables and Tony's have been a bit more stable. But then again they're sourcing more amongst that set of smaller brands. So we continue to attract that over time. But overall no significant changes that I would really highlight. Bingqing Zhu: Okay. Thank you. And then a follow-up, if I can come back to a pricing point please because your pricing in Q1, North America concession is 3%. That's lower than the market pricing. I think you called 8%. Obviously, you have the price pack architecture, but with the cocoa price pretty much blocked in 2025 and from what you said, elasticity is a bit better or in line with your expectation, do you see the possibility of having further pricing increase in the rest of the year to not only mitigate Cocoa inflation, but potentially some tariff impact? Thank you. Michele Buck: So you will see pricing go up in Q2 and Q3 as more of our seasonal pricing and price pack architecture kicks in from announced pricing actions that we've already taken. Obviously, we can't talk about any future pricing intentions in advance. But I think we'll give you more color on both Cocoa and tariffs and our holistic plans as we get into the summer. Bingqing Zhu: Yes, thank you. Very helpful. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to management for any final comments. Anoori Naughton: Thank you, everyone for joining us this morning and we look forward to catching up with many of you throughout the day. Thank you. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to The Hershey Company's Fourth Quarter 2024 Question & Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Senior Director of Investor Relations for The Hershey Company. Thank you. You may begin. Anoori Naughton: Good morning, everyone. Thank you for joining us today for The Hershey Company’s fourth quarter 2024 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remark. 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 file. Finally, please note that we may refer to certain non-GAAP financial measures that we believe 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 for the GAAP results are included in this morning’s press release. Joining me today are Hershey’s Chairman and CEO, Michele Buck; and Hershey’s Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. Our first question is from Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks so much. Good morning, everybody. Michele, I know it’s clearly way too early to get overly prescriptive at this stage on ‘26, but in the prepared remarks, you do mention positioning the company for balanced top-and-bottom-line growth in ‘26. And I was really hoping you could just provide maybe just some context around this, such as, is growth doable in ’26 if cocoa remains at currently elevated levels? And if so, how do you feel about the ability to take more pricing in ‘26 to get there, even though we don’t yet have a good sense for how the incremental pricing will be received by consumers for this year? I’m really just trying to put some broader parameters around this and sort of what’s embedded in your comment about the potential for balanced growth in ‘26. Michele Buck: Yes, got it. Hey, Steve, do you want to just take a crack at that one? Steve Voskuil: Yes, I’d be happy to. So, as implied, when we say balanced growth, we want to eventually get EPS back on algorithms. And so, as we look to ‘26, one of the benefits of a great hedging and commodity team is we’re not paying the market price. So, you always have the catch-up factor relative to commodity. But that said, just like for 2025, when we look at ‘26, we expect to use the full suite of levers we have to manage cocoa price. And that includes looking at pricing, that includes additional productivity and CI savings, that includes continuing to drive efficiency in SG&A, and even driving more return for the same dollars, in some case, on marketing spend. So, all of those things will be in the consideration set as we take a look at what we can do in 2026. We wouldn’t expect pricing to be easy. That probably would be a conversation we’d have to have and think about internally the impact, but still 80% of our portfolio is less than $4 on the confection side. And so, that would have to be one of the things we take a look at. Andrew Lazar: -- : Michele Buck: Sure. So, it’s a little bit early for us to have the full visibility to those results. What I’d say is what we’re seeing is elasticity is coming in either on par with our expectations, and in some cases, slightly better. So, we are carefully watching that, obviously. We have a lot of confidence in our ability to price. And we strategically selected where we thought it was best to do that. And we certainly always take into account an expectation of where we think cocoa will be. And as we think it’s going to normalize, how we factor that into the pricing decision so that we are really balancing how aggressive we go. So, we will continue to monitor that, but feel good about what we’re seeing today. Andrew Lazar: Thanks so much. Operator: Thank you. Our next question is from Ken Goldman with J.P. Morgan. Please proceed with your question. Ken Goldman: Hi, thank you. In your prepared remarks, you said you’re prepared to adjust pricing, price pack architecture, et cetera. If your view on commodity markets evolves -- I just wanted to get a little bit more color on what that necessarily means? Is that dependent on how you view underlying supply and demand, or is it really more dependent on, hey, just looking at the futures market and saying, okay, the prices are what they are, right or wrong? Just trying to get a sense of your timeline and how you think about when you might want to make that decision to adjust pricing, or make other decisions around formulations and so forth. Michele Buck: So, Ken, we take both of those things into account. Let me start by talking a little bit about our view on the market. And then, I’m going to turn it over to Steve to talk a little bit about how we balance those factors. We continue to feel good about what we’re seeing in the market fundamentals. We’re continuing to see production increase with nearly half of the production today coming from areas outside of Ivory Coast and Ghana. We think that’s really healthy for the global cocoa supply over time. It’s going be much more diversified. And that diversification is going to provide an inherent resilience, just balancing weather factors and geopolitical factors, et cetera. We’re continuing to take actions in West Africa to continue to help drive resiliency. And as we diversify our impact, it’s going to look -- it’s looking different by market. We’ve made investments in West Africa. We will continue to do that. We’ve also diversified our supply sources. So, we’re watching those fundamentals. And certainly that is one factor for us. At the same time we know that fundamentals and market price aren't exactly aligned, and we certainly take that into account as well. Steve, you want to talk a little bit more about that? Steve Voskuil: Yes, I would just say at the same time that we're, you still see pricing in cocoa as transient right now, we're dealing with the reality on the ground, which is to say we're building plans for '26, we'll be watching the cocoa market in what's happening in reality, a lot through the first-half of the year, but not waiting even for that before setting plans, and again, kind of touching all parts of the P&L in the event we don't see that retrenchment so that we're ready to go for 2026, and as I said earlier, get back to an algorithm opportunity on EPS. Michele Buck: The other thing we do watch is not only what's the price on the exchange, but what's actually happening to those prices in origin, and there is some differential there, and so we take that into account as well. Ken Goldman: Understood. No, that's helpful. Thank you. And then, just a quick follow-up, I think you had answered Andrew's question about what you're seeing for elasticities today. It's great to hear that they're on par or maybe in some cases slightly better. Just curious, what is baked into your guidance? And if you said this, I missed it, but how are you thinking about elasticity as more pricing unfolds throughout this year? Michele Buck: So, we've baked into our guidance historic elasticities at that minus one level. We'll watch those because we do think that depending on factors, there could be upside, but we think that is the prudent approach for us right now. Ken Goldman: Thank you. Operator: Thank you. Our next question is from Max Gumport with BNP. Please proceed with your question. Max Gumport: Thanks very much. I have a follow-up question on elasticities and the minus one assumption. I mean, to me, it feels like this is the key unknown for '25, right? You've got cocoa costs largely locked in, pricing implemented, visibility to cost savings pretty clear. And so, could you just give a bit more color on what's informing the minus one and if that applies to your smaller international segment too, particularly in context of a competitor talking about an elasticity level in '25, that would be much more favorable. Thanks very much. Michele Buck: So we do see upside if elasticities come in better. We, again, think that it is a prudent stance to take as we work through the volatile consumer marketplace and some of the pressures that we know exist for consumers. And we have also considered greater elasticities in international in the outlook. We are not the market leader in many of those markets, so not always leading those price increases. So, we take a different stance relative to our approach there. I mean, it's a smaller piece of our business, obviously, so it doesn't have nearly as big of an impact, but we do look at it differently. Max Gumport: Right. Great. Thanks very much. And then, staying on international, realize that it is a smaller segment, but you had a very strong 4Q with broad-based strengths across your markets. So, the commentary of low single-digit growth was heightened competitive activity in '25 stood out to me. Can you talk a bit more about what the competitive activity is you're seeing in those markets where it's more pronounced and how you expect to manage through it? Thanks very much. Steve Voskuil: Sure. Yes, the 4Q was strong. They were helped a little bit by a favorable lap, and we also have some big Black Friday performance in a couple of markets where that was a big holiday. So, strong performance there. When you look at the totality of last year, the business was up about a point. So, I'm more on balance. The '25 outlook doesn't look as different. We saw, I would say, the highest competitive activity in Brazil and Mexico. Brazil in particular was very intense, a lot of promotion. We had a lot of innovation in those markets, and that helped, certainly in the fourth quarter. But again, as we look kind of at the totality of 2025, we expect to see that competition increase, and that's really what's informing the growth there. Max Gumport: Thanks very much. Steve Voskuil: Thanks, Max. Operator: Our next question is from Robert Moskow with TD Cowen. Please proceed with your question. Robert Moskow: Hi, thanks for the question. Steve, I think I'll just ask about phasing. Do you expect your gross margin pressure to be pretty even throughout the quarters? Or in fourth quarter, are you fully covered for fourth quarter, or will there be like another hit in fourth quarter when hedges roll over? Steve Voskuil: Sure. So, for the full-year, we're nearly completely covered on cocoa. And so, we don't expect a big hit, maybe kind of a new hit from the outlook in the fourth quarter. If you look at the split of gross margin, we're going to have less gross margin pressure in the first-half, where cocoa will be based on our hedging less, probably in the neighborhood of under 500 basis points. And as we get to the back-half, we'll see more impact. Those hedge positions are going to be higher priced just based on the flow of cocoa. So, definitely more in the back-half than the first-half. Robert Moskow: Okay. And just a quick follow-up for Michele; Michele, are you seeing your competitors take similar actions on pricing? You've been very strategic about where you're going to take it. It doesn't sound like you're taking it in instant consumables yet. Have you seen similar actions, or are there some discrepancies out there? Michele Buck: I guess, I'd say overall, I think the category is very rational. And we have seen most major players taking pricing, including private label, which has also taken pretty aggressive pricing as well. I'd say that pricing has probably been a bit more broad-based, though people tend to cycle through parts of their portfolio as they see appropriate. And price 60% at one time and then go to the next piece. We know that we've tried to be just considerate of pressure in certain channels, but nothing is off the table for us. We are continuously evaluating the entire portfolio. Robert Moskow: Okay, got it. Thank you. Operator: Thank you. Our next question is from Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Steve Voskuil: Good morning. Alexia Howard: Okay, so first of all, can I just ask, on the sales outlook for 2025, it's obviously fairly muted compared to the strong performance this time around. Is that mainly due to the conservative price elasticity assumption, or are there other puts and takes in there? Michele Buck: So, I'd say a couple of things. International is a bit more pressured than we would normally see in our growth algorithm. So, that certainly played a role. We're certainly taking into account the volatility in the marketplace. We do anticipate that our consumption will be a bit stronger than shipments due primarily to retailer inventory in North America confection. And so, that's playing a role as well. In addition, one fewer shipping day. And we do have some commercial activations that are really coming into play closer to the back-half of the year, but those are the key components. Alexia Howard: Follow-up, can I come back to the topic, or not on this call, to the topic of GLP-1s, which have come up in the past? Are you seeing any material impact at the moment? How are you measuring it? And what's the strategy here as that plays out over time? Thank you. And I'll pass it on. Michele Buck: Yes. So, we are seeing no material impacts. We are continuously looking externally to get and evaluate data. We have triangulated both external and internal evidence, including some of the most recent studies, like the recent Cornell Enumerator studies, and they tend to validate our internal views. We have multiple data sources that also support our view that users of the drugs do not eat disproportionately less of our categories. We do know that there's a broader shift in consumer preference for healthier items that has been underway for some time, items that have nutritional claims around low sugar and other things. And we will continue to evolve our portfolio as we continue to track what's important to consumers. Steve Voskuil: Next question. Michele Buck: Hello. Steve Voskuil: Operator. Operator: Thank you. Our next question is from Peter Galbo with Bank of America. Please proceed with your question. Peter Galbo: Hey, good morning, Michele and Steve. Thanks for the questions. Steve, maybe just a follow-up on phasing on top line, I know you gave color on 1Q and 2Q in the prepared remarks, but I think there was a comment you just actually just made to Alexei's question around the back-half of the year, 4Q, maybe has one less day. Just want to make sure we have all the moving parts on top line as we think about bridging to the 2% given there's some wonkiness in the comps. Steve Voskuil: Sure. Yes, one quarter, the first quarter has two fewer shipping days, fourth quarter has one. And so, they have one extra. So, net-net, you're one day short for the full-year. Again, pretty minor between those two, between first-half and second-half. But over on the second-half, we'd expect a low single-digit growth. Peter Galbo: Got it. Helpful. And then, Michele, maybe if I could switch gears, there's commentary about being able to participate in the downside of cocoa markets do fall given your risk caps. You spoke a little bit about, I believe, off exchange mechanisms. You're seeing some of the competitors are doing. There's been some reporting about maybe your own activities that have been outside of the norm. So, just wanted to get a deeper understanding of kind of what you're seeing from that perspective, what instruments you're seeing yourselves and your competitors using, and maybe if you can also comment just on your own activity that's maybe been outside the norm. Thanks very much. Michele Buck: So, right now, we are seeing very low commercial participation on the exchange. And yes, we have been looking at alternatives and options of how we approach our cocoa supply chain. Our focus is really, there has been an opportunity to get lower prices in origin versus on the exchange. And we're trying to be very opportunistic about how we approach this whole area and take advantage of the market dislocations in a place that we see that we can come in a bit differently. Steve, anything you would add to that? Steve Voskuil: No, I think we won't get more specific on the types of instruments, but market dislocations sometimes present opportunities. And so, we want to make sure we're looking everywhere we can for opportunities. Peter Galbo: Thank you. Operator: Thank you. Our next question is from Todd Palmer with Citi. Please proceed with your question. Todd Palmer: Good morning, and thanks for the question. Maybe just starting out, we could circle back to the elasticity assumption. I just want to make sure I have kind of the starting point, right, when you talk about minus one, it would be without pricing, I guess, what level of growth, roughly, do you assume as a starting point and then the elasticity starts to trigger? And I guess when we think about this coming year, is it different as a starting point than maybe you would have in your long-term algorithm or relatively normal? Michele Buck: So I would say it is -- it's largely similar to how we approach it. I mean, we always say we look at the impact of pricing and there is a volume conversion curve that you go on once you price. And then, we build back up from there relative to the programming that we have to unlock growth and consumption on the brand. We do that on a pack-by-pack and a retailer-by-retailer, brand-by-brand. And that's really what helps to get us to what that number looks like. So, that's how we derive it. The Long Easter helps us this year as somewhat of a starting point, but those programs that we add on top allow us to get better than that minus one. Todd Palmer: Understood. Thanks for that. And then, just in the prepared remarks, there was reference to a timing benefit in the fourth quarter related to inventory valuation. Just any help quantifying this? And then what drove this and whether this has any impact on 2025 at all? Steve Voskuil: Yes, the impact was about $40 million. And it's really related to our new ERP system, which has a much finer allocation of cost between inventory and the P&L based on what we sell. And so, it's sort of a better system. With that system and that precision comes a little bit more variability. So, as we go through the quarters we may see a little bit more of that movement than we had in the past. But it's not going to be material and I wouldn't -- we're not setting our models differently based on that. Tom Palmer: Okay. Thank you. Steve Voskuil: Sure. Operator: Thank you. Our next question is from Jim Salera with Stephens. Please proceed with your question. Jim Salera: Yes. Thanks for taking our question. Michele, in the prepared remarks, you called out acceleration on the suites portfolio and some successes with the Shaq-a-licious Gummies and Jolly Rancher. Just in thinking about the drivers of potential upside on the portfolio, can you maybe talk about innovation on the non-chocolate portion of the portfolio and how that'll play into some of the advertising efforts you have rolling out this year. Michele Buck: Yes, absolutely. So, as you know, in Q3, we launched in the marketplace a lot of new innovation, including Jolly Rancher innovation, heightened support, Shaq-a-licious Gummies, and then in Q4, we actually purchased Sour Strips. So, all of those things on sweets were new as of kind of mid to late Q3 into the balance of the year. So, as you look at the year of '25, we're going to get a carryover benefit, a pretty strong carryover benefit from those items. In addition to that, we have also recently launched JR Freeze Dried and that's hit the marketplace. So, that is new news on innovation and sweets for this year. We have new news coming later this year that we haven't yet announced. And then, we obviously have distribution and velocity opportunities on Sour Strips as well. So, we have a continued -- nice lineup of continued news and opportunity on sweets as we enter the year and go through the year. Jim Salera: Great, and then when you have your conversations with retail partners on expanding the sweet selection, is that often incremental space that you didn't have before or is it kind of swapping pieces of the chocolate for sweets, especially in like the immediate consumption occasion, cash wrap and the written out there? Michele Buck: Yes, so we under index in sweets, we are underdeveloped. So, for us, it is an opportunity to be gaining incremental distribution, incremental consumer occasion. So, we do look at that as helping us in that way. It also helps us with our seasons portfolio, where we're already quite strong, but being able to get some of these innovative sweets components into season is a new opportunity there as well. Jim Salera: Great. I appreciate the color. I'll pass it on. Operator: Thank you, our next question is from Leah Jordan with Goldman Sachs. Please proceed with your question. Leah Jordan: Good morning, thank you for taking my question. I wanted to ask about the market share declines in everyday chocolate that you noted in the prepared remarks. First curious how that trended versus last quarter and throughout the quarter. And then as you think about potential drivers for improvement going forward, how much do you think is dependent on an improvement just in the cyclical impulse in the C-store channel versus the need to drive bigger innovation like you're planning because competition and newness has just been intensified from smaller players? Michele Buck: Sure. So, I'd say every day is getting better. We have significant improvement with sweets and we've also seen significant improvement in take home. Some of those improvements were driven by strength in the category. And certainly as we lapped some of the retailer specific pressures that we had the prior year and that we lapped through those and got back to a normalized position relative to distribution and merch, that was very helpful. Innovation is an important lever and we are looking across each of our pack types to make sure that we've got that right innovation as there is increased competition for shelf space, having the right innovation within each pack type is incredibly important. So, we have dialed up some of the innovation levels and take home this year. And we think that that will result in TDPs and growth. Next year, really the share outlook is driven by continued acceleration in sweets, continued strength in seasons and improvement in every day. We do have the biggest innovation that we have had ever on Reese coming to the marketplace, and so, more news to come on that later this year, and we'll continue to work with our commercial partners to improve trends in the instant consumable business. That's an area of the portfolio that is driven by some of these macro pressures and the consumer pressure, particularly in convenience store class of trade. There's a little bit of downward category pressure there. We see more momentum and upside on the other areas, but we continue to focus on share there as well. Leah Jordan: That's very helpful. Thank you. And maybe just following up on that C-store discussion, it sounded like last quarter, you were going to invest more in variety brands and lean into your gold standard planogram. So, it sounded like the channel's still soft, but are you starting to see any improvement as you kind of implement those plans? Michele Buck: So, we have seen improvement on our variety portfolio. We saw improvements by about three points in our trends from Q3 to Q4. They are still pressured, but we are seeing some significant improvements and we are in the process of ramping up that gold standard. So, that takes some time to implement. So, you sell it in. It does require a reset by the retailers. So, we are continuing to monitor that, but I have a lot of confidence based on the places where we've tested that. It has provided 2X the impact as the old planogram. So, we're confident in those lifts and we'll continue to see those hit the marketplace as we progress through the year. More of that upside will come closer to mid-year into the second-half. Leah Jordan: Great, thank you. Operator: Thank you. Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Steve Voskuil: Good morning. Michele Buck: Good morning. Michael Lavery: You mentioned in your prepared remarks, you're seeing coco end-users adapting through reformulation. Could you maybe touch on what exactly you're seeing there and if you are reformulating yourselves as well? Steve Voskuil: So, we have over the last several years always looking at where there may be some opportunities on formulation, but it's critically important we maintain the taste profile and the specialness of our iconic brands. And so, it's a place we look at, we test, and in some parts of our portfolio, over time we've made some changes. We'll continue to look in that space. And I would say in all the changes that we've made thus far, there has been no consumer impact whatsoever, as you can imagine, even on the smallest brand in the portfolio if we were to make a change as extensive as consumer testing. So, it's an area we look at, but we definitely want to make sure that we're focused on the consumer. Michele Buck: We have been seeing some increased global demand across the market for cocoa alternatives. So, we are seeing some folks who are pressured, who perhaps have the opportunity to switch to cocoa butter alternatives. Obviously, we do that where possible, but we're pretty precious about the brands and what they stand for with consumers. But that does exactly -- Michael Lavery: Okay, that's helpful. Michele Buck: Yes, it does create some demand destruction in the market as we see others just do that. Michael Lavery: Okay, got it. And you touched on something I don't think you've mentioned before, which is the potential for cellular agriculture being a long-term solution. How far on the horizon, how far off is that? Is that something to kind of consider as a potential substitute? How should we just think about what role of any of that may play over the next, say few years? Michele Buck: It's something we're watching very closely. I don't think it is necessarily near-term, but I think it can be a game changer and it's certainly getting a lot of investment right now. So, I think it's something to watch. Michael Lavery: Okay, thanks so much. Operator: Thank you. Our next question is from Chris Carey with Wells Fargo Securities. Please proceed with your question. Chris Carey: Hey, good morning, everyone. Just first, Steve, the implied gross margin for Q1, I think it's like 41% and maybe roughly 35% for the remainder of the year. Is it fair to assume that the core differential there is cocoa inflation or are there other considerations that we should be thinking about? Steve Voskuil: Yes, we'll be -- for the first-half, we'll be down less than 500 basis points, more than that, like we talked about earlier in the second-half. And yes, to answer your question, cocoa's really the biggest component of the inflation in the other areas, some of the other commodities, but also labor, warehousing, and so forth. Those things are more evenly paced over the year. Chris Carey: Okay. Okay, great. And then, Michele, obviously you're announced plans to transition out of your role, which is exciting. Can you maybe provide any more color or just context on the search process, timing, and the sorts of capabilities that you would be looking for as an organization? Thanks so much. Michele Buck: Sure. So, we've had a framework for long-term succession in place always, as companies always do. Now that I have announced a firm date for my retirement, the search practice, or the search process is actively underway, and that is appropriate. Yes, we will conduct a very robust search process led by a search committee on the board. Certainly, we will be recognizing and paying attention to the fast-evolving industry and world that we are all living in and experiencing today, and being very selective to bring on board somebody who has the right skills, experience, qualifications, and people focus to allow us to win during this environment. So, I'm confident we will find the right successor, and I'm working closely with the board on that to ensure the right selection and a seamless transition. But I am absolutely 100% leader-focused in the interim on delivering this '25 plan, continuing to execute our transformation, and making sure I'm positioning the company for our next phase of growth. Operator: Thank you. Our next question is from Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: Great, thanks so much. I get to around '26, maybe it's a question more for Steve. Michele, you can chime in. I guess the, sort of what I'm hearing today is hopefully the price of coco comes down. Maybe mid-crop comes in okay, supply-demand dynamics start to settle, maybe demand weakens a little bit, so it kind of pulls it down. And I think the direct comment or the line in the prepared remarks, right, that hopefully as you get to '26, you can get a kind of more balanced top and bottom line growth. But then Steve, I kind of heard you also kind of mention on Algo. So, I'm just trying to gauge a little bit better of like how you kind of feel out '26, right? Is it like, yes, clearly if coco comes down a bunch, then our earnings can go up a bunch. If it comes down some, then really what we're hoping for is more on Algo growth, right? Because once you have a year, like this year such that absolute earnings are so far down to me kind of a core question is, okay, we could be back on Algo growth, but is there kind of a scenario that has some decent probability around it such that you could be like way above on Algo growth and kind of try to get back more of those absolute earnings. That's all I have. Thanks so much. Steve Voskuil: Sure, yes, so we see a path, even at these coco prices to EPS growth for '26, again, on the back of some aggressive actions that we talked about earlier that we're framing for execution, depending on what we see, particularly in the first-half of this year. And then, I think there's an opportunity for outside growth. We get some help from coco and we see coco start to backtrack. So, those are kind of our operating assumptions. That's what we mean when we say on Algo, or when we say that we want to see balanced growth for next year. That's what we're shooting for. Rob Dickerson: Okay, okay. And then, makes sense. And then, I guess just quickly while I fully respect that you, I don't think, ever talk about your hedging practices, is it fair to assume that kind of like where coco sits today, right, that maybe you kind of give it a little bit more time before you start to really actively hedge '26? And I think you kind of vaguely touched on that, right? We'll see kind of how it plays out. But if you do think it comes down, like my assumption would be you kind of wait a bit before you start to hedge. Steve Voskuil: Yes, we can't comment too much on the timing of the plan for '26 hedging for competitive reasons, but we've got a great team. They're very close to what's happening in the coco markets and what's happening on exchange, off exchange and other innovative solutions. And so, we're going to continue to take advantage of that. We've got the best coco traders out there working this. So, we're going to leave it in their hands and we'll get more information as the year progresses. Rob Dickerson: All right, super. See you in Florida. Thank you. Steve Voskuil: Thank you. Operator: Our next question is from John Baumgartner with Mizuho Securities. Please proceed with your question. John Baumgartner: Good morning. Thanks for the question. Michele -- Michele Buck: Good morning. John Baumgartner: Good morning. I wanted to come back to Alexia's question on the U.S. chocolate category specifically. And in 2024, volume was down about 5%. And that was a little bit worse than 2023, even though pricing in 2024 was about half the magnitude. And it sounds as though the GLP-1s are not a big driver, but that health and wellness may still be having some impact, I guess, independently. So, how would you bucket the factors driving chocolate declines at this point between health and wellness? Any shift into non-chocolate confection versus savory snacks, or maybe just outright demand destruction from prices? It feels like there’s a lot going on simultaneously. Michele Buck: Yes. So, I’d say there is a lot going on. So, I would start and say, if I think about the broad confection category, first of all, sweets has really been a high growth area. So, there’s been some mix that’s been evolving there. Sweets delivers on a different palate experience. Sweets has a value component to it. So, that’s been one factor impacting the overall category and certainly having an impact on chocolate. And that’s been in place for a while. That’s been a longer trend, but continues to be there. I think we are seeing a lot of channel evolution. So, there’s been some pressure in some of the primary channels where a lot of chocolate is sold in areas like convenience. And then, there’s been some growth in some of the unmeasured channels that have traditionally not been as strong across mainstream chocolate. And so, we’re shifting our focuses to really accommodate that. And the overall category growth is really strong in those places. And that’s an opportunity for us and also, I think, for the category. I think the consumer focus on health and wellness is also a continuation. I don’t see it as a massive change. And certainly, we’re seeing really nice growth on our zero sugar line of products and also our protein line of products. Both of which we put a heightened focus on growing. And we see a lot of opportunity on those going forward. John Baumgartner: Thanks, Michele. Operator: Thank you. Our next question is from David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Thanks. Good morning, guys. I wanted to ask you about maybe some big picture growth bucket questions. I mean, primarily I’m curious about seasons, and how you’re thinking about that this year. It’s been a great area for growth. Some tough comparisons maybe have been lapped at this point from COVID. I’m wondering how you’re sort of budgeting and forecasting seasons as a grower this year. And then, if there’s any other commentary from a channel perspective about how you’re thinking this year might play out? Convenience stores also had sort of a post-COVID lack of recovery that I think was notable. And, I’m wondering how you’re thinking about that channel and any other insights. Thanks. Michele Buck: Yes. So, we’re expecting strength in seasons this year. We’ve been pretty consistently doing very well during seasons. I think there’s a very strong emotional component with consumers that makes them want to participate in seasons regardless of what might be going on in the macro environment. And they love their brands that have been part of their traditions and rituals over the years with their families. This year, Easter is advantaged being the late Easter. So, that elongates the season. And we expect strong growth. We expect to gain share there. And we also continue to believe that we’ll do well in the other seasons. As you know, performance in the prior year in a season helps to set up success in the following year. And we feel good about what we delivered. It’s the seasons this year that give us a good foundation as well going into 2025. David Palmer: Any comment on convenience as a channel? Do you think that that’ll be in line with your forecast broadly, or what’s your thoughts there? Michele Buck: Yes. I think that convenience will absolutely be in line with our forecast. We are continuing to forecast some pressure in that channel until we see it stabilize more. So, we’ll lap some parts of that pressure. So, that will be a help, lapping it about the summer timeframe. So, continued softness until we see that lap. David Palmer: That makes sense. Thanks very much. Michele Buck: Thank you. Operator: Thank you. This does conclude our question-and-answer session. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to the Hershey Company Third Quarter 2024 Earnings Q&A session. At this time, all participants are in a listen-only mode. A question-and-answer session will follow. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anoori Naughton, Senior Director of Investor Relations. Thank you. You may begin. Anoori Naughton: Good morning, everyone. Thank you for joining us today for Hershey Company's third quarter 2024 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to the 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 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 fillings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe 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 for the GAAP results are included in today's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck, and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. And we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi, good morning and thank you. I wanted to ask a couple of questions around the comment regarding top line being roughly on Algo for next year. The first question is Street is looking for a pretty decent step-up in your realized price for next year. I wanted to make sure that's the right way to think it? And then the second question is, is it reasonable for us to assume that your guidance will factor typical or historical one-for-one elasticity on certain products that you've mentioned in the past? Thank you. Michele Buck: Steve, do you want to take that? Steven Voskuil: Sure. On the reference to the algorithm, we're talking about our long-term algorithm. So that's two to four on the top. So that's the reference point that we're looking to. In terms of realized price, all-in, we'd expect pricing next year to year to look a lot like this year. As the price increases, we took this flow through. Obviously, we'll work to make sure we're competitive. And work with retailers to make sure we get good execution of that. And then from an elasticity standpoint, we expect historical elasticity, which is what we've seen as we progressed further through this year. Ken Goldman: Got it. I’ll pass it on. Thank you. Steven Voskuil: You bet. Thanks, Ken. Michele Buck: Thanks, Ken. Operator: Thank you. Our next question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks. Good morning, Michele and Steve. Michele Buck: Good morning Steven Voskuil: Hi, Andrew. Andrew Lazar: I guess, I want to put all things cocoa sort of aside for the moment and focus again on core underlying trends. What would you expect core, I guess, chocolate market share trends to look like as you exit this year? Can market share get back to stable? Or do you think it takes maybe more into the first half of next year? And what should we be looking for in the data, I guess, as we move through the fourth quarter? And I ask because, obviously, if we're supposed to be looking through the anomalous cocoa cost inflation in '25 to potentially a year of maybe outsized growth in '26 as costs normalize. It's really this underlying share trends that obviously are most important. And in core chocolate, we're going on, I think, like 2 years of some share weakness. So that's really what I'm trying to get at. Thank you. Michele Buck: Absolutely. Thanks, Andrew. Yes, let me step back and talk a little bit about category and market share trends. So first of all, we continue to feel really good about the category resiliency that we've seen consistently growing about -- around that 2% range, which is what it's been historically and continuing to outpace other snack categories. So we think that's a really good starting point for us. We do see us ending the year with greater momentum than we have had particularly if we look at some of the green shoots that we called out in the script relative to sweets and the acceleration that, that innovation that we launched in the marketplace is really taking hold, driving takeaway and also increasing share with each 4-week period that goes by, we had a great Halloween and expect that we will have one share in Halloween. SkinnyPop, certainly, we called for a reversal in trend. We've seen that in the past 4 weeks. Innovation remains strong. And then we have a few labs that we are starting to get into that period that lessens the pressure that we're facing. We had spoken before about reductions in merge the key retailers. Last 12 weeks, we've seen over 2% growth there. So, as we look forward, we feel good about a lot of those things, combined with as we get into next year, a longer Easter other headwinds that are bit less relative to SNAP, Mexico drinks and some of the retailer inventory issues. So, I would say it's going to be, I would say, a gradual improvement that we do think will build both in terms of dollars and percent. And probably the piece of the portfolio that will remain under pressure will be instant consumable because convenience stores, we really saw some of the pressure in that channel start midyear. So we think it will take us through the first half to get through that. The other pieces of the portfolio we're expecting to continue to see recovery. Andrew Lazar: Got it. Thank you. And then real quick, just a new head of North America Confectionery. And maybe just a little bit about what you see him bringing to the table and where strategy could well change or is it more a continuation with just more sort of energy around it. Just trying to get a better sense for that. Thanks so much. Michele Buck: Yes, absolutely. So obviously, Mike is a really strong exec coming to us from PepsiCo. Several things that I think he will bring, number one, always appreciate external perspective and always a good chance to relook what we're doing well, where we can continue to be better. Secondly, he has a very deep and rich background of being incredibly close to customers and retail. And I think that he will significantly that up even further as we go forward into the future to unlock new growth and continue to evolve our portfolio to those channels where consumers are migrating to. Andrew Lazar: Thanks so much. Michele Buck: Thank you. Operator: Thank you. Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question. Peter Galbo : Hey, Michele, Steve, good morning. Thanks for taking the question. Steve Voskuil : Good morning. Michele Buck : Good morning. Peter Galbo : Steve, in your prepared remarks, you did give a bit of insight on 2025 inflation and that rate expecting to be more of a headwind versus what it was in 2024. But just wondering if you could elaborate. I think your guidance for this year is high single-digit COGS inflation. And so when we think about more for next year, is that a low double-digit number, low teens, mid-teens? Just anything else more you can give us to kind of help as we think about modeling. Steve Voskuil : Yes. Not surprising me the biggest piece is going to be Cocoa. And the year-over-year move will be significant. You look at the rates that we've been paying for Cocoa this year, we set that back when we set our guidance in February. And so said back then, we're well hedged for 2024. So the cocoa prices we've been paying this year reflect getting into the market really from earlier this year in preceding. So now you flash ahead to current pricing and you look at pricing for next year, it's a pretty significant step up. And it's not just the cocoa side. The cocoa beans of course, the biggest piece, but there's also cocoa butter, coco liquor and some of the other physical derivatives of cocoa that will be inside that inflation. And so we'll get into a lot more detail on that when we come back in the fourth quarter. But that will be the biggest source of inflation clearly. I expect we'll see some labor inflation that we'll probably see some other inflation in specialty ingredients and things like that. And alongside that, we'll be talking about our plans for productivity and so forth to chip away at some of that inflation, but cocoa and sugar probably are going to be the two biggest pieces. Peter Galbo: Got it. Okay. No, that's helpful. We'll wait for February for more detail there. And then if I can just ask on the gross margin actually in the quarter. It seemed like it maybe came in below not only just Street, but maybe your own internal expectations. And -- just kind of what drove the variance? Is the deleverage piece from volume more than you expected? Is it more mix? Just can help us understand what happened there? Thanks so much. Steve Voskuil : Sure. It was below what we were expecting just as we said we're disappointed on the top line, disappointed by the margin performance as well. The biggest piece was the sales flow through and in fact, the sales were down and then the mix of sales, we talked about C-store, for example. So there was some negative mix inside the sales delivery that had an impact on gross margin. And then as you mentioned, we also had some volume deleverage when we have that big of an impact in the quarter. So between the sales flow through the mix and the deleverage, those are really the biggest pieces that drove that disappointment. Peter Galbo: Great. Thanks very much. Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Michele Buck : Alexia? Alexia Howard: Hi, there. Can you hear me okay? Michele Buck : Now we can. Yes. Alexia Howard: Okay. Perfect. Can you bring up the topic of the GLP-1 drugs? There seem to be a few data sources now. Obviously, it's early days that are suggesting that maybe mid single-digit percentage of U.S. adults absolutely higher are currently using these. That was a little faster than we expected them to be adopted this time last year. Can I ask how you're going about exploring what these patients need? How to respond to that whether you're seeing any impact on the chocolate sales at the moment and what the path forward is on that? And then I have a follow-up. Michele Buck: Yes. So we would say we're seeing a mild year-on-year impact, I'd say, consistent with what I think we've shared before in line with what we would expect, which I would say is more a gradual impact. We've continued to see multiple sources of data validating that the consumers on those drugs are eating disproportionately less our categories. I know there's been some mix data, but we've seen a lot on that. So it's in line with what we expect, and we are carefully monitoring that behavior, how it's evolving and certainly understanding what the needs are of those consumers so that as we continue to evolve our portfolio, which we're always doing over time, that are evolving it in a way to make sure that we have the right offerings for those consumers as well. Alexia Howard: Many thanks. And then a quick follow-up. You mentioned an increase in competitive activity in the international segment from global competitors confectionary. Can you elaborate on that? Is that pricing competition? Or is there something else going on? Thank you. And I'll pass it on. Michele Buck: Yes. A lot of it has been pricing competition where certain competitors have chosen to really deal back somewhat deeply on price point. And that's in some of the markets where we tend to be a smaller player. Yes, and it's a smaller market for us, but it's been intense in those markets where it has occurred. Steve Voskuil: Yes. We've had pockets of strength. The UK, Europe winning with Reese's, and I think we're really pleased with the progress, but particularly in Mexico and Brazil, we've seen higher levels of competition, some of which has been price related. Alexia Howard: Great. Thank you very much. I will pass it on. Steve Voskuil: Thank you. Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question. Robert Moskow: Hi. I guess two questions. I don't think I heard you, Michelle, if you felt like 2026 can be an above algo year. I know a competitor of yours is really calling that out based on what they think cocoa costs will do. So maybe you can give more specifics on how you think that works? And then I also wanted to make sure I understand the comment from Steve on pricing. I think you said it's going to look a lot like pricing in 2025 will look like 2024, but you have a high single-digit price increase on chocolate. So if it looks like before that just looks lower than what I would expect. So maybe I'm wrong there. But can you give more clarity? Michele Buck: Yes. So I'll hit the 2026. So we do feel good that can be on algorithm if cocoa is stable and if cocoa prices really declined, there could be some outsized growth possible, certainly. So we're watching the cocoa price carefully, but we are feeling good based on what we believe and see that we would be on algorithm or have some upside. Steve Voskuil: And on the pricing side, I think the piece is we've taken pricing on about half of our chocolate pounds. And so when you factor that in, it ends up netting out to low mid single-digit pricing in total. And that's why I say it's largely similar to what we saw this year. Robert Moskow: Okay. Thank you. Steve Voskuil: Thanks, Rob. Operator: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your questions. Michael Lavery: Thank you. Good morning. Michele Buck: Good morning. Michael Lavery: Just wanted to understand how you're thinking about marketing spending. Your advertising spending was down slightly, but of course, so were sales. And it wasn't down quite as much as sales. So -- on a percent basis, obviously, even in this quarter, that's held up. But you've obviously got a cost-pressured environment is marketing, one of the ways you can have some flexibility with the bottom line? Or how do you think about just protecting that or really trying to protect share as well given the price increases? Michele Buck: I'll share some thoughts and I'll ask Steve to as well. So clearly, we continue to believe in the importance of investing in our brands. We think that's also really important in an environment where prices are where they are. That said, we have really good marketing mix models. We continually look at generating higher ROIs each year. We hold ourselves to that standard. We are also always looking at things like new media agency RFPs that can drive meaningful productivity. We do have that as we approach 2025. So we're trying to be very thoughtful about investing where we think it makes sense. Strategically, there's an area next year that we really want to focus on in terms of incremental investment in our variety brands to really bolster the instant consumable business. Steve, other things you want to add there? Steve Voskuil: Yes, I would just say Q3, we index a little bit to sales on the way media hits P&L. So there's some impact there. No pullback in terms of supporting our brands. And as we look to next year, our top priorities are going to be driving top line, driving share, driving consumption and we're going to leverage media as one [indiscernible]. And that's not to say we don't want efficiency. As Michele said, we're looking to new agency that will drive some efficiency. We're bringing new tools to bear to make sure that we're allocating that money wisely, but we're absolutely not pulling back. Michael Lavery: Okay. That's helpful. And then just a follow-up on your inventory comments at tighter inventories you had called out as impacting the outlook. Coming into the quarter, you had pointed to a second half inventory restocking that would have been fourth you skewed, I believe, even maybe kind of a four or five-point lift in lease confections in 4Q. I don't know how specific you can be, but it sounds like that's not coming through as expected. Can you just give us a sense of maybe how much of the guidance cut is from an inventory reset that isn't materializing the way you had initially expected? Steve Voskuil: Sure. Yes, we still expect in the fourth quarter to see a mid-single digit. If I kind of say all shipping timing impacts, it's still going to be pretty significant in the fourth quarter. If I take a look at full year guidance, the impact of all of these inventory moves is probably about a 0.5 point drag on the adjustment that we made. Just to give some perspective. And I think we acknowledge this is a noisy quarter with lots of -- between lapping S4 in the case of ALD [ph] and timing and the way retailers have laid out seasons have lots of factors. So -- but when you look across all of it, the biggest piece is 0.5 point. We expect to see less of that all in 2025. It should be a lot cleaner conversation. Michael Lavery: Okay. Great. Thanks so much. Operator: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question. Tom Palmer: Good morning. Steve Voskuil: Good morning. Tom Palmer: I know it's still early for a full 2025 outlook. But I wanted to just get maybe more specific on a couple of items you noted for 2025. Just any help on the incentive comp, how much that's tracking below this year? And then second, you have multiyear plans for productivity and cost savings you've laid out. To what extent might you be able to flex these a bit higher in 2025 versus what the plan was for 2024? Steve Voskuil: Yes. Sure. We can take that. The comp reset, we'll talk more about that when we get to the fourth quarter. So we're still -- excuse when we talk about fourth earnings, we're still working through this year. But obviously, with the performance this year, you can imagine the incentive comp is going to be -- need to be reset next year back to target levels. And again, we'll give more color on that. But it's a meaningful year-over-year impact. On the productivity, absolutely. We have a great history of driving productivity here before. We talked about things like the AAA program, which are incremental, just our base level of CI is something we try to push up every year. The teams are working hard to do that to continue that trajectory. And then we'll continue to look even within the bounds of the AAA program, what more can we do to help offset some of the inflation. I'd say it's going to be tough. The teams are working on it. The savings that we share as a net savings, so it takes into account some level of reinvestment. But we will definitely be looking to drive as much savings as we can for next year. Tom Palmer: Right. Thanks for that color. Just a quick one on cocoa. The prepared remarks indicated, it would be inflationary throughout the year. Are there periods we should be thinking about next year where we will see that rate of inflation more significant than others? Steve Voskuil: Yes, I would say that's hard to call right now, just because we're still getting through this year and cocoa has been so volatile. We'll try to give more of that color when we do talk about full guidance for next year to give a little bit of prospect fact. By then, we'll have a pretty good picture price some of those year-over-year movements. Tom Palmer: Okay. Thank you. Steve Voskuil: You bet. Operator: Thank you. Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question. Max Gumport: Hi. Thanks for the question. Just going back to cost savings for next year. It feels like what we know now, there could be $140 million or so coming from the productivity program benefiting COGS, and then maybe $40 million or so benefiting COGS in the AAA program, so call it $180 in total. One, do I have that right? And then two, your remarks about it being your teams are working, but it will be tough to get after those savings. Are there incremental savings above and beyond those two buckets? Or should we really be thinking about $180 million or so being the number for 2025? Thanks. Steve Voskuil: Yes. I don't want to give -- pin down exactly how that's going to allocate. The $130 million to $140 million in CI is typically targeted at the operating supply chain area. So I'll say, tick the box correct on that. We'll give more details on the split of AAA when we give our guidance for the fourth quarter. It's a mix, as we talked about before, there is clearly a COGS component, and there's a pretty significant SG&A corporate expense component as well, and we'll give more detail on that breakout when we get there. And what was the second question you had? Was that it? Max Gumport: That was really -- that was helpful. Steve Voskuil: Okay, fine. Max Gumport: But I will ask a second question, which is on -- going back to Alexia's question on GLP-1. And I think you talked about seeing a mild impact. Really I'm curious if you could put a finer point on what type of impact you're actually seeing. And then, related to that is, I think we're all of the mind that much of the snappiness we're seeing right now is due to the consumer feeling financial pressure which you talked about in your prepared remarks. But I'm curious if think there is a meaningful portion of the snacking weakness right now that is due to category level shifts related to GLP-1, particularly as we see some of these higher protein categories even within snacking, such as meat snacks doing better than others? Thanks. I'll leave it there. Michele Buck: Yeah. All the analysis that we have done has continued to show that the year-on-year impact is not significant and that the pressure in the snacking categories are really driven by the consumers feeling pressured financially. So, every piece of data that we've seen has really indicated that. And then, of course, on some elements of our business, some opportunities for us to be executing better. So that's really what our data has shown. Max Gumport: Okay. Thanks very much. Operator: Thank you. Our next question comes from the line of David Palmer with Evercore ISI. David Palmer: Thanks. I'm wondering, if maybe at the end of this call, obviously, we're all going to have to take a crack at earnings for 2025. And I'm wondering, if maybe we could put some brackets around how you're thinking -- how you would think right now, given some base case assumptions, some of the things you're talking about, the reset incentive compensation, that 2% to 4% top line cohort cost realities today. Is it safe to say we'd be thinking something like a double-digit earnings decrease for 2025? How can we maybe think about that further? Steve Voskuil: Yeah. I mean, we'd love, David, to give more precision around what that range would look like. I think, the challenge, and you kind of said it in the question is the cocoa reality today is evolving. And so it's very hard to kind of give guidance on the total until we get more visibility or full visibility, let's say, into what that impact is going to be next year. We've talked about some of the headwinds from our tax normalization and incentive normalization. Clearly, there's going to be a significant year-over-year impact to cocoa, but exactly what it is, we're just not in a position yet to share it. David Palmer: Okay. Understood on that. And just one question on the top line, you went through in the prepared remarks, a great reminder about the long-term growth of 15-year growth in the confectionery category. And not only that, but Hershey has done a great job in terms of market share growth and had big areas of growth and outsized growth from things like Seasons, the Reese's Power brand I'm wondering how you're thinking about the sort of the shape of your growth and the contributors of growth maybe those outsized areas of growth as you're going forward? Whether that be non-chocolate confectionery, which has been outperforming chocolate recently, maybe channel, how are you thinking about the candidates for outsized growth for you in 2025 and beyond? Thank you. Michele Buck: Yeah. So I would say, certainly, salty, as we look at our entire portfolio is going to be a big area of growth. Strong growth in the category, lots of household penetration upside for us on those businesses. Distribution expansion, suite certainly because suites is a growing area of the category, also an area where we are underdeveloped. Certainly, seasons, we've continued to have strength and so we will continue to look at ways for that to drive us going forward. I would say some of the channel opportunities we think are big ones and a lot of those would come through relative to chocolate. And I think I kind of categorize that chocolate would be more in line with and slightly better than the category, but probably the biggest inflection point in 2025 versus some of the others that I mentioned. David Palmer: Thank you. Operator: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Chris Carey: Hi. Hi, everyone. I just wanted to go back to a reference in the prepared remarks that you'll be dealing with fewer headwinds in 2025 than you experienced in 2024. I think it's really a top line comment. Michelle, you flagged convenience stores probably weak into the front half, but then maybe get better. It sounds like you expect execution to get better in-store as well, potentially with a new leader for infection. Just what are the things that when you think about fewer headwinds and the year-over-year helpers that you're really thinking about when you insert that comment in the prepared remarks? Michele Buck: Yeah, there were several, and Steve can jump in if I missed some of them, but we exited the Mexico drink business. So that was a drag on the business this year that we won't experience retail inventory, which I think Steve referenced a little bit earlier. Certainly, some of the pressures that we had at that key retailer around reduced merch that we will have fully lapped the ready-to-eat popcorn softness that we had seen on SkinnyPop again, we should be through most of the lap on that, that was creating pressure. There were some pressures from year two leaky buckets on some innovation, and we've pulled some of those smaller items to get away from that. Steve is there any -- that was the only other one, I think, that we've called out. Steve Voskuil: And then, of course, you have positives on the other side, right? We've got a longer Easter. We've got very strong innovation pipeline, both year 1 and year 2 for next year with some strong investment behind it. Michele has talked about the Suites momentum, the inflection in SkinnyPop. So absence of negatives and opportunities on the growth side. Chris Carey: Okay. Thank you. And then one quick follow-up would be, Michele, you did reference several times in -- throughout this Q&A session, what it sounds like desire for execution just to be a bit better. And clearly, you have new leadership with the business. How would you frame maybe this past couple of years of market share between innovation versus in-store execution that can be merchandising, RGM [ph], what have you. But it just does feel like there's a tinge of execution that you feel like that's been lacking and that can improve. So when you kind of think about the past several years, how meaningful has that execution been in market versus, say, some other factors? Thank you. Michele Buck: Yeah. So I think there have been a couple of areas that I want to do better. Certainly, this past year, our summer activations in market did not perform as strongly as we had hoped, things like Olympics. I think that there are some areas where there were some changing dynamics in the category. So there was increased competition from private label and smaller manufacturers in take-home. So we had a really good innovation calendar but it was focused on sites and on instant consumable and our innovation did incredibly well there. But with that stepped-up level of new competitors in take home, we found that we need even more there. So as we look at seasons, we had some instances where we had a variety of offerings and perhaps our retail partners didn't always have the optimal or choose the optimal portfolio. We think that we can partner with them and influence in a greater way. And then I think just some areas of opportunity, probably not weak execution but opportunity. We talked a lot about some of the work we did on gold standard shelf I take home a few years back. We're implementing that right now for instant consumables. I think that, that will lead to some stellar results for us. So, as well as the focus that we're putting on some of our variety brands portfolio and really executing that well within instant consumables as well. So, those are some of the areas of focus. Chris Carey: That’s really helpful. Thank you so much. Michele Buck: Sure. Operator: Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question. Leah Jordan: Good morning. Thank you for taking my question. I was seeing if you could provide more color on the increased competition that you're seeing in confection domestically. What do you think is different in the environment now that that smaller players in private label are having a meaningful impact, as you called out? And how do you plan to address these pressures? Michele Buck: So, I think as it comes to private label, certainly, I think that's driven by the consumer pressure and focus on value And certainly, I think retailers looking to -- at their margins and the potential that exists there. I think as it goes to smaller players, some of the some of the barriers to entry with digital media enable a bit more of that to come into the category as well as with sweets because I would say sweets has some -- an easier door to open to the category as well. Where we are really focused is how do we really have the right offerings, the total value proposition. So, if we look at instant consumables, for example, it's always about the highest velocity items everywhere. So, there are some instances where we put out some innovation and shelf space that we took during the pandemic and the items we're doing okay, but now there are some smaller players who came in and have competitive velocities, and we need to switch out some of the items we have for even stronger items. So, I think it's really a focus on that. Leah Jordan: Great. Thank you. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: Great. Thanks so much. Steve, I don't want to beat the horse, so to speak, but I do want to come back a little bit to the pricing conversation for next year. I know you had said previously restated today, you've taken a bit high single-digit pricing on about half of the North America confection portfolio, maybe the total portfolio. But I feel like that still implies probably somewhere around a mid-single-digit range for North America confection in 2025. And I'm just trying to marry that to the comment that pricing next year would be essentially similar to what we're seeing this year because it would seem like it actually would be a little higher next year given some of the pricing on cocoa. So, maybe if you can just kind of help me understand that. Steve Voskuil: Sure. I think the biggest disconnect is probably just due to the mix of items that are being priced. I think we talked a little bit about on a pounds basis, with about 50% of the pounds being priced and when you kind of flow that through the portfolio, that's what kind of gets you back to that, I'd say, similar, not exactly the same, but similar to what we saw this year. Rob Dickerson: Okay. Okay. Fair enough. And then I guess the other question is just kind of around the comment you made in the prepared remarks about kind of trade and media spend increasing a little bit? It sounds like maybe there's a little bit more push on core brands, maybe not Reese's, but brands like Almond Joy and Mounds PAYDAY [ph]. And I just remember, Michele, I don't know if we go back and kind of making this off like 5 years ago or so, right, there was a little bit of an initiative to kind of lean into those brands a little bit. It seemed like maybe you continue to lean on them, but if we lean into them a little bit more now, what does that mean? Does that just mean kind of more social media, overall marketing dynamics? Does it mean maybe a little bit more innovation coming from those brands? Just trying to gauge kind of where you can take those brands maybe improve the overall efficacy of the portfolio. Thanks. That’s all. Michele Buck: Yes. Absolutely. So it is prioritizing the distribution of those brands. Most of those brands, they are biggest parts of their growth is in regular account. So we have king-sized brands, and we have brands that are big regular account. We think now given the focus on consumer value and entry-level price points, really making sure that we have a robust portfolio there and then continuing to invest in those brands to give them the marketing support, which then, of course, leads to those strong velocities that will outpace many of the other newer competitive items who may be trying to game distribution in the category. Rob Dickerson: All right. Thank you so much. Steve Voskuil: Thank you. Operator: Thank you. [Operator Instructions] There are no additional questions at this time. Would you like to make some further remarks? Michele Buck: Yes. Thank you all for joining us today. I look forward to speaking with many of you in the next few days and coming weeks. Operator: Thank you. This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.

Operator: Greetings, and welcome to The Hershey Company's Second Quarter 2024 Earnings Question-and-Answer Session. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anoori Naughton, Senior Director of Investor Relations. Thank you, Ms. Naughton, you may begin. Anoori Naughton: Good morning, everyone. Thank you for joining us today for The Hershey Company's second quarter 2024 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 pre-recorded 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] (ph) 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 presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck, and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi. Thank you. And Melissa Poole, I think you're probably somewhere in the call. I think you're still there. Thank you for all your help over the years. And Anoori, congrats on your new increased role. I wanted to ask within North American Confectionery this quarter, as you mentioned, there was 6% impact from lower retail inventory and around 2% to 3% from the Halloween shift. You seem confident that these impacts will have no real material effect on the year, which I understand. But my question is, is it unfair for investors to ask if there isn't at least a small red flag underlying this news? And I'm just asking because historically in food, destockings, delayed orders haven't always been for benign reasons. Sometimes they're, I guess, outgrowths of softer end user demand. So, just curious what gives you confidence there's not a relationship between the delays and demand, which seems to be implied by your commentary. Michele Buck: Steve, you want to take that? Steve Voskuil: Yeah, I'd be happy to. I mean, as we've seen in the last few years, there's been actually quite a bit of volatility around inventory levels, partly based on the COVID era and supply chain challenges. And so, I think what we're seeing now is a more reversion to the way it's been more traditionally, which is [handling ships] (ph) more in the third quarter than in the second quarter. So, the change from prior year -- but we had good visibility into our seasonal orders already. Most of those orders are in hand. We've got strong expectations for the seasons, a lot of retailer collaboration. And so, I think as we look at it, we don't see it as a red flag. We see it as a more reversion to a traditional order pattern. Ken Goldman: Okay, thank you for that. And then, quickly, I wanted to ask about your recently announced pricing. Can you perhaps give us a sense of which products it covers, the magnitude of the increase? And can you walk us through the degree to which you're comfortable taking this pricing right now, given some elasticity and that you're one of the few categories to be doing so? Thank you. Michele Buck: Absolutely. So, as you all know, we have experienced historic cocoa prices for some period of time now. And while we believe the current cocoa price is not sustainable, we do believe that the future prices will be higher levels than we've seen before this kind of recent historic pricing cycle. Our approach on the pricing has been to take a measured approach. We've absorbed a lot of inflation already, but we do believe we need to pass some of it on. And we're seeing the category hold up fairly well in this tougher environment. We think it's historically been very rational. We think it will continue to be. So, overall, we are not going to price the entire portfolio. We do have a robust internal process where we take a lot of factors into consideration to determine what our approach will be, but that's what gives us confidence. We will be getting about 6 points to 7 points of net price realization. At this point, we don't want to go into a lot of the specifics around the pricing. It was very recently announced, and so it is still out there being sold into customers. And we think from a competitive perspective at this point, we shouldn't go into too much more detail. We are assuming that we'll see historic elasticities, which is a little bit worse than we have seen in our recent price increases. So, we think that that's the right approach as we plan for this on the business going forward. Ken Goldman: Great. Thank you. Michele Buck: Thanks, Ken. Operator: Thank you. Our next question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks so much. Good morning, everybody. Michele Buck: Good morning. Andrew Lazar: Michele, I wanted to dig in a little bit more on market share trends in core chocolate. I know share trends have been weaker I think than expected particularly in everyday items even though Hershey is lapping some share losses in core chocolate last year. And I know last year there was more of a focus on capacity additions, but I guess I was -- I thought this year would mark a return to more innovation, more normal levels of sort of in-store commercial activity and such. So, I'm just trying to get a better understanding of what you think is driving those share losses and maybe when you'd expect to start to see those trends start to inflect, particularly in light of your intent to take some incremental pricing, albeit justified pricing? Michele Buck: Yeah, absolutely. So, first of all, I'd say we are encouraged that we continue to see category growth in that roughly 2% range. All along as we planned the year, we had expected our second half to be stronger, better than the first half due both to lapse as well as the timing of programming. And we had also anticipated Q2 to be a weaker takeaway quarter for us than Q1, given the timing of season, Reese's Caramel and then also some programming shifts where we had some programming that prior year was in Q2 that we shifted to Q3. That said, Q2 was a bit lighter than we anticipated both from a category perspective in terms of where consumers were shopping and what they were buying and certainly also from a share perspective. If I look at the areas of pressure in share that we saw in the quarter, sweet is an area that continued to be strong and certainly we under-indexed on sweets. As we look at the back half, we have significant incremental innovation with the Shaq launch, with new forms, et cetera, that we think is really going to help offset that. We saw pressure, particular pressure that hit us in C-store, given some of the weakening of those C-store channel trends, as well as an uptick in take home in club where we're less developed. And then finally, of course, the biggest factor that we had spoken about in the past, kind of the reduction -- continued reduction in key retailer merch, which reverses in the back half. So, as we look at the back half, we feel good about the progress that we'll have on sweets. Certainly, the strength of our programming from an innovation perspective, lapping that merch reduction at the big retailer, we have visibility into resets and we know that we're going to have advantaged position in resets in several key retailers, that's going to be a plus for us. And also, as we look season second half to first half, we are a big share player at seasons. First half had the weekend Easter with a short season and we have strong visibility to seasons in the back half. So, we know that that will drive share as well. Andrew Lazar: Great. And then, just a quick follow-up on the reduction in retailer merch that's kind of impacted the last couple of quarters that you'll be lapping, I guess, what was like the sort of post-mortem on that, if you will? Typically, some of these things kind of -- the pendulum swings too far maybe in one direction and then key retailers sort of figure out that it does make sense to put -- to have lots of different points of interruption, if you will, across the store because it's such an impulse item. So, I'm just curious like any lingering effects that you expect from that or not so much? Thanks. Michele Buck: I would say, I think that we're seeing things I would say neutralize. I would say that sometimes those things do go to more extremes and I think they -- while they don't revert back to where they were, I do think that there's more neutralization down the middle a bit more. Andrew Lazar: Thank you. Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Steve Voskuil: Good morning. Michele Buck: Hello. Alexia Howard: So, can I just start with the question on the incentive comp being down? Does that imply that this quarter was something of a disappointment relative to plan maybe because the timing of the shipments for Halloween or the retailer inventories were run down? And what should we expect to have happen on those incentive payments going forward? Steve Voskuil: Yeah. The biggest driver on the incentive side is just tracking with what our expectations are from a full year standpoint. And so, we -- at any quarter, we true-up where we're at year-to-date and the outlook for the full year. And that's the benefit that we're -- say, benefit that's flowing through into the incentive comp right now. Alexia Howard: Okay. And -- but the full year is the same or ish, I mean, there's only minor reduction in guidance this year. Obviously, this quarter was a disappointment relative to expectations. So, I was just trying to -- does that mean that the comp sort of bounces back next quarter and normalizes? Steve Voskuil: No. We wouldn't expect it to bounce back. We are -- incentives are structured as more than just, say, the headline numbers. There are things other goals and objectives underneath there. There's different parts of the portfolio that have different goals. So, even though the headline numbers may not change that much, some of the underlying incentive calculations can change. And so, as I say, we trued-up every quarter. We're not expecting it to come back. I would look at it as a step down for the second quarter that will continue to pull through the back half. Michele Buck: And that's [full-year] (ph) reduction in guidance does have an impact, I mean, a meaningful impact on the comp. Alexia Howard: Got it. Okay, perfect. And then, on the gross margin, you mentioned that this quarter, obviously, you're still expecting 200 basis points decline for the full year. This quarter, you talked about input cost timing favorability. Which input cost was that on? Presumably, it wasn't cocoa, because I thought you had that locked in at the end of last year. So, just curious about the dynamics on input costs. Steve Voskuil: Yeah. There are a couple of things inside there for the second quarter. One is that we did have some movement in mark to market of derivatives for our hedging. And so, it's not a change from the past. We always have for current periods some mark to market that flows through the segment reporting. In this case, because of the volatility in commodities plus the business performance, and as always, the mix of instruments and tools that we use to hedge, we had some favorability there that came through relative to input costs. That's hard to predict. It varies quarter to quarter, but that was one of the pieces. We also made some small changes to -- as part of our ERP system in the way we match cost to products, that didn't have a big impact on the quarter, but slightly positive as well. As we look at those pieces, we look at them all as timing based and so we expect to see those come back in the back half. Alexia Howard: Great. Thank you very much. I'll pass it on. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Hi. Thanks, operator. Good morning, everyone. Michele Buck: Good morning, Bryan. Bryan Spillane: Hey. So, Michele, I guess, a question I think you're going to get or we're all going to be asking over the balance of the year is just consumer receptivity of a price increase and maybe why normal elasticity. And I say that in the context of if you look at your own results, right, it's clearly a value shift, right? Dollar stores, club stores doing well, convenience stores not doing as well. Pepsi is cutting prices, right, on Frito, because they priced too high. There was -- the lift on merchandising wasn't very good. Mondelez is trying to get a $3 price point instead of a $4 price point in front of people's eyes. So, it just seems like a lot of the other snacking peers are adjusting down maybe to start stimulating demand. So, just how you think about that in the context of trying to take another price increase? Michele Buck: So, certainly -- as we put together the pricing, certainly we're experiencing outsized inflation versus I'd say some other peers. That said, we do really focus on the consumer. As we look at historic price elasticities, our recent pricing increases, we have been better than historical elasticity levels. So, we are putting in place a more conservative assumption on elasticity than we've seen in the past. That said, we also really take a surgical approach across the portfolio, with a lot of analysis to look at the key price points we need to be at, to offer the right range of opportunities for consumers. We've got a pretty significant amount of our portfolio that's under the $3 price point, and we've made choices across the portfolio about where we think those price increases will benefit and work and some places that we've chosen not to lean in on price. We also continue to optimize reinvestment and look at the total bundle of value because we know value includes both price points, but also seasons provides value, innovation provides value, and then reinvestment in the right precise price points from a promotional perspective as well. So, kind of that holistic approach is what makes us feel good about it. Bryan Spillane: Okay. And then, Steve, if I could just one quick follow-up, I think you mentioned it might have been in the prepared remarks, cocoa and beginning to start laying in a little bit for '25. If we think about the gross margin expectation for this year for '24, should we assume that you've got visibility or you're pretty much locked in on cocoa? So, if it moves around, it's more of a '25 versus '24 factor we should think about? Steve Voskuil: Yeah. For '24 itself, I'd say we're pretty well locked in on cocoa. And the only caveat I would say is like we saw this quarter, there's still some potential for some mark to -- some in-quarter mark-to-market movements that could go through this year, but cocoa supply and largest part of the cocoa cost lapped for this year. As we get to next year, of course, as we get further into the year, we'll share more about expectations for next year. I mean, it's no surprise, current cocoa prices still significantly up versus where they have been in the past. That's, of course, necessitating the price increase that we're talking about. So, more to come on '25, but for this year we feel pretty confident about where we're sitting from a commodity basket standpoint. Bryan Spillane: Okay. Thanks for that, Steve. Thanks, Michele. Steve Voskuil: You bet. Michele Buck: Thank you. Operator: Thank you. Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Great. Good morning. Just a quick follow-up on the previous question on pricing. You mentioned the 6% to 7% price increase. Is that consistent with what you would expect for North America Confection in your reported results for '25, or is -- are there timing issues there? Just wanted to check on that. And then separately, your commentary and guidance seems to imply stabilization or at least some acceleration into the second half in North America Confection. I just wanted to get your temperature. What of the stuff that you've talked about, Shaq, the new Reese's, the channel expansion that you talked about maybe with club and then the restoration of merchandising with that key retailer, what about that is the most important to that acceleration? Steve Voskuil: Sure. On the -- let me take. On the pricing side, you can't take the 6%, 7% net for the full year for Confection. This price increase is going to be phased in. Some parts will be phased in later this year. Some parts will be -- have impact next year. So, don't take that all the way. But we look overall mid single-digits in 2025 is the way to think about it. Michele Buck: Yeah. I guess, if I was going to zero-in on some of the biggest second half driver, certainly the lap on the large retailer, merch and resets is significant. So, I would put that first and foremost, and we have really good visibility into what that should look like. Secondly, the impact of season, that differential, also large and strong visibility into the sell-in for those seasons and then the sweets innovation is also one of the big drivers. And then lastly, I'd say the continued salty -- we really haven't talked much about salty, but the continued salty acceleration, we have seen the momentum shift on that business. Certainly, Dot's has remained strong, but SkinnyPop is seeing a regaining momentum and we expect to continue to see that in the back half. David Palmer: Great. That's helpful. I'll pass it on. Thank you. Steve Voskuil: Thank you. Operator: Thank you. Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question. Max Gumport: Hey, thanks for the question. In the prepared remarks, you discussed consumers pulling back on discretionary spending and C-store weakness. So, I was hoping to get a bit more color on what you're seeing there, particularly around the remark about seeing it really pick up over the last two months. And then, also a bit more color on how long you expect this dynamic could persist? Thank you. Michele Buck: Yeah. I mean, I think in times where consumers are forced to make choices and pull back on some of their discretionary spending, they're even more focused on getting the best value that they can. And so, shifting where they are making some of their purchases, where normally they may not go out of their way to do that, I think during those times, this is something they're doing, and I think that's why we're seeing some of the shift away from convenience store into more mass dollar, et cetera. And I think we've started to see that the first part of this year. I think I would expect to see that as we continue through the year. We do have confidence that we can continue to shift and offer the right offerings across all those channels. One of the strengths in our business is our ability to do that. And certainly, as we lap that, we will see that stabilize and/or grow. Max Gumport: Thanks. And then, with regard to the commentary of historic elasticity expected with the price increase on the North America Confection business, is that historic elasticity right around 1 or a 0.9? And just a bit more color on what's giving you the confidence that it will be right around that level? Thank you. Michele Buck: Yeah, you're right. It is right around 1. And based on the models that we use and what data points we have, we would say that we feel pretty good that that's our -- a good estimate for now. We are building in some of that conservatism versus where we've been in the past. And that's really for price in isolation. There are other levers that can help to offset that relative to things like increased innovation, seasons, improvements in activity at customers, et cetera, et cetera. Max Gumport: Thanks. I'll pass it on. Operator: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question. Tom Palmer: Good morning, and thanks for the question. You mentioned your view that current cocoa prices are not sustainable. And I just wanted to understand in the context of the round of pricing that you announced, how you're thinking about covering longer-term pricing, so -- sorry, longer-term inflation. So, does this round of pricing kind of cover your view of where cocoa prices might migrate longer term? Michele Buck: So, our strategy regarding pricing to cover commodities hasn't changed, that remains in place. But as we've discussed before, we don't view that as totally linear, as in when the price goes up there's an automatic coverage. So, I'd start by saying, if we look at where prices have already been in terms of -- and the fact that we've mentioned that we have some coverage for '25, it would be a fair assumption to assume that this pricing will not fully cover inflation. Steve, anything you want to add to that? Steve Voskuil: Yeah. No, that's right. We continue to manage pricing as one of many levers. And so, we're also looking at cost reduction productivity, we're looking at formulation, we're looking at all kinds of levers that we've talked about in the past to manage cocoa price, still very volatile. And as I said before, given even where it is today, and it's down from where it was earlier this year, if we kind of took current prices and flash ahead to the future, it's pretty still a very significant year-over-year inflation piece. And so, this pricing action will help. It's not by itself going to mean that we're already at long term covering the total cost, but it's a good first step, and you can expect we'll take other steps across all the levers that we have in the basket to address. Michele Buck: And we'll continue to monitor cocoa pricing. Certainly, we know there's been some positive news recently, but we also believe there won't be any significant impact in pricing until there's much greater visibility in the fall harvest, which is a bit of time from now. Tom Palmer: Okay. Thanks for that detail. And then, just any help kind of thinking about the puts and takes as we think about the third quarter versus the fourth quarter in terms of maybe some of the earnings cadence? Obviously, shipment timing is a big factor, but maybe any other help on kind of the progression of gross margin or underlying sales trends? Steve Voskuil: Yeah. On the -- it's a little more tricky to probably go quarter by quarter, but maybe if I just say, hey, as we look across the back half versus the front half, as we look at the back half, we're going to expect to see more AAA savings. We've been saying most of that's back-half loaded. We'll see some of that come through and some of that does impact gross profit. We'll have our regular CI productivity that I think we said on the earlier calls about $140 million target for the full year. We're right on track for that, but there's more of that to come in the back half than we saw in the first half. We'll also be lapping some incremental costs that we had in the back half of last year. Some of that was that for related warehousing and so forth. Most of the timing items, we would expect to reverse in Q3. So, I think we'll see more of those benefits reverse in Q3, but the others will continue over the back half. On the other side, as I think about back half gross margin, we'll have more commodity inflation, we'll have more seasons mix naturally coming in, and that seasons mix is slightly dilutive to margin. We'll have a little bit more sweets growth and sweets growth also a little bit dilutive from a margin standpoint and the reversal of some of the mark-to-market and other timing items that we talked about, again, mostly in Q3. Tom Palmer: Okay. Thank you for that. Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question. Robert Moskow: Hi, thanks. Just wanted to know if you could kind of elaborate on your thinking for marketing support. There was a big increase last year and I think the plan was for another increase this year. Where do you stand on your how much marketing is going to increase this year? Has anything changed? And as you get into 2025, because of these incremental costs that you're going to have to take into account, how do you think about marketing relative to sales into '25? Thanks. Michele Buck: Yeah. So, we don't see a significant change in our marketing support versus what we had planned. As we look to this year, still up in line with our sales growth. Robert Moskow: And the next year? Michele Buck: Yeah. And as we think about next year... Steve Voskuil: For next year, I'd expect also to match roughly in line with sales. And we're not far enough down all of our game planning for next year. We'll get more details later in the year, but I think from a planning standpoint, assume that it's going to at least match what we're doing from a sales standpoint. Robert Moskow: Okay, great. Thank you. Steve Voskuil: You bet. Operator: Thank you. Our next question comes from the line of Jim Salera with Stephens. Please proceed with your question. Jim Salera: Hi, good morning, guys. Thanks for taking our question. Michele, in the prepared remarks, you talked about in salty strong trends with Dot's and then kind of improvement for SkinnyPop in the back half of the year, but the salty category as a whole has seen some pressure, and obviously more promotional activity probably coming into the category. So, just maybe walk through puts and takes on what gives you the confidence for Dot's maintaining momentum in the back half of the year and then SkinnyPop reaccelerating? Michele Buck: Yeah, absolutely. So, certainly, we've continued to see tremendous growth on Dot's. I'd start by saying on Dot's, we continue to have a lot of more upside on expanding our depth of distribution. There are still distribution opportunities, whether it's by geography, whether it is depth within a store, space on shelf, given velocities. And we also have continued strong investments in Dot's relative to both marketing support and then also innovation relative to pack types and flavors. One example, recent launch of Parmesan Garlic. So, we continue to just have all the marketing levers still present opportunity on Dot's, because that brand has really still been in the kind of introductory phase. As I think about popcorn, I would say, yes, there's been some pressure on the category. We are seeing some stabilization as we lap some of the consumer concerns in that category and we continue to feel good about the stepped up innovation opportunities on SkinnyPop as well relative to flavor pack size and also marketing investments, which we have dialed up more recently as well in combination with lapping some of the softness from last year. Jim Salera: Okay. That's helpful. And maybe to drill down a little bit on the Ready-to-Eat popcorn, is part of the softness there just consumer preference for like trading out or opting for another substitute good instead of the popcorn, or is there something particular with that cohort, where the consumption trends are a little bit lighter there relative to something like Pretzels or Dot's? Michele Buck: Yeah. I mean, what we uncovered was the satiety factor was impacting total value proposition. And so that's what we started to see some softness on last second quarter. And we're now at a point where we're really starting to lap that and see it stabilize as we head through the back half of the year. Jim Salera: Great. Thanks for the color. I'll hop back in the queue. Operator: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Steve Voskuil: Good morning. Michele Buck: Good morning. Michael Lavery: You touched on having some coverage for 2025 for cocoa. I'd imagine you don't want to be too specific, but more than halfway through the year now -- more than halfway through 2024 and with at least sort of an average maybe of kind of typically looking 12 months ahead, would we estimate or assume reasonably that you're kind of half covered for the year? I guess part of the question is, how much are you maybe looking to be patient for better rates, or kind of more focused on securing supply? Maybe just a sense of how kind of that securing product for 2025 is progressing? And related to that, maybe, I know you would ordinarily give an update in February when you report 4Q on the next calendar year. Is there any chance later this fall, when you've got plans put together, you might give a little preview sooner than normal, or should we expect just the typical cycle in terms of that news? Steve Voskuil: Sure. Yeah, on the -- specifics on hedging, you're right, I can't really give color around how far out we're hedged for 2025. As I said, our policy hasn't changed. And so, we've got some guardrails. It's fair to assume we've got some level of coverage in 2025, but we're still watching the market and the volatility. And so, we'll continue to, through our normal process, monitor that and take coverage as appropriate. As we get later in the year, as our visibility increases, I would hope to be able to provide a little bit more color. Again, a lot will depend on, as we sit here, for example, on the third quarter call what we see and how much visibility we do have into cocoa and probably some other variables as well. That would be the hope. We'll see how we're sitting when we get there, but we'd love to be able to provide more color once we have the visibility we can give you to rely on. Michael Lavery: Okay. That's helpful. And just as far as -- obviously, the cocoa cost pressure is very well known, does that do anything to influence how you might think about portfolio optimization, maybe diversifying a little bit more away from chocolate specifically, or any other way that it might impact how you think about managing the portfolio? Michele Buck: Hey, I mean, we're always looking at the best portfolio to meet consumer needs. We love the categories that we're in. And as you know, we've made decisions to expand and leverage our core capabilities that are so strong in snacking more broadly across snacking with our -- particularly with our launch into salty a few years ago. We also look across our -- even our chocolate portfolio and try and optimize our demand creation. We have certain parts of the portfolio that have more cocoa and chocolate, and certain parts like cookies and cream that may have others, but our goal is always to go where the consumer is. Michael Lavery: Okay. That's helpful. Thanks so much. Steve Voskuil: Thank you. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo. Please proceed with your question. Chris Carey: Hey, good morning. Thank you for the question. I just have one follow-up on levers, and then a clarification on the back half. Steve, just regarding the levers, in the prepared remarks, there was a statement that the pricing was the first step to cover inflation. I couldn't tell if the implication was that you're assessing the pricing in market before perhaps taking other pricing, or pricing is just one of your many tools in the toolkit to manage inflation. And then just regarding the toolkit, where is the most effort being put right now as far as levers to offset inflation, whether that's product reformulation, price pack, incremental productivity, maybe even have some tax savings. Doesn't feel like marketing will be a key source of savings. So, just you've had time to kind of prepare for this. Where is a lot of that work going right now? And then -- sorry for the long question, but just in the back half of the year, the 4 points visibility seems about 1 point is seasonal. Is the rest [Technical Difficulty] the innovation, or is there any of the 6-point kind of destock in Q2 coming back in the back half? Thanks for all that. Steve Voskuil: Sure. On the first part of your question, this is really just our normal strategy. We're always looking at the market. We're looking at cost. We're looking at pricing. And so, this isn't -- the comments weren't intended to say, hey, this is a tripwire pricing, and we're waiting to -- we will always be looking at pricing, and we'll be looking at all the levers. So, just to address that. In terms of levers, I would say we're focused on all of that, but some -- we've talked about in the past, PPA is a big one. We want to make sure that we are, as Michele said earlier, bringing value to consumers going where they are. We've got a lot of initiatives underway, some of which are contemplated in this price increase, but other things that we're working in collaboration with retailers to bring to bear in the next couple of years. So that continues to be a focus. And then things like the transformation program to drive cost savings all through the P&L, also one of the pieces, one of the levers that we can use, and driving production efficiency off the back of some of those technology investments. So, wide span of tools, but those are ones that are getting a lot of attention. And then on the back half, your question was just -- can you -- just ask you to repeat that last piece. Chris Carey: The question is basically there's roughly 4 points in the back half of shipment visibility highlighted in the prepared remarks. I can get to about 1 point of that being seasonal. The rest of that, is that incremental innovation, or just other proactive initiatives you have? Or is any of that this 6-point retail reduction in Q2 -- I couldn't tell because there was a comment about retail inventory should be in line with current levels into the full year. So, I didn't know if you were getting some of that back, or the rest of the shipment visibility and other things. Thanks. Steve Voskuil: Sure. The back half guidance doesn't require any increase in retailer inventory. So, like I said, we're at a level now that we might have expected to be at. The end of the year would be typical, but we're not expecting any increase in retailer inventory. And as far as some of those drivers we touched on some of them earlier for the back half and you have as well, we will have more innovation relative to the first half season will play a role. We'll have some easier laps in a couple of businesses. We mentioned in the prepared remarks, international will have some easier last salty as well given the ERP implementation there in the fourth quarter of last year. So, those are the things that give us confidence in what we can do from a business standpoint in the back half. Chris Carey: Okay. Great. Thank you. Operator: Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: Great. Thanks so much. Maybe just a quick question for Steve. Just in terms of those levers, right, I mean clearly, you've outlined the $700 million in gross savings. I think it's through '26. So I'm just curious, kind of given the clear elevated cocoa cost situation, like is there a little bit more flex in those savings maybe to help offset some of those costs, or you just kind of preplan that too well, there are reinvestment needs that have already been earmarked, and we'll see what we can do, but not really? That's the first question. Steve Voskuil: Yeah. I'll say we're very focused on the cost side, absolutely. And so, as we look through the transformation work, as we look through the ongoing productivity work and even now moving past ERP and some of the savings we can leverage off the back of that, so all of those things are helping us focus on costs to help make some impact on what we can do from a cost savings standpoint. And as we said, we're expecting a net $300 million savings over that period. So, if not $300 million, then reinvest portion. We want $300 million net after reinvestment to hit the P&L. Rob Dickerson: Yeah. I guess I would just say like, could you take the $300 million to like $350 million because maybe the cost situation changed? I mean, it sounds like you're not budgeting... Steve Voskuil: Sure. Rob Dickerson: Yeah, okay. Steve Voskuil: Yeah. Well, I would just say we felt like we went pencils down on cost savings once we put that program in place. We continue to look all the time for cost savings. And believe me, all the pressure is up to find more. Rob Dickerson: Yeah. Fair enough. Okay. Cool. And then I guess, Michele, just kind of a question around some of this kind of ongoing discretionary spend softness on chocolate, because I kind of ask because, I mean, clearly, we've seen a tremendous and kind of ongoing growth on the sweet side of the business, so which you -- I guess, one could argue it's still somewhat discretionary and clearly still a much smaller piece of the U.S. broader confection market. So I guess, just first, kind of maybe like why do you think consumers have maybe increasingly shifted to kind of non-chocolate confection, one? And then, two, maybe how broad is the Shaq-a-licious launch expected to be as we get through the back half of the year? And then, three, like could there be any acquisition opportunities that you would maybe dream of, you don't have to name names, but yes, it could be an area of interest? That's all. Thanks. Michele Buck: Yeah. So first of all, I'd say chocolate is still growing. And the non-chocolate growth that we're seeing doesn't appear to be sourcing much from chocolate. We do believe that there's growth in that area due to some of the kind of the emotional factors around fun, dress release, and frankly, there's been a lot of news and innovation in that segment. So, in addition to value playing a role, there are many other main drivers, I would say, that do make sweets appealing, and it's one of the reasons that we've really ramped up our innovation in that space with Shaq with the launch of a new form in the back half and continued investment in those brands. Rob Dickerson: All right, fair enough. Thank you so much. Michele Buck: Thanks. Steve Voskuil: Thank you. Operator: Thank you. Our next question comes from the line of Stephen Powers with Deutsche Bank. Please proceed with your question. Stephen Powers: Good morning. Thank you so much. So, I know we're late in the call. I wanted to ask maybe kind of a wrap-up and longer-term question. A little over a year ago, you obviously outlined a number of initiatives to drive the next phase of long-term growth for the company at your Investor Day. And a lot of news at that time a discussion around upgraded commercial capabilities, digital network and supply chain optimization, workforce planning, et cetera. A lot of that you've touched upon it in bits and pieces today as well. But I guess when you step back, just given all the volatility you've experienced in the time since that day and kind of what you see ahead over the next 12-plus months, how would you assess your ability to keep pace with the cadence of change and improvement that you had envisioned during that Investor Day? Have you been able to largely keep pace amidst all this noise, or are there areas where the honest assessment is you'll have to do some catch up when the demand and cost environment hopefully stabilizes? Michele Buck: Well, I would say we have continued to drive really hard on all of those capabilities around digital workforce planning, et cetera. Steve referenced the transformation program. And that transformation program includes a lot of those components, and we have continued to make progress on that. So, starting with the completion of S/4, which we were able to successfully do, so that is now behind us. That was the foundation. Many of the work streams that enable us to deliver the transformation cost savings that we are on track to deliver involve technology and automation and digital solutions to enable that. So, those things are continuing to move ahead. So, I'd say it's kind of an 'and', which is dealing with the current pressured environment and continuing to drive ahead on all of those initiatives that are part of the transformation. Stephen Powers: Okay, great. I appreciate it. Thank you. Operator: There are no further questions at this time. I'd like to turn the floor over to Ms. Naughton for closing comments. Anoori Naughton: Thank you all so much for joining us this morning. We look forward to catching up with you in the coming days and weeks. Have a great rest of your day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Operator: Greetings, and welcome to The Hershey Company First Quarter 2024 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, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company's First Quarter 2024 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Andrew Lazar: Michele, I guess excluding the inventory build, underlying organic sales in North America Confectionery rose 2%. I think we and the Street had modeled it broadly more flattish. And recently, market share trends in chocolate have inflected following a year of weakness. I guess my question is, am I overplaying this? Or maybe are you, too, starting to see sort of building underlying momentum in the core Confectionery segment outside of all the ERP inventory noise? And would you expect to see a sequential improvement in volume trends in 2Q? Michele Buck: Yes. So Andrew, we are definitely -- we're very pleased with our Q1 top line performance. I would say that, overall, it was in line with our expectations. However, our market share did exceed expectations. And our strength was really driven by very strong performance in seasons, both overall and takeaway, as well as market share and also the strength that we had in innovation with Reese's Caramel, which not only did well with consumers, was the best innovation in the category and also was able to drive strong merchandising for us, particularly as we launched around Super Bowl. So we're feeling good about what we're seeing. And as we look to the rest of the year, we do expect some improvement in trends as we enter throughout the year and proceed towards the end of the year. Andrew Lazar: And then you mentioned in the prepared remarks improved display activity in the first half of this year versus the second half of last year. I know there's a lot that goes into that, but can we also take this to mean maybe that some of the headwinds you faced last year from a major customer going through what seems like yet another sort of clean store effort maybe has started to realize a bit that display and sort of multiple points of interruption for snacks improved sales? Or is that too strong a way to characterize it? Michele Buck: I would -- yes, I would say we are partnering very strongly with that retailer as we always do. And certainly, I think we both recognize some of those opportunities that we can go after. As we look at the performance year-to-date, a lot of the strength that we had seen versus second half of last year in merch was really across other customers versus that customer with seasons innovation and then really tying some of our media to events like the Super Bowl or March Madness driving merch. So we do anticipate that we will see some of the strength from merch with that retailer in the second half of the year. Operator: And our next question comes from the line of Alexia Howard with Bernstein. Alexia Howard: Okay. So 2 questions. First of all, I know you're not going to comment on what you're doing with your cocoa forward contracting and hedging strategy. But could you give us a little bit more detail on the levers and options you have regarding sourcing for 2025, whether it's sourcing from other regions, obviously, timing of contracts, the amount of flexibility you can build into the system. Just some ideas of the types of levers that you can pull, given the amount of volatility that's out there in the cocoa market today. Steven Voskuil: Sure. Yes, I'm happy to take that one. So multiple ways to deal with the volatility. Obviously, the hedging program and the financial side is one way to deal and then the supply chain side, making sure we've got diverse sourcing. And we've done a good job of that over the years of really trying to diversify that supply chain footprint. And no doubt, looking back at the last few years, we'll continue to move that diversification forward. But that does give us some flexibility on sourcing. And of course, we have recipes that went and taste profiles and things like that, that guide those choices. But within that, we've got quite a bit of flexibility on the sourcing side. Alexia Howard: Great. And then are you able to comment on what you're seeing in terms of the state of the American consumer? We've been hearing a lot about this recently with lower-income consumers becoming more vulnerable. Any comments you can make on how much the SNAP spending cutbacks last year hit you? I don't know whether you're able to quantify that, but just comments on where you're seeing the American consumer headed at the moment. Michele Buck: Yes, absolutely. So we do know that we saw impact from the SNAP reductions in the business in the back part of last year. We are beginning to see some stabilization as we start to lap some of those reductions. Consistent with our expectations as we built our plan, we anticipated that, that would occur. However, we do continue to see value-seeking behavior from consumers. So that still hasn't changed. I'd say it's improving a bit, but it's still there. Operator: Our next question comes from the line of Ken Goldman with JPMorgan. Kenneth Goldman: I just wanted to follow up to your answer to Andrew's question about North America Confectionery. I think you said that you were -- that in general, it came in underlying, right, excluding the ship ahead, kind of in line with your expectations, but that your market share exceeded your expectations. So I guess, just mathematically, the category maybe didn't do quite as well as you had hoped. So A, I'm just trying to make sure I'm hearing that correctly. And B, if so, what do you attribute that to? Again, we all know there's been some elasticity and you mentioned the lower end struggling a little bit. Is it really just tied to that? Or are there other factors maybe we should consider? Michele Buck: Yes. I mean I'd say some of that is always tied to each key competitor and what their programming is like versus prior year. So our largest competitor, Mars, was a little bit soft for the quarter with share down. And I think a lot of that was driven by their innovation, the lap versus prior year with some of that innovation not sustaining, and those things do impact the category. So that looked to be one of the biggest drivers. Kenneth Goldman: And then just pivoting a little bit to Salty. Obviously, your sales trends were much improved. I think it's fair to say that there's still maybe some opportunities in margin ahead. I just wanted to get a level of -- or get a sense of the level of how content you are with the A&P investment in that business? Do you expect to have to invest any more in price? Just I guess, how confident are you in kind of the building blocks to really get that business a little more stable to a position where you can grow it and expand margins at the same time? Michele Buck: Yes. So overall, Salty was on track with our expectations as well. We had very strong Dot's performance. And then, as expected, while SkinnyPop improved, we knew that the majority of that improvement would not occur until we get to lapping the Q2 period and going forward. SkinnyPop does remain pressured along with some of the rest of the ready-to-eat popcorn category. And we think that, that will shift once we get past that lap. As we move through the year, we do have strong media and trade investments behind both of the brands. We also have flavor and pack innovation that will help us both grow and also drive share gains in the second half of the year. From a profitability perspective, Q1 Salty profit was the weakest for the year where -- of where the business will be for the year. So you can expect that to get better going forward. And also the bigger increase in our advertising really starts to happen in Q2 and beyond working forward. Operator: Our next question comes from the line of Max Gumport with BNP. Max Andrew Gumport: I realize you're not getting into 2025 pricing conversation on this call or commenting on cocoa inflation. Just curious if you could talk about some of the other factors that go into that framework, though. So you've talked a little bit about market share trends, but also what you're seeing with category volumes, health of the consumer overall, the competitive environment, cross-category elasticity concerns just as we try to think through what you're seeing. Steven Voskuil: Yes. We -- so on 2025, and I think that's where you're pointing the question, I would just say we're in the midst of building the '25 plan. And so obviously, yes, we're not going to talk about cocoa. As we look to the plan, there are a lot of levers we'll be looking at. And so pricing is a lever we'll look at, other supply chain savings. As we talked about in our last call, we've got some transformation savings that we'll be building in the years to come, including 2025. And so as we get further into the year, we'll be able to talk more about what we expect for 2025, including category health and what we think about the consumer and so forth. Max Andrew Gumport: Okay. And then turning to the comments on gross margin for 2Q '24. Any help you can give us in terms of the cost absorption that might reverse out in 2Q after a strong 1Q, given the inventory dynamics associated with the ERP cutover? I'll leave it there. Steven Voskuil: Sure. Yes. We expect to see that fixed cost leverage that we benefited from in the first quarter effectively fully reversed out in the second quarter. So order of magnitude, we had $20 million to $25 million of benefit of fixed cost absorption and then also a little bit of mix just based on the type of inventory that was built in the first quarter. And so both of those components should reverse out in full in the second quarter. Operator: And our next question comes from the line of Nik Modi with RBC Capital Markets. Nik Modi: Just 2 questions. Michele, I was wondering if you could just comment on kind of what you're seeing from a channel perspective, primarily C-stores, because some of the feedback we're getting is the traffic is really starting to come under some pressure. So would love your thoughts there. And then just kind of more broadly, one of the things that, obviously, we've talked about in the past has been this kind of cross-elasticity between what's going on in your business versus other potential alternatives for the consumer, whether it be snack bars or what have you. And I'm just curious, as you kind of think about the year, are you framing your promotional plans and your pricing -- and your price gaps more from that lens? Or are you still just more holistically or focused more specifically on just the categories in which you're competing? Michele Buck: Yes. So as it relates to C-store, our business in C-store has been holding up pretty well for us. So we really haven't seen a big change in trend, I would say, that we are focused on there. And as we look to price gaps, we always look at price gaps, both -- and price points, absolute price points, both within the category as well as across the snacking category. So that is really the standard way that we view our price elasticity, and we continue to evaluate it that way. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Michael Lavery: I just wanted to come back to the comments on 2Q. You called out the high single-digit decline you expect from the inventory reversing. But the last quarter, you said how you expect double-digit EPS declines in the first half. I don't, unless I missed it, believe you reiterated that, but would that still apply as well? Steven Voskuil: It does. Yes. Michael Lavery: Okay. Great. And then just as you think about any of the moving parts with some cocoa volatility or cost, maybe uncertainty at least, how -- you've also reiterated how you just think for the long term and want to approach the business that way. Would it be right to assume that, that does some amount of protection for AMC? How do you think about managing that as one of the variables? And is it something that is in play or is protected? What's kind of the approach there as far as the marketing spend? Michele Buck: Yes. I mean, I think strategically, we want to always continue to invest in our brands. We believe that's a key part of the model. And we know that if you break that investment, it can take some time to rebuild to get to kind of your threshold levels again. That said, every year when we build a plan, we reevaluate the return on all of those pieces of spending. And we have to have the right news. We have to have the right increases in effectiveness and efficiency to set the right level. So it's not to say that we are set at a specific budget or percent of net sales. Every year, we do adjust that based on what we're seeing in the returns, where the opportunities are, what kind of news we might have that we want to support, et cetera. Operator: Our next question comes from the line of Bryan Spillane with Bank of America. Bryan Spillane: I guess, Michele, can you give us some perspective, if you can, I guess. If you look at seasons in the first quarter and maybe just how consumers purchased around Easter and what the display and merchandising was like, does it give you any insight into Halloween maybe being any different this year or maybe needing a different approach for Halloween? And I guess, I say that in the context if we think about last year with the everyday business being so under pressure, right, it put a lot more pressure on seasons in Halloween and kind of the balance of the year to sort of drive the business. And trying to -- and it seems like that every day is, at least as a category or the small-format stores are under a lot of pressure. So I'm just trying to get an understanding if we have a lot of dependency on Halloween as we go through the end of the year and whether or not there's any sort of difference in the way consumers are shopping around holidays. Michele Buck: Yes, absolutely. So if I start with the beginning of the year, Valentine's, the category was strong and we performed very well there from a share perspective. The Easter category declined, but it was a shorter season, which always makes it more difficult, but sell-through was very good. And again, we gained share in that season as well. As we look at the second half of the year, we do feel like those trends are positive for the second half. But obviously, we had some very strong seasonal performance in '23. So we think second half will grow, but we think the growth will moderate and perhaps be more in line with our overall growth as a company versus kind of super-sized in the back half. Operator: And our next question comes from the line of Robert Moskow with TD Cowen. Robert Moskow: Michele, I thought I remembered last quarter you saying that once you got past the ERP conversion completely and after second quarter, that's when you would start to evaluate pricing actions to cover higher costs. Did I get that right? And is that still your strategy? And then lastly, I was wondering like how do you know that -- how did you go about estimating how much extra inventory the customers pulled forward? You're expecting one thing, like maybe they would take a month of inventory. And did they just say, no, we want 2 months instead of 1 month extra? And then how do you know that maybe they weren't pulling forward shipments ahead of a perceived price increase? Michele Buck: So first of all, our teams have done an amazing job with the U.S. and Canadian S/4 implementation, and we don't take that lightly. So we're thrilled about that. And I think we are consistent with what we've said all along, which is, hey, we are in a pretty good position. We're shipping products, invoicing customers, et cetera. But we do consider ourselves at the end of that ramp-up phase and making sure that we have a stable system, can close the books at the end of the quarter and all of that. So yes, end of Q2 is when we believe we're maybe officially stable on S/4 and have options available to us. Of course, we never speak about any of our intentions or strategies around pricing or when we might or might not, but rather just that the capability exists to be able to. Relative to the excess inventory, frankly, we worked closely with customers because we wanted to understand how much inventory they wanted. I think a few things happened. We had some customers who maybe had not put in as much and communicated fully the requirements. So we had some of that, that added to inventory. Frankly, I think we saw some others who, in the face of other companies in the marketplace who were struggling with ERP implementations, it spooked some retailers into wanting a little bit more inventory. So I would say relative to what we saw and was communicated to us, that's really -- and we were actually able to execute more than we anticipated. We actually thought we had to plan for some kind of disruption in the start-up and assume that there'd be a cap on how much we could give retailers. So we were actually able to better fully meet what they really wanted versus originally, I think we kind of tried to cap them a little more just because we weren't sure we'd be able to deliver. Steve, is there anything you want to say? Steven Voskuil: And where we landed in the end, we feel, was a healthy level. And so in the second quarter, we'll see the vast majority of that bleed out. It wasn't too much. And we don't see that as a sign about trying to get ahead of price increases. The way price increases these days work their way to the market, prebuying inventory isn't really the common practice. So not much risk there. Operator: Our next question comes from the line of David Palmer with Evercore ISI. David Palmer: Question on price elasticity. What do you think your price elasticity is on the chocolate products today? And do you have a sense of how that might change if you were to -- if cocoa prices remained elevated and if you were to need a large price increase heading into '25? Any thoughts about how that price elasticity might change? Michele Buck: What we've seen is no material change in our elasticities over the past several months. We remain in line with historical levels, which is about minus 1, and that's what we would assume going forward. David Palmer: Got it. And you're always so good on insights. There's been this post-COVID slowdown in at-home snacking and perhaps there's that overlay of the SNAP reductions causing -- or influencing that. But now there's talk of a weakening low-end consumer and perhaps convenience channels being relatively weaker now. I'm just wondering how you're thinking about the net of all these things going forward and if you're seeing crosscurrents between your different channels as you go through '24. Michele Buck: Yes. So certainly, I would agree that with value-seeking behavior that a lot of that is coming from lower-income consumers. And we've seen that relative to SNAP reduction and the trends that, that drove, frankly, in our business as well as, I think, across other edibles based on what other companies have shared as well. I would say that our C-store business is okay. And I would say mass, club and dollar are very strong. So you may be seeing a little bit of that value seeking based on where that shakes out. But I wouldn't say it's something that we have seen as significant or dramatic. Operator: And our next question comes from the line of Chris Carey with Wells Fargo Securities. Christopher Carey: One quick question on gross margins. Did the complexion of your gross margin evolved at all through the year? I know there's some timing dynamics between Q1 and Q2, and the full year outlook is unchanged. But is productivity coming in better? Or are parts of inflation coming in worse, some parts of inflation coming in better? Just any insight on how your delivery against this target has evolved over the past few months and evolving over the balance of the year relative to your going expectations. Steven Voskuil: Yes, no change. We're still, as we talked about on our call last time, about 200 basis points down year-over-year for the full year. Productivity savings off to a good start, right in line with plan. So at this point, nothing material that would point to a reshaping. Christopher Carey: Okay. Yes. Just the follow-up is on the category comments. The way that I interpreted it was that some of this lower category at the beginning of the year is almost entirely innovation relative to your going expectations of your peer? Or is there anything else that you're seeing, which you would highlight as over and above just that one comment regarding the lapping of innovation for one of your important competitors? Michele Buck: No, nothing else that I would highlight on that. Operator: Our next question comes from the line of Tom Palmer with Citi. Thomas Palmer: I wanted to just ask a little bit differently. I know you're not talking about cocoa inflation for next year, but there are some moving costs beyond just the headline cocoa inflation. You've got conversion costs and I think you're buying more butter and liquor than powder. So when we just look at headline cocoa inflation, do these items like conversion and then the kind of the sub-items within cocoa that you're buying, do those soften the magnitude of inflation? Are they adding to it right now? Just trying to understand that piece of the dynamic. Steven Voskuil: Sure. Yes, you're right. Cocoa is sort of the headline, the big headline. But when you look at the cocoa derivatives, they are also increasing. And we won't comment about percent increase relative to cocoa price increases, but they are inflationary just as cocoa itself is. Thomas Palmer: Okay. Understood. And on the Salty Snacks side, you noted nonmeasured channels as a driver maybe of outperformance versus what we see in scanner. Where is that really coming from? And is this like other retailers? Is this more on the e-commerce side? And should we think about it as velocity or expanded distribution? Michele Buck: Yes. So it is from club, especially some very nice increases on Dot's that we shared last year. We got incremental distribution. So at this point, it's from both distribution and velocity there. So Dot's was up about 30% to start the year, and we gained over 300 market share points. And club was one of the drivers of that. Operator: And our next question comes from the line of Rob Dickerson with Jefferies. Robert Dickerson: Great. Michele, maybe Steve, too, we fully understand, right, not speaking to hedging practices and where you're positioned or how you're positioned or how you're thinking about the internal hedging dynamic. But I am curious, maybe just more broadly, we heard from another large confection company earlier this week that was able to speak in general as to just how you're thinking about this like global cocoa supply, right? I'm sure you have plenty of internal and external advisers trying to provide that perspective, and I'm sure it's a lot better than ours. So I'm just curious if you have any general comments around that is the first question. Michele Buck: Yes, we're happy to share. So I would say, overall, our views about what has driven the market are somewhat consistent with what that large competitor shared earlier. As we think about it, we think both structural and transient forces have been at play impacting prices over the past several months. It certainly started with poor weather, a poor weather that impacted crop. And then concerns about supply. But as we've mentioned previously, it's also about much more than just supply-and-demand economics, but rather the impacts of regulation like the EU deforestation regulation, market speculation and also the lack of liquidity. So we continue to closely monitor supply and demand in the short term, which are the things that we can most get data and information on. The market will start and has started to get some signals on the supply outlook for the main crop. That will happen over the summer. Early reads on mid-crop look good, but it's really early. So we continue to monitor that. We also have full coverage for '24. We have some coverage into '25, and then we remain very focused on executing what's within our control. Our business strategy is to drive growth, improve share, innovate, enhance our capabilities, drive cost efficiency as we continue to monitor that environment. Robert Dickerson: Okay. Great. That was very helpful. And then maybe, Steve, this one's a little bit more for you. I know you have the 2 programs focused on productivity and savings that grosses over the next 3 years $700 million. There's obviously some cost inflation already in the system, could be more forthcoming. I don't really think you've spoken much to the net productivity and savings, and I also don't expect you to give me an actual number. But I am just curious, how should we feel about the net impact ability on the P&L, again, broadly speaking, given just the -- what clearly is a material amount of savings and productivity over the next 3 years. That's it. Steven Voskuil: Sure. Maybe if I just take cocoa to the side and look at the rest of the business, our model is to offset inflationary costs over time through a variety of levers in the P&L. And that fundamental model is still in place. Of course, cocoa is certainly stressing it in the near term. But longer term, that is still the model to cover inflation. And so as we think about these savings programs, both the earlier one we discussed in the investor conference focused on productivity and the most recent one, which is a mix of SG&A savings and productivity, both of those, we like to focus on being a net benefit to the P&L over the horizon that we're talking about, which would imply we have to get other ongoing normal efficiencies to offset normal ongoing inflation. And so that's the way we're looking at those cost programs. Operator: Our next question comes from the line of Jim Salera with Stephens. James Salera: Michele, I wanted to circle back to seasons and just dig down on -- you guys mentioned you gained share in Valentine's and Easter. Can you just talk through what's driving that? And then maybe if there's any learnings that you can take to apply to, I don't know if you'd characterize it as like a mini or a bonus season with the Olympics this year? Michele Buck: Sure. So as I look at winning in season, certainly, it starts with the right product portfolio. We feel good about the portfolio. We always have innovation at the seasons, and we feel good that we have the right innovation. Another key driver is merch. We did a very nice job with merch. And our retail sales teams work in stores to get the visibility that we really desired for the category and overall for our business. And then also, we had the ability to provide even more supply. As we've mentioned over the past several years, we had a couple of years where we were constrained by what we were able to deliver. And end of last year, we really got to a much fuller place in supply across our portfolio. And yes, all of those lessons we apply to those not traditional seasons, but those other occasional seasons, things like Super Bowl, March Madness and Olympics. And so we certainly plan to leverage those same levers to make Olympics a strong event for us in the summer. James Salera: Great. And on the Olympics specifically, if I'm not mistaken, I think it's 2 weeks. And so should we expect like in-store activations on that to run for like 3 weeks or 4 weeks or any way to kind of size that up as we think about that at the end of the summer? Michele Buck: Well, we usually start some of those activations ahead of the event. Retailers like to kind of highlight the event and get people engaged on ahead of time. So you will see some of those displays start as early as June, really leading into the Olympics. And then depending on the retailer, you'll see them throughout the summer. Operator: Our next question comes from the line of John Baumgartner with Mizuho. John Baumgartner: So in terms of the International business, I mean, there's been some high-level comments about Europe over the past year or so, I think recognizing your presence there a bit more than in the past. And I'm curious how you're thinking about that market longer term. And would you say you're still on a trial period? Is there anything that still needs better understanding at this point? Just how do you think about Hershey's desire to maybe take the next steps? And I guess it's a pretty big market with some differentiated products. Michele Buck: Yes. So yes, it is a large market. And I think the approach that we've always taken over time is it is a very well-developed, established market. And therefore, we believe our best chances of succeeding are with a differentiated product. And after a lot of work, we have been successful in bringing Reese's to Europe. And really starting in the U.K., we've had some phenomenal success, but frankly, not a ton of investment in support in terms of on-the-ground people or other investments. So we now have a business that we feel good about that's profitable there, and that's really our primary focus. So we think about Europe a bit more from where we have that elements of a differentiated portfolio that we think can win. And depending -- I'm not looking at it as a big investment, but rather doing it efficiently to maintain strong margins. John Baumgartner: Okay. In the U.S., I'm curious, as the consumer encounters just sort of extended period of high inflation, are you seeing any changes in terms of demand drivers for your categories where maybe the pull in advertising isn't what it used to be? Does it require more price promo? Does it require more in-store display, more front-of-store presence? How do you think about -- or are you seeing any changes in sort of the efficiency of the demand drivers that are out there? Michele Buck: Yes. I mean, I guess one way that I think about it is making sure that we look at each occasion, which really comes down to kind of the pack types across the portfolio and ensuring that we have good entry-level prices based on how the consumer -- well, and I guess price is based on how the consumer perceives value. A lot of times for the lower-income consumer, it's about an entry-level price point that enables them to participate. In some categories, it's about volume that has a better price per ounce. So I think, to me, that might be the bigger piece. I do think areas like seasons and innovation also drive value above and beyond the base products. And so we've seen that as well. Operator: And our next question comes from the line of Alejandro Zamacona with HSBC. Alejandro Zamacona Urquiza: Just a follow-up on the cocoa pricing discussion. So I'm curious on hearing any comments regarding the recent normalization. So recently, prices have declined 30% in the last couple of weeks. So any comments around that would be helpful. Michele Buck: Yes. Well, I think, first of all, that decline is just further evidence of the tremendous volatility that we're seeing in the marketplace. It's hard to peg what some of those declines. There are no new signals relative to supply and demand that are meaningful yet. I mean perhaps some early signs about the mid-crop, which leads us to believe that more of the decline is driven by some of the nonsupply-demand economic factors but some of those other factors that we've discussed relative to speculators, thoughts on regulation, et cetera. Operator: We have reached the end of our question-and-answer session. And with that, I would like to turn the floor back over to Melissa Poole for any closing comments. Melissa Poole: Thanks so much for joining us this morning. I know there's another call, so we'll let you all go to make sure you can attend that, and look forward to catching up later today. Have a great weekend. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to The Hershey Company Fourth Quarter 2023 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company's fourth quarter 2023 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning’s press release. Joining me today are Hershey’s Chairman and CEO, Michele Buck and Hershey’s Senior Vice-President and CFO Steve Voskuil. With that I will turn it over to the operator for the first question. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks so much good morning everybody. Michele Buck: Good morning, Andrew. Andrew Lazar: Maybe to start off your guidance for 2024 calls for that 2% to 3% net sales growth with volume flat to slightly down so implies over a three point year-over-year benefit from price which seems to be mostly carry over related from actions taken last year. So I guess my question is just recurring outlook embed any additional pricing actions this year to address the currently elevated cocoa cost and if not I guess if Hershey were to take additional pricing actions. Would those benefit 2024 or with the typical timing lag and kind of complexity of the system's transition, would that likely really be more of a 2025 benefit at this stage? Michele Buck: Hey Andrew, let me talk a little bit about our pricing approach and strategy and then Steve will go into the numbers. It's a dynamic environment out there and we are taking a measured approach given historic inflation. As we can't talk about future pricing, but I do want to be very clear that there's no change to our pricing strategy and our commitment to use pricing to cover inflation and to support the investments that we think are critical to drive the business. So given where Cocoa prices are, we will be using every tool in our toolbox, including pricing as a way to manage the business. Steve, do you want to talk about some more of the specifics? Steve Voskuil: Yes, the way you laid it out, Andrew, is correct. The pricing that we're counting on that 3% or so, a lot of it's carryover, some of it from 2022 to Easter and Valentine's Day, some we took mid last year on everyday chocolate and then a small increase we announced earlier this year on grocery items and food service. And you're right, when we think about the impact of future price increase, we're really challenged in the first half of this year just because of the ERP implementation, like you said, it puts some limitations on what we can do. And you can imagine enormous collaboration between us and retailers to execute that transformation. So we're trying to keep things very stable during that period. And so further price increases should they come with benefit more the back half of the year and probably more so 2025. Andrew Lazar: Got it, thanks for that. And then the EPS in 2024 is expected to be sort of flat for the year. There's obviously a big discrepancy between what you're looking for in the first half versus the second half in terms of EPS growth. I guess, I'm trying to get a sense of how much of this is anticipated improvement in the consumer environment versus what you have maybe more visibility and control over with things such as timing of your plan system spending and timing of cost saves and productivity. Just trying to get a sense of the visibility to that, to the swing, if you will, and EPS growth between the first half and second half. Thanks so much. Steve Voskuil: Sure, yes, it's not banking on cocoa relief and it's not banking on some kind of surge in the consumer or really even a surge in the base business. The biggest factor is really two things driving it. One is the lapse from last year. And as we started out really strong the first quarter last year and then ran into things like softer, salty category growth in popcorn, the ERP implementation in salty, and then the change in strategy at a key retailer. So as we think about the lapse of those, that's one factor that impacts this profile because the lapse gets much easier in the back half. And then the second thing you mentioned, Andrew, are things in our control. So the savings on the agility and automation initiative will get more traction in the back half again because the ERP places some limitations there. The same with productivity in the manufacturing areas, back half loaded. And so those will accumulate as we turn the corner from the first half and pivot from the ERP sort of period of stability to period of driving impacts against those savings initiatives. So it's really lapse combined with the things in our control. Andrew Lazar: Thank you so much. Operator: Thank you. Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi, good morning. Thank you. I wanted to ask a little bit, you have more innovation coming this year, you have more capacity, you're battling an elasticity situation that I think it's fair to say is higher than many people expected, but your media spending is only being increased by the same amount as sales growth. I realize you're focusing on some key items a little bit more and you're kind of rebalancing some of that, but just trying to get a sense of the risk of some of your more flanker type brands if media is pulled away from them, if that's the impression I'm getting, if that's the right one. And how to really to think about your decision to maybe not raise media spending a little bit more than sales growth to kind of make sure that, you're battling elasticity in the way that's appropriate. Michele Buck: Yes, thanks Ken. As we are big believers and our business model relies on media as a key lever to continue to drive our brands over the long-term. We're constantly, we feel good about media going up in line with sales. We also constantly look to try and make those dollars work harder and harder for us. And we've made some pivots in terms of some of our targeting that are actually going to give us expanded reach levels that will be greater than sales. So the impact we will get from that media will be more than the dollar increase, but we will constantly evaluate that. And if we are seeing even better than we expected, we'll revisit decisions and decide if we should be spending more as we always do during the year. Ken Goldman: Thanks. And then quickly, it's not often we see kind of a venerable, established category like popcorn maybe slumping to this degree. Not really thinking about share gains or losses for Hershey in particular, but what do you see happening most recently in popcorn and what do you think needs to happen for the category to rebound? Michele Buck: Yes, I mean, I think what we saw this year was we did start to see some pressure in the category related to value. The fact that popcorn wasn't quite have as much satiety as some other snacks and we saw some private label entries also get some focus. So I think what needs to happen and then compounded by that, in the back half of the year, we are the number one or number two player depending on the time frame in the category. And in the back half of the year, around our ERP implementation, we pulled back on merchandising and advertising support to make sure that we didn't have issues with supply. So that certainly had an impact as well. So as we've gone into this year, what we think needs to happen, we have done. So we have made some improvements in the value proposition, introduced a value side, a bigger pack. We've sharpened some of our merchandising price points and also increased merchandising. And we are back to a much heavier investment in advertising and innovation that we've had over time. So we think we'll continue to see some of that lap through the first five months of the year and then really rebound to nice growth and market share gains in the back half. Operator: Thank you. Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question. Max Gumport: Hi, thanks for the question. With regard to cocoa prices, you've previously talked about how there's a divergence between fundamentals and current market prices. I'm assuming you're looking at underlying supply, demand and the stock to grinding ratio, but I'm curious for an update on that front and how that informs your visibility into cocoa for 2024. Thanks. Steve Voskuil: Sure. Yes, we look at a variety of things, as you can imagine. I'll say the fundamentals. And when I say look at, we have an internal team of experts in this domain, but we also have outside folks who also give us points of view to make sure we're not myopic in the way we look at the market and what's happening. But we look at the fundamentals, we look at grind data, we look at crop yields, we look at weather, we look at all of those fundamentals and, of course, demand. But at the same time, there's a lot of financial activity, transactional sort of activity and speculation that overlays the fundamentals. And it's been difficult, certainly, to untangle those two pieces. And so, that's part of the reason that we have a hedging program is that, we're not here to try to outsmart the market and beat the speculators per se. We want to make sure that we have visibility and have the opportunity to reduce volatility to the extent we can in the P&L. But it's certainly a very dynamic market. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Hey, thanks, operator. Good morning, everyone. Michele Buck: Morning. Bryan Spillane: Hey, so I've got two questions. And the first one is just, I don't know if it was actually in the press release or not, but Steve, have you given us a sense of just what your overall inflation is or maybe what cocoa inflation is? I've got that question a few times this morning. So what's the inflation rate, I guess, in the guide? Steve Voskuil: Sure. If you look at it, kind of break it into two pieces, I'll just say commodities of which I'll just say cocoa and sugar are the two most inflationary. Low double digit inflation, if you look at other parts of the P&L, it's more mid-single digit. So if you sort of average it over everything, it's high single digit. Bryan Spillane: Okay. And that's pretty well locked in, right? I'm assuming that, like you've got coverage on commodities for the year. Should we, is that a good expectation? Steve Voskuil: Yes, that's correct. Bryan Spillane: Okay, cool. And then, Michelle, just to, I guess, a bigger question or a broader question is just on the cost savings, the incremental savings this morning. Can you talk a little bit about maybe how you came, how as an organization you came to that? And, I think the question that some folks are asking this morning is just, are the cost savings a reaction, right, to inflation? You're trying to preserve as much earnings as you can, which maybe implies cutting too much. You've got a lot of stuff going on, an ERP system transition. Like, is it really burdening the organization too much to try to focus so much on costs when there's so much other stuff going on? So just your perspective on that, I think, would be helpful for folks. Michele Buck: Yes, sure. So I would say, a year to 18 months ago, we had started working on some initiatives that we thought could create some real opportunity and value for the company. And executing those was dependent on two things. It was dependent on us getting through the S4 implementation, which we will be through Q2 of this year. And it was also dependent on us doing the unification of our Salty Snacks business, taking those disparate acquisitions we had and combining them together, which obviously we did this past year and also put in place S4 across that platform, across that business unit. That then can become an accelerator for us to really go after what we saw as some opportunities, both in terms of creating greater end-to-end connectivity and also using technology for automation and efficiency. So this is really where we expected that we would be. Certainly with some of the pressure on coca prices, we accelerated that work a bit versus our original timeline, but the work was planned and underway accordingly. And we're trying to be very choiceful about where are the choices that we are making across those initiatives, and certainly making sure that a lot of that implementation won't happen till post S4, till we get through the implementation. So really measuring out when we do what to match with the organizational capacity. Steve, anything you would add to that? Steve Voskuil: No, we're excited. We're going to get through ERP. We'll have 95% of our business all on one platform and the opportunities that will unlock. And then as Michelle said, thinking ahead to things like integrated demand planning and bringing more automation to supply chain. These were things we had in the vision before, but now we're much closer to being able to make them realized. Bryan Spillane: Steve, you may be the first person that use excited in ERP in the same sentence. Steve Voskuil: Oh, you might. I look forward to seeing you guys in Florida. Bryan Spillane: Yes. Operator: Thank you. Our next question comes from line of Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Alexia Howard: Can I ask about honing in on the chocolate category in the U.S? You've obviously seen some nice recovery in volume and market share over the last two or three months. It's been fairly sharp. Can you talk about what the main drivers of that are? I imagine that innovation with the Reese's Caramels launch might be a piece of that. Just giving us some idea of what's driving that and whether that trend is expected to continue. Michele Buck: Yes, absolutely. I'd say there are two things that have really created some nice momentum on the business. One was we saw consumers have a huge affinity to the seasonal traditions. And we had very strong growth in the category in both Halloween and holiday. And we also won share. So that was certainly a key driver. And as you mentioned, we had talked about earlier this year, the opportunity for us in 2024 to really dial up innovation. We had a later year in 2023. Our innovation for 2024 is up about a third versus where it was in 2023. And we're really excited that we have some big innovations. Reese's Caramel, we believe will be a very nice addition. And that's doing well in Q4, continues to. We'll be featured on the Super Bowl. So you can look for that as well. And then we have some exciting sweets innovation later in the year. Alexia Howard: Perfect. And just continuing on the theme of innovation, you mentioned a third increase. Are you able to quantify where you're at in terms of percentage of sales from new products introduced over the last three years? I imagine that that would have come down significantly since the pandemic started. Michele Buck: Yes, so we are up about 35% higher in terms of innovation versus prior year. And we are up slightly versus pre-pandemic as well. I think we've chosen not to talk about innovation as a percent of net sales. Alexia Howard: Okay, perfect. I'll pass it on. Thank you. Michele Buck: Thanks. Operator: Thank you. Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your question. Pamela Kaufman: Hi, good morning. Michele Buck: Good morning. Pamela Kaufman: A question on your capacity expansion plans. I think you previously mentioned you had a 15% increase in capacity coming online this year. Can you just give an update on that? And do your cost savings initiatives impact these plans at all? And then maybe you can remind us what products the capacity is going to be used for. Michele Buck: So I'll cover some of that and let Steve cover some of it. We've continued to invest in capacity in brands and businesses across the portfolio that have growth and opportunity ahead. Over the past couple of years, we've focused on Reese’s where we were short on capacity so that we could fulfill consumer demand. And then the other big area of focus we had was on the gummy side of the business in suites. And the first part of this year, we complete and have capacity coming online for that business that we will be able to leverage to better participate in that segment in the back half of the year. Steve? Steve Voskuil: Yes, the only thing I would add is everything is on track. Yes, we're proceeding per plan and the cost savings project that we talked about doesn't have any direct impact on those plans other than as we look to the future, more opportunities to automate and create some agility and supply chain beyond those projects, so. Pamela Kaufman: Great, thank you. And in the prepared remarks, you pointed to 200 basis points of gross margin contraction this year. Can you walk us through how you're thinking about the puts and takes around gross margins in 2024? And if you could give some color on the cadence of gross margin progression this year. Steve Voskuil: Sure, yes, I'll give a highlight that the prepared remarks actually have a good section on that. So whatever I missed here, refer back to that. But with overall full year basis down 200 basis points, as you said, we're going to see more of that in the first half than the second half for some of the reasons we talked about even earlier in this Q&A session. We will have in the second half higher commodity inflation, but in the second half, we'll begin to see more benefits from continuous improvements, so manufacturing cost savings, the agility and automation program that we talked about will kick into more gear in the second half as we get past the ERP process. And then we're lapping some one-time costs in the back half related to Salty and the ERP program. So those laps plus the accumulated benefits that pick up on the savings side are what drive the biggest inflection from a gross margin standpoint as we look at the second half having less drag than the first half. Pamela Kaufman: Okay, thank you. And just one more quick question. How are you thinking about the outlook for cocoa prices from here? And how is that influencing your hedging strategy? Steve Voskuil: Yes, our hedging strategy has not changed. Our kind of principles around how we manage commodities hasn't changed. It's a dynamic market, and we're not going to comment too much about future pricing. Our business, as Michelle said, we've seen cycles like this before. We've got a lot of tools at our disposal to manage the impact of cocoa, and we plan to use all of those, so. Pamela Kaufman: Thank you. Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question. Robert Moskow: Hi, thanks. I guess I have two questions. The first is market share assumptions in the U.S. for 2024. Is it fair to say that you think you can grow share in confectionery? And the second thing, on the pricing strategy, Michelle, nothing's changed, but this is a different strategy than what you've had in the past. The idea is to kind of squeeze out the pricing in maybe more frequently and in smaller increments. And I guess, is that still possible to do in an environment like this when the input costs spike so significantly? It sounds like that, it sounds like you're doing it this year, but, is it more difficult to execute when you see this much volatility in the inputs or not? Michele Buck: Okay. So I'll take the first question, first relative to market share. We expect to see sequential improvement as we go throughout the year. The first half will be pressured by a shorter Easter. Easter comes much earlier this year. And also we will have about five, roughly five months in the first half of lapping the reduced merchandising and distribution at that one key retailer. And we know from this past year, the impact of that was about two points in total. We offset about one point of that on a takeaway basis. So that will pressure share. In the second half, we then are past those laps of the shorter Easter and the retail merch. And so we expect to see sequential improvement and to end the year in a much better place than where we're starting. As I think about our pricing strategy, I'd say what is consistent is our goal to cover inflation with price over time. Within that, how exactly we do that relative to smaller, shorter, more frequent, or bigger, the timing and the magnitude, to me are heavily influenced by other factors, such as where our input costs and general inflation are. So I think, yes, that the overall, we have a strategy to expand growth margins to price to cover inflation and allow reinvestment. That hasn't changed, but how we go about doing that will be a bit different. We're also very much focused, price pack architecture is an opportunity, all the tools in the lever. Robert Moskow: Got it, so you can be flexible depending on the cost conditions. Michele Buck: Yes. Okay, thank you so much. Operator: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you, good morning. I just wanted to come back to Easter and the ERP transition. You'd mentioned with Salty in 4Q, how you cut back on some of the merchandising and even I think a little bit of the marketing spend. You mentioned Easter being a little bit shorter, but is there sort of an amplified headwind from the timing that, would you be doing a similar approach to promotions or marketing in conjunction with the transition to dial that back a little bit? Or is there a reason that they wouldn't apply the same way as the Salty transition did? Steve Voskuil: Yes, we're not applying the same approach we did with Salty in that respect. We'll still be building inventory in the first quarter, we'll still be draining that inventory in the second quarter just to de-risk the transition, but we are not going the extra step of like freezing from all activity in store, merchandising promotion. We have a full merchandising and promotion plan. Those are going to proceed, they were planned well in advance and we have full confidence in being able to support them. So that is a difference. Michele Buck: Yes, we felt like we got really good learning through the Salty and this was our plan to do Mexico first, then Salty and then the mother ship. And we got really good learning that we've been able to just incorporate and fine tune along the way. We also don't have the complexity as quite as many different systems that we have to bring together with our business as we did with all of the acquisitions. Michael Lavery: Okay, that's great color. And then can you just give us a sense on elasticities maybe both how they currently look versus history and then also what your assumptions are in the guidance as far as how they might progress over the rest of the year? Michele Buck: Yes, so we're expecting our elasticities to be similar to the historic levels. So that's our key assumption. Michael Lavery: Okay, great. Thanks so much. Operator: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question. Tom Palmer: Good morning. Thanks for the questions. Maybe just first-off on the pull forward of the productivity and cost savings, I just wanted to follow up from the earlier question. Are there new found savings embedded in this or are these largely initiatives that would have been done in future years? Just maybe clarify that piece of it. Steve Voskuil: Sure, so when we did our investor conference back in March, we talked about incremental productivity savings in the manufacturing area. So this is incremental to that to start with. This is beyond that. As Michelle said, in the longer term view, we saw these as opportunities, but it's new opportunities really built off the back of some of the technology now coming to fruition is the way to think about it. Michele Buck: And we've really beefed up or are beefing up our capabilities in technology. We hired a CDTO in the fourth quarter who's really bringing us capability and further expanding what we can do as a company, we believe. Tom Palmer: Okay, thank you. And I know there's some questions that kind of danced around this, but maybe I'll be a little more direct on it. Just on pricing, what exactly is flowing through as we think about 2024? So kind of what pieces of the portfolio are being touched? Are there incremental pricing actions embedded at all in guidance or kind of what we start out in the first quarter is the run rate is kind of the full magnitude? Steve Voskuil: Sure, yes. So we have sort of three pricing components that are embedded into the Outlook. I touched on a couple of these earlier. There's the Easter Valentine's Day action that was taken in 2022, that's reflected this year. There's everyday chocolate increase that we executed mid last year, that's reflected. And then there's a small new price increase on some grocery and food service items that really went just into effect this month. So that's happening right now. Those are the only assumptions that are embedded in the outlook right now. Tom Palmer: Right. Thank you. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Chris Carey: Hi. Good morning, everyone. So just a few follow-ups, if I could. Just on gross margin, again, just kind of put a fine point on this one. Do you expect expansion in the back half of the year, or are you saying that it's just going to be less contraction in the front half? Steve Voskuil: It's going to be less contraction. Yes, the contraction will be more significant in the first half, less in the back half. Chris Carey: Okay, understood. That's what I thought. Thanks. And then just on a segment basis, right, there's this dynamic where most of the inflation clearly is hitting you on the confection side, but probably some of the more fundamental category dynamics are more pressured on the snack side, clearly, because you're expecting low algorithm for next year. And so just from a margin dynamic between the segments themselves, is there a dynamic where – and this quarter is so hard to assess with snacks because of the – because of the RP – but will snacks require more investment in a strange way? It'll have more margin contraction than what we're going to see in confection. Is there any way you can just kind of frame investment needs and sort of fundamental margin pressure in snacks versus just, I guess, inflationary driven – inflation that we would see in confection? And then I apologize for just one more cleanup in a way. But I think to Brian's question on SM&A as a percentage of sales, we're probably implying a roughly 15-year low for this year. Maybe just help us contextualize why we're not getting too low from that standpoint. And maybe that 15-year journey is just about increasing efficiency relative to sales base. It's come up a couple times. So any added context there would maybe be helpful. Thanks. Steve Voskuil: Sure. On the segment margins, you're right. The confection business is going to bear the brunt of the margin impact due to cocoa. Salty margins are up for 2024 year-over-year. And that's even on the back of some pretty heavy investment. And so we feel good about the journey that we're on there. It's not impacted, obviously, by the cocoa component. On the second question, could you just say the question again? I want to make sure I heard that one. Chris Carey: It's effectively that operating costs as a percentage of sales look to be implied at a roughly 15-year low in 2024. And it's really just understanding why that's not cutting to the bone or going too low relative well, we're just getting more efficient relative to sales base over time. And that's what we're doing next year and the year after. So maybe just contextualizing that history would be helpful in putting 2024 in context. Thanks. Steve Voskuil: Sure. Yes. Well, let me first say we're not cutting to the bone. That's not the intent of the program at all. We want to continue to protect the brands and the capabilities that give us differentiated opportunities in market. When you look at operating expenses, if you look back over time, definitely getting more fixed cost leverage, the business is bigger. Even with a little bit slower growth year in 2024 than we've seen the last couple of years, we get significant leverage. We have efficiencies elsewhere in the P&L, efficient driving efficiencies through the P&L is an every year activity. And that's not new. And we've also seen more efficiencies in the international business. If you think back, the margins were quite a bit lower a couple of years ago before we made some of the transformational moves there. So a combination of all of those things have led to the improvements that we're seeing, but we're not cutting so far that we feel we're putting in jeopardy any of our key capabilities or growth potential. Chris Carey: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: Great. Thanks so much. Michelle, I just wanted to come back to your, I guess, brief commentary today. And I think you've mentioned it on the prior couple of calls just around consumer shopping for products with maybe a bit more satiation. Because, clearly the conversation today seems a little bit more focused on cocoa for cost inflation, salty, and then also pricing potential from here. But like if we just separate all that out and we just, focus more on kind of current consumer shopping behavior, especially within the confection category. Would you say, there are kind of ongoing behavioral shifts that are still taking place or you kind of foresee that, maybe reversing out as you get through the year or just trying to get a sense as to kind of how you view the consumer shopping that category relative to other parts of snacks? Thanks. Michele Buck: Yes, I mean, I'd say first of all, overall with the consumer, certainly I think there is some increase in consumer confidence. We've seen unemployment rates, employment be stable. However, we do continue to see some value-seeking behavior in some pockets of consumers. We believe that the behavior across confection has largely normalized and we think that we have some of the right steps in place to kind of offset that satiety issue that we've seen with popcorn in areas like adjusting value across different pack types, enhancing marketing communication in ways that, build the value proposition. So we do expect that we'll start to see some normalization in popcorn as we go through the year. Rob Dickerson: Okay, got it. And then I guess I just want to ask on kind of longer-term salty segment growth potential. While I realize you may not be giving, providing new long-term targets relative to what you presented at the Investor Day last year, I mean, clearly it seems like, enough has changed, let's say, to at least ask the question. So if we're thinking kind of past 2024, like do you think broadly that kind of low double-digit kind of growth for that segment is still feasible or like, could distribution maybe be a little slower? There needs to be a little bit more investment required to get there. Just kind of any color as to how you're thinking about that. That's it. Thanks so much. Michele Buck: Yes, no problem. We continue to feel great about the salty snack business and their long-term potential. We've seen such tremendous growth over time. There's no change to our long-term outlook. Our long-term outlook and the algorithm has always been around mid-single-digit growth. We had never expected low double-digit on the long-term. We had expected originally that this year might be a bit stronger but not on a long-term basis. So no change to that long-term outlook. Rob Dickerson: Okay, super. Thanks a lot. Operator: Thank you. Ladies and gentlemen, our final question comes from the line of Jim Salera with Stephens Inc. Please proceed with your questions. Jim Salera: Hi guys. Thanks for squeezing us in. In your prepared comments, you mentioned that we would be seeing some joint merchandising activations between confection and salty. Can you just give us a sense for -- is that to increase, buy rates in Hershey households that maybe buy the confection part of your portfolio but not salty? Or is it more of a way to increase the visibility for salty by kind of piggybacking on, the good merchandising activations you already have for confectionary? Michele Buck: Yes, it's really some of both. Certainly there's power to that visibility of all of these great brands together. Our salty brands now are two of our top ten brands. So they have the velocity that warrant being with some of our other really major brands. And then of course it does encourage some of that cross household purchase as well. Jim Salera: And then if I can maybe drill down on Dot’s in particular, I think you mentioned, incremental club distribution for Dot’s. I can say in my neck of the woods at least, it certainly feels like I or Dot’s placements when I shop my local club store. How much more distribution upside should we think about for Dots in some of those untracked channels where we don't have as much visibility? Michele Buck: We still do have some distribution upside on Dot's. So I'd say more than several points of distribution upside still remain. Jim Salera: Okay. Great, thanks guys. Operator: Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question. John Baumgartner: Good morning. Thanks for the question. I wanted to come back, Michele, to the outlook for ad spending in 2024, I guess, more or less in line with sales. Is that a function of just having spent ahead of sales in 2023 and now it's a more normalized year? Or is there an expectation for maybe a shift in reinvestment to other drivers, whether it's trade or anything else where your total spend growth is actually above the rate of sales because it just seems as though the larger innovation coming through the need for more pricing in the market. I'm sort of surprised that the ad spend is not going to be up higher this year. Michele Buck: We always really do look across the entire bundle. And certainly, we have some trade spending increases in 2024. And so we look at what's the right bundle across DME, across marketing, consumer marketing and trade that we think will have the biggest impact and most efficiently on driving revenue. So it is some of balancing the total view of all of that spending together, which is a big area of focus for us. How do we make it all together work as hard as each individual piece. John Baumgartner: Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Poole for any final comments. Melissa Poole: Thank you all for joining us this morning. We look forward to catching up with you later today to answer any additional questions you may have. Have a great day. Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to The Hershey Company Third Quarter 2023 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company's third quarter 2023 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 will provide useful information for investors, the presentation that this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Good morning, everybody. Michele Buck: Good morning, Andrew. Andrew Lazar: Thanks. At Hershey's Analyst Day earlier this year, I know that the company expressed confidence in sort of generating the high end of its sort of long-term growth algorithm for 2024. And we know some things have changed since then. There's been some more inflation. You talk about what seems to be the need for maybe some more aggressive investment spend behind stepped-up innovation as well as some shifting between trade and consumer spend and some consumer behavior shifts. So I was hoping maybe you could take us through, I guess, some of the key puts and takes for next year, how you're seeing all of this rolling up at this point? And basically, if 2024 can still be sort of an on-algorithm year even if not necessarily at the high end. Michele Buck: Sure. So certainly, Andrew, we recognize that the world continues to be very dynamic out there, but we think we're very confident that we can pivot and adjust to those changes. If we think about things that we're anticipating strength on from a top line perspective, we've got good visibility with the capacity enabled growth, the capacity that will come online. Gummies in particular, is an area where we've not been able to fully take advantage of the growth in the Sweet segment. We're going to be in a much better position next year to do that. Certainly, some of the capacity that came online this year has been helpful to us relative to seasons and better being able to take full advantage in that area. That will be a benefit next year as well as additional Reese. Certainly, we have higher levels of innovation. Reese's' Caramel is one that we have highlighted already, but that's going to be very helpful for us in terms of driving the overall business as well as merch. We have some opportunities in distribution on salty Dot's in particular. And of course, we also have pricing carryover from this year. From a margin perspective, we know that we've got inflation that's a bit of a headwind with all-time high commodity costs in cocoa. But we also have pricing and productivity that will help to offset that. It will have some one-time pressures related to the S/4 transition. But again, that's really a transient event and will create some issues relative to inventory in the first part of the year. So that's kind of a little bit of an overview. Steve, anything you would add to that? Steve Voskuil: No. I think you hit all the key pieces. Obviously, the next time we talk, we'll have a lot more details on next year. So… Andrew Lazar: Yes. Great. And maybe just as a follow-up, you mentioned pricing and productivity. We know that there's already some pricing that will flow through and benefit 2024 from initiatives you've already announced and sort of put into the market. Have there been any other incremental pricing actions announced or that you think there'll be potentially the need for given where some of the cost increases are coming from? Michele Buck: We have not announced any incremental price increases. We always evaluate the marketplace and have a lot of factors that we consider to determine how to best grow the business. Pricing is certainly one tool. I mentioned productivity. Now that we're in a better shape from a capacity perspective, we have more ability in our supply chain to activate productivity, and then we also look at productivity across every line item of the P&L, whether its trade, media, organizational processes and make sure we're really leveraging the best capabilities and investments to drive the business. Andrew Lazar: Okay. Thanks so much. Operator: Thank you. Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi. Thank you. I just wanted to follow up on Andrew's question a little bit about next year. I very much understand you're not necessarily in a position yet to discuss all the details of 2024, but you have given us some sales outlook and EPS outlook for next year. And I guess the question was whether you can hit the high-end of algo or the numbers that you put out there, and I realize things are still changing and pivoting. But I'm just really curious, because I think it's an important question to kind of follow-up on that guidance that you had given and really get a better understanding of how the incremental headwinds that have come since your Investor Day? I guess it's been a little more powerful than some of the tailwinds that have come as well. I'm just trying to get a sense of kind of balancing all that, I think, a little bit in the context of the fact that some numbers have been provided already. Thank you. Steve Voskuil: Sure. Yes, I'm happy to take it. It is an important question, and we'll address it a lot more fully on the next call. I think, the key right now is there are a lot of moving pieces even since we had that call, and some things are progressing in a positive way. We talked about productivity a little bit already. Productivity was one of the upsides we talked about on the call, we're having a great year from a productivity standpoint, and I expect that to carry forward. As Michele just said, we'll continue to look at pricing in all variables, pack price architecture, regular pricing and other places for productivity. And then we're watching the commodity markets closely. And there's been a pretty significant change there, too, from the beginning of the year. And so as we get together next time, we'll be able to pull all of that together and give you a better picture on how we feel about what we said back at the investor conference. But right now, we're still looking at, as Michele said, a pretty dynamic environment. Ken Goldman: Okay. Thank you for that. And then my follow-up is, as we think about the trade de-load, you mentioned with the key retailer. Can you talk a little bit about what drove that and what some of the risks are that additional de-loads happen with maybe some of your other customers? Michele Buck: Yes. And really, what we saw from the key retailer was a reduction in merchandising, which did pull back on shipments into that retailer. And this is really about their strategy to improve the shopping experience for their consumers and also to make fulfilling online orders easier for their pickers in store. This was a change that impacted many categories. Confection was one of those, and we had a disproportionate impact because we have had a very high share of merchandising. And therefore, that pullback impacted us, but it impacted many other categories in both edibles and nonedible. Now this, I want to point out, this is really related to every day. So as you think about Q4 and the importance of Halloween and Holiday this did not impact season. So we don't expect the same impact in Q4 given how much of our business is seasonal. We do think that this will be a headwind in the first part of 2024, where we're lapping higher levels of March. Ken Goldman: Thank you for the clarification. I appreciate it. Michele Buck: Sure. Operator: Thank you. Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question. Max Gumport: Hi, thanks for the question. First, I just wanted to follow up on your commentary on the retailer merchandising reduction. It sounded like it was to help improve the shopping experience and the e-commerce and picking ability as well. Is there any reason to think other retailers could follow the same path? It sounds like it's just one key retailer for now. But are there any reasons to expect other retailers will follow? Michele Buck: I don't anticipate that. I think this retailer, the degree of merchandising at this retailer was much greater than at many others. So I wouldn't anticipate that. Max Gumport: Great. And then on Halloween, it sounds like it's up slightly so far. I know there was a low double-digit expectation. And I know that this year, shopping patterns have been a bit more normal, so less shopping earlier in the year. So I think that would be one key reason to think you can still get to that low double-digit number, but I just wanted to make sure you still have visibility to low double target for Halloween this year. Thank you. Michele Buck: Yes I think the way you characterized it is certainly correct. We have seen a normalization of patterns from consumers in terms of when they're shopping as their concerns about potential availability are not there this year like they were last year. 50% of the season does sell through in the last two weeks of October. So we still do have a bit of product to sell through. And with Halloween falling on a Tuesday, there will be a lot of sales this weekend. We have seen a little bit of softness in the season from some cohorts that have indicated affordability was a concern in their participation and it wasn’t just candy it was some other seasonal categories including decoration, costumes et cetera. But we are out there building aggressive displays, the product is out there and we are continuing to drive to deliver our expectation for the season Max Gumport: Thanks very much. I’ll leave it there. Operator: Thank you. Our next question comes from line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Michele Buck: Good morning. Michael Lavery: Just I was wondering if you could catch us up on Cocoa. Obviously, we see the market rates or the spot rates. But you've always done, I think it's anything from three to 18 or maybe even more months of hedging and contracting. And, can you just give us a sense of maybe what, if anything, you expect the market to do, how you're positioned relative to that? I know the pricing question came up a little bit earlier and you haven't announced anything, but is there any reason to believe that you would have any different approach than normal where if it remains an elevated source of pressure, you could take the pricing to cover it? Just some thoughts on how all that looks from your seat? Steve Voskuil: Sure, I'd be happy to do that. On the Cocoa side, our policies haven't changed. You reference the hedging horizon and those fundamentals haven't changed. I would say as we sit here today, we probably have less visibility on a full year 2024 pricing locked in that we might have had in prior years. And some of that is driven by the high pricing right now. But we're staying very close to the market and of course that influences other parts of the strategy as you mentioned like pricing. From the pricing standpoint, as Michele said, there's also nothing fundamentally has changed there in our strategy. Pricing is one -- tool and there's a lot of ways to deliver pricing and there's productivity and other things in the P&L that also have to be part of that equation. So I would say there's nothing off the table, but as we come back in 2024 and give guidance, we'll be able to give more color. And by then we'll also have another picture on where the cocoa market is headed. We talked a little bit in the last call that there is some divergence between, what we see in pricing and some of the underlying fundamentals. And we still have an aspiration at some point that that will normalize. But to the extent it doesn't, we thought that earlier this year, and it didn't play out that way. But every quarter that goes by, we get more visibility, and that will inform how we think about the pricing question. Michael Lavery: Okay. Great. That's helpful. And just to follow up on buybacks, you mentioned you didn't have any in the quarter. Obviously, the stock has been more attractively valued from a buyback perspective. How do you think about that going forward? Is there, how are you saving for M&A or is buyback something you might ramp back up? Steve Voskuil: Yes. It is attractively priced. I agree with you. And so as we think about our capital allocation principles, share of purchase always plays role. We are looking at it closely again as we talk next year and how we're going to allocate capital. You can imagine that's going to play a role and we'll continue to watch what's happening on the stock price and other calls for capital. I will say, we're coming off a pretty big year of capital spending this year. It's not going to look like that next year and so that is going to allow some more cash flow to deploy to other uses. So we'll keep that in mind as we think about 2024. Michael Lavery: Okay. Great. Thanks so much. Steve Voskuil: You bet. Operator: Thank you. Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your question. Pamela Kaufman: Hi. Good morning. Michele Buck: Hi, Pam. Pamela Kaufman: We've seen consumer demand soften across categories, including for chocolate, as you mentioned in the prepared remarks. You also pointed to your outlook for demand elasticity to continue to return to normalized levels, but historically the chocolate category has exhibited relatively limited demand elasticity. So can you talk about how you're thinking about demand going forward in Q4 and for next year? Michele Buck: Sure. So, I would say we're certainly continue to feel good about our category and the price realization potential in our category as we have had over the years. We focused a lot on the value equation, investing in our business and our brands to keep that strong. At the same time, we're also cognizant that, it is a different time today. We know that value and affordability continue to be top of mind for consumers as budgets are stretched, some less government assistance, the restart of student loan repayments, higher interest rates. So we've heard from consumers that they're needing to make difficult choices. So we are certainly focused on that, and making sure that we're really focused on our value equation in terms of selling to value channels, having the right opening price points, et cetera. Food has been more resilient than some other categories but we know that some of the Snap households are reporting that they're eating and buying left. So we're very cognizant of that. And we've also seen some increase in sales in some of the perimeter categories where there's been deflation versus some of the inflationary categories. That said, where we focus on, where are the growth levers that we can continue to drive, to engage consumers and that is having the right levels and the right media targeting approach to continue to keep our brands relevant. But with both the media and the creative, we know that that's important. We didn't have as much innovation this year as we think was ideal on the business, and we've really stepped that up for next year. Feel great about Reese's Caramel in particular, and we'll share some of the other innovation that's coming as we go down the pike. Seasons continues to be a big piece of our business and winning during those seasons, getting that merchandising and it is a time where there's a lot of emotional connectivity with consumers. So it's a natural time for them to come in the category. And we continue to have distribution opportunities, both in terms of some places where we were short on capacity. And we had to pull back on some core items that we're now going to be able to supply as well as some of the innate distribution opportunities that we have on the Salty business. So those are some of the places that we're focused on to really drive growth. Pamela Kaufman: Thanks. And for my follow-up, just wanted to talk about the competitive dynamics in the Salty Snack segment and within Popcorn, specifically that you highlighted, what do you, what are you observing in the segment? And how are you addressing these competitive pressures? Michele Buck: Yes. So I'd start by saying that we have seen some softening in Salty Snacks overall. Volumes held fairly steady throughout the quarter. But growth decelerated as pricing lessened. And there was also some growth that shifted to non-measured channels. Again, we know that affordability and value are of increasing importance to consumers. And we're also seeing them really prioritize some of the more satiating snacks. So as we look at our business, certainly, we're seeing a lot of strength in Pretzels in the category as well as our Dot's distribution opportunities. And as we look at ready-to-eat Popcorn, certainly, we do know that consumers are focused a little bit more on satiety. And we've had some retailers focus on private label and merchandising in particular. As we go into next year, certainly, we'll be focused on productivity in the category. We know that some of the branded items have greater productivity and making sure we're working with retailers on taking full advantage of that continuing to invest in those brands to really grow household penetration and connectivity with consumers. And then certainly, as we look at this year, S4 impacted some of our ability to execute and really lean in as we had to focus on pulling back a bit on support on the business during Q3 and Q4, to enable that build that we needed in inventory and just to make sure that we could move through that very smoothly, and that will be a headwind for us next year. Pamela Kaufman: Thank you. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your questions. Bryan Spillane: Thanks, operator. Good morning, everyone. So I guess, I have two questions, and it's kind of more related to, I don't know, the momentum in the business, I guess, and what we should be reading from the fourth quarter in the implied guidance. So I guess two areas if you could touch on them. One is, if we look at the revenue guidance, and I think in the press release, you talked a little bit about in Confection, in North America Confection shipment timing help a little bit. So just if you're thinking about the revenue guidance being held, is that, is what happened in 3Q versus the pull forward or however you want to describe it, is that just purely timing shipment? Or is it a reflection at all that is kind of the softness in every day had an impact as well in terms of the way you're thinking about revenue outlook. So I don't know, is the category or the business kind of slowing more than you thought? And then maybe, Steve, if you can touch on same thing implied margins for the fourth quarter kind of lower in 4Q versus 3Q. So can you just touch on that? And is that somewhat a reflection of the potential for margin degradation? Or again, is this just more timing? So you can kind of touch on those two things, would be helpful. Thank you. Steve Voskuil: Yes. We have to do. So I'll start with the sales side. So the biggest driver between Q3 and Q4, and Michele said it before, was seasonal timing. We have a big seasonal timing benefit in Q3 at some at the expense of Q4. Now Q4 also has seasons. We've got Holiday as a big factor and maybe even some early Easter shipments potentially. But Holiday is not as big as Halloween. And so just from a seasonal impact, that's one of the factors. We've kind of modeled historic elasticity. So we saw some of that coming in, in Q3, and we've modeled that more fully into Q4. And, we also have a slight inventory headwind on sales. So those are some of the drivers. I would say, as I think about the guide on sales for the full year, and I guess the implied Q4 around 8%. I would say there's probably less likely to be upside to that number. And if some of the risks would persist, we've got a lot of mitigating actions, but if some of those risks would persist, it's probably more likely to be around to the lower side than around to the high side of guide on the top line. On the margin side, yes, a couple it sort of reverses some of the benefits that we had in Q3. So you're losing some of the fixed cost absorption benefits that we had in Q3 with the higher volume. So we've got a little bit less pricing coming through in the fourth quarter that has an impact and then a more difficult lap also as part of that. So nothing structurally different in Q4, but reversal of some of those benefits that we saw in Q3, just manifesting themselves in Q4. Bryan Spillane: Thank you. Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your questions. Robert Moskow: Hi. A couple of questions, please. One is, since the inflation you're facing is largely in cocoa, it would think, one would think that like the chocolate category would have to raise prices much higher than other snacking categories. Michele, when you think about how that would affect chocolate category elasticity, do you have to factor that in? Do consumers make pricing, choose chocolate over other snacks. Do they have pricing as part of that algorithm or not? Michele Buck: Yes. So certainly, people are making choices across snack categories. And one of the things that we do factor in is kind of looking at cross category price elasticity, in our models. So that's always the case. I think the past two years, in particular, have just been a little bit unique in terms of what's going on in the marketplace overall. Inflation and pricing. So seeing some different dynamics there. Robert Moskow: Okay. And then one quick follow-up. You mentioned some headwinds related to, I think, the ERP timing and shipments for the first half of 2024. I think you said headwinds, but sometimes you ship ahead of ERP conversion. So can, Steve, can you be a little more specific as to how to think about shipment movement in the first half of next year? Steve Voskuil: Sure. And we'll talk more about this when we give the 2024 guide too, including the inventory build and the takeout. But yes, you're right, it's more of a sales movement in first. So there's some inventory build we'll do in advance to risk mitigate just like we did for Salty here. And then we would expect to see that bleed out in the second quarter, mostly in the second quarter. So there'll probably be some higher sales or higher inventory build and some fixed cost absorption on the front end and then the reversal of that in Q2. And there'll be some costs. We'll talk more about the cost profiling, some of that we take through, the regular P&L and some of that gets non-GAAPed out, but we'll give more clarity to that as we give 2024 guidance. Michele Buck: And that's similar to what we saw, what we've experienced on Salty this year. where in Q3, we have the inventory build and then Q4, it starts to bleed out, work out. Robert Moskow: Right. Okay. Thank you. Steve Voskuil: You bet. Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo. Please proceed with your question. Chris Carey: Hi good morning. Michele Buck: Good morning. Chris Carey: Just a quick question on Salty as well. I guess one is near term. One is more medium term. Has anything changed about how you view the category over time given the slowdown? And then can you just maybe be a bit more specific about why consumption trends should improve? Is it really just lapping comps, increased promotional activity after Q4? I know you're not doing it in Q4, but maybe more the kind of two to four-quarter trajectory and why things get better? So just what's changed your thinking of the category, if anything, over the medium term and that two to four quarter kind of dynamic on improvement? Michele Buck: Yes. So, I don't have any different views on the category. Snacking continues to be very strong consumer behavior, and I love our portfolio of having a very strong leadership presence in both Indulgent Snacking and Confection as well as participating in savory snacking, especially with the brands that we've acquired that have very strong consumer engagement and growth potential. So continue to feel very good about those. I think relative to the trends improving, we can't talk really about 2024. We'll come back and talk a bit about that more. But we continue to feel that we'll see similar trends in Q4 as we've seen in Q3 relative to takeaway. I mean, some differences in shipments related to S4 because the inventory will now be coming out. We built inventory in Q3. So from a shipment perspective, we'll see that difference. But from a takeaway perspective, we anticipate a continuation of what we saw in Q3. Chris Carey: Okay. Thanks. Operator: Thank you. Our next question comes from the line of David Palmer with Evercore. Please proceed with your question. David Palmer: Thanks. Good morning. A question on seasons, there's been a lot of discussion about seasons on the call. I wonder how, can you remind us what percent of your business in Confection is from seasons? And it feels like you've won in seasons in recent years. Can you just give us a sense of how much of your growth in Confection has come from seasons in recent years? Michele Buck: Yes. So, Seasons is between 25% and 30% of our total business on a full year basis. It varies by quarter. Obviously, Q4, we have Halloween and Holiday. So it's a much bigger percent then and of our growth, probably about the same proportion of our growth, about a third in the back half of this year. David Palmer: And then just looking ahead to 2024, wondering how you're thinking about Seasons growth in an answer to a previous question, you talked about how Seasons would be helped by capacity. You just have more ability to fulfill demand? But, and I'm wondering how you would marry that with what you're seeing from retailers and perhaps even the consumer and how you're seeing the consumers respond to existing Halloween, how you think about Seasons in 2024? Thanks. Michele Buck: Yes. So we think our Seasons business will be very solid in 2024. One of the key things to anticipating the next year is always realizing what your sell-through is on each current year season. So we need to get through Halloween to see what that sell-through turns out to be. We have, as mentioned earlier, a few more days about a week that we need to be able to look at that and then obviously have strong sell-through in holiday. So we need those data points, but we feel good based on where we are to date, but we'll have a better feel afterwards. The other thing that will impact 2024 is there will be a shorter Easter depending on where the date falls. And this year, Easter in 2024, I think, is March 29. So it's on the shorter side, which creates a shorter season and a little bit of pressure perspective, it just won't be as large as in years with a long season. David Palmer: Thank you. Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Alexia Howard: Hi. So I guess two questions. The short-term one is really about market share trends. I know that they've been weak in chocolate in the U.S. recently. I think the hope was that against an easy comp on Halloween that things might start to turn the corner sooner rather than later. But do you think we're going to have to wait until the beginning of next year to really see that improvement with improved innovation? And then I have a follow-up. Michele Buck: So from a short-term perspective, to-date, our data suggests we are winning share of Halloween. So we are pleased with that and feeling good about that. As it relates to the everyday business, there we will need to wait until 2024 to see improvement, driven by some of our stronger innovation that will really help the everyday business. Alexia Howard: Great. Thank you. And then on the follow-up, the GLP-1 question, which we're all chatting about out here. I know it's too early to tell how big it's going to get probably not having a big impact today because there's, too few U.S. adults on these drugs right now. But today, how do you plan for different scenarios on that. Obviously, adult consumption versus kids is going to be different, low sugar versus full sugar items portion control. How are you thinking about planning for that scenario as it unfolds given that it's early days. Thank you. Michele Buck: Yes, absolutely. I mean I think you've captured it correctly. It certainly is very early days. We don't believe the GLP-1s are having a material impact on our business at this point in time. And I think we all know there's a lot of data coming out. There's still so many unknowns regarding the rate of adoption the impact on food choices, the medium- to longer-term impacts on consumers, and we're doing more work constantly to understand those future potential impacts on our categories. We have a robust planning and forecasting process, and we try and factor in all of those consumer behavior changes that we're observing, inclusive of GLP-1s and thinking through all of those right strategies that will be important for us if they do increase in adoption. One thing we feel particularly good of is the emotional nature of our categories and our brands and the role that they play in moments of celebration, Joy as you think about the Seasons but we will continue to adapt our portfolio as we have over time to make sure that we are providing consumers with what they're looking for, whether it's the products, the ingredients, the innovation, certainly, there are opportunities around portion size and pack type. And I think a lot of companies have been focused on that as you think about the potential impact of GLP-1s. And then certainly, we're always looking at opportunistic M&A as well as we have in the past. Alexia Howard: Great. Thank you. And I'll pass it on. Michele Buck: Thank you. Operator: Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: Great. Thank you so much. Michele, I think in the prepared remarks and you mentioned it previously, you've commented on products, I guess, on the perimeter of the store. I'm assuming where you're kind of speaking to kind of more fresh bakery and you also spoke to kind of more satiating foods. By the -- on the Salty Snacks side, you commented on snacks right? Michele Buck: Right. Rob Dickerson: Is this, is this all kind of around the price point demand? Are you just trying to basically find more value at an appropriate price. And therefore, even though you let's say, you need a candy bar now you're on a cupcakes. Just trying to figure out exactly what you're speaking to? Thank you. Michele Buck: Yes, absolutely. That is what it's about. It is about the value equation. And certainly, we do see in times where consumers are really struggling a bigger focus on kind of the gut fill, the bang for the buck in terms of filling you up. And we've seen that and heard that from, especially from lower-income consumers before. So yes, that focus on society, where we're seeing categories like Pretzels, Meat Snacks, Tortilla Chips, some of the things that are more filling, behave more strongly from a category perspective and something aerated like a rice cake or cheese puff or ready-to-eat popcorn. So yes, it is about that value for the book. Now the other thing, in addition to things like cupcakes that we did see, we did see some increase in fruit consumption, and there was not a lot of inflation in fresh produce like that. So I think there was a value perception there as well. Rob Dickerson: Okay. Makes sense. Thank you. And then just quickly, International segment. Slowed somewhat materially, especially on the volume side. And I know you called out kind of a competitive dynamic, the moderation in category growth. If you kind of optically, at least when we see the numbers in Q3 relative to the year ago and vis-à-vis what we saw in Q2. It does seem like it's almost somewhat sudden and I don't know if I'm missing something. So maybe if you could just explain what that drop is and maybe it's fully defined by just the shift in the non-U.S. holidays? Thanks. Michele Buck: Yes. So there was definitely the shift in the non-U.S. holidays with Diwali in India coming a little bit later. The other big thing was the rationalization of our beverage business in Mexico, which I'm not sure that we've talked as extensively about, but we had a small drink business, maybe not that small in Mexico. It was sizable for Mexico. Not highly profitable and in our continuous efforts to make sure that we are focused on the best opportunities and putting our resources against those best opportunities. We made the decision to discontinue that drink business. So that did have a meaningful impact in the range of three to four points from a top line perspective and we really first started experiencing that in Q3. We will lap for a year, have that be an impact, but it was a minimal impact on profitability because it just wasn't a highly profitable business. Rob Dickerson: All right. Super. Thank you so much. I’ll pass it on. Operator: Thank you. Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question. John Baumgartner: Good morning. Thanks for the question. Michele Buck: Good morning. Steve Voskuil: Good morning. John Baumgartner: Maybe first off, Michele. I just wanted to come back to the market share in chocolate, because we're seeing in the Nielsen data, their share gains accruing on an accelerating basis for premium brands and even private label, which is pretty unusual. And it's coming at the expense of the more mass price offerings. To what extent do you think the strategy needs to respond more broadly to these shifts, be it through more promotion, maintaining a larger brand investment for longer? It sounds as though your view is it's more of an innovation timing issue that reverses out next year to your benefit. But is there a chance that a larger pricing or promo pivot might be required going forward? Michele Buck: So as we look at the market share overall in confection, certainly, we've had a negative impact from category mix with faster growth in refreshments and sweets. And with the incremental capacity we've added going to be able to unlock more of the potential for us on share within sweets. The innovation that we've talked about, in addition to helping the everyday business innovation drives merch and so that's going to be very helpful in terms of helping promo. And then also we're working through the one retailer partnering very strongly to make sure that we can adhere to some of their direction and at the same time, make sure that we're recognizing the impulsive and expandable nature of our category and making sure that we have the right plans to take that into account. We have continued to invest in our brands, and we will continue to going forward. So at this point in time, I wouldn't say that we're anticipating a very large, substantial change in our investment levels. We have strong levels in trade and consumer on the margin, we are always open to adjusting those as we see fit. And we also are really focused on making sure that the allocation is as strong as it possibly can be between trade and between media as we look holistically. We haven't seen a big, huge increase, frankly, in premium, a bit of an increase in private label, but it continues to be a very small part of the category. John Baumgartner: Okay. And I guess just following that line of thought with the just merchandising adjustment at the retailer. You mentioned it wasn't confined to Confectionery, but I mean Confectionery is also pretty valuable to retailers for profit and velocity. Do you have a sense for which categories benefited from this adjustment? It just seems odd this happens ahead of the holidays given the importance of the category and then your own innovation and capacity ramping next year. I mean, I don't know how surprising that decision was for you, but I'm just sort of curious like what, who sort of benefited from this change? Do you have any sense? Michele Buck: So no category really benefited, because it was an overall reduction in merchandising. So it was more of a focus on consumer experience for more open aisles and also to enable growth and support of omni-channel and the digital business from a picking of products. So we are counting on trying to drive and the retailer counting on increases in everyday velocity to be enough to offset that. And we're certainly partnering really closely to make sure we have all the right programs and plans jointly to jointly drive the category, as you mentioned, it's highly profitable. It is expandable consumption and there is an impulsive opportunity. So we continue to work hard to drive that. John Baumgartner: Thank you. Operator: Thank you. Our next question comes from the line of Jim Salera with Stephens Inc. Please proceed with your question. Jim Salera: Hi, guys. Thanks for squeezing us in. Can you maybe offer some commentary around the dots distribution, gaining permanent distribution at club? I know very attractive kind of value proposition for consumers. Is there a lot of bigger wins like that on the table? And does this help you kind of accelerate the value proposition when you go to retailers to say that you can have it in a large concept? Michele Buck: Yes. I mean I think it helps us in terms of household penetration because we are still in the process of building the household penetration on that brand. Frankly, the business is quite big given the relatively nascent household distribution. So Club is always a great venue to get that. And we continue to have some distribution opportunity on the Pretzel business overall. So we continue to be excited by that and excited that the velocities have held up pretty well despite those increases in distribution. And we also have some opportunities for select innovation. We introduced Cinnamon Sugar, which has been a great hit in the marketplace as well. Jim Salera: Great. And then maybe if you can offer some commentary just given that Dot's seems to be insulated from some of the demand elasticity that maybe we've seen in some of the other more premium Salty offerings. What is it about Dot's? Is it just their core kind of consumer is higher income or they just have a really on-trend offering? What is it that seems that they've been able to be insulated compared to some of the other more premium Salty offerings? Michele Buck: Yes. I mean I think one of the biggest things we've seen from our consumer work is the society of the category. It's a very satiating snack. It's very filling. And therefore, even though it is a premium product and some of the price points are high, it delivers on that value equation with very strong society. And I would say it certainly is a very differentiated product. Jim Salera: Great. Thanks. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Ms. Melissa Poole for closing comments. Melissa Poole: Thank you all so much for joining us this morning, and we look forward to catching up with you in the coming days and weeks. Have a great rest of your day. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. And welcome to The Hershey Company Second Quarter 2023 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I’d now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company’s second quarter 2023 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 we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning’s press release. Joining me today are Hershey’s Chairman and CEO, Michele Buck; and Hershey’s Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the Operator for the first question. Operator: Thank you. [Operator Instructions] Our first questions come from the line of Andrew Lazar with Barclays. Please proceed with your questions. Andrew Lazar: Great. Thanks so much, and good morning, everybody. Michele Buck: Good morning, Andrew. Andrew Lazar: Good morning. I want to ask a bit about the pricing versus volume commentary regarding the full year sales growth outlook. And the comments sounds like you expect price to be a bit better in the second half and maybe volume is a bit worse than originally planned. So just two questions on this. First, how do we think about the balance between the two in the second half and could volume be down year-over-year in 2H? And then more specifically on volume, is the weaker than anticipated volume fully due to just the new pricing actions or are you reflecting a tougher consumer or a competitive environment in that outlook or both? Thanks so much. Steve Voskuil: Yeah. I am happy to take that one, Andrew. Your math is right. That’s the way we are looking at it. And the price piece, it really is driven or the volume impact really is driven by the extra price impact as we look at the back half. And as we look at volume in the back half, yes, year-over-year, we expect it to be down. But it really is price driven. There’s probably a very small portion attributable to the salty misstep in Q2, but the vast majority is just the reaction to price. Andrew Lazar: Great. Great. Thanks so much. I will pass it on. Operator: Thank you. Our next questions come from the line of Bryan Spillane with Bank of America. Please proceed with your questions. Bryan, could you check if yourself muted please. Melissa Poole: All right. Let’s come back to Bryan. Operator: Okay. Our next questions come from the line of Ken Goldman with JPMorgan. Please proceed with your questions. Ken Goldman: Hi. Thanks so much. You have done a great job obviously implementing pricing to offset inflation, but cocoa and sugar are up a lot more. I know you can’t talk about pricing that hasn’t been announced to the trade yet. But is it reasonable to think that you are maybe considering another list price increase and at what point do you start to ask how high is too high, how do you think about elasticity in the consumer in that environment? I just wanted to get a sense for kind of the puts and takes as you think about how to deal with and manage maybe what continues to be an inflationary environment for you? Steve Voskuil: Sure. I mean, you are right. Cocoa and sugar are historically high. I think I saw a news article this morning talking about cocoa being at a 12-year high on the New York Exchange. The good news is we have got experience managing through commodity rushes up and down. And so as we talked about in the past, as we look at dealing with that, price is a lever, but it’s not the only lever. And so we look at driving more productivity, driving efficiency through other parts of the P&L, and in general, driving revenue management is part of our ongoing strategy. And so all the usual levers will be applied, and as I said, it’s not the first time we have had to deal with something like this. So we are pretty good at being able to navigate, and you are right, we are not going to get more specific than that at this stage. Ken Goldman: Thank you. And then just on the comment about increased competitive, I guess, innovation in confectionery in North America. How incremental is the innovation that you are seeing, any real surprises in there versus your prior expectations? It’s been such a -- I don’t want to say a benign competitive environment, because, obviously, you have some tough players in the market, but is it getting more intense than what you would have expected, I guess, is what I am going for there? Michele Buck: Yeah. So I would say the innovation is up off of a relatively low base. So it’s having an impact based on that. I think many folks have been focused, certainly, we have been focused a lot on execution and meeting demand for the past few years and focused on the core with innovation not playing as big of a role. And I think now we are just seeing competitors in the marketplace start to dial up the innovation more back to historic levels, and as we go forward, that’s certainly an area that we are going to be focused on as we are continuing to increase capacity at the same time. Ken Goldman: Thank you. Operator: Thank you. Our next questions come from the line of Max Gumport with BNP Paribas. Please proceed with your questions. Max Gumport: Hi. Thanks for the question. With regard to the increased chocolate capacity this year and the additional co-manufacturing capacity secured in sweets for next year? Is there any way you can help us dimensionalize how sizable those capacity increases are, just as we try to get a sense of how impactful these additions could be for volumes in the second half and also in 2024? Thank you. Steve Voskuil: Yeah. We -- I think we have said in the past that if you took a look at the capacity that we have coming online this year that’s already gone into place and then what’s coming in the back half, and look kind of year-over-year, you are somewhere in the 5% range of the incremental capacity across chocolate and sweets. Max Gumport: Great. Thanks very much. Steve Voskuil: You bet. Operator: Thank you. Our next questions come from the line of Michael Lavery with Piper Sandler. Please proceed with your questions. Michael Lavery: Hi. Good morning. Michele Buck: Good morning. Steve Voskuil: Good morning. Michael Lavery: You have got the integration in salty snacks and the transition to SAP that you have been talking about and those never seem to be totally smooth or easy, you mentioned there’s some hiccups that you have seen. But can you just maybe give a little sense of what those look like in a little more detail, and specifically with an eye on just having a sense of what’s to come, what have you learned and how confident are you that the rest of the year can avoid some of those hiccups or just be even smoother still? Michele Buck: Yeah. I mean, I would say overall, certainly, one of our key focuses as we planned for this year, was that at the enterprise level really focusing on the stellar execution. We planned the business in a way to assume that we would be trying to front-load performance knowing that there are always hiccups in the execution and so in Q4 we do expect to see volumes be down and we put that in our plans. The teams are all over it. It is a focused effort, not just within IT, but across every functional area of the salty business. And so far we have been doing pretty well on salty with household penetration growing, repeat frequency, strong sales. We did have the promotional shift into Q3. We feel good about being able to execute that. But we feel like we are well geared up to be able to execute that. That said, we certainly do believe that there will be volatility in the back half of the year with the ups and downs that’s forward. Michele Buck: Okay. That’s helpful. And just back to pricing, you have got delays in some of the timing between the announcement and implementation, and then the seasons, of course, have a staggered effect and with just some of the maybe layers to it. Can you give a sense of just what you have announced already or put in place already has as an impact on 2024? It looks like at least the low single-digit, maybe my math, I guesses or estimates close to it, 3 points that you might already have in hand. Is that about right or what are some of the moving parts, just so we have kind of a little bit further look ahead of what’s already put in place? Michele Buck: So we have high single digits in the second half of this year and as we look to 2024, low single-digit pricing. Michael Lavery: And just to clarify, that’s without any other -- that would be before there’s anything else that might still be to come, right? Michele Buck: That’s what we have announced. Michael Lavery: Perfect. Thanks so much. Operator: Thank you. Our next questions come from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your questions. Pamela Kaufman: Good morning. Steve Voskuil: Good morning. Michele Buck: Good morning. Pamela Kaufman: Your advertising spend was up 15% this quarter, which is an acceleration from Q1. Given the better-than-expected performance in gross margins for the year and what you are seeing in the competitive and demand environment, are there any changes to your plans for marketing spend for this year relative to before? Steve Voskuil: No fundamental changes. We had expected this year to be a year to invest in brands, and again, as we have capacity coming online and leaning into seasons, especially if we get to the back half, a significant increase in brand investment was planned and we are executing to that plan. Michele Buck: And also as mentioned, we were working to really front-load more of our salty planning because of S/4. So our plans accounted for that as well. Pamela Kaufman: And then just in the prepared remarks, there are comments about some private label launches in your Salty Snacks categories. You are generally in categories that face very little private label competition, but considering the launches that you alluded to. Just curious to hear how you are thinking about managing private label competition in your categories and how you are addressing it? Michele Buck: Yeah. So, certainly, there is a bit more private label in salty than in CMG. But we have considered -- we have continued to see that, while private label has ticked up a bit, our brands have continued to remain quite strong and do incredibly well. And as we look at private label, even within the confection category, while there has been increased activity there, it’s remained a very small part of the category less than 3% and the entries we have seen in the marketplace this year are still relatively small. So we don’t take our leadership for granted. We certainly continue to invest in our brands to make sure that our propositions are strong. But we feel very well about how we are competing right now in the marketplace on that. Pamela Kaufman: Thank you. Operator: Thank you. Our next questions come from the line of Nik Modi with RBC Capital Markets. Please proceed with your questions. Nik Modi: Yeah. Thank you. Good morning, everyone. I was… Michele Buck: Good morning, Nik. Nik Modi: Good morning. I was hoping you could just kind of address the Halloween season as it relates to some of your competitors still struggling with supply chain and have cut back their orders. I am just curious, do you -- how can you take advantage of this, do you have visibility at this point in terms of maybe securing some of that missed opportunity by some of your competitors? Just wanted to get some clarity on how you think about that as it relates to the third quarter? Michele Buck: Yeah. So we are expecting a very strong Halloween. We know that customers are planning big displays and we are certainly participating in that and as well have strong marketing support to consumers planned as well. So we have certainly taken an approach of leaning into Halloween. We feel good that there will be plenty of candy out there. So feeling good about that. As we look at overall in the back half as it relates to market share, we think that there will be a stable approach overall, but some pressure on everyday despite some of our strengths around the seasons. Nik Modi: Great. And then if I could just clarify, in terms of the execution issues in Salty Snacks, what exactly happened, so you talked about systems changeover, but can you just provide just the details on exactly like what the problem was? Michele Buck: Yeah. I mean, I’d say, two key things. One is we had some promotions that we had planned to occur in Q2 that shifted to Q3 and then we have had some just basic issues as we have been bringing together all of those businesses that you would expect during a transition like that around sales and commercial and supply chain execution. So things just weren’t as connected as they needed to be. We feel very good that the team is on it and focused on it and execution is something that we tend to do very well, so we have a lot of confidence in our ability to focus and get that back around. That said, of course, the back half of the year, as we have mentioned, is going to be -- have a lot of volatility that’s really tied to as we build inventory and then work through the implementation and anticipate that we will have lighter sales in the fourth quarter as a result of that, but we have confidence in our ability to fix the execution. Nik Modi: Great. Thanks so much. I will pass it on. Operator: Thank you. Our next questions come from the line of Alexia Howard with Bernstein. Please proceed with your questions. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Alexia Howard: Can I ask, first of all, about market share trends in U.S. chocolate? It sounds as though capacity constraints and other issues have caused some of those declines. Do you have a view as to when those market share trends should start to improve and turn positive again? Michele Buck: So we expect to continue to see pressure in the back half of the year. We believe that we will start to see some improvement, but there are a couple of things that are really impacting share. So one certainly is around category mix, with refreshment and sweets being stronger than we had anticipated. Chocolate should improve and we are focused on increasing our level of innovation to be even more competitive and we will be in a better position to do that as we continue to have more capacity come online. Alexia Howard: Great. And then as a… Michele Buck: We have increment in REIT [ph]. Yeah. Go ahead. Alexia Howard: I am sorry. No. I was going to say, moving on to Salty Snacks, you talked about a double-digit decline, I think, in the fourth quarter because of the transformation. Is that choppiness expected to persist into 2024? Steve Voskuil: No. Michele Buck: No. Steve Voskuil: Not at this stage. Really it’s just -- Q3 we will be getting ready and building inventory for the switchover, Q4 will be the switchover and the recovery. So by the time we get to the first quarter, we would expect to be back on -- back or very close to a regular glide path. Yeah. Alexia Howard: Great. Thank you very much. I will pass it on. Steve Voskuil: You bet. Operator: Thank you. Our next questions come from the line of Matt Smith with Stifel. Please proceed with your questions. Matt Smith: Hi. Good morning. Michele Buck: Good morning. Matt Smith: Steve, I wanted to dig in a little bit on gross margin. You had a really solid first half with margin expansion up near 100 basis points and you again increased the margin expectations for the year. So could you talk about the drivers of margin expansion relative to your initial expectations and what’s weighing on the expansion in the second half relative to the performance in the first half. Is that tougher comparisons in relation to the balance of pricing and inflation or are there other factors at play, like, increased promotion? Steve Voskuil: Sure. Yeah. We are pleased with the gross margin performance through the first half and we have had a few things, I think, that have broken our way. We have seen less inflation in things like packaging and logistics and even some material costs. Our productivity progress has been strong. I think we feel really good about where we are at the midyear mark on productivity, and then, of course, we have had pricing drop through. So all of those have worked in our favor and will continue to some degree as we go to the back half. If you look at the back half, taking the volume impact, we are going to have some more fixed cost absorption impact that will be a little bit of a weight. And again, we have got hedging against commodities, but still from a year-over-year and beginning of the year, end of year perspective, we still have a bit more cost for some of the inflationary commodities, cocoa and sugar, smaller weights, and again, smoothed out by hedging, but still some impact. Those would probably be the two biggest drags as we look to the back half. But again, overall, I still feel confident in taking our guidance up and the team is doing a nice job managing the cost side. Matt Smith: Thank you for that. And just as a follow-up, if I understood what you were saying about the second half. There should be a nice gross margin benefit in the third quarter as you build inventory with retailers ahead of the cutover in Salty Snacks, is that right? Steve Voskuil: Yeah. Yeah. We will get some benefit. Again, salty is not the biggest business, but we will get some absorption benefit as we build inventory in salty. Yeah. Matt Smith: Okay. Thanks for that. I will pass it on. Steve Voskuil: Thank you. Operator: Thank you. Our next questions come from the line of Cody Ross with UBS. Please proceed with your questions. Cody Ross: Good morning. Thank you for taking my questions. A couple of housekeeping ones and then a longer term one in nature. First one, I think, you spoke about inventory headwinds in the quarter. I think they were lapping the inventory replenishment last year and the pull forward of sales into 1Q from 2Q. Is that correct, and if so, can you quantify each one for us? Steve Voskuil: It is correct. In terms of breaking out the pieces. There’s about 300 basis points we attribute to the last and about 150-basis-point shift relative to Q1 order of magnitude. Cody Ross: Great. Thank you. Other housekeeping question, just as far as the 4Q, I think, you guys said that, sales should be down double digits in the salty business due to the ERP implementation. Can you just quantify that for us or give us an expectation for magnitude? And then just one last one. Steve Voskuil: In terms of dollars or... Cody Ross: Yeah. The dollars that you are expecting from the implementation. Melissa Poole: Yeah. As we get that... Michele Buck: Yeah. No. That’s a double-digit decline. So we not going to go any more specific than that. Cody Ross: Understood. And then last question, just on the competitive environment. There’s been a lot of news in the headlines lately about private label and other branded competitors becoming more competitive. What are you seeing in competitive -- in the competitive environment? I know you said you have seen branded players pick up more innovation, besides that, are you seeing any step-up in promotions and what’s kind of your expectation going forward? Thank you. Michele Buck: Yeah. I mean, I’d say, the categories that we are in have always been very competitive. But the good thing is we have rational competitors. And what we are seeing overall, I’d say, is pretty consistent with what we have seen historically. We have seen some higher levels of innovation as supply chains have gotten stronger and people have been able to support innovation. We have seen some increases in private label, I think, with the economic environment in both confection and in salty. But frankly, the results of those entries have been somewhat mixed, and certainly, our brands have held up really well. We continue to focus on driving sustainable profitable growth. As it relates to infection and promotional activity, display has always been important for that impulse-driven category and so we didn’t see as much of the change in promotion as perhaps some other categories have seen. So that’s been much more stable for us and we anticipate we will continue to going forward. So we will continue to invest robustly to drive our brands with innovation, marketing support, what we think is the right level of promotion. Cody Ross: Great. Thank you very much. I will pass it on. Operator: Thank you. Our next questions come from the line of Jason English with Goldman Sachs. Please proceed with your questions. Jason English: Hey, folks. Good morning. Thanks for fitting me in. Couple of questions. Michele Buck: Hi. Jason English: First, on Salty Snacks, promotion shift, it seems odd, usually promotions are locked in well-advanced retailers. So was this an issue of you actually not having a promotion your planned for like at this time was your sales and finance functions or did a retailer actually cancel activity on you? Steve Voskuil: Yeah. Michele Buck: Yeah. Retailers did not cancel activity on us, but it was really our choice to move a promotion. So that piece is that. And then relative to our broader execution issues, we had some temporary out of stocks. We go to market differently with dots than we do with SkinnyPop and the team quickly adjusted and we have seen our service levels improve. So we don’t expect to see that kind of impact in the second half. Jason English: Okay. So you canceled promotional activity on your retailer. Is that because of supply constraints or what drove that decision? Michele Buck: No. We have really shifted to investing a promotion in the third quarter that we thought made a lot of sense in advance of S/4. It was a big opportunity for us. Jason English: Okay. Switching gears, kind of coming back to Mr. Goldman’s line of question earlier, I had a couple of other lines of question on competitive activity. Your release has a tremendous amount of focus on market share and rather than driving category growth and we have seen the category actually weakened quite a bit in recent data. It’s a two-part question. First, what do you attribute the accelerating volume declines in chocolate confection to be driven by? And second, are you incenting organization on share and assuming you are based on the heavy emphasis in the release and prepared comments, how do you manage the risk of us getting back to where we were five years, six years, seven years ago, where it was sort of you always duking it out promoting away value in the category rather than what has been a much more, I would say, constructive competitive environment we have seen over the last couple of years? Michele Buck: Yeah. Well, as we look at the category, certainly, we have had significant pricing in the category. We have 20% price, and over time, we should see some moderation and the volume decline should moderate as well. So, certainly, price has played a factor. I would say we are always focused on driving the category, as well as market share, because being the category leader, we know if we drive the category we stand to have some of the greatest benefits. So we certainly don’t approach this as duking it out, but rather, how do we continue to connect with consumers and partner with our retail customers to maximize what’s going to be best to drive the overall business in category? Steve Voskuil: And we have got a lot more tools and sophistication today to look at the ROIs for how we are deploying things like promotion and there’s no intent to get into an arms race of bad returning investments like that. We will have -- we want to win with innovation, which we talked about in the remarks not just spending. Melissa Poole: Yeah. I think, Jason, if it helps a little, too. We had the past, call it, two months or so, multiple price increases, three different price increases hitting retailers at the same time, which is kind of what drove that 20% Michele mentioned as kind of some of we were at the tail end of lapping some and some new ones we are going in. So we would expect that pricing number to come down and with that the volume declines to moderate as well. So in the next couple of months we would expect that to normalize a bit. Jason English: Okay. And I am going to cheat with one quick follow-up related to that question. But to my point on how are you been sending the organization, your sales force in particular, is the market share component to the bonus or is it just deliver the revenue? Steve Voskuil: Yeah. Today market share is not a component of most bonuses, it’s about delivering the revenue, but we have other metrics around quality of delivery and how it’s delivered and where... Melissa Poole: Sales activity based margins that enable a balance between sales and profitable sales. Steve Voskuil: That’s right. Jason English: Got it. That is helpful. Thank you very much. I will pass it on. Steve Voskuil: You bet. Operator: Thank you. Our next questions come from the line of Connor Rattigan with Consumer Edge Research. Please proceed with your questions. Connor Rattigan: Good morning. Thanks for the question. So I guess as we think about the pricing environment and increasing elasticity going forward, should we view your on capacity is just meeting existing underlying demand or is there may be an opportunity to allocate some of that newfound capacity to take advantage of some strategic revenue management opportunities, such as package resizing or bar weights to drive net price realization going forward? Michele Buck: Yeah. We have been very focused on strategic revenue management and pack price architecture on both confection and the salty categories. I think a few years ago, we talked about evolving our pricing approach from just list pricing to how we look more holistically at strategic pricing. And in these categories in particular, it’s a big opportunity. We continue to focus there in confection and on salty it’s certainly something that as we acquired these businesses was a real underdeveloped area of opportunity. Connor Rattigan: Great. Thank you. I will pass it on. Operator: Thank you. Our next questions come from the line of Rob Dickerson with Jefferies. Please proceed with your questions. Rob Dickerson: Great. Thanks so much. I just have two questions. I just want to circle back to some of the comments you made, Steve, just on cocoa and sugar inflation that Ken asked. It sounds like there clearly are other offset besides pricing that you can act to kind of help alleviate, let’s say, soften some of that pressure over the next two years given your hedging schedule, but clearly, cocoa has also inflated fairly materially over the past few months. I am just curious like when I try to combine the comments from the offsets, but then the comments, I think, or which -- in the prepared remarks about potential more promotional activity next year and all the pricing you have taken is like, do you feel like you are kind of reaching this point such that maybe market share is a little softer, maybe that’s driven by capacity, capacity is coming online or maybe you need to promote, but also maybe you kind of have kind of hit certain price points that you have to be like very careful with at this point on the everyday side of the business and maybe you don’t really want to take more pricing, but if you hadn’t, you would? So I am just trying to get a sense as to like why you wouldn’t want to basically take a little bit more given where the input cost complex is? Thanks. Steve Voskuil: Yeah. I mean, we will take -- those are all the kind of considerations that we look at when we think about 2024 and beyond. And again, we look at the whole P&L, we look at market share, we look at what competition is doing. And clearly, we look at commodities and where we think they are headed. And so I don’t want to get more specific on the construct of the 2024 plan, but those are the kind of things we will consider. Again, we have navigated this before. We have got a lot of levers at our disposal. Pricing and revenue is reset just one of those levers and it will be interesting to see what happens in the cocoa and sugar market. I do think in those cases there’s still a lot of speculation. And again, our hedging strategy gives us an element of smoothing and protection to a degree to that. But we will be watching to see how these markets hold up, because they are at pretty high levels atypically and it’s not driven by fundamentals to a large degree. Rob Dickerson: Okay. Fair enough. And then just quickly, the comment on Halloween should be very strong. Michele, you said plenty of candy, it sounds like Halloween seasonal sales expected to be up double-digit. So I am just curious, like, why do you think Halloween will be so strong this year, number one? And then number two, I think, last year you did have some benefit from early shipments, so I just want to make sure there aren’t quite earlier shipments coming? That’s it. Thanks so much. Michele Buck: Sure. So we get a lot of visibility to the seasons, because we plan with customers in advance relative to needing to build inventory for the season. So we have a lot of good visibility in terms of what is being bought and we have very strong programs to drive sell-through. So that gives us a lot of confidence. We know that during difficult economic times, consumers are particularly interested in enjoying kind of the simple things in life, like these seasons, like Halloween and so that’s another kind of tailwind of focus relative to our conviction and why I think we and our customer partners really want to lean into Halloween. Rob Dickerson: Okay. Fair enough. And then on the shipment side, it doesn’t sound like there’s any delta there relative to the year ago? Steve Voskuil: No. Michele Buck: No. Rob Dickerson: All right. Super. Thank you. Steve Voskuil: You bet. Operator: Thank you. Our next questions come from the line of Chris Carey with Wells Fargo Securities. Please proceed with your questions. Chris Carey: Hi. Good morning, everyone. Steve Voskuil: Good morning. Michele Buck: Good morning. Chris Carey: So just a question kind of clarification around salty. We have seen some deceleration in consumption, namely volume in recent scanner data. And I am just trying to understand and apologies if this has kind of been addressed in some form, but just to clarify. Was any of that because of lack of supply because of a shift in promotional programs? Said another way, as supply ramps in Q3, it sounds like there’s some shift in promotional programs, would you expect the consumption trends? I realize what you are saying about your reported results in Q3 and Q4, but would you expect consumption trends to pick up or is what we are seeing perhaps more indicative of underlying demand? So I just want to maybe understand how you think about the balance of those things? Michele Buck: Yeah. So promotional declines did drive that deceleration, and yes, we do expect that to pick up in Q3 going forward. Chris Carey: Okay. That’s helpful enough. Thanks so much. Steve Voskuil: Thank you. Operator: Thank you. Our next questions come from the line of Bryan Spillane with Bank of America. Please proceed with your questions. Bryan Spillane: Thanks, Operator. Hey. Good morning, guys. Michele Buck: Good morning. Bryan Spillane: So two quick ones for me. One, just a follow-up on elasticity and another one on capital allocation. So first on elasticity, Michele, is there any pronounced differences across channels? So I guess small format immediate consumption versus large box, just anything there to call out in terms of where the -- if there’s any differences in terms of elasticity across those channels or consumption occasions? Michele Buck: I don’t think that we have seen anything significant across channels. No. Bryan Spillane: Okay. And then, Steve, just on capital allocation, I noticed the dividend increase of 15% and that, obviously, makes the dividend more competitive, I guess, with interest rates going up. But just can you remind us, again, as we kind of think about, think over the next couple of years and as capital spending normalizes and again assuming that there’s not some major strategic event that would affect the balance sheet. Just how you are thinking about capital allocation and returning cash to shareholders going forward, and again, would it be more dividends, would share repurchases become a more pronounced piece? Just kind of how you are thinking about that as we think about it over the next couple of years would be helpful? Thanks. Steve Voskuil: Sure. Yeah. I’d be happy to. No fundamental changes in our capital allocation philosophy that we talked about back at the Investor Conference. It is a great dividend increase. When you look at that and you look at our target for payout ratio and so on. We are still, even with this increase a little bit behind where we would like to be and where we have been historically. So that just reflects the great earnings progress over the last few years, but pleased with the 15% increase. And you are right, as we look forward, as capital spending moderates off some of the really high spending we have had here recently, we are going to look for other ways to be thoughtful with the capital and returning cash to shareholders through repurchases, for example, is our stop gap when we don’t have better-returning alternatives and so still that’s not going to change. Bryan Spillane: Okay. Thank you. Steve Voskuil: You bet. Operator: Thank you. Our next questions come from the line of Robert Moskow with TD Cowen. Please proceed with your questions. Robert Moskow: Hi. Thank you for the question. Similar to Bryan about elasticity look slightly different. I want to know if you have seen any differences in elasticity within the portfolio, like, multi-serve bags versus single-serve, especially heading into Halloween, some of those bags can cost $20, $25 at retail. Have you seen any observations in consumer behavior about just the absolute price points affecting demand? Michele Buck: So nothing material relative to the pack size piece. I mean, what we have tended to see over time is, seasons tend to perform better, to be less elastic and I think that’s just the nature of people are going to participate. So that’s the biggest difference that we see. Robert Moskow: Okay. So -- and any -- so no real change in like single-serve demand affected by traffic or just the absolute price point of the bars getting up there? Michele Buck: No. Robert Moskow: Okay. Michele Buck: We have not seen. Robert Moskow: All right. Thank you. Yeah. Operator: Thank you. Our next questions come from the line of David Palmer with Evercore ISI. Please proceed with your questions. David Palmer: Hi. Thanks. At your Analyst Day, you provided guidance of North America Confection organic sales in the low single digits including flattish volume. Could you remind us again of the drivers to sustain that sales growth with low single-digit pricing at flat volume as perhaps competition returns in a more fulsome manner? Thanks so much. Steve Voskuil: Yes. I would say nothing fundamental changing in that algorithm the way we think about the sources of growth for U.S. Confection or the rest of the business. I mean we always expect it to be a competitive category over time and so we are looking at it the same way. There’s nothing that’s happening this quarter or even for the balance of this year that we think fundamentally changes any of that. David Palmer: Thanks very much. Steve Voskuil: Yeah. Operator: Thank you. I am showing no further questions in the queue at this time. I’d like to hand the call back over to Ms. Melissa Poole for any closing comments. Melissa Poole: Yeah. Thanks so much for joining us this morning. I know it was a particularly busy morning of earnings. So thanks for all of the great questions and look forward to catching up with you all later today for any outstanding ones you may have. Have a great day everyone. Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Operator: Greetings and welcome to The Hershey Company First Quarter 2023 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company's first quarter 2023 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck, and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: [Operator Instructions] Our first question comes from line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks so much. Good morning, everybody. Melissa Poole: Good morning. Michele Buck: Good morning. Andrew Lazar: Yes. First off, I wanted to ask a little bit about the guidance update on the top-line. The company beat by a few points on the top-line in the quarter. But when we take out the earlier summer shipments, which is really just timing, I guess, results on organic were only slightly ahead of the street view. But Hershey raised its sales growth guidance to the high end of the previous range for the full year. So I guess my question is, what are you seeing at this stage that that gave you the confidence to shift the top-line guidance the way you did? Michele Buck: Yeah, thank you, Andrew. Yeah, you're exactly right. For the first quarter, the timing impact was about half of the - half the beat on the sales line and also strong performance in international. So those were the two big drivers and we look to the balance of year. Obviously, the timing is going to wash out in the second quarter, but we do expect to see a little bit better elasticities in the year to go period. We still see a moderating versus some of the strong performance we've seen the last six to nine months. But a little bit more improvement and we're spaced that a little bit more on media investment that we also have incrementally in the year to go plan. So between, I would say, with the strength we saw in the international business, what we're seeing on the back of improved elasticities a little bit in the year to go period, that's what gives us the confidence in the race, right? Andrew Lazar: Great. Thanks for that. And then, with the pull-forward of some shipments from to Q2 into 1Q, along with the tougher, I guess, year ago organic sales and EPS growth comparisons in 2Q, I guess what are some of the key puts and takes to keep in mind when we're modeling for 2Q? Thanks so much. Michele Buck: Yeah, 2Q will be probably our most challenging quarter. I look to the balance of the year. We're going to have the timing piece shift back out, but then also recall last year it was a big inventory till quarter as well. And so, when you look at the laps, it's pretty tough lap. That combined with that point and a half coming out, we'll put, more to the mid-single digit range, probably from a sales standpoint. And that will put more pressure on the EPS side than the rest of the quarters. Andrew Lazar: Great. Thanks so much. Operator: Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman : Hi, good morning. Two questions on capacity, if I could? First, I think your prior guidance, if I had it down right, was for five new lines to come on this year. I think you're calling for some more now. So am I reading that wrong or was one delayed? And then, I'm also curious to learn a little bit more about the Weaver acquisitions just in terms of how they may help you down the road in terms of added capacity or efficiency, obviously, bringing plants in houses is generally a good thing for efficiency. But just in light of the fact that they already did make products for you. Just trying to get a little bit of a better sense of some of the benefits down the road for you. Thank you. Melissa Poole : Sure. So there is no change to the number of lines. There are five lines and I think there's one that we just didn't specifically call out in our remarks. So, so no difference there. Relative to Weaver, we feel very good about the acquisition. Weaver manufacturing is currently a come in of SkinnyPop. We acquired two plants and really what it gives us are three things that gives us sufficient capacity to be able to support growth for several years to come. And as you know, we are seeing very strong growth on SkinnyPop. It provides us with resiliency and also flexibility just so that we can continue to support the strong growth that we are seeing. As you know, as you look across our business for strategic categories and businesses that we are in, we do like to have at least some degree of own manufacturing across our network. And we also feel pretty good about the investment return at the investments that we made. We believe, given the quality of the assets, the fact that facilities are on the newer side that it is faster and cheaper than if we needed to build this on our own. Ken Goldman : Thank you. Melissa Poole : Sure. Operator: Our next question comes from the line of Cody Ross with UBS. Please proceed with your question. Cody Ross: Good morning. Thank you for taking our question. You're implementing a high-single-digit price increase on 50% of your confection portfolio effective at the end of May. I believe that's correct what you announced at the Analyst Day. How much do you believe will benefit fiscal ‘23 versus fiscal ‘24? And can you explain the mechanics of the benefit by the year? Michele Buck: Yeah, at the high level it's going to have, as we talked about in the Investor Conference more impact in ‘24 than it is in ’23. That’s based on partly the implementation date and then also the fact that we have protection in place for big promotions and programming for a good part of the year. And we're still working with retailers on the implementation. And so, all of that will continue. I think, by the time we get to the mid-year mark, I have more visibility both on balance of ‘23 and ‘24 impacts that we’ll be able to talk more about it at that time. Cody Ross: Great. Thank you. And then, just a quick question on gross margin. Your gross margin came in higher than both yours and the street’s expectation this quarter. You raised your outlook to expansion of 70 to 80 basis points for the year. What gives you confidence to raise your outlook this early in the year, especially in context of your retail Partners, who are struggling to expand gross margin this year based on their guidance? Thank you. Michele Buck: Yeah thank you. Yeah, it is early in the year I think, in general, we probably wouldn’t look at raising our guidance top-line or bottom-line this earlier in the year. On the gross margin side, though, a couple of things, one, it’s clearly we have some commodities that are getting more expensive than some cocoa and sugar in particular, are moving in the wrong direction that we have a few smaller non-test ingredients that are a little bit more favorable right now than they were. Time will tell whether that's going to be able to stick around. But probably the biggest pieces than just freight and logistics improvements and if you recall last year at this time, when we did the call, that was one of the big, I'll say surprises on the downside was increasing and freight and logistics costs. And for the first quarter at least, we saw some improvement in that both on our supply chain but also contracted support for getting truck show up for appointments and freight costs and so forth. So, those are really the drivers in the first quarter that we captured in the outlook. Time will tell as the year goes on how the rest plays out. But that's what gives us the confidence is really just the first quarter performance. Cody Ross: Thank you very much. I’ll pass it along. Operator: Our next question comes from the line of Nick Modi with RBC. Please proceed with your question. Nick Modi: Yeah, thank you. Good morning everyone. So just a quick clarification. Hey, good morning. On international, I saw the comment you put in the prepared remarks. But maybe any more context on exactly some of the specific initiatives outside of a recovery in travel. I'm just curious, on there was a very strong number relative to expectations. And then, if you could just touch on the market share commentary you made in the U.S., kind of what's driving some of that? You talked about the mix, but I was kind of unclear exactly what that was referencing. Melissa Poole : Yeah, I mean if we look at the initiatives in international, we've seen category strength across the markets. We saw a stronger Easter season in Brazil than we had anticipated. We continue to see distribution gains in Mexico and also in India. So, across the board some strength there. We do expect some moderation, going forward because we have some pretty strong laps. But our demand has really remained pretty, pretty resilient. And then, we're also seeing some impacts from timing as if you may recall in Q4, consumer demand outpaced our shipments and we've recovered some of that in the first quarter. And can you repeat your share question one more time? Nick Modi: Yeah, I was just, I was just hoping you could provide some context on the US share commentary you had in the prepared remarks and the press release? You had referenced I think in the prepared remarks, mix was a driver and I was just unclear. But if you could just provide any context on some of the market share trends that you are seeing? Melissa Poole : Yeah, absolutely. So, we definitely - if we look at Easter, we had some impacts from supply constraints. We anticipate by Halloween and holiday, those will be behind us. But that impact - impacted us. And then also, we've continued to see very strong growth in sweets and then also that rebound of refreshments from some of the weaker trends in that post-COVID type of the year. So really mix as an impact. Nick Modi: Great. Thank you. I’ll pass it on. Operator: Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your question. Pamela Kaufman : Hi, good morning. Melissa Poole : Good morning. Michele Buck: Good morning. Pamela Kaufman : I was hoping that you could talk kind of generally about what you're seeing in the consumer demand environment? You've seen strong volumes despite strong pricing growth. So how are you thinking about the consumer and elasticities over the course of the year? Melissa Poole : So, I'll start by talking a little bit about the trends and I’ll let Steve talk about elasticities. Certainly consumer behavior continues to evolve and we know that many consumers have made changes to their spending to respond to inflation in the marketplace. We certainly continue to see that food has performed well compared to other categories, specifically food at home as it's a much more affordable option for consumers versus dining out. And we also know snacks and candy continue to perform even better than broader food and elasticities in those categories have continued to remain pretty strong. And we do expect that we'll continue to see strengthen in those elasticities. We know the consumers are being increasingly mindful about where they shop. They are looking for more affordable options. Whether it is the channels in which they are shopping, whether its private-label, whether it is deals and increased promotion. And we are constantly carefully monitoring those trends, just to make sure that our media and our in-store activations are really optimized, so that we can align to the trends that we're seeing. Steve, do you want to talk a little bit about elasticity - on the elasticity side? Steve Voskuil : We touched on this a little bit in the first question. We still expect elasticity to moderate as the year goes on, but in our outlook now a little bit less severely than we did in our original plan. And we'll see how the year plays out. But that's our current assumption. Pamela Kaufman : Okay, thank you. And my second question is just on the ERP implementation within snacks. Can you touch on what benefits you expect to realize from it? And what impact is factored into your guidance for this year from the ERP implementation? Steve Voskuil : Sure. So, we have, we have the impact of the transition on the ERP baked into the guidance. We profiled that out across the quarters including some inventory build in advance of the changeover and then the changeover itself in the back half of the year. In terms of benefits, it's a critical ingredient to driving efficient scale across that businesses. We touched on that a bit in our investor conferences. Well, one of our goal is to drive scale efficiency on all parts of that business on the front-end, the supply chain side, and so forth. And this system is important to get them on the same system. The rest of the company will operate on, so we can operate the back office efficiently. We can operate the front-end efficiently, have more inventory visibility that are planning capabilities. And so, so it is the integral. We are excited about it. Everything to-date is on track and we'll look forward to getting that behind us later this year. Melissa Poole : And Pam, I think we did on the last call. We might called out the impact. It's about a half a point headwind for us for the full year related to that transition all focused in the fourth quarter results. Pamela Kaufman : Right. Thank you. Operator: Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question. David Palmer : Thanks. Good morning. In your prepared remarks, you mentioned – good morning - you mentioned that you'll be in a strong position to fully support consumer demand for the rest of ‘23. I wonder if you could give some color about that. It's obviously ahead of some of that 5% increase in production that you're expecting to add. So, is that the COVID era issues with labor constraints in your supply chain? Is that the upstream suppliers coming through? And I have a quick follow-up. Melissa Poole : Yeah, I mean, I would say, the recovery that we anticipate is really driven by the increasing Investments that we've continued to make over the past several years in capacity. Obviously, some of them take some time to be able to get equipment, get it up and running et cetera. And so, that's the point at which we believe we start to get ahead. So, I think we've pretty consistently talked about and end of ‘23 and ‘24, that we anticipate being beyond many of these supply issues. But yes, I would It's a predominantly, they've been focused on capacity. Certainly, in the early years there were some other industry dynamics, as well. It's even - I'm not sure maybe your question, the 5%, just to clarify, that is actually that the pound number not a sales number. I mean, we were clear enough in the remark. So that that 5% growth in production pounds will be well ahead of what the guidance calls for volume and that's kind of how we catch up. David Palmer : Got it. And in that capacity that you're ramping up with the three new Reese's plants and the one new Hershey plant, will that be more than the 5% into ‘24? Because it's ramping through the year. I am wondering what's the impact of capacity increases for 2024 do you think? Melissa Poole : There will be a carryover into ‘24 from those, as well as some additional capacity expansions that we have coming online. So there will be a low-single-digit increase in pounds production available next year as well from carryover and some new initiatives. David Palmer : Thank you very much. Operator: Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question. Max Gumport: Hey, thanks for the question. I was hoping you could give us an update on what you're seeing with regard to the retailer pricing environment. It feels like we're seeing more headlines in the media talking about retailers pushing back to physically again packaged food manufacturers, but we're continuing to see companies like yourself getting strong pricing through in quarterly results. So just hoping you can give us some color on this debate that seems to be emerging. Thanks. Melissa Poole : So we always partner very closely with our retail customers to try and do what we believe is best to meet consumer demand and also to drive category growth, which is good for both of us. So we continue to have very collaborative discussions with our retailers relative to our pricing implementations, which also includes a lot of discussion about with the right plans to have business reinvestment that will enable the support of very strong unit conversion. Max Gumport: Thanks and one follow-up on gross margin. I realized –in the year and that taking up guidance is a bit unusual and it speaks to the confidence you have in your outlook. But one question I'm getting is that, if we look at your gross margin results in the first quarter and think about what your guidance implies for the remainder of the year, it seems like it would imply some sequential step down in the gross margins through the year even after taking into account some seasonality. And so, I'm just curious what type of factors might be going into into those assumptions there? Thanks. Steve Voskuil : Yeah, the big – I think the biggest factor is it is still early in the year. We still have a lot to play out and so we're certainly taking stock of the upsides that we saw in the first quarter. But we're still being cautious also on what is to come in or the world has changed a lot over these quarters there is still a lot of volatility potentially ahead. And so, we're factoring that. And then also, as we go forward, particularly in Q4 the laps get tougher. And so, that's the other factor weighing in the guidance. Max Gumport: Thanks very much. Steve Voskuil : Thank you. Operator: Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane : Hey, thanks operator. Good morning, everybody. I just wanted to ask a question about seasonal, you talked about the, - what part of what impacted market share on seasonals in the first quarter was capacity constraints. And I think, right, we've talked about more capacity available for seasonals as we move through the year. So if can you just kind of talk about that and how that sets up for especially the fall or the third and fourth quarter? And whether you feel like you'll be adequately supplied with seasonal products there? Melissa Poole : Yeah, sure. So, absolutely. We believe that with the additional supply that we have ramping up as we go through the year, that we will be in good shape to have a very solid plan to meet Halloween and holiday demand. So, some of the issues that we encounter during Easter we should be passed in the back half. Bryan Spillane : Okay. Thank you. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. In the press release, you had mentioned just the ability to sustain momentum into 2024 and beyond, obviously it's early. But just kind of caught my eye that you would call that out, what are you seeing at that would you drive a reference that come up that far ahead and how much color can you give on how you're thinking about 2024 right now? Melissa Poole : I mean we're not going to give a lot of – we are not really going to talk about 2024. I mean, at the very high level I’ll talk a little bit about the consumer piece and Steve can talk about the P&L component. But we feel good about the momentum that we're seeing on the business, certainly in terms of consumers’ engagement with the category. A lot of the underlying consumer behaviors that we're seeing sustain which continue to support performance. We're continuing to see good response to the investments that we’re making in media behind the business across all parts, really. I mean CMG, as well as our salty brands where we're just getting started on some of the investments in salty. And certainly, as we saw in the first quarter, strong momentum in international. So right now, we don't see any big signals that suggest to us any big hurdles on the top-line. Steve Voskuil : Yeah, I would agree. I just point to, as Michelle said, capacity – having capacity available as we exit the year to be a little bit more on the gaps from that standpoint versus some of the limits we've had in the last couple of years the salty aspirations that we have talked a lot about that at the conference coming off of the back of the ERP and rolling into next year, we're excited about that. And then the commercial capabilities that we talked more about at the conference, as well that being able to help drive sustainable growth in the US business in particular. So, those are just some of the reasons that it we feel pretty good about the momentum. Michael Lavery: No, that's helpful color. Thank you. And just a follow-up on that, we got see the – at the Investor Day obviously and just curious, if you have a sense of how big a lift do you think that can drive and maybe specifically at least what's factored into your thinking and guidance around that. And just sort of we've already seen obviously a very strong momentum there. How much further can it go? And then what - how you think about your expectations? Melissa Poole : You know, I would say it's too early. We've just started the support on air. We feel very good about all the work that we've done in terms of understanding the dots consumer and the consumers’ relationship with dots. And so we feel good about the messaging direction, the creative execution and certainly it's scored incredibly well and the responsiveness that we tend to see across our snacking categories with advertising investments. So more to come and we'll share more as we have actual in-market results on that. But we think that will clearly only help us given that we haven't been investing in that brand in the past. Michael Lavery: Okay. Great, thanks so much. Operator: Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: All right, great. Thanks so much. Two kind of easy questions. The first is just in international, obviously impressive on the volume side, but really don’t see any incremental pricing year-over-year. So I am just curious let me clearly it's intentional just kind of curious as to why that's intentional why we're not seeing much pricing in international that’s kind of given the cost complex and kind of what you've been able to push through in the US? And then I have a quick follow-up. Steve Voskuil : Sure, we are pursuing a price strategy in international. It's just more modest of what we're seeing so far. And it’s offset by some of the other laps that we had in the quarter. They are having some impact on how much of that price is coming through, but we should see more price come through in the next three quarters. Rob Dickerson: Okay, fair enough. And then, just quickly back to you Steve too, buying the incremental popcorn facilities, which I get, but clearly not that much cash out lay - cash outlay for those facilities and if we think - kind of think about where the top-line probably headed into ‘24 and CapEx gets a little bit better next year markets been decent, there should be a step up in free cash flow while the balance sheet is strong. So, and I know you kind of always reiterate kind of your standard issue capital deployment priorities. But would you say kind of at this point given all the CapEx that's being spent on the on the new facilities or the new lines and then the recent - the acquisition of the new popcorn facilities they kind of broadly speaking you feel like you're probably in a pretty good spot in terms of kind of what you need to grow. And therefore it is there a possibility for, let's say you know other cash deployment whether being around the dividend or buyback the what have you? Thanks Steve Voskuil : Sure. Yeah, great question. So we – we do - the short answer is, yeah, we do feel good with that additional capacity in place or coming in place for the Weaver acquisition will be very helpful to support the growth of that business for a time to come. And I also like the fact that, we're buying well-maintained state-of-the-art manufacturing facility. What we're not doing that is still much more capital efficient than building from whole cloth. And so, it is capital efficient to pick up assets this way, as well. So, as we look to the future, I feel good about the capacity that we're going to have installed on both the confection business and the salty business. And that will have an impact on free cash flow as we look to the future. Rob Dickerson: Alright. Fair enough. Thank you. Steve Voskuil : Thank you. Operator: Our next question comes from the line of Jonathan Feeney with Consumer Edge. Please proceed with your question. Jonathan Feeney: Thanks very much. Could you comment on the role of fate, not just recent distribution growth, but distribution growth over the last 12 to 18 months in the salty snack business driving at really outsized volume growth? Because, I guess, I'm trying to understand how when you take these products whether it's dots most recently or others into new markets, is there a necessary to care like, you have all this great innovation into Hershey capabilities and then that kind of seasons and it slows down. What data or insight can you offer to help us understand that and may be if you think about what a sustainable organic volume growth looks like for salty snack going forward? Thanks. Melissa Poole : Yes, absolutely. So, clearly distribution is job one, when we buy a business like this. I mean, that's one of our key strengths and we want to fully utilize it. So on dots in particular, there were really opportunities to kind of fill in on distribution. Previously, they really didn't have a very large Walmart business and they were underdeveloped in the northeast. So that's been a big area of focus and that certainly has driven - has been a key driver of the business. But we've also seen increases in velocity at the same time, given the very strong repeat potential that we see from consumers behind this product. Then as you think about the growth trajectory, over time, I would kind of describe it as it basically will evolve in terms of what the drivers are. So as we fill out the distribution, we start to really employ our category management capability relative to optimizing the shelf. As you saw in March, we then start to apply our media capability with advertising behind the brand to really increase awareness and household penetration. And then beyond that, the other kind of key focus is relative to price pack architecture and other drivers. So, I think we will see the revenue coming from it will continue, but we will apply the other capabilities we have to really generate that. And as we mentioned at Investor Day, we do anticipate seeing growth in that 15% kind of range for the next few years. And then, but a deceleration from the twenty plus percent that we've seen more recently. Jonathan Feeney: Thank you very much. Much. Steve Voskuil : Thank you. Operator: Our next question comes from the line of John Baumgartner with Mizuho Securities USA. Please proceed with your question. John Baumgartner : Good morning. Thanks for the question. Steve Voskuil : Good morning. John Baumgartner : Maybe just building on John's question, Michelle sticking with the salty snacks distribution. And another focus here is building availability in mass and grocery, but the ACV opportunity seems pretty significant in C stores, as well. Are there any considerations whether it's dislodging competitors or, the routes to market that you – in the DSD model given the velocities that didn’t makes the path to building ACV in C stores a bit slower for these categories. Just you how are you thinking about closing that distribution gap in C stores over time? Thank you. Melissa Poole : Well, C store is really a core capability for the company for our base core CMG businesses. Certainly we realize its importance in reaching certain specific consumers and really certain specific occasions when consumers are out and about. So it is a priority for us. We have been focused on that. I think in SkinnyPop, we are certainly making progress. But there's more opportunity to go. And so, it'll remain a focus for us going forward. I don't know if I'd say that there is any key barrier. Certainly, there are folks who have DSD capability more broadly. But we've done a good job with our CMG business, where we don't have it building distribution in convenience stores. So, we feel very good about that. And then across our salty snacks network, we do have both warehouse and DSD capability. And we're really working right now to optimize how we best utilize each to maximize the potential of the business. John Baumgartner : Okay. And then in terms of the popcorn assets that you're acquiring, in addition to just the pure growth in volume capacity, is there anything augment your capabilities whether it’s pack size or anything else in terms of opportunity there? Michele Buck : Yeah, and beyond just the capacity and one of the things that gives us the opportunity to optimize the supply chain network more, broadly. So if you think to the future, other assets are potentially coming in, if you think about some of the strategies we talked about around price pack architecture, and being able to make sure we have the right packs and mixes to support the business going forward. So by having all of that in our hands, in our control, just gives us more flexibility and agility to deliver that growth plan. Melissa Poole : Yeah. And as I mentioned earlier, we do have that gives capacity ahead of demand. So it gives us that trajectory for the next few years. John Baumgartner : Thanks Michelle. Thanks Steve. Michele Buck : Thank you. Operator: Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question. Jason English: Hey, good morning, folks. Melissa Poole : Good morning. Jason English: A couple quick questions. So, Colgate just recently did something similar in past we would think going out and buying some capacity. When that came into the floor, there was lot of other products to do making it created some margins torsion near term. Is there anything to be aware of like a similar on that front with the Weaver acquisition? Melissa Poole : No, I mean, bulk of the capacity is ready to eat popcorn. So it didn't really come with a big negative overhang. Michele Buck : That's right. Melissa Poole : Other than that there will be excess unused capacity for a while, so that there's some fixed overhead there. Steve Voskuil : Yeah. Some fixed overhead and some transition cost that would be normal. But not a portfolio overhang like you're referencing, Jason. Jason English: Good to know. Thanks for that. And then, bigger picture question, You've got – as you mentioned elasticity has been very low. That's not a Hershey comment or even a confection comment, the industry comment because we have a lot of cross price left, if you ever moving the same direction, it sounds like in ‘24 you’re kind of have to kind of break from the past and push through quite a quite a bit of pricing that it’s by where, we're not expecting a lot from the industry at large. So, how are you managing this cross price elasticities? Which category should we be watching? And where you tend to see switching between confection? And I'll leave it there. Steve Voskuil : Yeah, I would say, first of all, it's a little early yet to be starting to think about the cross elasticity for ’24. You’re right. We're trying to think ahead in terms of the pricing strategy. We're also watching the commodity space like we talked about earlier and some of the upward movements on cocoa and sugar. And so, I think that's getting us in a good starting position. But then what happens to the other categories and peers is all yet to be seen. And we will be able to communicate more on that, obviously as you probably turn the corner and get to the back half. But Melissa do you want to add? Melissa Poole : Yeah, that's the one piece I might add is just, ours is a kind of come through a little bit slower and more elongated because of the timing it takes for us to implement particularly with seasons. So, kind of, as we think about ‘24 pricing, we won't have an outsized price gap versus kind of pre-pandemic levels versus a lot of our competition. As you see many of them are posting high teens or 20% pricing versus up at 10%. So some of those just ours is a little bit more spread out. But we will certainly be watching it very closely and particularly within, snacking to look at where the share of stomach is going and how those cross elasticities progress. Jason English: Yeah, that's a good point. Thanks a lot. I’ll pass it on. Operator: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Chris Carey: Hi, good morning. Thanks for the question. I just have a question on confection margins. Very strong in the quarter even despite a tough year ago compare, pricing is clearly building. How should we be thinking about confection margins not just this year, but certainly over time, as it seems like we're coming through very strongly with pricing and cost perhaps are easing. And so, again just your trajectory of confection margins would be helpful. And I think you had mentioned some inflation in cocoa and sugar, just remind us of your duration on those hedges and when we might be seeing that inflation coming through and just so we can kind of assess when the pricing might be needed to offset it? Thanks so much. Steve Voskuil : Sure, I'll take the last piece first. Just on cocoa and sugar we don't get specific on the duration of our hedging programs. Obviously, for those two commodities we do some hedging. But we don't share the duration. We do expect to see potentially more impact in ‘24 than ‘23. But we'll see how the markets play out. On pricing and just more generally as we talked about the investor conference, our goal is always have a mix of volume and price. That's part of the balance in our growth formula and as part of that we also want to see margin accretion over time for both sources. And so, confection margins have been strong, but even in the future, across All levers, pricing, including price pack, architecture and mix, and other things, we want to continue to put upward pressure on our margins because that's part of our growth formulas so. Melissa Poole : And we continue to see some of our inputs rise, cocoa and sugar recently which is one of the reasons that we decided to lean into that more recent pricing action. Steve Voskuil : That’s right. Chris Carey: Okay, that's it for me. Thanks so much. Steve Voskuil : Thank you. Operator: We have reached the end of the question and answer session. I’ll now turn the call back over to Melissa Poole for closing remarks. Melissa Poole: Yes. Thanks so much for joining us this morning and all the great questions and the continued interest and investment in our company. So I'll be available today and in the coming weeks to answer any additional follow-ups you may have. Thanks so much. Have a great day. Operator: And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings and welcome to The Hershey Company Fourth Quarter 2022 Question-and-Answer Session. At this time, all participants are in listen-only mode. As a reminder this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa A. Poole : Good morning, everyone. Thank you for joining us today for The Hershey Company's fourth quarter 2022 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck, and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Andrew Lazar: Thanks so much. Good morning, everybody. Michele Buck : Good morning, Andrew. Andrew Lazar: I guess just one from me. Trying to get a better sense of how you're thinking about elasticity for '23 versus what you saw in '22, which was very little? And what percentage increase in capacity you're expecting for this year? And I guess I asked because, if elasticity were to stay as benign as it has been, and you ramp some capacity, trying to get a sense of whether it could render your flat, just slightly down volume outlook for the year somewhat conservative, or will continued capacity constraints limit the potential for top line upside from here? Michele Buck : Yeah. Thanks, Andrew. As we look at price elasticities, we are assuming that they will be closer to last year than they were to historic, but not quite as good as last year. And as we look at our capacity, we will have low single-digit increases in capacity which do give us some ability to flex with demand as we see it. Steven, you can add. Steve Voskuil : No, that's fine. Andrew Lazar: Excellent. That's it. Thank you so much. Michele Buck : Thanks, Andrew. Operator: Thank you. Our next question comes from line of Robert Moskow with Credit Suisse. Please proceed with your question. Robert Moskow: Hi, thanks, and congrats, everyone, for such a great year. I wanted to know, the guidance for '23 is more aggressive than normal, like you normally start the year rather conservative. But this year, you're guiding above your normal algorithm. And I want to know if could kind of isolate what the key drivers are, and why you've raised it compared to three months ago. Maybe drilling down looks like gross margin is coming in better than you thought, maybe you could explain why. And then also on market share. Are you expecting market share gains in confectionery in '23? Thanks. Steve Voskuil : Sure. Want me to start out. Michele Buck : Yeah, go ahead, Steve. Steve Voskuil : So just on, the big movers on the top line, obviously price driven, and we have good visibility into that. We saw that effect be part of the driver for the fourth quarter performance, but we see that carrying forward, especially through the first three quarters of next year. And we do have elasticity factors, as Michelle said in the last question. Our planning isn't quite down to the levels of historic elasticity, but something looks more like last year. And if you sort of drop further through the P&L, we do see some benefit from the gross margin side, as we could see more stabilization, the pricing coming down and some cost efficiencies, and a return to more historic levels of productivity. Now we still have efforts for more productivity. But at least this year, we're starting to see something that we hadn't seen in the last two years. So those are some drivers through the P&L that far. On the market share side, yes, we do expect to have a positive market share next year. I think that's one that we're disappointed about this year and want to see turn the other direction Next Year. Michele Buck : Yeah, and some of that market share will be helped by the incremental marketing investment, as we've taken that up, as we have additional capacity online and certainly, the additional capacity as well. As we think about the pacing of the market share, you should think about it relative to the beginning part of the year will be slower, and we won't see those declines, probably till we get into the spring. But once we hit the spring that will really kick into gear. We know that we had some lost opportunity this year around seasons that we weren't able to fulfill totally all of the orders. And then also a little bit of a mix impact from refreshment, being a late rebounder given social behaviors, but we think that'll neutralize going. Robert Moskow: Okay, makes sense. Just one follow-up. On the gross margin side, are your cost, like inflation cost coming in better than you thought or is this really just productivity is accelerating more than you thought? Steve Voskuil : Yes, probably more on the productivity side. We have pretty good visibility in the cost, with the hedging program and so forth, particularly on commodities, and we're still expecting high-single-digit, year-over-year inflation through commodities, and a lot of the materials items and mid-single digits on things like labor and logistics and other supply chain costs. I don't think those assumptions have changed much from our outlook, but probably a little bit more productivity. Robert Moskow: Great. Thank you. Michele Buck : Thanks. Operator: Thank you. Our next question comes from line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman : Hi, thanks. You're guiding to a gross margin of around 44.5% next year. I'm just curious for this coming year, what do you see as a, I guess, “normal level”, if there is such a thing in this kind of environment? And I guess more specifically, if you can grow your gross margin by a healthy amount in an inflationary environment, is there any reason it can't ultimately get back to 45% or above? Steve Voskuil : Sure, again, our model is growing gross margin every year. That would be the goal. That's really part of the growth algorithm. And so we've had two years where that's been a challenge. We see that now turning for 2023 and really getting back on the algorithm. And so I would like to say it's price and inflation agnostic in terms of the strategy. How we get there will change based on the external environment. But yes, we do see restoring to gross margins that we had in the past and frankly, continuing to drive that forward. Ken Goldman : And then, how do we think about the breakdown of sales growth and operating margins by segment in 2023? You gave a little bit there. But are there any unusual items we should be aware of for either of these segments, just as we consider our models, maybe drivers that aren't necessarily apparent at first glance? Steve Voskuil : Yeah, the only things that are unusual or different, I kind of go to salty, and we mentioned some of this in the remarks. Salty is going to have a strong top line. We're expecting that. We're also expecting to see gross margin improvement year-over-year. We saw some of that in the fourth quarter, finally seeing pricing catch up in that business a little bit to inflation. But still some room to grow. But we'll see some reinvestment below that. And so we're going to activate more against the brands next year. We're going to do some capability investments between the lines to really scale up the infrastructure. And part of that infrastructure is the ERP transition that we talked about in the prepared remarks. And so that's probably the one area where I see strong sales growth, some gross margin improvement, less route through to off margin that we might see in a normal year on the back of those capability investments. Other than that, I think the other segments are probably, pretty traditional in terms of the growth characteristics. Ken Goldman : Thank you. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane : Thanks, operator. Good morning, everyone. My question is just around the advertising and consumer spend investments. And I guess I had two questions. One, in the prepared remarks, one of the things you talked about investing in is workforce. So I wanted to just understand, is that like more merchandisers and people in the field or something else? And then maybe I'll start with that, then I had one other follow up. Michele Buck : Yeah, I mean, as we look at some of the investments that we're making in our employee base, clearly, one of our key strategic goals this year is really to integrate scale our salty business. And so we are adding some increments of talent there to really make sure that we have the right skillsets, and that we have all the employee base and talent needed to do that heavy lifting and the work, some of that also around improving our planning system. Some of the things that whey we buy a smaller company, we need some more sophisticated capabilities. Then obviously, given a lot of the work across the business on supply chain, where we are continuing to invest to build capacity and resiliency in the network, we have made investments in supply chain talent as well. Bryan Spillane : Okay, but it's not specifically adding merchandisers or like front -- more people, frontline sales people? Michele Buck : Oh, no, no. Bryan Spillane : Okay. Okay. And then the second, just was related to the kind of the thinking behind the double-digit increase in advertising and consumer spend. Is that partly a -- sort of a function of just inflation has been so persistent. Now obviously, you've got price increases on your own product lines, but consumers are just seeing -- have seen a lot of inflation across a lot of consumables. And is it -- if you're going to have that level of pricing, you really need to advertise in order to sort of make sure consumers stay engaged, because they're going have to start making some choices. Or was there something else that kind of drove the decision or the need to increase advertising at that rate? Michele Buck: Yeah, absolutely. So our long-term model, we believe in advertising. We've seen the impact and the returns that we get on advertising in terms of having very strong ROI. So we take a very databased approach to media spending, and we invest where we see that incremental profitable growth. Over time, we do know that that advertising builds consumer connectivity. And we know that, that consumer connectivity is -- what part of what helps us to have the elasticities that we do. People are connected to our brands. And during the tough times, we know that that connectivity leads to them continuing to buy. So yes, it is important during an inflationary time, and we've done statistics over that, analysis to validate that. And then, as you know, we reduced spend last year really due to capacity constraints. And we did see an impact in demand on several of our brands. And so those are really the priorities where we are reinvesting this year. And we're also investing in some of our whitespace opportunities, like gummies and better for you to strengthen the business, as well as our salty brands, where we're really in a major growth mode, gaining household penetration, gaining market share, and we want to continue that momentum. Bryan Spillane : Right. Thanks, Michele. Michele Buck : Sure. Operator: Thank you. Our next question comes from line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Michele Buck : Good morning. Michael Lavery: I just want to start by following up on the spending. Could you give us a sense -- I recognized last year, you adjusted spending to match your -- better aligned with the capacity limitations. But would this year be restored levels to sort of the optimal targets? Or do you still see that ramping into next year as well? We're just trying to understand a sense of, if you'll be back on your sort of steady run rate or kind of ideal level or if we're not even quite going to be there yet until maybe 2024. Michele Buck : Yeah, I mean we are always looking at the returns that we're getting on our spending, and making decisions as we go forward based on that. So we think that we're in a reasonable zip code. I think we've said before that we don't think we have to go back up to the very highest levels that we were at historically. We've done a great job over time, getting a lot of efficiency, getting very tight in our targeting, so that we're getting even greater returns. But I wouldn't also commit that this is the high mark, above which we're not going to move above. We're still probably not quite back to exactly the point we want to be. Michael Lavery: Okay, that's really helpful. And just want to unpack a little bit more if we can, a comment you made in the prepared remarks about seasons being a growth driver. You said it's off to a great start. Obviously, last year went really well as well. And so just would love to understand a little bit better how that unfolds and how to be thinking about that. Michele Buck : Yeah, we continue to anticipate very strong growth in the seasons. We've continued to see that in the category. Consumers, during the past several years, have even dialed up their interest in season. So it is a strong part of our portfolio. It's a place where we do very well. It's a place where there's a lot of emotional connectivity. There's an anchor event, people want to participate in those anchor events with the brands that they love. And so we think that there's opportunity. We had some missed demand that we weren't able to fully fulfill because of capacity. And we're going to be in a much better position this year to be able to more fully capture that opportunity. And the first part of the year, as I mentioned earlier, from a share perspective, we won't be as strong as we anticipate that we will be for the seasons towards the back part of the year. Michael Lavery: Okay, great. Thanks so much. Operator: Thank you. Our next question comes from line of Cody Ross with UBS. Please proceed with your question. Cody Ross : Good morning. Thank you for taking our questions. I just want to go back to the last question on volume and perhaps unpack cadence throughout the year. You have increased capacity for seasons coming on, but you're also lapping the over shipment in the first half this year. Can you just unpack a little bit how you expect volume to progress throughout the year, understanding that you expect for the full year to be flat to slightly down? That's my first question. Thank you. Michele Buck : Steve, can you talk that through? Steve Voskuil : Yeah, going into the first part of the year, the seasons we've got already identified the volume and shipments there. So as Michele said, we still -- we're dealing with some capacity constraints leading into the seasons in the front part of the year. When you look at the year overall, we're not expecting any big material differences by quarter for volume. Cody Ross : Okay, that's helpful. And then just one last question on capital allocation here. You're at the low end of your leverage target over the long-term. Are you beginning to look at making additional acquisitions or perhaps return more cash to shareholders in the upcoming years? Thank you. Michele Buck : I just say job one right now for us is integrating the amazing acquisitions that we bought SkinnyPop, Pirates and Dot's, and we're investing to leverage their full potential. However, we do always continue to be in the market, looking at assets that can continue to advance our strategies, expand our portfolio appropriately into high growth, consumer demand segments. And we certainly do have a lot of balance sheet flexibility to be able to do the right M&A, if it becomes available. Steve Voskuil : That's right. And I would say more broadly, from a capital allocation standpoint, no major changes. We definitely want to be giving back cash and repurchasing shares as part of our strategy. That puts good tension on the internal investments and M&A to make sure we're getting the best return. And so that's an area we'll continue to monitor. We've got a lot of CapEx this year. And so that's one thing that we're taking into consideration as we look at the overall balance of capital allocation. Operator: Thank you. Our next question comes from line of Chris Growe with Stifel. Please proceed with your question. Chris Growe: Hi, good morning. Michele Buck : Good morning. Chris Growe: Hi. I just had a question. First, if I could a bit of a follow-on to an earlier question, but in particular in the salty snacks division, with the margin being so strong, and in the fourth quarter and reaching over 20%. Was there anything unique to the quarter? And then I certainly heard about investments you want to make both internally and advertising throughout 2023. I guess I just want to understand how you expect the margin to fare throughout the year as margins expand, but just not to the level of which it did here in the fourth quarter. Steve Voskuil : Yeah, we're really pleased where the fourth quarter finished. Probably two things drove that. One we did have easier laps in the fourth quarter. And then second, you know, we said earlier, we are seeing pricing, catching up a little bit more to some of the inflation that we saw over the course of the years. We've got a little bit of a benefit of that. As we look to a margin for that business going forward and into next year, we want to again, on the gross margin line, expect to see some continued advancement. We got a lot of plans to still optimize that business. And we've talked before about streamlining the back office, streamlining the supply chain, network, better integrating all of that with our existing Hershey systems, and so forth. And so in fact, we'll talk more about that when we get to our March Investor Conference, and spend some time on that. But have aspirations to continue to see that profile up over the course of the year. But as Michele said, we are going to reinvest some of that back between the lines to accelerate the top line to invest behind the brands. And then on the capability investments like ERP. But I'd say the key takeaway is we have still high margin aspirations for that business as we look forward over the next couple of years. Michele Buck : And most of those will occur over the longer term. We don't expect significant margin expansion or margin expansion in '23. Okay, that's helpful. Thank you. And then just a quick follow-up, if I could on to understand how inventory will fare for the year. You talked about depleting some inventory late in the years. You've converted -- or moved to the new ERP system. Should inventory grow to the year and then you deplete it? Or does it hold this level? Then it goes just goes lower as you kind of move that inventory out? Have you built it already, I guess is the question, or do you expect to build more? Steve Voskuil : Yeah, we haven't built it already. I mean, there will probably be some build, not that material. I mean there's a limit to how much salty inventory we can build. But as we said, when we get to the fourth quarter, we expect a pretty significant depletion. And that's really just to allow the cutover between systems. And so on a net-net basis that will look like a negative for the year for that business. We would expect to see that come back next year, probably with a strong start to the year. Chris Growe: Okay. Thanks so much for your time. Steve Voskuil : Sure. Operator: Thank you. Our next question comes from line of Nick Modi with RBC Capital Markets. Please proceed with your question. Nick Modi: Yeah, thank you. Good morning, everyone. Hi, Michele, hi, I was hoping you could just comment on fill rates, kind of where you guys are now versus kind of where you'd like to be. And I know things are below where they have been historically. Just curious, is that just a function of capacity? There's also a labor component to that. And then I had a bigger picture question. Michele Buck : Yeah, so I would say our fill rates are much better than where they were. There's been some significant improvement versus last year, as we've been able to invest in capital and get additional capacity on the ground. So and really, there's minimal impact from labor. It was really, largely very much tied to capacity. Now we did step up in labor to enable us to be able to obviously execute against the capacity, and the incremental lines. But we're seeing less network disruption than we've seen in the past, not all the way back to the perfect situation it was before the pandemic, but it certainly improved. Nick Modi: Right, thanks for that color. And then just the bigger picture question is, look these categories, especially on the chocolate and confectionery side, I think, clearly, we can see a renaissance. And maybe we can attribute some of that to COVID. But I'm just curious like, what does your research, internal research say about what's actually going on with the consumer and these categories? Because I think we can all agree the underlying trend rate has been much better than I think anyone would have expected a couple of years ago. Michele Buck : Well, certainly we know that snacking has been on the rise, has continued to be on the rise as a consumer behavior, pre-pandemic, and also post-pandemic. We know that there still is a bit more at home behavior versus folks cutting back on going to restaurants. And certainly that's a benefit across packaged goods snacking. We also know based on our insight that consumers are interested in snacking and particularly in confection and chocolate on two diametrically kind of opposed parts of their emotional state. One is when they are incredibly happy and it's a treat time, and they want to treat themselves and the other is when there are downtimes, and they want a bright spot. But they do view these categories and especially chocolate as a part of kind of emotional wellness, what it does and how it makes them feel. And then of course I think that the more that we interact with consumers and this really hasn't changed over time, consumers have emotional connectivity to our brands. Our brands are more about the products -- more than just about the products. They are about the moments of connection. Many of them are used in special times. And we get letters all the time with people talking about the special role that some products played in their life. They remember when they were with a friend, experiencing it or with their kids at a season. And I think that continues to be timeless, and perhaps has even dialed up a bit since the pandemic. Nick Modi: Great. Thanks for that caller. Operator: Thank you. Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question. Jason English : Hey, good morning, folks. Thanks for fitting me in. My apologies I didn't get a chance to go through all the prepared remarks. We have a lot going on this morning. Apologies if you have answered the question. I have two quick things. First, the capacity expansion. You give some quantification for the year? What's the cadence? When should we expect to see that capacity coming along? Michele Buck : Yeah, it's going to be coming online throughout the year. And again, this sort of fits into a broader discussion we've had on capacity expansion. I think we've talked in the past, if you look at the 2020 to 2024, period, we were looking for a 15% ish increase in capacity across the network. And so what we're going to see in 2023 is going to be a low single digit contribution towards that goal. And I would kind of think about it coming in ratably over the course of the year. Jason English : Okay, and the elevated CapEx, it sounds like it's a long slog. Should we expect this elevated level to continue into next year, for the year beyond as well? Michele Buck : Yeah, not at this level. But I would say at least for the next -- for 2024, we will have some amount of elevated capital. We will still be finishing off the ERP program, and still probably having some tail investments from a capacity standpoint. So those are the two things I would point to and, on the CapEx, as we talked about all the time, the majority of that CapEx is targeted on capacity expansion. If you click into that a large portion is driven by recent fantastic growth we've had there and recent capacity and network capacity has improved significantly. But we still have opportunities, some are recent, some in other brands to unlock more efficiency and capacity. And so that capacity expansion plus the ERP investments that will eventually drop out are the two kind of biggest components of the CapEx right now. Jason English : Understood. The last question for me. I've always considered your European venture to be a bit opportunistic. It's a small tactical export business. Yet, recently, you've kind of carved it out as a standalone business. Does this signal anything in terms of your strategic intent on expansion in Europe? Michele Buck : No, not at all. If that's in reference to any of the talent changes that we made, they were really in the course of just normal development and expansion for people to get new opportunities. Europe continues to be small. We continue to feel that we are making great strides and seeing a lot of growth there. But there is no strategic change in our approach to that market at all. Jason English : Understood. Thank you. Operator: Thank you. Our next question comes from line of Pamela Kaufman with Morgan Stanley. Please proceed with your question. Pamela Kaufman: Hi, good morning. Michele Buck : Good morning. Pamela Kaufman: Can you talk about your key innovations planned for '23? And how are you thinking about the drivers of top line growth between innovation versus existing brands, where you've been capacity constrained? Michele Buck : Sure. So innovation continues to be an important part across our portfolio. And we have several items that are launching this year that we think will generate a lot of consumer excitement and merchandising. And if we look at our core confection business, the highlights there would be Reese's Stuffed with Reese's Puffs. We have a limited edition, which is a Reese's Creamy, and then a Reese's crunchy product. So a line of limited editions that let consumers pick their favorite, which texture they like. And then we have an exciting new kisses flavor that is called Milkilicious [ph], which is a kiss filled with a milk chocolate filling. On our salty business, we launched as a limited time edition this year, a dot cinnamon sugar flavor. And so folks will see that in the market as it's been very successful. So those are probably the highlights of some of the biggest innovation. We continue with our strategy that we employed several years ago, that's really helped to accelerate our top line growth, which is while innovation is important and we will support innovation across the board, for news and excitement. We really don't want to stray away from a primary focus on our core. Our core are brands that are sustainable. They have been out there for a long time. Consumers love them. The velocities on them will always be stronger than innovation. So across our entire portfolio, driving our core is job one. And then using new innovation for news and excitement. Pamela Kaufman: Great, thank you. And just in terms of your organic growth outlook for '23, how are you thinking about the growth between North America confectionery and salty snacks? And maybe if you could just touch on some of the key growth drivers behind the salty snacks business for '23? Michele Buck : So I can talk about some of the growth drivers and then let me have Steve talk a little bit about the part of your question. So as we look at salty snacks, we will be, as Steve mentioned investing in marketing, so that we can continue to expand those brands and business and continue our growth in household penetration. So that is clearly an investment that will drive growth. We continue to have some level of distribution upside, especially on Dot's. We saw distribution upside as well as increased item counts in 2022. And we'll see some of that growth continue as we go through '23. Once we get beyond that, we think will then start to be going more to velocity increases and price pack architecture opportunities. So those are some of the biggest ones. Investments in SkinnyPop, in advertising as well will continue to unlock growth potential. So I think those are some of the biggest growth drivers across the salty business. Steve Voskuil : Yeah, just at a very high level, from a projection standpoint, we're expecting high single digits, top line price being the primary driver there. And as we talked about earlier seasons, underneath best seasons, and then media investment behind the brands are going to be big components of that. On the salty side, double digit growth, which is, what we should expect from that business, and more is price there as well, but also volume. And again, as we said, there are two we're investing behind the brand. We have some distribution opportunities, as Michele mentioned. On the international side, solid mid-single digit performance on the back of distribution, volume, some pricing as well, and some innovation. So at a high level, those are sort of the big targets. Pamela Kaufman: Thank you. Operator: Thank you. Our next question comes from line of Chris Carey with Wells Fargo Securities. Please proceed with your question. Christopher Carey : Hi, good morning. Thanks for the question. Michele Buck : Good morning. Christopher Carey : Steve, you gave good information on gross margin ranges for the year, a little bit on cadence with the Q1 and the impact of inflation. It's just striking to see high single digit commodities with labor, which is this dynamic of sticky inflation that we're seeing, across the staples landscape. But clearly you have good visibility into that outlook. I guess what I'm wondering is, this is going to be a probably a volatile environment for inflationary drivers, namely commodities over the next year. And I'm just trying to frame if there is a change in the commodity outlook. Is that something that changes your own outlook? Or are you so locked in on costs at this point, that it's we have good visibility on the year and we're fairly locked in. And that's really more of a consideration, from a year from now, something like that. I have a quick follow-up. Steve Voskuil : Sure. On the -- in general, we have pretty good visibility, I would say across cost and commodities. I'd say the hedging program gives us some of that visibility. The caveat is that if you look at the last two years, where we've been bitten, in some cases, those are the things that we don't hedge and have been volatile, things like packaging, and resins and specialty ingredients and so dairy. So those are ones that I think we keep an eye on and movements at some of those, material movements can move the needle on. We saw some of those material movements in the last few years. I think our expectation is some of that will settle down and with that settling down in our visibility into the rest of the talks. I agree with you it's still potential for volatility, but we feel we've sort of picked the guidance range to try to accommodate most of that volatility. Christopher Carey : Okay, that makes sense. One quick follow-up and perhaps something that's even better suited to, the Investor Day coming up. But this sounds confidence on long term margin improvement. And clearly we saw an inflection in the snacks business today with positive commentary on the medium term in that business. So when you think about that long term margin between the confection the sack size do you have any sense of what would be driving that between those segments? Or is it more of a holistic target for the organization over time? Thanks so much. Steve Voskuil : Yeah, that is a great one for the investor conference. And -- but I will say, our expectation is we want to see margin improvement across all parts of the business, all segments. And so we've seen a lot of improvement in international in recent years. But we have the same expectation that that's going to continue also. And that we're going to optimize and grow but grow in a sustainably profitable way there. Salty, probably expectations, given the capital that we've deployed in those acquisitions and the opportunity, we touched on things like private label and the impact that still has on the business as we look to the future. Opportunities to extract more margin out of that business. And in always on the confection side, we want to have a model that drives margin accretion. Christopher Carey : Okay, thanks for the answers. Operator: Thank you. Our next question comes from line of David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Thanks. A question on gross margin in this latest quarter, especially versus the third quarter. The reason I'm asking for color about what might have been your biggest unlocks that fourth quarter is because on a one and multi-year basis, it looks like pricing was rather similar to the third quarter. Yet your margin trend improved. And that fourth quarter was actually higher than it was in the in the fourth quarter of 2019. So any color about unlocks and gross margin would be helpful? Steve Voskuil : Yeah, I think the biggest drivers that we touched on, we did have some better productivity dropping through supply chain efficiencies that had ramped up and essentially, Michele said we're not all the way back in terms of that supply chain efficiency. But we'll get to see an uptick in the fourth quarter. And then the -- I'll say the volume growth on the elasticity side, helping dropping some fixed costs absorption through the P&L as well. Those are probably at the point, just a couple of things, those are the ones I point to. David Palmer: And just a big picture question, one I've been thinking about is in a during this COVID era, clearly, at home snacking did well. You guys have made your own thunder with s'mores and your Seasons. And you've seemed to have a pretty good visibility into what you're doing each year in seasons. And so it looks like you're going to -- you're poised to have a pretty good 2023. But I'm wondering just as you just think about the overall energy for at home snacking as an occasion, do you have a view about whether that can sustain in terms of its growth rate? I wonder about this not just for Hershey, but for other companies as well. Any comments there would be helpful? Thanks. Michele Buck : Sure. So let me start by saying as much as we have benefited on our take home business, with at home snacking, our instant consumable business has also been quite strong. So we've really seen growth across all what we say, all three segments of our business seasons, take home and instant consumable. We don't expect that we're going to lose volume on those segments going forward. So we don't see a reversal in the trend. But we would say that growth may moderate. We would expect it to moderate a little bit versus where it's been as consumers just shake out into their normal ongoing behavior. David Palmer: Thanks. Operator: Thank you. Our next question comes from line of Steve Powers with Deutsche Bank. Please proceed with your question. Steve Powers : Yes. Hi. Good morning. I wanted to go back to the two topics you talked about already. The A&P investments and the workforce investments just a little bit, drilling down into those. Just any -- on the A&P side any notable phasing of the incremental spending that you're planning and if so just the drivers, of that phasing, if you could. And then on the workforce side, Michele, you walk through a number of priorities, especially on the salty side, and I think there makes sense and they are frankly, intriguing. I guess, question is, where are you with those hires? Is that something that we should anticipate? You kind of have in the near term pipeline and in the investment show up early in the year and carry forward? Or is it something that builds and is more the spending progressively layers out as the year goes on? Just where you are in in making those hires that you talked about earlier? Thank you. Michele Buck : Yeah, so as we looked at the investments in marketing spending, you should think about the confection investments being fairly stable throughout the year. On salty, our investments will be more front loaded during the year because of the -- towards the end of the year is when we're doing the S'more conversion. So we're really going to you know drive the volume harder at the beginning and those investments harder at the beginning of the year. On SG&A spend, we will see that across the quarters, and especially beginning in Q1. Steve Powers : Okay. Okay. Thank you very much. Operator: Thank you. Our next question comes from line of Max Gumport with BNP Paribas. Please proceed with your question. Max Gumport : Hey, thanks for the question. Just one for me, and it's on gross margin. So you expect gross margins to be up 40 to 50 basis points year-over-year in 2023, given net price realization and higher levels of productivity, which are expected to offset inflation. But it sounds like 1Q '23 gross margins will be pressured due to lack of a timing benefit related to inventory valuation last year. I'm trying to get a sense if you could close frame the magnitude of that 1Q, '23 impact. Thanks. Steve Voskuil : Yeah, so you're exactly right. For quarter one that will be our most pressured gross margin quarter. In fact, I expect we will be still down year-over-year for the first quarter because of those laps. And I don't know if that I'll dimension -- get specific as the guidance for that. But you're exactly right. That'll be our most pressured gross margin quarter. Max Gumport : Right, I'll leave it there. Thanks very much. Steve Voskuil : Thank you. Operator: Thank you. Our next question comes from line John Baumgartner with Mizuho Securities. Please proceed with your question. John Baumgartner : Good morning. Thanks for the question. First off, Michele, in confection, you're bringing more capacity online, increasing brand spending as well. But how are you thinking about in store activation at this point? I think going back pre-COVID, there was an increased focus in the aisle with the king size and some different shelf sets. Then you move to the checkout lines, and then you would take in some shelf space for magazine [ph] and non-consumable. So as we think about 2023, and I guess even beyond at this point, where the levers you see as most impactful from here? Where do you can you still benefit from activation going forward? Michele Buck : So we are always looking to optimize across the entire mix of levers that we have to drive activation. Managing the shelf distribution, shelf space is always a priority. There were some areas as we were lighter on capacity, where we were unable to fill some of those distribution needs. So we see some of that ahead of us as an opportunity as we have improved service. We talked a little bit earlier about the marketing spending where we had pulled back again, because we were lighter on capacity, so reinstating, that. We know that there's a very strong return on that, reinvesting the front end. Retailers are always looking at how they optimize front end space. And so we partner with them. And we continue to see opportunity there. And as we look at our in store promotional spending, we do believe that getting visibility and display in store is important to our business. That said, our promotional spending is below COVID levels. And we've seen that we've continued to be able to drive the business, where those promotion levels are today. So that's not a key priority to reinstate back to the past. John Baumgartner : Okay, thanks for that. And then Steve, on the salty snacks margin. There was a lot of noise this year, you mentioned the catch up on pricing. You had the warehousing in Q4. You had some reduced promo and advertising spending. As we think about the sequential increase in margin from Q3 to Q4, is it possible to bucket those tailwinds across the different elements? Or maybe what do you think the underlying run rate is for segment margin exiting '22? Is mid-teens, high teens, just trying to think about the moving pieces versus the structural improvements there, just far. Thank you. Steve Voskuil : Yeah, it's a fair question. There have been a lot of movements across the quarters. I think, think about run rate in the mid teens. That's probably a good baseline to operate from let's say. There will still be movement across the quarters, probably, especially as we look to the back half of this year with that ERP transition that we talked about. As we get further into the year we will give more color to some of that variability. But if you think about mid-teens, that's probably a good starting spot. John Baumgartner : Okay, thank you very much. Operator: Thank you. Our next question comes from line of Jonathan Feeney with Consumer Edge. Please proceed with your question. Jonathan Feeney: Good morning. Thanks very much. So it's been about 15 points or so over the past two years of pricing. And I was wondering if you could characterize -- I know that's data driven. But I wonder if you characterize how much of that was driven by this narrative about rising costs and if costs continue to moderate or even decline, should we expect some -- is the expectation from the retailer that some of that pricing goes away if costs go down, or has this just all been a change in the conversation to let's work together to grow the category? Just curious about how much risk do you have, if cost in fact start to moderate or decline? Thank you. Steve Voskuil : Sure. Michele Buck : No, we always work together with retailers to try and maximize category growth. That is our fundamental premise, especially being leaders in all of the categories that we are in. If the category is growing, we feel really good that we will benefit from that growth. Historically, there hasn't really been a move in the category to execute price declines or price rollbacks. As prices kind of have gone up, they have tended to stick in the marketplace, as a matter of principle of how that category dynamics have worked. And what we really try and do is to leverage some of that favorability in price in our holistic model, to reinvest for growth, whether that's reinvesting in capabilities to get smarter about managing the shelf with the retailer, helping them to find new points of interruption, or whether that is incremental consumer investment. Jonathan Feeney: Makes sense? Thank you. Steve Voskuil : Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Poole for any final comments. Melissa A. Poole : Thank you so much for joining us this morning. We will be available for any follow-up questions you have. Have a great day. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings and welcome to The Hershey Company Third Quarter 2021 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn this call over to your host, Ms. Melissa A. Poole, Vice President, Investor Relations for The Hershey Company. Thank you. You may begin. Melissa A. Poole: Good morning, everyone. Thank you for joining us today for the Hershey Company's third quarter 2022 earnings Q&A Session. I hope everyone has had the chance to read our press release and listen to our pre-recorded 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 the transcript and audio replay of this call. Please note that during today's Q&A Session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance. 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that I will turn it over to the operator for the first question. Operator: Thank you. Our first question is coming from the line of Andrew Lazar with Barclays. Please proceed with your questions. Andrew Lazar: Great. Thanks so much. Good morning everybody. Michele Buck: Good morning, Andrew. Steve Voskuil: Good morning. Andrew Lazar: Good morning. Maybe first off you discussed in the prepared marks, say you expect a strong top and bottom line performance in 2023. I guess given where the markets are it seems like items like pension and interest expense will be sort of incremental headwinds obviously for the group as a whole next year. I was wondering if you would be able to help level set us a little bit on sort of where some of these items, at least that you do have visibility to might sit for next year. And I guess if they are material enough to kind of derail the earnings performance in the year. Michele Buck: Sure. Andrew, let me start with a little bit of an overview and then I will let Steve dive into a few more of the specifics. So, overall, we believe we can deliver an on algorithm year next year. We believe our sales will be slightly ahead of algorithm. Pricing will be about comparable to 2021. We anticipate that our gross margins will be stable. We will have a step up in investment as we reinvest, reinstate some of the DME spend. Now that we have more capacity available to really be able to be able to take advantage of that and also to invest in capabilities to secure profitable, sustainable future. And we think all of that will net down to strong earnings performance that will likely be at the high end of our algorithm. So that's a little bit of an overview, but Steve, I'll let you kind of go a little bit deeper. Steve Voskuil: Yes. Just on the discrete items, kind of to answer your question at a summary first, we don't see any derailers in terms of those discrete areas, we will have more pension expense. Our estimate today would probably be $5 million more year-over-year for next year. On the pension side this year we've picked up about $10 million of incremental pension expense. Next year I would, again, markets can change, but today I would probably estimate that is probably twice that number for next year. But neither of those are material enough to shift the needle. Michele Buck: Yes. Sorry, just to clarify that first $5 million moves to interest for the year. Steve Voskuil: Yes, sorry. Michele Buck: And then the pension probably about a $20 million. Steve Voskuil: Yes. Andrew Lazar: That's really helpful. Steve Voskuil: Yes. Andrew Lazar: Very helpful. And then just lastly, I mean, as you mentioned, you've got incremental pricing on top for 2023. And I appreciate you're planning for greater elasticity than you've seen thus far, which is prudent, but obviously you delivered strong volume this year in the face of high single digit pricing. You've got more capacity coming online. I think ANC is expected to grow faster than sales next year. Dot's entering, I think, the organic calculation to start the year and obviously strong underlying momentum. So I guess at a minimum, shouldn't these help at least mitigate the potential for building elasticities in 2023? I'm just trying to make sure I'm not missing anything else on either side of the ledger. Thanks so much. Steve Voskuil: Yes, I mean, I think, that's the right way to think about it. As Michele said at the top, I think, we've got a lot of positives in the story for next year as some of the things you mentioned rolled through. And I'm sure we'll have challenges, but we don't see anything yet that is a derailing sort of a factor. Andrew Lazar: Thank you very much. Michele Buck: Thanks. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your questions. Bryan Spillane: Hey, thanks operator. Good morning everyone. Hey Michele, in the prepared remarks you referenced consumer behavior and maybe seeing some changes in where people shop, I guess, channels and pack types. Could you just elaborate a little bit more on that and maybe how Hershey is adjusting to that? Michele Buck: Yes, absolutely. So we are seeing some of those changes in how they are spending. Fortunately, we are seeing them continue to spend, but there is some reprioritization. So specifically value channels and value packs are selling well. We are also seeing some improvements in private label performance and really we're seeing this across the board slightly more noticeable with lower income consumers, but really across all different income levels. Within our categories the trends have really remained very strong as the consumer continues to prioritize snacking and particularly sweet treats. And obviously we have minimal private label presence. So we continue to see that our products remain an affordable treat for families and for consumers. And we know that part of that is they want to reward themselves when times are tough. They also use these products to relieve stress. And we think that those trends will continue. I think on a class to trade basis just to augment relative to the channel piece we have seen particular strength in mass, in club, and in dollar. So certainly in channels that represent strong value. Bryan Spillane: Okay, thank you. Michele Buck: Sure. Steve Voskuil: Thank you. Operator: Our next question is in the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Steve Voskuil: Good morning. Michele Buck: Good morning. Michael Lavery: You've got strong momentum on Reese’s obviously up, I think, it was 16% in the quarter and certainly adding capacity is paying off even Payday which we don't hear too much about typically, is up very strongly behind some new capacity. Can you just maybe give us a little bit more specifics looking ahead in terms of how some of the capacity unfolds? I think you've given maybe like a five-year outlook, but in terms of say next year, would it be – is it about a fifth comes over the next five years? Do we have to wait longer? Is there a bigger bump near term? Just help us maybe think about some of the pacing because the capacity certainly is working when you can add it. Michele Buck: So, we certainly have, I would say, a continuous effort against broadening our capacity, certainly focused only on where we see those really strong returns. Next year, for example, we are planning for five new manufacturing lines to start up throughout the year and that includes three new Reese’s lines. So we do expect a pretty nice increase in capacity. However, some of the investment that we have in 2023 will also be for production that doesn't come online until 2024. So, not all of the incremental spend directly relates to 2023, but we do have continuous capacity coming online into the future years with a big focus on 2023 and 2024. Is that helpful? Michael Lavery: That's helpful, yes. It's a little bit more near term skewed it sounds like. And just on Dot's, if I could follow up there, very strong momentum, it looks like it came in about 40% ahead of what we had thought the run rate was when you bought that business. Can you just point to what some of the drivers are and how to think about the sustainability of that kind of momentum? Michele Buck: Yes, absolutely. So on Dot's, a big piece of our gains has been continuing to grow distribution. As we purchased the business, there was significant opportunity, particularly on the east coast and with certain customers we were somewhat underdeveloped with Walmart. So Walmart was a big gainer on distribution. Obviously that's a huge customer. At the same time, we're also focused on optimizing the consumer model and all of the spend to maximize impact and starting to drive incremental investment and brand building which is our model across our entire portfolio, which we think will give us further upside beyond the distribution going forward. The other thing I want to just clarify on the capacity piece is while we have significant effort in 2023 and 2024, there will be continued – if you look across our entire portfolio, continued capacity coming online into the future years beyond that as well. If you look at confections, snacks, et cetera, across the board. Michael Lavery: Really helpful color. Thank you. Operator: Thank you. Our next question is in the line of Robert Moskow with Credit Suisse. Please proceed you with your questions. Robert Moskow: Hi, thanks. Two very different questions. Are there any initial efforts being made to try to consolidate your snack brands together in either route to market or any other operating functions? My understanding is that they get to market in very different ways. And then also for Steve, just wanted to know if you can help us with seasonality in 2023. First half looks like a tough comparison but maybe that's just OpEx [ph]. Michele Buck: Yes. So relative to our snack brands, to date we have been running those businesses separately as we have had a dedicated focus on continuing to drive ahead the amplified business and also to really integrate the Dot's business as we just took it over in December. Going forward, we are now starting to take a much more holistic look across all of salty with the focus as we go into 2023 on really how we integrate those businesses together across the board to really capture and leverage scale and synergy across everything. Supply chain, marketing, go-to-market, et cetera. So that's really the phase that we are entering now, and I think we believe that's how we will also begin to unlock some of the gross margin expansion that we need to go after on that business. Steve? Steve Voskuil: Yes, very good. Nothing to add there. On the seasonality, I don't think there is a big story. We've got a big year to laugh, full stop first and second half, and so I don't think – we're not thinking about a big nuance right now, first half versus second half. I don’t know if that's helpful. Robert Moskow: It's simple. Thank you. I'll take it. Steve Voskuil: Thank you. Operator: The next question comes from the line of Ken Goldman with J.P. Morgan. Please proceed with your questions. Ken Goldman: Hi, just a very quick clarification. First Michele, I think, in response to Andrew's question, if I heard correctly, you said that pricing in 2023 will be similar to 2021. I assume you meant similar to 2022. Unless I heard you wrong. Michele Buck: Yes. Sorry about that. Ken Goldman: That's okay. I've lost time has lost all meeting to me post-COVID. Steve Voskuil: I understand. Ken Goldman: And then really just a quick summary of next year to make sure I heard you correctly there. So you're talking about sales growth being very strong. You don't have an EBIT algorithm, I think. But is it fair to assume, just to summarize that you're expecting very strong sales growth, maybe a little bit higher than EBIT growth, which in turn is a little bit higher than EPS growth, but EPS growth still closer to maybe that 8% organic range with, I guess a small haircut from FX? Am I kind of summarizing that correctly? Steve Voskuil: Yes, I think you're in the right zip code. Yes. Ken Goldman: Perfect. That's all I have. Thank you. Steve Voskuil: All right. Michele Buck: Thanks. Operator: The next question is from the line of Alexia Howard with Bernstein. Please just proceed with your question. Alexia Howard : Good morning everyone. Steve Voskuil: Good morning. Michele Buck: Good morning. Alexia Howard : Can I ask about the high-single digit increase in cost in 2023? I think generally we've been expecting that things might get a little bit easier. Obviously that is easier than what we've seen in 2022, but it's still a pretty big hurdle to get over. Specifically, where are the pain points? What's continuing to go up? How much of it is locked in? Do you have good visibility into that? And is it likely to moderate through the course of the year? So maybe hiring the first half versus the second half. Thank you. And I'll pass it on. Steve Voskuil: Sure. Yes, as you said, it's high. It's not as high as this year. And to that extent I like to be in a position when we give more guidance for next year to say we're sort of stabilizing gross margins overall. But nonetheless, still expecting high-single-digit inflation. And where is it coming from? On the commodity side, we still have some commodity pressure in some commodities where we don't have complete hedging coverage, packaging costs, logistics, still seeing inflation in people costs, some energy costs. I would also say technology is probably another one that's starting to be a bigger component. And so across that basket, we're still seeing high-single-digit inflation. I would hope by the time we get to the back half of next year, you're again, starting to see more moderation as we start to lap more of those inflationary costs, but still expecting a pretty significant list next year. Our visibility is pretty good. With our hedging and longer term contracts, I think, we do have pretty good perspective on that number today. Alexia Howard : Great. Thank you very much. I'll pass it on. Operator: Our next question is from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your questions. Pamela Kaufman: Good morning. Michele Buck: Good morning. Melissa A. Poole: Good morning. Pamela Kaufman: Can you discuss the shipment timing dynamics that impacted Q3 results? You pointed to earlier seasonal shipments and inventory replenishment benefiting top line in the quarter. So where are retailer inventory levels now and are there any additional timing shifts that we should be aware of over the coming quarters? And then just on the Q4 implied guidance, which points to deceleration to low-single digit growth, is that largely reflection of the inventory dynamics or are there other factors contributing to the outlook? Steve Voskuil: Sure. On the inventory timing for Q3 the two big factors that we talked about were one, some inventory build as we mentioned, we didn't expect as much inventory build as we saw in Q3. Again, what we did see wasn't as big as we saw earlier in the year but it was a factor of bottom point. And then we also saw some seasonal pull forward, and this continues a little bit of a trend of retailers pulling seasons in earlier and earlier and saw – we saw about a two-point benefit in the third quarter from that. As we look to the fourth quarter we also expect we'll see some seasonal pull forward with Valentine's and Easter, so that will have some impact potentially on Q4. But the – probably the biggest factor in the Q4 guided really just the assumptions around elasticity and again, being a little bit prudent as we think about what's happening with the consumer and not being quite as aggressive as maybe more recent elasticity we've seen. Pamela Kaufman: Great. And can you comment on current promotional levels? You indicated that they're back to more normalized levels. Can you address what types of promotions you're implementing and how you're balancing higher promotions with the capacity constraints? And then do you expect promotions to continue to step up next year? Michele Buck: Yes. So our promotions are pretty much in line with historical. When we do promotion in this category, it's always our first objective to get display because these can drive – this category can drive a lot of impulse. So a focus on feature and display, display where possible and as usual we always put a big focus on our core brands. So we may use news to create some excitement on a display, but we know that our core brands are the strongest mover and that's really where the bulk of the focus will be. So it's a bit where we are on promotion. If we think about next year we think we'll be at about the same level as we've been. There might be some shifts across the quarters, but pretty much in line. Pamela Kaufman: Great, thanks. I'll pass it on. Operator: The next question is from the line of Nick Modi with RBC. Please proceed with your questions. Nick Modi: Yes. Thank you. Good morning everyone. Michele Buck: Hi, Nick. Nick Modi: Hi, Michele. So I was just wondering in terms of growth drivers, we've been getting a lot of good feedback on the pantry pack especially on the online channel, so I was just hoping you could talk a little bit about that and what your insights are saying, and maybe how – where you can take that strategy going forward? And then the second thing would be just on alternate channels. I mean obviously FDM has been a very strong area for Hershey, but there seems to be a lot of pockets of opportunity and in other channels not measured. And I just wanted to get your thoughts on that strategy as you move forward? Michele Buck: Yes, absolutely. So as we approach innovation we've really evolved our strategy over time to continue to provide product news, but also really to look at packaging as a big unlock because packaging enables us to provide consumers with our core brands, which they love but in a different packaging format that tends to open up a new occasion and that can be very powerful and very sustainable and that's really what the pantry pack did. As consumers are spending more time at home it's almost the ability to have their own single-serve dispenser in their pantry or in their refrigerator if they so desire. So we're really pleased with how it's doing to date. We still have some distribution upside opportunity to further capture but it's done what we were hoping to and we'll continue to focus on packaging for new occasions. Relative to non measured and alternate channels, yes, this has always been a focus for us. I would say its capacity got tight, we pulled back a little bit, de-prioritized a little bit during COVID but we are really leaning back in now and the team is aggressively focused on really trying to get our products everywhere that they possibly can. Nick Modi: Thank you. I'll pass it on. Operator: Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question. Jason English: Hey folks, good morning. Thanks for slotting me in. Michele Buck: Good morning. Jason English: A couple of questions. And so first in prepare remarks; I think you noted that you're expecting growth trends on everyday products to moderate. Can you elaborate on what you're seeing and also comment on how this influences your view of I guess how much more capacity you have to push price on every day and whether or not you should be looking to layer on a bit more promotion to counter whatever trend you're seeing? Michele Buck: So we've been pretty happy with the strong trends that we have seen on retail takeaway. And certainly throughout the year we've been trying to balance the seasonal sell through with everyday business and really look at the two somewhat holistically. I think we've been held back a little bit as you mentioned through capacity. We're excited that next year we open up a bit more capacity, which then allows us to reinstate some of the spending that we had pulled back on, which we think will also provide some momentum for us going forward. Jason English: Okay. Switching gears; M&A, your track record of late has been pretty successful. Your balance sheet certainly suggests you have capacity for more. Do you have organizational bandwidth to do more anytime soon or is all eyes of detention focused on integrating dots and also it sounds like not just integrating dots, but addressing the whole structure of salty snacks as you look to combine those businesses and leverage those synergies you discussed? Michele Buck: I mean, certainly I would say job one for us is the integration and continued growth and acceleration of the entire salty portfolio. So we do really have scale there now and a lot of opportunity ahead of us. Great top line momentum and then opportunity to leverage that scale to improve the margin structure; so that's clearly job one. That said we are always looking and evaluating the marketplace and given the health of our balance sheet, we certainly would consider something that made sense for us that we believe we could execute well. Jason English: Understood. Michele Buck: Yes. Jason English: Understood. Thank you. I'll pass it on. Operator: The next question comes from the line of Chris Growe with Stifel. Please proceed with your questions. Chris Growe: Hi, good morning. Michele Buck: Good morning. Steve Voskuil: Good morning. Chris Growe: Hi. I just wanted to ask a little more of a near-term question around the fourth quarter. You had – it sounds like you have some further pull forward of next year's season or 2023 seasons? And then I also think you have an easy shipping comparison with the previous year we had less shipping days in the fourth quarter of 2021. I just wanted to get a sense what that means for a volume in the fourth quarter with little extra seasons and then a little extra benefit from the shipping day factor? Steve Voskuil: Yes. On the season side, it's not a net benefit because we've pulled some of the Q4 into Q3 season, so we got a little bit of a deficit that will be potentially partly made up by pull forward at 2023 seasons, that's probably the biggest piece; in terms of calendar-days it really not a big factor for shipping days. Chris Growe: You had two less shipping days on the fourth quarter of 2021. Does that not compare beneficially to this year no? Steve Voskuil: Not. Michele Buck: I think the calendar only shift by maybe one-day this year, so it shouldn't have a material impact. Chris Growe: Okay. Got it. And I did – a quick question around the gross margin as I look at the gross margin decline year-over-year and look at the margins by division, I'm just curious is there more of a gross margin kind of lag or shortfall basically a pricing versus cost inflation shortfall in salty snacks versus confectionary. I'm just trying to get a sense of the pricing coming through in confectionary, should that benefit the margin and would that therefore benefit the overall gross margin more so? Or is it salty snacks that needs more pricing here to offset the inflation? Steve Voskuil: Yes. So there's a lot in there. I think obviously pricing on confectionary is great in the plan. We'll see – we'll see the full effect of that in the fourth quarter and it'll be a big factor in the 2023 outlook. On salty we have taken price, it probably hasn't come to the market quite as fast and as Michelle said, as we look at strengthening that business and the gross margins and at the same time continuing the rapid growth on the top line pricing is a lever like it is for all our businesses that we'll continue to look at. And what I'm pleased with is we look at the progression of the salty margins even this year. We started out the first quarter order of magnitude, I think 1,200 basis points down year-over-year, that's improved sequentially and we'd expect that to approve again in the fourth quarter. So as we get to the – as we get to next year continuing to drive margin improvement in that business through all levers available is going to be a high priority. Chris Growe: Thank you. Operator: The next question is from the line of Cody Ross with UBS. Please proceed with your question. Cody Ross: Good morning. Thank you for taking our questions. Based on the prepared remarks, it sounds like your underlying volume excluding the seasonal shipments and retailer inventory replenishment was down. Is that correct? And how did that compare to your expectations? Steve Voskuil: Q3 is roughly flat overall and I would say it was in line with expectations. Like I said, we probably put a little more inventory than we expected, but where we landed on base volume was more or less in line with what we expected. Cody Ross: Thank you for that. And then I think you mentioned your chocolate market share was up versus pre pandemic. Can I assume that's dollar share? Can you just comment on how that compares from a volume share perspective? Thank you. Michele Buck: Yes. That was dollar share and it is similar from a volume share perspective. Cody Ross: Okay, great. I'll pass it on. Thank you. Operator: The next question is from the line of Jonathan Feeney with Consumer Edge. Please proceed with your question. Jonathan Feeney: Good morning. Thank you. Michele, you mentioned in your prepared remarks about a lot of food industry leaders have mentioned while reporting pretty good numbers in the past couple of weeks. A sense of, I think it was concern about or concern about the stress that inflation was bringing to consumers. And I think that's certainly true and it's certainly an impact on retailers, but if I just dived into the data you have like where are you seeing that, if anywhere? Is trade down behavior happening? And how, if you think about I don't know prior periods where there's nothing quite like this period, but say consumer distress accompanied by rising inflation. I think we had something like that dynamic in 2010. How did consumers behave and as you look forward how is this go around with the consumer reacting to a tougher environment driven by crowding out factor some other costs; how does this compare? Michele Buck: Yes. So we remain very focused on the consumer and certainly we are aware of the pressures that are on them. What I would say is overall it has not impacted our total performance and overall product performance to a large degree. Yes, there are some shifts in terms of seeing more consumers buying value packs, purchasing in value channels, and then certainly in other categories where private label has really dialed up. But I would say overall we need to continue to be always focused on the consumer and when they could hit a breaking point, but to date as we look at our elasticity we really aren't seeing signs of that impacting our business. That said, we're going to be very focused on it going forward because we don't want to – we don't want to miss a trend. I would say historically our category has tended to fare pretty well during these times because it is an affordable indulgence when consumers can't afford a lot of other things. Jonathan Feeney: Very clear. Thank you. Operator: Our next question is from the line of David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Thanks. Good morning. You mentioned in the prepared remarks that capacity was added for Reese's and Gummies in 3Q. How much of a capacity increase was that? And were you in any way constrained on these platforms before this or is this just simply anticipatory of ongoing growth? Michele Buck: Yes. We're not going to get into a lot of the specifics around specific brand capacity just for overall competitive reasons. But yes, we were constrained on both and this capacity did allow us to unlock whether it was broader distribution, reinstating of promotions, upping our marketing spend selectively et cetera. David Palmer: Yes. Understood on that. I wanted to ask on convenience channels and single-serve packaging, I've heard certain retail measures of food service like convenience store, food service have gotten stronger lately. I wonder where is your volume in convenience and single-serve packaging? If you look at checkout counters too; how does that compare versus pre-COVID? Are you all the way back is – is that ramping more quickly than some of your other packaging? Michele Buck: I would say that overall for convenience stores in total not specific to our business, some of the trends have moderated particularly with regard to unit purchase, though I'd say snacking and confection products continued outpace the overall store and they are growing double digits. So certainly we had seen a pretty significant decline when consumers were not mobile and now that consumers are much more mobile than they were previously, we've seen that business really come back. David Palmer: Is that going to be a meaningful help to profitability mix or is it not a big deal? Michele Buck: No, not really. I mean, overall we sell single-serve in other units or in other channels as well. So no. David Palmer: Thank you. Operator: Thank you. At this time I'll turn the call back to Melissa Poole for closing remarks. Melissa A. Poole: Thank you for joining us this morning. We look forward to catching up with you throughout that day to answer any other questions you may have. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to The Hershey Company Second Quarter 2022 Question-and-answer session. At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company's second quarter 2022 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 pre-reported remarks. At the conclusion of today's live Q&A session, we will also locate 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions] Thank you. Our first question is from Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Great. Thanks so much. Good morning everybody. Michele Buck: Good morning. Andrew Lazar: As you discussed in the prepared remarks, inventory refill has certainly been nicely additive to volume growth through the first half of the year. Where do you think retailers are at this stage? And how much more of a benefit, I guess, can this be in the second half from the prepared remarks, if I'm reading it right, it seems to suggest maybe the bulk of that inventory refill is behind you at this point and maybe no longer enough to necessarily offset what volume elasticity you are seeing? So just some clarity there would be helpful. Steve Voskuil: Yeah, that's exactly right, Andrew. We saw a pretty strong inventory replenishment in the second quarter as we commented. A portion of that was a pull-forward from the second half, so really a timing move. So as we look at the back half, we're really not seeing any additional meaningful inventory replenishment in the second half guidance. Andrew Lazar: Right. And then sort of following on that, I guess, as you and others slowly start to get back to a better inventory position and some of the supply constraints slowly ease. I guess, not surprisingly, we're starting to hear from, I think from Hershey and others that they'll be in a better position, maybe for the first time in a while, right, to begin to kind of ramp back up merchandising activity to drive volume and traffic. And I can understand why in this environment, some might simply see that as retailer concessions, given all the pricing that's come through in the industry and with commodities starting to roll over. I assume you see this as more getting back to maybe a more normal cadence of spending and really looking just to drive volumes and traffic and protect elasticity’s that I still think can be, in many cases, incremental to the business, but I was hoping, Michelle, you could kind of comment a little bit on that, if you could. Thank you so much. Michele Buck: Yeah, absolutely. As we have always talked about our investment model or our model and running the businesses, we strongly believe in investing to drive the top line and with our strong margins that enables us on the bottom line. So we always want to be spending to the consumer advertising our brands, having the right levels of promotion, the right levels of innovation. And as we mentioned earlier, given some of those supply constraints, we did have to pull off on that a bit just because it didn't make sense to make those investments given some of those constraints. But we very much look forward to re-upping the investments as we look at the second half. We have always planned an increase both in DMEs as well as incremental merchandising coming back online. Andrew Lazar: Thank you. Operator: Thank you. Our next Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Michele Buck: Hi, Alexia. Steve Voskuil: Good morning. Alexia Howard: Hi there. So can I ask about the -- you talked about the general supply chain disruption that you're still experiencing. Can you talk about exactly where the pain points are? And I'm thinking across raw materials, packaging, labor, where are the things that you're really wrestling with at the moment? And are you seeing light at the end of the tunnel at this point? It sounds as though things are getting a little easier. And then I have a follow-up. Michele Buck: I mean I'd say, generally, we continue to see struggles across the supply chain. How I'd characterize it is what those are have evolved. So where we are now, I would say, early on, it was some of the basic logistics issues largely driven by labor. And as we've evolved, I'd say, we're now starting to see bigger concerns relative to scarcity of ingredients, needing to leverage different suppliers at higher costs and price points in order to secure production and then also the geopolitical environment has put certain strains on the business. Certainly, the Ukraine-Russia issue created some scarcity and issue with ingredients. And more recently, there have been additional restrictions from Russia on the EU relative to natural gas. Germany will be impacted. That's an area where we source a lot of equipment, supplies, as do many of our suppliers. So I would say that that's kind of evolved. Steve, would you add anything to that? Steve Voskuil: The only thing I would add is that we're also starting to see more cost flow through from third parties, so co-packers, co-manufacturers, and those -- a lot of those are under contract, and so it happens as those contracts renew but they're facing the same cost pressures and disruptions that we're facing. And so we're starting to see more of that impact the P&L as well. Michele Buck: I guess I'd also just add, we have made significant progress in investments in capacity, significant investments. And so part of our short-term pain was once you make those investments, it takes some time to get them up and running to get to the lines actually in place. And so part of some of the relief we're seeing is the gradual coming online of those capabilities as well, which is helpful. Alexia Howard: That's super helpful. Thank you so much for all the color there. And just as a follow-up, how big is India these days. You called it out in the prepared remarks, I haven't seen much news on India for a while. And I'm just wondering, how do you avoid the same problems coming up that you had in China several years ago? I know you've moved -- backed off from China and doing it more arms length these days, why is India a different market? Why can that work over the longer term? Thank you and I’ll pass it on. Michele Buck: India is still relatively very small for us, growing high double digits. But back when we really made our decisions on China and India, for me, the key difference in India is the cost of doing business in that market is very different. So media costs, labor costs. And so in both markets, we thought we had the potential to drive top line. But as we really did assessment and looked at the NPV of our investment, India is a market that we feel good about our prospects of getting to profitable growth. Frankly, we're already in a place that we like relative to where gross margins are on that business, very different than where we ever were in China. Alexia Howard: Great. Thank you very much. I'll pass it on. I appreciate the color. Thank you. Operator: Thank you. Our next question is from Robert Moskow with Credit Suisse. Please proceed with your question. Robert Moskow: Hi, Michele. Hi, Steve. Michele Buck: Hi. Steve Voskuil: Good morning. Robert Moskow: Good morning. I thought the comments about 2023 were pretty encouraging, albeit at a pretty early stage. You said that you expect your pricing actions to be partially offset by high single-digit inflation and then you also have productivity. So is that -- do you expect the pricing lap to offset inflation, cost inflation in 2023 because you've had lags in 2022. So I guess that's a positive. And then maybe you could talk about the advertising increase that you're thinking you need to do. How much of that is just restoring what's lagged so far? And how do you think about how much investment is needed? Steve Voskuil: Sure. Yeah. I mean, for 2023, we're still talking at a pretty high level. We'll get a lot more fine-tuned as we get through the third quarter and get more picture for next year. But we are seeing high single-digit price is the expectation to come through. Volume wise, we'll watch and see how consumers be able to know more about elasticity’s as we come out of this year. And as you said, overall inflation, we're still seeing high single digits. When you peel into that, we'll have some -- I expect some commodity impact still as we'll be rolling off to more favorable hedges into hedges that were struck at prices that look more like recent times. We still see logistics and third-party cost impacts in there. And I think it's too soon yet to say whether the price is going to fully offset all of those inflationary impacts, we'll know more again as we get through the third quarter towards the end of the year. But we do want to increase advertising and we called that out in the remarks. We see that growing faster than the rate of sales. And as you said, it's really, as Michele said minutes ago, making sure that we continue to reinvest in brands, reinvest in consumers and have a healthy level of investment once we have supportability. Robert Moskow: Okay. Did you say that, Steve, that you expect your pricing to be up high single digit next year because of the flow-through? Steve Voskuil: That's correct. Robert Moskow: Okay, all right. Thank you. Michele Buck: You bet. Operator: Thank you. Our next question is from Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi, thank you. One quick one and then a longer one on Halloween. I just wanted to get a sense, if possible, for the North America salty snacks business, the margin going forward. We've seen some volatility there. Just wanted to kind of get a sense for how to model that in the next couple of quarters, given some of the cloudiness we have in our model or at least our model on that one? Steve Voskuil: Sure. I'd be happy to take that one. So as you saw in Q2 looks a lot like Q1. We continue to see higher raw material costs and logistics costs that for these two quarters are more than offsetting the price that we've taken so far. That said, we've announced more price increase in the second quarter. So as we roll forward through the next two quarters, we do expect to see some stability and relief there. We're also going to begin to lap in the back half some of the higher logistics costs that we've been talking about. And so that will provide a little bit of relief there as well. And then longer term, as we talked about on last quarter's call, we continue to advance the structural changes that we need to do for that division. So things like setting up or formalizing the supply chain, some of the back-office efficiencies that we need to put in place. And longer term, that will drive more structural improvement. But right now, it's kind of fighting the balance between pricing and inflation and commodities costs. Ken Goldman: Thank you for that. And then I wanted to ask about Halloween. It's early to be precise, but you guided to high single-digit sales growth. And you said that part of the reason is you're still capacity constrained, I was a little curious why the guidance wasn't higher. Maybe it's just -- there was a very difficult comp or you're facing a difficult comp from last year. Maybe it's just a little bit of conservatism because it's still early. But I would have expected maybe capacity to be less of an issue just given how important the holiday is. And maybe you could be rather in an all hands-on deck mode right and producing as much seasonal candy as possible. But maybe that's just an overly simplistic view of your supply chain. But I was just curious why that guidance wasn't a little bit higher? Michele Buck: So Ken, as we look at the business, we had a strategy of prioritizing every day on-shelf availability. It was a tough decision to balance that with the seasons, but we thought that was really important. And so that was a choice that we needed to make. We had opportunity to deliver more Halloween, but we weren't able to supply that. And we were really producing. We began producing Halloween back in the spring. And that's really when we needed to make these key decisions on what we were going to produce, so tough trade out to make. We feel really good about having high single-digit growth, but we also feel good about as we get into the future being able to have more capacity to really fulfill more of the demand that we see during the season. Steve Voskuil: It's definitely all hands on deck. You make mistake. Ken Goldman: Understood. Thank you so much. Operator: Thank you. Our next question is from Jason English with Goldman Sachs. Please proceed with your question. Jason English: Hi, good morning folks. Thanks for letting me in. Michele Buck: Hi, Jason. Jason English: I guess I want to start on capacity because there's a little bit of conflicting messages here. I think on one side, you've got enough capacity to be refilling retailer inventory levels. But on the other side, you don't have enough capacity to meet demand for some products. Can you help me put those two conflicting things and also give me a little bit better understanding of where the bottlenecks are, and what the pathway and time line is to relieve those bottlenecks? Michele Buck: Yeah. So capacity is constrained, but obviously in certain parts of the portfolio, more than others. So there are certain places we have no constraints and there are other places that we are more constrained. We've shared previously that Reese's is one of the areas where we have seen high double-digit growth for extended periods of time. It's our very largest brand. So that's certainly been a pressure point. And then there are a few other places that have been pressure points and where we've needed to make trade-offs in order to prioritize some parts of the portfolio. So we continue to work through a capacity investment plan to address where the soft areas are and bring capacity online. So that might be part of the mixed messaging is there are certain places we're not constrained others that we are. Refreshment specifically Icebreakers Mint is one area where we had some production difficulties as we ramped production back up after the COVID softness. And so that's one place as well that we're continuing to work to get more supply available. Does that help? Jason English: It does. It doesn't shed a lot of light on when you think the issues will be behind you, but it certainly helps in understanding where the issues are. Michele Buck: So as we get through the issues, I would say we're making -- I would characterize it as gradual improvement. Certainly, we are, I would say, quite constrained this year. We see that gradually improving as we get through 2023. And as we get to 2024, we feel much better about our ability to be able to fully meet demand. So that's how I would characterize it. Steve, anything… Steve Voskuil: Yeah, just the color around in the last three years, we've invested on the order of $800 million on capacity mostly in the core. And so we've got 13 new lines in place coming online. We've refurbished 11 and so as Michele said, over the next year or two, we're going to start to see more significant capacity available. Michele Buck: If it helps. The investments that we made will result in about a 15% increase in our internal volume production capability. That should allow us to catch up but also to deliver some of that future growth. Jason English: For sure. That's helpful. And I want to come back to Rob Moskow's question real quick. It was -- I was surprised that you were offering color on 2023 this early? It's uncharacteristic of you. And it begs the question of why? I guess Rob showed one interpretation of, hey, like you have inflation, but your price above it. Don't worry gross margins are weak now, but they'll come back to growth next year. I guess, it's one way to interpret it. The other is your emphasis on we're going to lean into spending next year, so don't get out over your tips in terms of how much margin flow through is going to drop to the bottom line. Which were those two interpretations do you think we should be leaning towards? Steve Voskuil: I would just say it's still pretty early. We're trying to just give some broad movements on the top line and inflation. That's really the part that we could share. I say we're learning more every month and quarter that goes by, we'll have a lot more to share as we get to the end of the year. So really not trying to get ahead of our skis just extending some of the color we see right now. Michele Buck: And Jason, if I would just add a little bit was just related to some of the pricing that's in the marketplace and expecting to come, trying to put that in perspective around how much 2023 factored into that choice and just trying to make sure that everybody was understanding some of the inflation that we see coming in 2023 to help put some of that pricing in perspective as well. Jason English: For sure, for sure. Thank you. Operator: Thank you. Our next question is from Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Thanks, operator. Good morning, everyone. Michele Buck: Good morning. Steve Voskuil: Hi, Bryan. Bryan Spillane: Just wanted to follow-up on, I guess, the -- just the commentary around inflation. And I guess two things, Steve. One, you mentioned -- it's been mentioned in the call that there's some of the pressure is like scarcity of ingredients, and it's more than just like market-based type things, right? So I guess what I was trying to understand is just how much of the increase in COGS that you're experiencing now as maybe a more permanent shift? And how much of it is still a function of just the current environment, and maybe there will be some relief like disinflation at some point in time? So just trying to understand how much do you think is really just, hey, look, this is now our kind of permanently rebased higher costs, or is there -- or do you think some of this could be more variable and you get some disinflation in the future? Steve Voskuil: Yeah. So it's a really good question, and it's hard to answer that one with precision as you look at all the moving pieces there are clearly some that we would see as temporary. The scarcity issues, hopefully, some of the commodities pressures that are being influenced by the events in Eastern Europe, things like that. On the other side, we've seen more labor inflation and other things that could prove to be more structural. And so again, as we get to the end of the year, and we get some guidance for next year, I'll probably give some more color on that. But it is a mix. Some are temporary and some at least have the potential to be longer lasting. That said, we also focus on productivity and continuous improvement every year and extend the goal of that program is to be able to more than offset over time some of those structural costs. And so that also has to continue to advance. Bryan Spillane: Right, right, right. Okay. All right. That's all I had. Thank you. Michele Buck: Thanks. Steve Voskuil: Thank you. Operator: Thank you. Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Michele Buck: Good morning. Steve Voskuil: Morning. Michael Lavery: I just wanted to come back to Dot's, which obviously is up very strongly. I would love to understand a little bit more some of the dynamics there. How much is distribution driven? And maybe more importantly, how much distribution upside runway do you still have left? Michele Buck: Sure. So we are absolutely very pleased with Dot's performance in the marketplace and the momentum that we see. I think what we're really happy about is we continue to gain distribution, but we are maintaining our velocities as we continue to broaden reach. And that can be a challenge to do as you continue to broaden reach into sometimes some of the smaller accounts. So all the trends are in line with our expectations. Retail sales growing about 50% over the past 12 weeks, share up about 370 basis points. We are right now lapping some large distribution increases from prior year. So we do expect to see a little bit of softening in trend as we overlap that, but we do have continued distribution upside as we took over the business, the distribution was really concentrated primarily in the center of the country and the West. And we're really still filling out the East and importantly, just making sure that we have the right placement in stores and then, of course, beginning to actually market and drive consumer messaging to the brand, which we help think will further drive upside in velocities. Michael Lavery: Okay. That's helpful. Thank you. And just a quick follow-up on the pricing, I know you've said you've got at least most if maybe not all of it that's announced. Is there any of that's sort of TBD or to be negotiated, or is it all locked and loaded and just a question of on the cloud ready to go out the door? Michele Buck: Our recent announced pricing action is being executed. It is going as planned, and we're starting to see some of the new retails in the market already. We feel good that we really took a consumer focused approach for the right retail price points, and we're also beginning to reset some of the promotional points. So overall, the prices are moving in line with our recommendations and our expected ranges. And we are pleased about that as we want to really move ahead with further investments in the business and capacity and consumer spending, new capabilities and the right programming and all of this will allow us to do that to drive profitable category growth. Michael Lavery: Okay, great. Thanks so much. Operator: Thank you. Our next question is from Chris Growe with Stifel. Please proceed with your question. Chris Growe: Thank you. Good morning. Michele Buck: Good morning. Chris Growe: Good morning. I just had a question first on your -- the recent price increases you put into place in particular, across confectionery. I guess, to understand, I guess you see very little of that coming through this year. It would seem like some would come through but very little. And then just to what degree that's caused you to build in a higher degree of elasticity into your second half assumption? I just want to get a better feel for that. Steve Voskuil: Sure. Yeah. I mean it's right. Most of it will impact next year. We will get a benefit in the fourth quarter. But even a portion of that benefit, we're reinvesting in – with the trade and to drive merchandising and so forth. But most of it will impact next year. In terms of elasticity assumptions, we do have in the back half in elasticity that is a little bit better than what we've seen historically, but a little bit worse than what we saw in the first half. It actually looks a lot like the second quarter, if you adjusted for the volume replenishment, that level of elasticity is the assumption for the back half. And then, of course, the range on guidance kind of goes up and down from there. Chris Growe: Okay. And then one related question to that would be, do you expect pricing to sequentially accelerate in the second quarter – I'm sorry, in the third quarter from the second quarter or maybe more Q4 with the confectionery pricing coming through? And then do you believe you can grow volume in the second half of the year? You've had some really strong volume trends to date. Steve Voskuil: Yeah. So we don't see sequential improvement in the third quarter. We do in the fourth quarter, and that's when we'll see the beginning effects of the price increase. And we don't expect to see volume growth. Again, with that elasticity impact defined with the pull forward of the inventory replenishment from the second half into the second quarter. Chris Growe: Got it. That's all I have. Thanks so much. Steve Voskuil: Thank you. Operator: Thank you. Our next question is from Cody Ross with UBS. Please proceed with your question. Simon Negin: Good morning. This is Simon Negin filling in for Cody Ross. Could you give some additional detail into the delays in capacity coming online next year? Is this only impacting lease? And how much of an impact is expected? Steve Voskuil: The – so most of the capacity that will be coming online is focused on the core Reese's one significant component of that. I don't think we're going to be specific about exactly how much is coming on when, but that is the focus of the capacity. Simon Negin: Got you. And just one smaller question. Obviously, dots is demonstrating incredible growth largely distribution gains. Moving forward, do you expect a change in consumer's trialing new brands and products when budgets are squeezed more in this environment, perhaps sticking to what they're comfortable with? Michele Buck: It's a good question. I think across snacking, what we tend to see is consumers very much like their brands. So if you look across total food, as budgets are tighter, certainly, private label brands have grown share versus with across snacking, private label has not and consumers tend to like their brands. So I think that consumers will continue to try new brands, given that they have a real focus on brands within snacking. So we will closely monitor that. But at this point, we haven't seen any concerns around the slowdown in trial as a result of that. Simon Negin: Great. Thanks so much. Operator: Thank you. Our next question is from Jonathan Feeney with Consumer Edge. Please proceed with your question. Jonathan Feeney: Good morning. Thanks for taking the question. And great quarter. As far as pricing over the next 6 to 12 months, assuming we have, if we did have a moderating cost environment, how you lived through a lot of ups and downs in cost in this business. How do the – if there's been so much conversation, so much acceleration in pricing, much of that headline cost driven. How does it work – if – what changes about the conversation if costs move sharply in the other direction? Like they did in grains, for example, at least so far, off their peak? If costs moderate, how do you handle that? Do people – does it typically play out that it's increased promotion? Do you see decreased list prices, or do you see no impact in just a significant increase in gross margin? Thanks. Michele Buck: Yeah. I mean our focus is always on driving profitable category growth and looking at how we can invest to do so. We have a deep list of investment priorities and growth driving opportunities and so we believe that this enables us to really invest to unlock whether that is in capacity, whether that is in the right consumer marketing support, whether that is in more impactful promotions, investments in innovation, technology, et cetera. So, we like to invest back in the business. And I would say that's the overall approach and strategy that we take. Jonathan Feeney: Okay. Thank you. Steve Voskuil: Thank you. Operator: Thank you. There are no further questions at this time. I would like to pass the floor back over to Michele Buck for any closing comments. Michele Buck: Thank you very much for your time today. We appreciate all the questions, and I know that many of you will have follow-ups with Melissa throughout the day. So thanks. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to The Hershey Company First Quarter 2022 Question-and-Answer Session Conference. At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded. [Operator Instructions] I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. Please go ahead. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company’s first quarter 2022 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management presentation, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded 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 risk 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 will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] The first question is coming from Andrew Lazar of Barclays. Please go ahead. Andrew, your line is live. Please make sure you're not muted on your end. Andrew Lazar: Good morning, everybody. Can you hear me? Operator: Yes, we can hear you. Melissa Poole: Yes, yes, we can. Andrew Lazar: Great. Thank you. I guess, first off by our estimate, it seems like you're raising full year organic sales by essentially the over delivery in the first quarter, meeting expectations for the remainder of the year haven't changed. Is that the way you're looking at it? And if so, I guess, why is that given the momentum in the business? And I realize you'll start to lapse some of the pricing as the year unfolds. Michele Buck: Hey Andrew, good morning. I'm going to kick it off with a few responses and ask Steve to jump in as well. So first of all, I'd say we are really pleased with our first quarter results and the momentum that we see on the business. But it is pretty early in the year still. And as we all know, we continue to see significant volatility in the marketplace, whether it's record inflation, the Ukraine-Russia situation, continued disruption in the supply chain. As we dissect the business in the first quarter, clearly within the first quarter, the large majority of our sales were related to stronger elasticities that have been realized in the marketplace. But we do anticipate as we look further out in the year that we'll see some moderation on those elasticities, perhaps back to more historic levels. And a lot of that is driven by that reduction in government subsidies and the continued inflation pressure that we think consumers will experience. There was another component of our Q1 sales beat that was about a raise, that was about Dot's and our ability to really get our arms around the Dot's business and better understand what we thought it could deliver for the year. We have pretty good visibility into that. So we feel like the number there is pretty good. And then lastly, as we look at inventory, we've been really working hard to build inventory and we did get more inventory out to retail. We made a decision to do that in Q1 to really try and increase on-shelf availability. So from a sales perspective, as we look at what we realized versus how we think that will impact back half of the year, we think the strength in Q1 from sales is much stronger, but Steve, do you want to comment more about that and also relative to the constant profit situation. Steve Voskuil: Yes, on the top line, I think you hit all the key points. The inventory piece was about a three point benefit to the first quarter. That'll come out in the back half. So that's one of the unique things, I guess, that drove the first quarter performance. And then Michele touched on the elasticities, we saw big benefit in the first quarter. We do expect to see elasticities normalize a bit as we go forward quarter-by-quarter through the year so those are probably the two biggest things that's soften a little bit of the outlook on the top line. Andrew Lazar: Great. And then I guess, the second one would be sort of a similar thought process, but more on the EPS side, obviously the first quarter came in some $0.40 higher than the Street and raising the full year by $0.07. Maybe can you bridge that gap for us a little bit? Are you trying to be just somewhat conservative in your thought process given obviously an increasingly dynamic environment, which makes total sense or are there some other things that are more discreet that we want to make sure to keep in mind on the profit side? Thank you. Steve Voskuil: Sure. Yes. The biggest driver for first quarter earnings was that volume – 4.5 points volume in the quarter that dropped through to earnings. So that was the biggest factor. And there were some unique pieces as well. I think we called out a couple in the remarks. One was inventory reevaluation, which is sort of an unusual thing. We see it in times of higher inflation which has the impact of giving a benefit to the P&L and putting more cost on the balance sheet to reflect the cost of goods value there. So that was 100 basis points to the confection segment in this quarter that won't repeat going forward. And as you said, we do expect more year to go inflation. In the first quarter saw a little bit of that incremental inflation, but as we look forward, despite the hedging that we have in place, we're still going to have some incremental exposure, particularly to the commodities impacted by the events in Eastern Ukraine – or Eastern Europe, sorry. Andrew Lazar: Thank you so much. Michele Buck: Thanks Andrew. Operator: Thank you. The next question is coming from Robert Moskow of Credit Suisse. Please go ahead. Robert Moskow: Hi, thanks for the question. There's a lot of detail in the prepared remarks about competitive activity that caused you to lose some market share during the Easter and your capacity constraints that led to that. As we head into Halloween, are you in a position to ramp up sufficiently so that you can hold your share? And the reason I ask is I remember during the pandemic, Halloween was a real tipping point for your distribution with retailers. You gained a lot of Goodwill after that. You gained a lot of distribution, are you in a position so that that there's no risk of that reversing? Michele Buck: Yes. So Rob clearly over the past two years, we have had some nice gains in share and certainly those have contracted recently given some of the capacity pressure. I think we're up about 50 basis points versus where we were pre-pandemic and our share versus our next largest competitor that gap has clearly widened and remains pretty strong about 200 basis points ahead of pre-pandemic levels. We are doing everything we can relative to building capacity, investing in new lines, distribution centers, hiring more people to build our supply as much as possible and working really closely with retailers as well on our plans for Halloween right now. So we expect that as we go through the year, we will continue to have supply challenges, although they will improve as we progress throughout the year. And we're working a hard to maximize the opportunity for Halloween. Robert Moskow: Well, Halloween commitments are probably made pretty early. Can you give us any color as to what you're able to commit to right now? Michele Buck: So we believe that just as we've seen strengths in the seasons over the past two years that we will continue to see strengths in the seasons throughout the year. This year we've seen it in Easter, but at this point in time, we're not going to give any more specifics on exactly what those growth numbers are going to be. I guess, I would say overall, what I would say is we're not really seeing any big changes in how our competitors are operating or in their strategies. So really it's a focus on us continuing to build supply. Over the past two years, we grew pounds about 7% versus our competitors in the marketplace collectively had a 1% decline in pounds. So we are just a little tighter on supplying capacity than the environment. Robert Moskow: Okay. Thanks for the question. Michele Buck: Thank you. Operator: Thank you. The next question is coming from Ken Goldman of J.P. Morgan. Please go ahead. Ken Goldman: Hi, thank you. I wanted to ask about the margins and profitability in Salty Snacks. Steve, you gave a helpful explanation of a lot of the reasons behind, maybe what could be considered a little sluggishness versus what people were looking for, but I'm curious, to what extent did it fall below your expectations, if at all, what were the key drivers of that shortfall if there was one? And how quickly might we see a little bit of a rebound there? Steve Voskuil: Yes, thanks Ken. Yes, it was sluggish from our side as well. Some of the margin degradation we expected. So the mix piece that we called out, obviously, as we brought Dot's into that portfolio. We also planned on higher raw materials for the portfolio for the year, but the incremental inflation that we've seen more recently again following the events in Eastern Europe are falling more into the Salty Snack space. So thinking cooking oil, wheat, and then just the smaller business impact on oil price flowing through that P&L so that was I could say a surprise piece relative to the raw material side. We're also in the process of starting up a new distribution center that began in the first quarter, we'll continue through the second quarter. And I'd say the startup there's been a little bit bumpier than we expected, although we're working our way through it and expect to see improvement as we go through with the next quarter. And then we did have also some higher advertising expense in the first quarter and that will moderate. That was part of the plan to spend more in the first quarter in part to offset some of the elasticity due to price increases there, which I think we've done a good job of because that business is growing strong double-digits, but we'll see that begin to moderate as we get to the next couple of quarter. So if I kind of point to the things that were a bit unusual, I'd say the DC startup, the incremental inflation, and probably higher advertising spend that we would normally see in that business. Ken Goldman: Thank you. And just a quick follow up. I know these things are hard to sort of parse out, but is there any way to think about what the gross margin roughly might have been in the first quarter, if you were to exclude the inventory fill, you may have called that out and I missed it. I'm just curious for an estimate there. Steve Voskuil: Yes. We didn't go that far in the remark and sort of back into what it might have been. What I would say is we talked about this a little bit on the last call as well. The opportunity here is really to optimize the new snacking division. So as we look at, even the work we're doing with the distribution center that's all pointed towards driving network efficiency. We're going to be working through supply chain efficiencies and of course, eventually back office efficiencies as well. And so we continue to be excited about the opportunity to drop more margin out of that business as we gain scale and get some of those integration points together. Ken Goldman: Thanks so much. Steve Voskuil: Thank you. Operator: Thank you. The next question is coming from Jason English of Goldman Sachs. Please go ahead. Jason English: Hey, good morning, folks. Thanks for letting me in. Michele Buck: Good morning. Steve Voskuil: Good morning. Jason English: Couple questions. So first snack margins, I think you said you had about 500 basis points degradation from mix. I imagine a good chunk of that's coming from the manufacturing asset you picked up. So question on that, how much snack capacities in that asset and you mentioned in prepared remarks that you're beginning to lean in and start producing some of your other snack items on that network, how much can you move over and how far can you shrink that 500 bps as you improve asset utilization and presumably migrate production from outsource providers to in-source? Steve Voskuil: Yes, so a couple things there. One, inside that makes us also the amortization, the incremental amortization that deals with. So not all of it is capacity related. That's going to be around for a while obviously. As we look at combining supply chains, those assets are pretty well utilized. They were a little bit less utilized in the first quarter than will be for the balance of the year. But we continue to see opportunities to continue to leverage those assets. They've got some world-class manufacturing assets. That's one of the reasons we are able to bring a Pirate Booty asset into that mix as early as we did. And we want – the plan is to see more of that sort of consolidated manufacturing. And so, we'd expect to see some mitigation of that mix impact as we continue to leverage those assets and drive more volume through that system. Jason English: Got it. And back to the comments on market share attributed to capacity constraints. I just pulled your brand level data just to get a snapshot of like, which brands are holding you back a bit. And it's brands like Kit Kat, Reese’s, Twizzler, those don't seem like the types of brands you'd be capacity constrained on, are they – or where are the capacity constraints? Michele Buck: Yes. So our biggest capacity constraint is really on Reese and some of our assorted bags, but primarily Reese as you know, Reese is our biggest brand by far, it's over – it's a couple billion dollars in size and when it is growing double-digits, as it has been and had such a track record of strong growth that is – that's where some of the biggest rub and the biggest dollar opportunity that we're focused on. And then some of our other take home brands, obviously given the strength of consumers now consuming at-home, there's a lot of pressure on some of the brands in terms of how they show up in take home and that's spread across a number of different brands. Jason English: Got it. Okay. Thanks. I'll pass it on. Operator: Thank you. The next question is coming from Alexia Howard of Bernstein. Please go ahead. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Steve Voskuil: Good morning. Alexia Howard: Okay, so a couple of questions here. The Dot's Pretzel acquisition, obviously incredibly strong growth year-on-year that you reported in the remarks, could you talk about the distribution opportunity, where is the ACV at the moment, where could it get to? I mean, is this something that I guess how large is the opportunity, we'll start there. Michele Buck: Yes, so we are continuing to build distribution on Dot's. So clearly as we're acquiring the brand, the distribution remains skewed to kind of the West Coast, the middle of the country. And we've had a big focus on trying to close the distribution gap on the East Coast in particular and then to also fill in, in some of the key retailers and classes of trades throughout. So it's been a constant build. We had a lot of distribution growth in Q1, and I believe that we're in the mid-70s right now on distribution. So there remains some upside that we're experiencing now, we continue to drive through the back part of the year. So we continue gain household penetration as a result of that. And that continue – as more consumers find out about the brand, household awareness of the brand continues to be low. And we see that as a key opportunity as well. Alexia Howard: Great. And then can I ask about on a different topic, on the C-store dynamics, there have been concerns in the past that when gasoline prices spike that leads to fewer trips and therefore that hits your C-store sales. Can you talk about what you're seeing in that segment and whether that's the case this time around or if you're seeing something different. Thank you. And I'll pass it on. Michele Buck: Yes. So we have seen some changes in consumer behavior within convenience stores, as gas prices have risen. But what we're seeing is that many consumers seem to be trying to manage the higher price by not fully filling their tanks. So they're making more trips but just not filling as full. And to-date, they have not reduce their non-gas purchases in a meaningful way. And we haven't seen an impact. Our business remains quite strong in convenience stores. So we haven't really seen an impact on our business that we do expect that these trends will continue to evolve as we see some of those pressures we talked about earlier relative to reduction in government subsidies and the continued persistence of inflation and the impact on consumers. Alexia Howard: Great. Thank you very much. I'll pass it on. Michele Buck: Thanks. Operator: Thank you. The next question is coming from Bryan Spillane of Bank of America. Please go ahead. Bryan Spillane: Thanks operator. Good morning, everyone. Michele Buck: Good morning. Bryan Spillane: I had just one question and it's around inflation in gross margins. So can you just help a little bit with based on the incremental inflation you saw in the first quarter, you've widened your expectation for growth margins changed, is we're kind of looking at this kind of moving even past the fiscal year. Like what will you be able to do to begin to mitigate or offset that margin pressure? Is it going to be as some of this new capacity, come on, there's more efficiencies, is pricing potentially a lever in the mix, just really trying to understand as we move forward, are you going to be able to mitigate that margin pressure? Steve Voskuil: Yes. It’s really all of those Bryan. We’re certainly going to look at all our usual levers, driving productivity and efficiency from a manufacturing standpoint. And we will see more of that as we get more scale and more assets coming online. So that’ll be a factor. But we – pricing is always part of our strategy. We look at it all the time. We’re very sensitive to both the consumer and what’s happening from a cost – input cost standpoint. And we’ll continue to look at that as we think about our plan for next year. Bryan Spillane: Okay. But as it stands now, you haven’t contemplated or you haven’t embedded in the guidance isn’t any incremental pricing actions or other actions to offset that inflation. You’re just absorbing the inflation right now. Steve Voskuil: That’s right. What’s in the outlook right now is the pricing that we’ve already announced that flowing through the P&L for the year. Bryan Spillane: Okay. Perfect. All right. Thank you. Operator: Thank you. The next question is coming from Michael Lavery of Piper Sandler. Please go ahead. Michael Lavery: Thank you. Good morning. Michele Buck: Good morning. Steve Voskuil: Good morning. Michael Lavery: I know the gas price increases is a factor that may make it a little bit harder to tease this out or really recognize it. But can you talk about mobility? And just some of the consumer patterns you’re seeing there as things are reopening more, consumers are getting out more. How does that impact some of your obviously higher margin instant consumable products? Are you seeing any shifts or anything that’s notable in terms of the mix of what they’re buying and where? Michele Buck: So, yes, we definitely are seeing consumer mobility has returned its strong, it’s interesting. It’s certainly dialed up versus what it was before. And at the same time, we’re still seeing a lot of interest in some of the at-home behaviors where people haven’t totally returned to some things like restaurants and some activities, frankly, not as much because of COVID a little bit more because of some of the price pressure of inflation. So we are seeing some consumers try to consolidate trips, but we haven’t really seen a meaningful impact to our total trips. And we’ve been looking across each class of trade. I’d say food is strong, has accelerated, C-store I mentioned before, quite strong, which is a key indicator of mobility. But really across most classes of trade dollar, mass, food and C-store, the trends remain quite strong. Michael Lavery: Okay. That’s helpful. And just on international, those margins were better than expected and very strong. That segment has some pretty significant seasonality. But can you just help us understand some of what’s driving that and how to think about the rest of the year? Is it likely to keep up some of those gains? Or what’s the right way to frame how that plays out over the course of the year. Steve Voskuil: Yes. The business has done really well. All of our core markets had double digit top line growth, so that was a good starting point. And then we’re still seeing through the first quarter, the last bits of some of the restructuring that we did in China. So that’s giving a little bit of an incremental benefit to the first quarter that I would say is probably not going to be a year-over-year component going forward. But I would also commend the international team for looking at the whole P&L and managing their cost structure and executing a smart pricing strategy as well. Michael Lavery: Okay, great. Thanks so much. Operator: Thank you. The next question is coming from Cody Ross of UBS. Please go ahead. Cody Ross: Good morning, everyone and thank you for taking our questions. You just noted that you don’t plan on taking additional pricing the rest of the year. However, most companies that have already reported this season discuss taking additional pricing. Why is that? Michele Buck: We remain very confident in our pricing strategy and our ability to get price realization. As Steve mentioned, what you’re seeing in our P&L right now is the pricing that we announced last year flowing through into the business. We all know that this remains a volatile environment. The cost side has continued to evolve, especially with continued supply chain pressure and also the Ukraine-Russia situation. And as always, we will continue to look at every lever at our disposal as we always do to make the best decisions for the business. Cody Ross: Got you. And then you noted the Russian-Ukrainian war is affecting supply availability. Are there any commodities you can call out that you’re having difficulty securing? And do you expect to have any issues securing supply for balance of the year? Thank you. Steve Voskuil: Yes. At this stage – taking the last part first, we don’t foresee a challenge and availability for the balance of this year. Where we’ve probably seen the most pressure is in the cooking oil space. A lot of that source out of Eastern Europe but our business is resilient and we’ve got other sources and other solutions that working through to ensure that we be able to satisfy consumer needs, even if we face some more pressure next year on that commodity. Operator: Thank you. We’ll move on to the next question, which is coming from Chris Growe of Stifel. Please go ahead. Chris Growe: Hi. Good morning. Michele Buck: Good morning. Steve Voskuil: Good morning. Chris Growe: Good morning. I just had a question for you. Just to follow-up on the fact you’re able to rebuild some inventory this quarter. It sounds like you’re going to have some more in the second quarter now, and it’s more heavily favored towards the first half. I just want to be – so before we had thought about that happening in the second half, do you continue to build inventory in the second half? And I guess what I’m ultimately getting to is when can you start – will you be at a point where you can start to market and promote more normally like you had historically? Steve Voskuil: Yes. We’re going to continue to build inventory. We’re going to see – you should see sequential improvement more for this year pulled this first half. But we want to continue to build inventory. And as Michele said earlier, and we’ve got a lot of capacity coming online, the first quarter was our highest production quarter ever. And as we get more capacity coming online, we expect to see that build and be able to catch up both on our own internal inventory and trade and retail inventory. Chris Growe: And then is that – can marketing start like more aggressively this year? Or is this more like next year? Steve Voskuil: Well, we’re going to make sure that we’re fully participating in seasons. Just as we talked about earlier with Halloween and make sure that we’re getting all of our products out of inventory and onto the shelves as quickly as we can so that we can continue to support the brand. And we’ll see more of that support pickup as we get to the back half of the year. Chris Growe: Okay. And just one follow-up question on the gross margin. You have a little more aggressive decline, because of the increase in costs that you expect now for the year. Is that any differently weighted by quarter? Is Q2 any worse or Q3? It caused me to have to bring my estimates down for the remainder of the year for the gross margin, given how strong it was here in the first quarter. I just want to get a sense of how that plays out across the rest of the year. Is it just a timing of inflation that will dictate sort of the quarterly progression in the gross margin? Steve Voskuil: Yes. I’d say it’s mostly that. As we look at our plan, we probably see the most pressure in quarter two, but then begins to improve because the last get a little bit easier. So if I had to pick a quarter, I’d probably say quarter two would be the worst. Chris Growe: Okay. Thanks so much for your time. Operator: Thank you. The next question is coming from Steve Powers of Deutsche Bank. Please go ahead. Steve Powers: Great. Thank you. Two questions actually. The first one just to build on the gross margins theme. The prepared remarks suggest to call out the 120 to 140 basis points of contraction, but then equate that with gross profit dollars increasing mid single digits, my math may be wrong, but I think given your top line that seems a pretty conservative combination of top line and gross margins. So just wanted to get some color on that mid single digit dollar profit growth language in the prepared marks. And then secondly, you call out seeing some impact in certain consumer goods categories from the inflation that we’re all seeing and from the declining government assistance that’s occurring. I was hoping you could just give a little bit more color as to what specifically you’re seeing and how you’re monitoring that going forward. Thank you. Steve Voskuil: Sure. On the first part of that question, there’s no intentional conservatism between what we are seeing on the top line and what we’re seeing on the gross margin line. And so it should tie, but technically we should see about 7% gross profit growth mid – kind of mid high single digit range growth. And I think that math will work, but happy to take that on the side, if we want to go into more detail. Steve Powers: Mid to high makes sense. Sorry, mid to high makes sense. Just the language in the text actually just says mid. So thank you for clarifying. Steve Voskuil: Yep. Michele Buck: And on your other question, we are constantly looking at a couple things relative to the strength of retail takeaway in other CPG categories, as well as our own. And also how much market share is going to private label as that has typically also been a predictor of the consumer. We’re fortunate in our category, not to have significant private label, but certainly in other categories where that’s present we do look at that as well. Steve Powers: Okay. Very good. Thank you for that. Appreciate it. Operator: Thank you. The next question is coming from Jonathan Feeney of Consumer Edge. Please go ahead. Jonathan Feeney: Good morning. Thanks. A question and maybe a follow-up all at one. The question is, you guided us on the magnitude of this retailer inventory replacement for the full year. But has that grown significantly with the better than expected experience in the first quarter, not only in your brands, but across the category to the elasticity. I can’t imagine retailers and your competitors thought the uptake to this magnitude of pricing would be that good. I mean, maybe I’m wrong about that. So that is my first part – my first question. And then how does Easter play into that? Because you called out in your prepared remarks that people were buying more every day product because of the shortages of Easter product. And that certainly seems to be born out in the data. I wonder, doesn’t that add to the retailer inventory need going forward and maybe augment the opportunity to fill to greater levels throughout the year, not just what you had talked about it, and you may be pulling it forward from your prior guidance on inventory fill. Thanks. Steve Voskuil: Taking the last bit first. Yes, Easter will – the Easter sell through was high. We saw more every day takeaway. And that will put more pressure on retailer and trade inventory. So that will happen. As we look at the full year though, we still – I said, we’re not seeing a fundamental shift in what we had planned relative to being able to restock. As we said earlier, we got to benefit in the first quarter, we pushed more out. The elasticity has put for the full year a bit more volume through. And so that’s true. But also, we have – we expect to see additional production pick up as we go through the year to help compensate that to some degree. So I think net-net it’s not a big change in total. But to your point, the sell through on Easter is going to put a little bit more pressure on some trade inventory. Jonathan Feeney: Thanks. Operator: Thank you. The next question is coming from John Baumgartner of Mizuho Securities. Please go ahead. John Baumgartner: Good morning. Thanks for the question. Michele Buck: Good morning. John Baumgartner: Michele, one standout over the past two years has been your increases in share of distribution points, whether it be chocolate or non-chocolate candy. And I can appreciate the capacity constraints right now sort of work against that. But putting that aside, how are you thinking about the resources to sustain and grow as capacity improves? I mean, just given all the upheavals over the past two years, whether it’s more promotion, more in-store sales force hours, more advertising investment. Where – how do you see those levers of engagement requiring change in a post-COVID world? Michele Buck: Boy, I’d say, my first answer to that question is the resources to sustain and grow are in supply chain building capacity to really be able to drive against the very strong demand. So probably first and foremost, I think that’s the focus. I believe we have the retail resources that we need from a sales perspective. Our sales organization, from a marketing capability, I wouldn’t say it’s maybe as much about people we’ve continued to invest in capability with a new media partner, better targeting capabilities. Certainly that helps us to really maximize consumer demand and then maintaining the strong relationships that we have with retailers and just continue to evolve the total bundle of investment we have to drive against demand with our retailers and our consumers. But right now I think we’re focused really on supply chain, hiring more people in manufacturing facilities, engineers to execute the capacity work. That’s really where the focus is. John Baumgartner: And I guess, just sticking with that theme on supply chain. You’ve done a lot of work there, adding manufacturing lines, fulfilment center and so on. And I guess, weak link is probably too strong of a term. But where do you think the supply chain still needs more work right now, whether it’s modernization, automation. Just outsize, does it increases on capacity? What sort of is kind the next phase of I guess, evolution there? Michele Buck: Well, clearly as we are executing this capacity and looking at the future, automation, yes is a big lever across the business. We still have opportunities in some of our manufacturing facilities for what we call single point of automation, say an automated case pack or whatever the basic automation is. And then we kind of go to the connectivity of all the different parts of our system, talking to each other. And across our entire business, not just supply chain, we continue to look at opportunities where technology can allow us to operate more efficiently, give us better insights, et cetera. And then certainly as we look at our Salty business, now that we are gaining more scale and have many more businesses in that portfolio. As Steve mentioned earlier, we’re doing a lot of work on just optimizing the overall supply chain network and what that looks like. And that’s more efficient distribution. It is more efficient manufacturing, really across the board and that’s somewhat of a transformation. John Baumgartner: Okay. Thanks, Michele. Michele Buck: Yes. Operator: Thank you. The next question is coming from David Palmer of Evercore ISI. Please go ahead. David Palmer: Thanks. Just a quick question about scanner data. It looks like Hershey’s behind some of the competitors in pricing, although we don’t always see a perfect lens into what actual list pricing is. Do you think that that Hershey’s behind the competition when it comes to list price increases lately? Or are we just seeing some noise in there? Michele Buck: Yes. I don’t believe we are behind. This is a category where it tends to be line priced. It’s really noise related to Easter and just the mix of items that vary across different competitors during the Easter timeframe. I think as we go forward, you’ll see that really even out. David Palmer: And then just a question on advertising and promotions those were down lately, sort of understandable given the capacity constraints. But what’s your outlook for advertising spend? And then maybe you can layer on top of that your general philosophy and what you’re thinking there? One thought is, you might layer in as your capacity increases some more advertising, but some of the industry are talking about digital marketing becoming more expensive and maybe lower ROI. So just any thoughts on that would be helpful. Michele Buck: Okay. So, we are big believers in advertising. I think we’ve talked a lot about our model is we are pleased to have some of the strongest gross margins in the end of street, and we believe in the model and then using some of those funds to reinvest in our brands and be one of the highest investors in the industry. It’s a highly responsive category with a strong impulsive nature as well. As you look to the rest of the year, we believe we will be up mid to high single digits and we will continue to invest as we expand capacity wherever we can because we’re big believers. Media efficiencies have really helped us to control the dollar cost because as a result of a new partnership and also new capabilities, we’ve gotten more efficiencies in our media. I think from a philosophy perspective, relative to your question about digital. We have not seen decline in list and return. And I don’t know if that’s – if they’re being offset because we’ve built capabilities, new capabilities to better target. And so we’re actually seeing a stronger targeting capability and thus better efficiency. David Palmer: Thank you. Operator: Thank you. At this time, I’d like to turn the call back over to Ms. Poole for closing comments. Melissa Poole: Thank you for joining us this morning. I will be available throughout the day and tomorrow for any follow-up questions you may have. Thank you for your time this morning. Operator: Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Operator: Greetings, and welcome to The Hershey Company Fourth Quarter 2021 Question & Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I’d now like to turn this call over to your host Ms Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company’s Fourth Quarter 2021 Earnings Q&A Session. I hope everyone has had the chance to read our press release and listen to our Pre-Recorded Management Presentation, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remarks. At the conclusion of today’s live Q&A session we will also post a transcript and audio replay of this call. Please note that during today’s Q&A session we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the Company’s future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially from those projected as a result of the COVID-19 pandemic, as well as other factors. The Company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today’s press release and the Company’s SEC filings. Finally, please note we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning’s press release. Joining me today are Hershey’s Chairman and CEO, Michele Buck, and Hershey’s Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the Operator for the first question. Operator At this time we will be conducting a question-and-answer session. Operator: Our first question is from Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Good morning everyone. Michele Buck: Good morning, Andrew. Steve Voskuil: Good morning. Andrew Lazar: Hi there. I guess my question is it seems like the plan of this year is, is Hershey’s going to look to certainly leverage greater SG&A to more than offset some of the expected gross margin pressure during the year. I guess my question is how does the company balance sort of leaning more heavily on SG&A this year to hit certain targets, including less aggressive marketing spend, albeit in light of capacity constraints? How do you balance that with continuing to lean in on reinvestment to protect as much of the sort of the current momentum and the market share that’s been gained in the last two years, really to benefit the outyears, right, of ’23, ’24 and sort of beyond? Michele Buck: As you know, we take a pretty balanced approach in terms of focus on delivering the short term as well as making sure that we are building all the capabilities and continued investment to build the long term. So, as it relates to—let me start with some of our SG&A. We think it’s important to continue to build capabilities. Some of the places that we have been very focused are in the areas of ERP, obviously, so that we can really get a solid foundation of technology that we think will bring us tremendous benefit going forward in the future. We incur a lot of the expense now, and frankly, more of the benefit in the future. Also, in terms of digital as a big investment area, specifically we’ve had a big focus in advancing our capabilities to deliver more sophisticated targeting and get more efficiency in media. So we believe some of those lean-ins are really important to help us build those capabilities for the future. As we look at brand investment, as you know we are big believers in our business model that brand investment is key. We have always been very solid spenders, and we continue to believe that. We have moderated some of that spending as we’ve had supply challenges and constraints to make sure that we keep our very strong returns on that investment, so it’s a balancing act. Some of the investments in media have enabled us to get to efficiency so that we are still delivering a pretty strong number of consumer impressions out there. We feel good about where our share of voice is. So, we’re really trying to balance that and say, “Okay, we’ll moderate a bit now in brand investment,” but certainly keep our eye on it as we go forward to make sure that we continue to protect that for the long term. Andrew Lazar: Right. Thank you. Michele Buck: Steve, do you have anything to add to that? Steve Voskuil: No, I think you hit the highlights. We have a compensation reset that happens as we set new targets, and so that gives us a little bit on benefits side to deploy against the things that Michele said. Andrew Lazar: Right. Then just briefly, Steve, I guess where you say Hershey is right now with respect to sort of retail inventory levels and I guess finished goods inventory as well, relative to where the company might typically see itself sort of at this time of the year? Just trying to get a sense of what sort of inventory refill opportunity there might be moving forward, obviously as capacity allows. Thanks so much. Steve Voskuil: Sure. As we formed our guidance for next year, we have an assumption inside there that there is an opportunity for some inventory build back into the network. Of course, we’ve also got some inventory building to do on our side, but from a retail distributor standpoint as well and that’s part of our guidance. Andrew Lazar: Okay. Thank you. Operator: Our next question is from Robert Moskow with Credit Suisse. Please proceed with your questions. Robert Moskow: Hi. Thank you for the question. I wanted to get a sense of what you’re seeing from competition. Is your competition facing the same supply chain constraints that you’re facing, and therefore, should we assume that you’re expecting a year of market share gains? Or do you expect to hold share this year? Do you expect them to reduce media as well? Michele Buck: Relative to the competition, yes, we would say everyone in the category seems to be having similar challenges, just as I would say pretty broadly in the industry that’s the case. We anticipate the situation relative to delivering on demand to be about comparable across the competitors. Relative to market share, we believe that we will hold share this year. As you know, we’ve had some really significant gains over the past two-year period of time. We will have more tepid share performance in the first half of the year, building to a bit more strength in the second half due to laps alone. And relative to share of voice on advertising, we do track that and we feel really good about where we are from an advertising share of voice perspective. Robert Moskow: Okay, great. Maybe a follow-up. Gross profit dollars, for the core business, not including the acquisitions, should we still assume that your gross profit dollars are growing? This is kind of a backhanded way to figure out what kind of gross margin I should expect for 2022. Steve Voskuil: Yes. Gross margin dollars are going to grow. As we talked about in the prepared remarks, from a margin standpoint we expect there to be some dilution comparable to what we saw in ’21. But from a dollars standpoint, yes, up year-over-year. Robert Moskow: Okay. All right, thank you. Operator: Our next question is from Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Thank you. Good morning everyone. Just a housekeeping item and then just a broader question. I was hoping you could maybe just aggregate the shipping days and the elasticity impact that you discussed in the prepared remarks, if there’s any perspective you can give on the magnitude of each. Then, in the prepared remarks you also indicated you’re looking at historical elasticities when you think about this year, but as we’ve seen across the broader CPG landscape elasticities have been better than expected, so I’m just trying to get clarification. Are you assuming kind of what you’ve seen historically, like pre-COVID? Or if you could just provide some context there. Michele Buck: Let me start and answer your elasticity question. I’ll give it to Steve to do the disaggregation. Nik, what we are assuming for this year is historical elasticities. To date on our pricing we have seen a little bit better performance versus historical. As we go into this year, we want to carefully keep our eye on the potential impact of broad inflation on the consumer. We know that there’s been reduction, obviously, in government stimulus and SNAP, and with the inflation across the board it’s just a top of mind watch out area for us, and that’s why we really chose to say historical price elasticities is what we think is a smart and prudent planning move for us. Steve, do you want to talk about disaggregation? Steve Voskuil: Yes. Just to break that out a little bit, the shipping days we would estimate to be about a 2 point impact on the quarter. And from an elasticity standpoint, if you kind of took that to the side, if you took the shipping days to the side, pounds were about flat in the quarter, if that helps give you some idea. Nik Modi: That’s very helpful. Then, Michele, just one more question. Obviously the issue with out-of-stocks has been a pervasive problem for everyone and labor obviously is a big part of that. Is this one of those scenarios where you just kind of have to manage through it and don’t really have a good handle on when things are going to start getting better? I mean, I guess because it’s so labor dependent. Michele Buck: Well, I guess what I would say is we have a lot of actions in place to drive continuous improvement relative to our own supply. So certainly yes, there is no certain end state where I can tell you this is where the switch flips. But what I can tell you is we have had numerous programs underway. So first of all we focused a lot on optimizing demand. How do we get the most efficiency out of the capacity we have? By reducing complexity in changeovers, prioritizing SKUs, part of that included working with retailers to double and triple face our core items, which is always a great move because they are very high velocity so that makes a lot of sense. As it comes to supply, we are continuing to invest in incremental capacity. There is incremental capacity that will gradually come online as we go through this year and also into 2023 and 2024. We’ve also made some significant investments in manufacturing labor. Frankly, last year was a real challenge. Our people did real yeoman’s work to just do whatever was needed to produce as much volume as possible, but it really wasn’t sustainable in terms of having a reasonable employee value proposition for those folks. And so we have invested in labor. We won’t get the benefit of that immediately because it takes time to train people, to get them up to speed, to be as efficient as our current workforce, but we do think it’s important and a lot of that really just helps us to manage some of the overtime as well. So, we do have a lot of activities underway. We think that we will make continuous improvement, but under no circumstances would we really be out of the woods totally; we will continue to have pressure throughout the year. Our goal is just to continue to make improvements. Nik Modi: Okay. Thanks much. I’ll pass it on. Steve Voskuil: Thank you. Operator: Our next question is from Jason English with Goldman Sachs. Please proceed with your question. Jason English: Good morning, folks. Thanks for slotting me in. Michele Buck: Good morning. Jason English: Congrats on strong results and some sustained momentum. The cumulative volume growth in North America over the past two years of, at my calculation roughly 7%, it’s obviously a real stand-out here, especially given that it contrasts to what was very little growth before COVID. My question is kind of on that focus. How much of the volume that you picked up during COVID do you think is durable? How much is at risk of leaking back out as we kind of come out the other side of this? What’s embedded in your planning assumptions? I know there’s a lot there and it’s a bit tricky to unravel, but I would love your view on it. Michele Buck: We’ve really tried to do a good dissection and deep dive to understand that as best possible, and I would tell you I think there are a number of things going on. First of all, we do know that there are some COVID related impacts. The change in consumer behaviors with consumers spending more time at home has clearly benefited some of our brands and categories because they’re around their homes more to consume our products, and our products are more eaten in those types of environment than out and about restaurant environments, et cetera. I think that based on what we’re seeing in consumer behavior, I think that while more people – and people have become more mobile, there also is a change of behavior that I think is here to stay to some degree, right? People enjoy spending time with their families. They appreciate them more given the COVID situation. They’ve gotten comfortable, some of them, the portion who are flexibly working and want to continue some of that. So I believe that some of that is here to stay. At the same time, we also did implement a number of new strategies in our business over the years that we think have also helped us. We really tried to do a better job of balancing innovation and the core to get more sustainable growth. And we have seen that, that had an impact on the business. I think we also think we’ve gotten smarter about pricing, where we have multiple levers on list price and price pack architecture that we can utilize. So I guess I’d tell you, we believe that there’s part of both of that. So we do think that there is a sustainability and underlying sustainability, may not be all of it. But in addition to us, in particular, I think the category’s relevancy has just increased during COVID. So those are some of our thoughts, Rob, I hope that’s helpful. Jason English: No, that’s helpful. On – sticking on the topic of volume. It looks like your guidance for next year is predicated on fairly firm volume. But you say you’re assuming historical elasticities, which should be a net negative drag and maybe some of this COVID stuff comes back out. What are the offsets? Is this like the inventory reload later in the year on a catch-up? Or where are you seeing the offsets of that elasticity? Steve Voskuil: Sure. Yes, a couple of things. One, we touched on it earlier was the inventory. So we are assuming some inventory rebuild with retailers and distributors. That’s a component seasons – as a component of season were fantastic this past year. You get another 90% sell-through for holiday, and that will help from an ordering for this year. So we’re leaning into seasons. And then continuing to activate against our brands and go-to-market strategy, a portion of that innovation, a portion of that is just working with our retail team to make sure we’re bringing a new programming that we can support from a capacity standpoint. So those are the biggest factors offsetting the elasticity. Jason English: Understood. Thanks a lot. I’ll pass it on. Michele Buck: Thanks, Jason. Operator: Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question Michael Lavery: Good morning. Thank you Steve Voskuil: Good morning Michael Lavery: You mentioned the stimulus benefits in snap in particular. And clearly, there’s some risk there. But can you give a sense of what, if anything, you’re hearing from consumers directly in terms of how they may have reacted with elevated benefits? And just how much of your performance could have been driven by that? Because we survey consumers. It looks like confection is the category that may have had the least benefit of all. Is that consistent with what you’re seeing? Or can you just give us a sense of how you think about some of the risk around that? Michele Buck: Yes. We do think that there could have been less benefit. That’s what we’re seeing as well for us than for others. So I do think that’s correct. At the same time, we do know that there’s significant pressure out there, and we just want to really keep our fingers on the pulse of it to make sure that we aren’t missing something. I mean certainly, we’re not a category where there’s a big private label component and people can easily just say, "I’m going to still participate but switch to lower brands." That’s always been a benefit for us during times like this, but we do understand the pressure consumers are under. Michael Lavery: No, that’s great color. And then just on some of your outlook where you – from a planning perspective, can you give a sense of some of the timing you expect for any of the inventory restocking? And you touched on the SKU rationalizations. How significant are those? I know you’re swapping them out for higher velocity items. Is that a net positive? Is there timing for that, for anything we should keep in mind from how we think about modeling the year? Steve Voskuil: Sure. I’ll take the first part of that. If we look at the inventory deal, we’re kind of planning it to spread evenly over the year. Obviously, it’s gated a little bit by our capacity coming online. And so that’s one factor. If I look more broadly at the sales profile for the year, we’ll have more M&A benefits on the top line. In the first half of the year, we’ll have more pricing benefit in the top line for the first half of the year, but the inventory build will be spread more evenly. On the SKU side, we see a minimal impact from that for the reasons Michele talked about, where we’ve had to make choices for things we can supply. We’ve been able to gain more facings and sell more core product. So net-net, that hasn’t been a big factor. And we always – we had done SKU rent before we got into COVID just to make sure we were always thoughtful when we did add new innovation SKUs and make sure we had good velocity on those products. So we don’t see a big impact. Michael Lavery: That’s very helpful. Thank you. Operator: Our next question is from Ken Zaslow with Bank of America. Please proceed with your question Ken Zaslow: Hey, good morning guys. Michele Buck: Good morning. Steve Voskuil: Hey Ken. Ken Zaslow: Just two questions. One is you’re hitting your 9% to 11% EPS growth in a capacity-constrained environment with higher labor costs, even with lower ad spending. If we – you are in a normalized environment, how much incremental EPS growth? Or how would you kind of frame the pent-up that may not be in the 9% to 11% as you emerge from this capacity constraint issues? Steve Voskuil: Yes. That’s a tough one to kind of think about because there are so many interconnected variables inside that equation. We’ve got the robust volume, which is driving very high utilization on assets – too high, to be honest, which is why we’re adding capacity. So you pick up some benefits there. But a lot hangs on that relative with the pricing drop through in response to commodity costs. So that’s a tough one to say. There are too many interconnected components inside the P&L, Ken, to really probably give you a clear answer for that. Ken Zaslow: Would you think it would be higher or lower? And I’ll leave that question, and then I have another question. Steve Voskuil: Sure. Even that’s kind of hard, Ken, because if I start at the very top, we would probably not be taking as many price increases as we’ve taken, but for the need to cover the costs that we have coming through both commodities and the rest of the P&L. And so even at that very top line level, it’s hard to say how the construction then below the rest of the P&L would flow through. Ken Zaslow: Okay. Then my second question is with Pirate’s Booty and Skinny Pop, you guys are obviously crushing it on the sales line. What were the key learnings that has changed your acquisition strategy with that? And what are you going to apply to Dots that continues to keep this – the snacking business at these levels, right? So your acquisition strategy has clearly evolved into something that has been quite successful. Can you talk about where the evolution is done and how you apply it to Dot’s? Michele Buck: Absolutely. We know that at the beginning of our journey into snacks, we had some challenges in some of our first acquisitions. And I guess it goes to maybe you catch a few toads on the way to the prince. But we learned a lot about what we’re good at and what we’re not good at. And we established some principles. And one of those principles was there’s a certain size threshold that’s critical for us in order to absorb a business and be able to really build it from there. We’re not good creators of very small businesses and making them big. We also understand that our business model is all about a high gross margin, a strong gross margin that enables us to invest to grow capabilities and invest in our brands. And we got very, very stringent about those guidelines and those criteria for success. We focused a lot on building capability. Frankly, we didn’t have a lot of M&A capability. And so we got a lot smarter about how to do the right due diligence, what were really the key questions we needed to understand. We started to see what we have to know going in. And I think as we did each acquisition, we got better at that. So with Pirate Booty and Skinny Pop, we got amazing brands. And that’s what we’re good at, is really getting a brand that has a strong consumer following. We’d like to see brands that have tremendous repeat but low household penetration because that’s – as consumers love them, and we can apply our capabilities to expanding distribution and investing to create awareness of the brand. The other thing we learned was the importance of supply chain. And early on, we had some struggles absorbing a lot of these smaller companies, didn’t have their own supply chain. So thus, you saw when we went forward and bought Dots, we decided to buy the co-manufacturer Pretzels Inc. as well. So I think we’ve consistently applied those lessons. As I said, we built a lot of capability and muscle along the way and got better at those key criteria of support of the brand’s margins and the right supply chain. Ken Zaslow: Great. I appreciate it. Thank you guys Operator: Our next question is from Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi. Good morning. Thanks so much. I just wanted to follow up on one thing. I know you talked about investing in digital capabilities. And I hear the goal, part of it is advancing targeting and efficiency in media. I guess I’m not quite sure what the mechanics are there and why those efforts would cost a good deal of capital. And maybe I’m digging a little bit too deeply here. I just – those things historically seem to be more about learning, education, hiring consultants to help you in capital. I’m just trying to get a sense of connecting the dots there, if I can. Michele Buck: Sure. So one of the things that we have seen has been really critical is what’s the data set. In the past, we relied on our own internal data set that we would analyze and do a traditional marketing mix modeling kind of activities. But we’ve really created what we think is a proprietary approach to what we’re doing, investing in other data sources and then integrating them into ours, building the tools that allow us to do that, utilizing the cloud across what we’re doing. And so a lot of that has been in investing in those different areas to truly kind of break out in this space. Ken Goldman: Okay. That’s helpful. And then I may just be missing it, but I hear that – I see in the press release and in the prepared remarks commentary on strong innovation. I’m not sure I see a list of products that you would consider strong innovation. I can’t recall Hershey ever not listing the new products as a new – as the year starts. And I realize this year is a little bit unusual, just as last year was. But I’m just trying to get a sense of what those new items are that you’re most excited of – or for and how you might qualify them? Michele Buck: Absolutely. I mean I’d start by saying, first, hey, given where we are in a capacity-constrained world, our first focus is the core, the core, the core. And if we are masking out capacity with the core, we’re really balancing what’s the right innovation to continue to drive news, but we also want to be very efficient and we just want to maximize throughput. But that said, we do have several items that we are excited about. Reese’s Potato Chip, Kit Kat Dark Chocolate with Strawberry, Kit Kat Hazelnuts. We also have, importantly, some really great new pack types. So we’ve talked to you about price pack architecture, and we’ve put a lot of focus on understanding different consumer occasions and where there was a need or an opportunity for a pack type that best meets that occasion and drives incremental consumption. So we’re really excited about two of those. One is called the Pantry Pack. And think about that as – I don’t know, I’m going to describe it as almost a case of your product or a case pack of your product that’s designed to sit easily either in your refrigerator or in your pantry that you can easily get out multiple units of single-serve product. And then we also have an item that’s called the Super King. We have a standard bar, which is a smaller instant consumable item. We have a king-sized bar, which is a bigger instant consumable item. And consumers identified interest in Super King, which is an instant consumable pack that has more products and more individual units for sharing. And those pack types have tended to be really great innovation for us over time, highly sustainable. Ken Goldman: Thank you so much. Operator: Our next question is from Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Hey, good morning, everyone. Just a couple of quick ones for me. First, just – as we’re looking at the gross margin guidance that you’ve given for 2022. Just what do the acquisitions – are the acquisitions accretive, dilutive or neutral to gross margins? Steve Voskuil: Yes. On the gross margin line, they’re dilutive. And you can get a little sense for that with the new segmentation detail that we provided, but particularly dropping those in versus where before does create some dilution. Bryan Spillane: Okay. And then I know there’s been a few comments, Steve, that you’ve – or questions around just phasing. Could you just help us a little bit if – with regards to how we should think about the phasing, I guess, of margins through the year? So does pricing help a little bit more later in terms of gross margins? Just any guidance or any color you can provide in terms of how we should be thinking about the phasing of costs over the course of the year. Steve Voskuil: Sure. Yes. We have – if I go back to kind of first half, second half, I won’t get down to the quarters, but we expect to see tougher laps – a lot more pricing in the first half of the year. But we expect to see probably tougher gross margin in the first half. And probably Q2, in particular, will be a tough, just looking at the lap that we had last year. And we would expect to see gross margins – again, everything else equal in the plan, gradually improving as we get to the fourth quarter next year. Bryan Spillane: Okay. And then, Michele, in the prepared remarks, there was a comment around Salty Snacks talking about being in a position, I think, to integrate – more efficiently integrate future acquisitions. Can you just touch on that a little bit, just what that means? Michele Buck: Yes, absolutely. So we’re at a point now, where we are continuing to build scale in Salty Snacks. We started with SkinnyPop and Pirate’s Booty. With the Dots business, we have sizable brands and so we are really looking at what is the optimal way to build the operating model around that entire piece of business. And that includes everything from – obviously, right now, we’re very focused on integrating Dots and Pretzels Inc. But what’s our end state of – from an operating model, how we operate, from a supply chain network, how we operate. This array of products do not require condition distribution, so they are very different than our core portfolio. So that’s really the work that we’re talking about there. Bryan Spillane: Okay. Great. And then last one for me. Plain household is very activated right now around the Cadbury Bunny Tryouts. Michele Buck: All right. Bryan Spillane: All right. I’ll leave it there. Thanks, guys. Michele Buck: Thank you. Operator: Our next question is from Chris Growe with Stifel. Please proceed with your question. Chris Growe: Hi. Good morning. Michele Buck: Good morning. Chris Growe: Just to add an editorial remark following Bryan there, we’ve really enjoyed Super King. They’re very dangerous, by the way, but we do enjoy those as well in our household here. I just had two quick ones. There’s a comment in the prepared remarks about you have pricing coming through but that won’t fully offset cost inflation. You also threw in though some manufacturing investments and that kind of thing. So, I just want to get a sense of how much inflation you have and then will pricing offset inflation but there’s other factors that may weigh on the gross margin. Is that the way to think about it, or do you have any more color on that, Steve? Steve Voskuil: Yes, a couple of things. In general pricing will offset the majority of our inflation. If I look at our commodity basket, we’ve got the biggest increases year-over-year in places like sugar and dairy and packaging materials and specialty ingredients. We have pretty good visibility into that. We’ve talked in the past about our hedging program and that gives us a pretty good picture. We’ve also got inflation from a labor standpoint, and as one of the things that Michele said, labor and manufacturing value proposition is one area that we’re leaning in pretty strongly this year. That’s a differential investment than what we’ve done in the past. And so, to answer your question, yes, pricing offsets the majority of the inflationary pieces, but it doesn’t fully offset the additional investment that we’re also making to improve the value proposition for employees. Chris Growe: Okay. Have you given a level or a range of inflation for the year? Just to get a level set on where you are right now. Steve Voskuil: Yes, so as we look across, I’ll say the commodity basket but also other sources of inflation, you’re talking mid to high single digits. Chris Growe: Okay. Thank you. Then, just to be clear, your capacity that stands today, can you produce enough to meet demand, or are you still using third parties more heavily? Things like that that are going to weigh on the gross margin in addition to other inflation, given the fact that you’re trying to catch up on production here. Steve Voskuil: Yes. Today we don’t have enough capacity to meet all the consumer demand. We’ve had some floor manufacturing lines come online in 2021. We have more in Reese’s and PayDay and Jolly Rancher Gummies that will come online in 2022. But even with that we feel like we’re behind consumer demand. There is inflation through co-mans and partners in the network. Inflation flows through those lines just like it does from an internal standpoint and so that is a factor. But even as we rotate that outside support into internal production, we’re still going to have inflation on the same labor lines and some of the materials lines. Chris Growe: Okay, thank you. Then just one thought – I’m sorry. Go ahead. Michele Buck: I was just going to say and there’s not a lot of material change in our use of co-mans. Some of the items that are in highest demand are items that we uniquely produce. If you think about the uniqueness of some of the forms of some of our big confection items, so while we are trying to use any external co-mans and network as we can, there are some that it’s just not available because of the proprietary nature of our product. Chris Growe: Makes sense. Thank you. I just want to follow on Bryan’s question. I think he asked about Dots and I think you mentioned that as dilutive to margin. Is that dilutive to EPS as well? Perhaps you answered that, but I may have missed that. Steve Voskuil: No. The Dots deal is accretive to earnings in the first year and it’s about a two-point benefit. Chris Growe: Okay. Just wanted to be sure on that. Thanks so much. Operator: Our next question is from David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Thanks. Good morning. I noticed you’re calling the two segments Confectionary and Salty Snacks. Those are two different parts of that snacking mega segment that you might have shown in a chart years ago, in a past Analyst Day. You don’t say Sweets versus Salty, for example, capturing even more of that. Does that mean that for the foreseeable future those are the two segments that are going to be the company’s focus? If you just kind of roll back the clock, just how did we get here, that Salty is the best adjacent category for Hershey? Michele Buck: Certainly, if you look at our business, these are the largest two areas of our business today and thus from a reporting perspective is exactly where we went to how we segment the business. As you look at some of the bets we’ve placed, I think some of the larger assets, at least on the scale of the acquisitions we’re doing, do tend to be available there. We’ve tended to like many of the assets we’ve seen and the growth there. So that had always been in our eyes early on, was that the two incremental areas of incrementality for us beyond Confection that we were most excited about were salty snacking and better for you overall. David Palmer: I remember years ago there was some – it didn’t always go great with some of the adjacent category acquisitions and there was some talk that you didn’t have the – that going into another aisle wasn’t always easy. Could you talk about the capability building that you’ve done in parallel to these growth brands that you’ve acquired that look like they have fantastic momentum, but in terms of the internal workings what have you done to really make sure that you’re going to give us the best growth possible in terms of the salty snack area? Then I’ll pass it on. Thanks. Michele Buck: Yes. So certainly, I think if we think about winning in the store, I think we’ve built some scale in the warehouse delivered snack general space. So from a in-store perspective that’s been a key area of focus, but I guess I’d go back to really some of my earlier comments around M&A and where we’ve really built the best capabilities. I think we got very tight about what an asset needs to look like in order for us to – for it to be attractive for us and be a good fit for us, and that’s about it has to start to be – obviously after identifying the two areas of incremental opportunity, it has to be significant scale, $100 million and above, and have strong gross margins because that lets us build the brand. Go for brands that have very strong repeat, which signifies that they have got a loyal consumer base and there’s a bear there that we can build from, that we can build awareness with consumers through advertising and we can increase distribution and availability. Make sure that we’ve got a good solid supply chain plan, because our whole goal is going to be about growth and we have to be lined up to do that. And then really, given it was a focus, building our talent and our capabilities and our inter-workings and our process. We spent a lot of time on that and getting much more robust in terms of the talent that we’re applying in these spaces. Accountability and ownership across the enterprise, both with our M&A team, with the commercial units that are picking this up, and building a lot of muscle in due diligence and every piece of that, whether it’s legal, whether it is analyzing the business. I think all of those things have been key. David Palmer: Great. Thank you very much. Operator: Our next question is from Steve Powers with Deutsche Bank. Please proceed with your question. Steve Powers: Yes. Thanks and good morning. Going back and just to round out the conversation you were having with Jason and others earlier around volume, is what you’re saying that you expect volume in terms of consumption and consumer takeaway to perhaps trend negative year-over-year given elasticities, but that you think your own shipments can remain flat to up given the dynamics that Steve talked about with respect to the seasonal activity and the inventory rebuild? Is that the read, or am I misinterpreting? Steve Voskuil: No, you’ve got it. That’s exactly right. Steve Powers: Okay, great. And then if we could, just because we’re kind of getting a first look at the Salty Snacks business kind of standalone, can we just drill down there may be and talk a little bit about how you expect that business to shake out, price versus volume, maybe margin progression-wise in 3/22? Just I don’t know, anything to call out there as we think about that business standalone? Steve Voskuil: Like the other parts of our business we look at both price and volume, but volume is very strong right now on Skinny, Pirate’s and Dots. And so in some ways we’re facing the same challenges that we have on the Confection businesses; we need capacity and trying to solve for capacity to continue to unlock the volume momentum that we’re seeing. That’s probably I would say one of the biggest issues, just like it is for the Confection business right now, but price also plays a role. Steve Powers: Okay. Thanks. Operator: Our next question is from Rob Dickerson with Jefferies. Please proceed with your question. Rob Dickerson: Great. Thanks very much. Just have another question on the Salty Snacks side. Maybe it’s a bit longer term strategic. Michele, obviously I realize business is doing very well, growth is excellent. Demand, as you were suggesting, cemented your top brands in the segment, it’s very strong. But it’s still obviously a very small piece of your total company, total portfolio, and margins are still a bit obviously lower than your much higher scaled confection business. So if you think forward a few years, is there an argument to be made that maybe there can be some kind of overall margin progression up for Hershey, but that would likely be driven by the Salty Snacks area, just given increased scale, attention, media spend, what have you? I also kind of ask this in the context of kind of where your total company operating margin has been over the prior, call it seven years. Thanks. Michele Buck: Yes. I mean, we see a lot of opportunity in front of us. As you mentioned, we have been building scale, so you could say that we are subscale but we see tremendous opportunity for efficiencies and synergies as we integrate and gain scale. As we’ve taken on these businesses, for us job one these are growth businesses. We bought them to accelerate our growth and to participate in high-growth segments that were very appealing to consumers. First and foremost, we wanted to go after that. Then, as you know, it takes some time to get to the right ultimate structure, the right phase of integration and really build towards that efficiency. And so we’re in the middle of that right now. It will take us a few more years, but you see the growth rates from a top line perspective and a lot of the work that we’re doing on the operating model and on the supply chain network are intended for us to drive up the margins to take advantage of the synergy that we think exists. Rob Dickerson: Okay. Fair enough. And then just quickly, obviously, we’re close to Valentine’s Day, smaller holiday for you, Easter if forthcoming and usually large. If we just think year-over-year, I guess just any perspective color in terms of demand you kind of feel so far with conversations with retailers relative to last year, which was obviously strong. And then, like, are there material differentiating factors in how you would actually provide supply for that season? Versus last year where demand was already high, and you did well and had decent supply. That’s it. Thanks. Michele Buck: We’re feeling good about both seasons. We see both of them being up versus prior year. We know that for us we had record sell-throughs throughout the seasons and that always leads to a strong season for us the next season, and also, it’s a bit of a longer Easter season and that bodes well for us as well. So we’re focused on working really closely with our retailers to get them the product that they’re looking for, but we are anticipating that we’ll be able to see growth on both those seasons. Rob Dickerson: All right, super. Thanks so much. Operator: Our next question is from Jonathan Feeney with Consumer Edge. Please proceed with your question. Jonathan Feeney: Thanks so much for taking my question. With so many companies really struggling to take pricing, and I measure that in terms of not so much the level of pricing but the adjusted gross margin compared with the apparent elasticity, which in your case you out-gross margined trend year-over-year at negative 40 basis points is all world and the elasticity is limited. What specifically is it do you think about your categories or your company execution, your corporate mindset, that has allowed you to communicate and execute this pricing better than peers in the rest of the industry? I’d just love to hear your perspective on that because I know you’ve invested a lot in the kind of capabilities, not just now but I mean that’s been a buzzword for Hershey for years as far as understanding what the data is telling you about your ability to price. Is it that? Is it the people? What is it? Michele Buck: I mean, I’ll take a crack at a few things. First of all, I think that we all believe that at the root of that is having great brands that consumers see the value in. And right, it’s about the consumer value proposition. It’s one of the reasons that over the years we’ve been such strong believers in investing in our brands, because the more we invest the greater awareness, the greater connectivity consumers have, and with that connectivity they’re more connected to the brands, they don’t want to switch to another brand. And so I think, I would say fundamentally I think that’s one key thing that’s an advantage for us. Secondly, we have had great analytics over the years. We’ve always had a big focus on our elasticity models. You know that over time we’ve always focused on pricing pretty aggressively is one of the tools in our toolkit to deliver our P&L and to deliver our business. And I think we just continued to try and take that capability to the next level all the time as we’ve broadened it to, okay, we can get the insights on pricing in our category. Then we started to look at cross-category price elasticity so we could understand any trade-offs that could occur between our category and other categories. Then we started to invest in price pack architecture and look at how could we generate price realization without a list price but by changing the game. So I guess, I would say to me at the heart of it are those things, and I wouldn’t underestimate as well the trusting relationships we have with our retailers. We’ve always taken an approach of looking out for what’s best for the category, not being so self-serving and so I think our retailers appreciate that and work really hard with us to get to the right outcomes because of that. Jonathan Feeney: Helpful. Thank you. Operator: Our next question is from Pamela Kaufman with Morgan Stanley. Please proceed with your question. Pamela Kaufman: Hi. Good morning. Michele Buck: Good morning. Steve Voskuil: Good morning. Pamela Kaufman: I wanted to see if you can elaborate on what level of pricing growth is embedded into your guidance for 2022. And in terms of demand elasticity, it seems you experienced some elasticity in Confectionary, but this wasn’t as evident in Snacks. Do you have different expectations for demand elasticity within Salty Snacks versus Confectionary? And how will pricing growth vary across the North America segments? Steve Voskuil: I’ll take the first one. Overall pricing that we’ve assumed in the plan is 5 points to 6 points. In terms of the difference with the Salty Snacks business, really not a big difference from an elasticity standpoint is the way we look at that and plan for that. Those two are pretty similar. The last question I might have missed. Was there a third one? Or was that it? Pamela Kaufman: That was it. Thank you for that. And on media spend, can you elaborate on what your plans are for media investment in 2022? Do you expect it to increase? I know you mentioned that it will be stronger in the back half of the year, but how should we think about it overall? And what are some of the key initiatives there? Michele Buck: So, our dollars will be up slightly for the year in media. More of the increase will come towards the back part of the year as we’re in an increasingly better supply position. And there aren’t really a lot of big changes fundamentally in terms of how we’re advertising. We do a significant portion of our spending that is in digital like we have been for many years and so there’s not a big shift in how we’re spending the dollars. Pamela Kaufman: Great. Thank you. That’s helpful. Operator: Our next question is from John Baumgartner with Mizuho. Please proceed with your question. John Baumgartner: Good morning. Thanks for the question. Michele Buck: Good morning. Steve Voskuil: Good morning. John Baumgartner: Just building on, coming back to John Feeney’s question and your areas of focus and sort of differentiation. Michele, can you speak to where you feel you are right now on the distribution side? You’ve had quite a bit of success these last few years in terms of gaining new front end displays, modernizing middle of the store and the packaging there, the self-checkouts. At this point, where is your focus regarding those efforts for 2022 and beyond? Where are the opportunities that remain for TDPs and distribution and quality placements from here? Thank you. Michele Buck: Sure. I think some of the areas of focus for us going forward, self-checkout, queueing lines are a big area of focus. Right now, we’re seeing a lot of retailers, given some of the pressure on labor, focusing there. And the other big area and push for us is in what I would call non-traditional channels. We have over the years kind of started distribution in areas like home improvement stores, and as our products have done well there it then gives us the opportunity to expand from having some instant consumable items to putting our take-home portfolio, to even putting seasons during those specific times. Those are the biggest opportunities for focus in 2022. John Baumgartner: Then I guess related, thinking about distribution internationally, whether it’s Brazil, India, Mexico, you’ve been expanding distribution there as well. How do you think about the opportunities, whether it’s traditional trade, modern trade, what’s sort of driving that? Is there a way to think about either ACV penetration or total outlet penetration? How much opportunity is left as you think about sort of reframing international growth going forward? Michele Buck: Our businesses in most of the international markets – set aside Canada where we’re very developed – we continue to have distribution opportunities. If I looked at Mexico I would say yes, traditional trade is an untapped and an area of opportunity going forward. If I look at the other markets in which we do business, the bulk of the business in India is traditional trade and so there I would call it more just getting broad distribution is the opportunity and building scale, continuing to build scale in areas like Brazil. Western Europe, we’ve had a lot of strength just in getting our brands in distribution across the board in modern trade, in the regular trade there. Great success with Reese. We’re seeding growth in a lot of other countries through our export model, which is really just a distributor model where we get our products on shelf. Again, a lot of that is in either Western Europe or parts of EMEA. John Baumgartner: Great. Thanks, Michele. Thanks for your time. Michele Buck: Sure. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Melissa Poole for closing remarks. Melissa Poole: Thank you so much for joining us this morning. I’ll be available throughout the day for any additional questions you may have. Have a great day. Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings and welcome to The Hershey Company’s Third Quarter 2021 question-and-answer session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn this call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Good morning, everyone. Thank you for joining us today for The Hershey Company’s third quarter 2021 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre -recorded management discussion, both of which are available on our website. In addition, we have posted a transcript of the pre -recorded remarks. At the conclusion of today's live Q&A session, we will also post the transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the Company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially from those projected as a result of the COVID-19 pandemic as well as other factors. The Company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the Company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey Chairman and CEO, Michele Buck and Hershey Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the Operator for the first question. Operator: At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Please limit yourself to one question and one follow-up. One moment while we poll for questions. Our first question comes from the line of Jason English with Goldman Sachs. You may proceed with your question. Jason English: Good morning, folks. Thanks for stepping me in. Michele Buck: Good morning. Steve Voskuil: Morning. Jason English: Congrats. Good morning. Congrats on a strong quarter, particularly given the strength that you're cycling in the prior year. But despite the straight, I can't help but remember that Shivery (ph) snacks have lost some of their sweetness pre -COVID, with little, if any, volumetric growth. COVID has clearly rejuvenated demand. In your capacity expansion effort seems to suggest that you believe that demand is going to stick. So, my question for you is why? Why shouldn't we believe that that -- sorry, that that's manage it's going to leak back out in the next year or two? Michele Buck: Yeah. Jason, as we look at the growth that we've seen, the category growth has really been pretty broad-based. It's really cut across regions; it's cut across cohorts. As we speak with consumers, we hear that some of that elevation of those take-home behaviors and new routines that occurred during COVID, that some of those will stick and sustain. Perhaps not all of them, not to the degree to which people were suggested that they shouldn't leave their homes, but we do believe that some of those will stick and stay around based on what we're hearing and seeing. And we do also see some of that continued strength as people are out and about, and mobility increases and that we're seeing a pretty good balance there. The other thing we've heard from consumers repeatedly that we've seen over the years is the emotional aspect of the category and how it fits with good and happy moment. And as those happy moments have continue to increase, as people, I think, are starting to believe they see somewhat of a light at the end of the tunnel in us working through the pandemic, those moments of happiness that we're really associated with, we see continuing. So that's really our perspective; is a lot of those routines, we think some of which will just continue into the future. That said, there are a lot of unknown. We certainly -- none of us know -- knew any of this was going to happen, and so we can't perfectly predict the future. As a constant capacity investment, what we've tried to do is be really prudent in our investment strategy. So, we've learned in in places on brands where we have clearly seen sustained growth over time and there's a lot of proof points that capacity will pay off and Reese's is a great example of that. Frankly, there are a couple of other places where we had elevated demand that we held for a bit before leaning into that capacity until we really thought we were at a point where we could guarantee the ROI. It is a bit of a balancing act, but at this point, we are bullish on the future. Jason English: That's helpful context. Thank you. And I too like happy moments. One more question than I'll pass it on. In your prepared remarks, you touched on your collaborate space planning of retailers and resulting acceleration growth for both you and your categories. Can you elaborate on that? What's going on with the initiative and maybe provide some specifics on the changes that are being enacted by the retailers? Thank you. And I'll pass it on. Michele Buck: I'm sorry, can you just repeat the very first part of the question I missed? Jason English: Well, your collaborative space planning for retailers. Michele Buck: Yes. Okay. Jason English: You were talking about it in your prepared remarks. Give us more specifically. What is it, what's happened, what are the changes that are being an asset on the back end of it? Michele Buck: Yes, absolutely. So, I would say over time, given that strong partnership we've had with retailers and particularly a lot of our category management expertise around analytics, we've always partnered with retailers in terms of how to think about the placement of confection in their store and ways to optimize category growth. Whether that's looking at heat maps with how people travel through convenience stores or years back when we found underutilized face under the checkout counter and convenience stores, and we put category there. Recently, a lot of the focus from our retailers, or there's been a big focus around the labor shortage and thus, a push for even more presence of self-checkout. And so, we've partnered really closely with those retailers to increase the presence of the category at self-checkout and to maximize the presence in those queuing lines leading up to checkout and particularly self-checkout. I mean it's a perfect fit with some of the struggles they're having around labor and a great opportunity to get the category out there and make sure that people don't miss that chance to have that last impulse purchase. So, I think our retailers are always focused on what's going on in the environment that they need to address in terms of their store layout. And fortunately, we've been able to help them with some of that. Jason English: Makes a lot of sense. Thank you. Operator: Our next question comes from the line of Andrew Lazar with Barclays. You may proceed with your question. Andrew Lazar: Great. Thanks so much. Maybe just first off, I was hoping you could talk a little bit about what you're seeing in terms of competitive response with respect to the pricing moves that you've announced and how that impacts your expectations on elasticity because obviously thus far while early, would seem like volume trends have held up remarkably well in response to the pricing that you've taken. Michele Buck: Sure. As we have always seen in this category, it tends to be a very rational category relative to pricing. Our most recent pricing actions are on track, and we have seen several competitors take pricing actions this year, including over the past several weeks and we don't really expect that we'll see any material changes in pricing on shelf versus the competition, any changes in GAAP, etc. Andrew Lazar: Great. And then I guess more to Steve. I certainly understand all the moving parts on the supply chain right now, which makes getting overly specific right on '22, certainly a bit of a challenge. But if we take it from the top-line, consumption trends remained very elevated, Hershey 's got more pricing coming through, and it's had inventories depleted for really what will be, I guess, 2 years in a row. So, I would think all these things provide a reasonably good line of sight to -- at least an eye on algorithm sort of taper year, at least on sales in '22. Again, unless I'm missing something, and please point it out if I am. On the profitability side next year, obviously, you've already talked about, and I understand there'll be a supply chain pressures at least through the first half of the year. I guess my question is, would you expect the year-over-year gross margin pressure to sequentially improve as you move through the first half as the pricing flows through and you make improvements to the supply chain or our gross margin pressures potentially you expect it to be as, let's say, severe in the first half is maybe what you're seeing in the back half of this year? Steve Voskuil: Sure. Maybe I'll just start with the top line as you started. I think you're right. As we look at it today, it's hard to point to something that would say you don't have an on algorithm top line, you don't have momentum. Coming out of this year, we've got long Easter. You mentioned pricing, which will be a bigger factor next year than it was this year, that we also had hoped we'd see some capacity improvements would give us some upside. And then at some point, inventory replenished. And I think that's hard to call, but that -- we would expect to see some of that certainly over the course of next year. So still volatile, but I agree with the first premise. And then as you get into gross margin, I think there's still are a lot of moving pieces. Some of the things I think we can directionally point to, obviously the pricing will have a tailwind on gross margin as we look at raw material. The raw material inflation wasn't a big factor for us this year. We expect it will be a bigger factor as we look at next year. Logistics inflation that we're seeing now, I don't think we see a reason yet for that to break at least through the first half of next year. We'll have less spot market activity because some of the -- we'll be, say, better positioned for some of the stronger consumer demand than we were particularly in the third quarter. we still expect to see some labor inflation. And as we said in the prepared remarks, we've increased headcount to respond to some of the additional demand. Packaging inflation at resins. I think we keep waiting for that to break and it's probably moderated, but it hasn't reverted back to other levels or lower levels. So, I think at least through the first half we're going to see that still remain a pressure point and then we will see how capacity plays out in the broader supply chain network. The challenges we've had with logistics and trucks, warehousing, and all of those labor implications. So, when you step back from all of that, I'd say the gross margin piece is still has a lot of moving pieces. I think will give more clarity, obviously, when we get to February and provide full guidance. But right now, I'd say, particularly, for the first half of the year, we're going to see a lot of those costs’ pressures in place. Andrew Lazar: Great. Thanks so much. Operator: Our next question comes from the line of Robert Moskow with Credit Suisse. You may proceed with your question. Robert Moskow: Hi. Michele, I wanted to ask about the decision to reduce advertising for the year. I guess it makes sense in the context of supply chain challenges and if you can't get the inventory where you want, why advertise? But the stock's done well and your sales have done well because of the market share gains. And I just wanted to know if you think there's risk to market share erosion from this decision. Do you think your competitors are doing the same thing, so it won't matter? How did you evaluate the risk and reward of that? Michele Buck: Yes. So first of all, I would say there is not a strategic change to our business model. We remain committed to investing in brands at some of the highest levels in our industry across the peer group. So, there's nothing that has changed about the strategy, so I want to be clear about that. As we looked at the decision, it really was driven by the fact that we have such elevated demand. And given that the supply chain challenges just wouldn't enable us to be able to meet the further demand that we would create through our very impactful advertising, that it just didn't make sense. It put more pressure on the supply chain. And also, we probably wouldn't get a good ROI because we wouldn't be able to fulfill that incremental demand. If we look at our market share right now, we don't think that the advertising cuts that we had executed impacted our share in Q3. And we're not the only ones having supply chain challenges and issues. So overall, I think across the board, even in the industry, we're seeing a lot of people manage advertising to supply as a challenge. We'll continue to focus on optimizing it. We will invest as much as we can, as much as we think we can sell. Certainly, we're investing in capacity going forward and we are very agile in how we're handling support behind our brands. Robert Moskow: Okay. And can you give us any update on Halloween? Will Halloween just blow right through inventory or were you also challenged to fulfill demand for Halloween just like other products? Michele Buck: Yes. It is a very strong Halloween season, the biggest that we've ever had, with very strong double-digit growth on top of the strengths that we had last year. We have done our very best to get as much product out there as possible. Certainly, I would say supply pressures hit every aspect of the business, so tallying season would be a piece of that. But we're really excited about the growths that we've seen year-to-date, both in the category, as well as our own business, and I'm seeing lots of very picked-over [Indiscernible] out there as I'm out in stores because it'd be a good trick-or-treat, they send everything we've purchased from consumers as well as the people really flock back to that behavior. Robert Moskow: Okay, thank you very much. Operator: Our next question comes from the line of Ken Goldman with JP Morgan. You may proceed with your question. Ken Goldman: Hi, thanks so much. I wanted to start by asking about your perception of your labor relations right now. We've had a couple of strikes obviously in the food-at-home industry. So, I'm just curious for any updates how you see the risks there and so forth. Michele Buck: Yes. Absolutely. We are very focused on our labor and the first and foremost, I would just want to again, publicly acknowledge and thank our manufacturing employees. We have folks in our plants who have been with the Company for 20 years, 30 years, 40 years. And it's really their focus, their dedication from the very beginning, that has enabled us to demonstrate and deliver the growth that we've been able to during this very dynamic environment. So, we have very long focus and believed and operated in a way that we believe we have the best advocate for advocates for the needs of our people. We are in constant communication with our employees, and we're really focused on our total employee value proposition with those employees. We know that we have highly competitive wage rates, we have excellent benefits, and then we routinely benchmark all of that. But we're also very focused on the softer factors that are very important to our employees. And that includes, especially during these times of global supply chain challenge, work-life balance, stress management, flexibility in hours, being able to get time off. And so, we have an acted a lot of strategies to really try and help with that. We have an always on recruiting approach and we have really amplified our recruiting efforts this year to be able to successfully manage through the challenges and increase our net headcount. We've also leveraged the analytics to, as I said, understand some of the things most important to our workforce. So, we're very focused on that. We are very focused on prioritizing the needs of that group and continuing to look at ways that we can optimize the situation in terms of supply and demand. So, we feel pretty good about that. Ken Goldman: Great. Thank you for that. And then a quick one for Steve. Steve, year-to-date, your corporate other expense line has been up fairly meaningfully from both 2020 and 2019. I realized that grows somewhat in line with sales. But I'm curious how we should think about when an ongoing annual number for that corporate line is, especially as we think about modeling 2022. Are there any potential one-time headwinds we should be thinking about that maybe go away next year or is this kind of a good runway to think about? Steve Voskuil: You'll see incentive compensation is one of the big pieces in there, and as we turn the page to next year, that'll be one item that resets. Otherwise, there's not as much change. We talked about this year we had some planned investments in ERP and digital. We'll have some of those kinds of investments I expect next year. We also had a little bit heavier medical claims and benefits impacts this year coming off of COVID. So that may or may not continue next year, but probably the incentive reset will be the biggest year-over-year change as we start the next year. Ken Goldman: Thank you. Operator: Our next question comes from the line of Bryan Spillane with Bank of America. You may proceed with your question. Bryan Spillane: Hi. Good morning, everybody. Michele Buck: Good morning. Bryan Spillane: So, maybe just to tie one more up on '22. And, I guess Steve, just below the operating profit line, this year there has been some benefit from interest expense being lower. And I -- so I guess my question is just is we're looking in the next year and we're just looking at our models below the operating profit line. Is there anything that we should be thinking about in terms of puts and takes there? Steve Voskuil: Yeah. Nothing major. I think if I was to look at tax this year has been lumpy, but if I look at where we set the final guidance for the year from a tax standpoint and I look to next year, I'd expect relatively similar level for next year. We had some one-timers this year that will not recur next year. We talked about it in the second quarter and to some extent, this quarter as well. So, I can't take those out. And I look at the finishing tax position I see they the same interest expense. I don't expect a lot of change by flat year-over-year. So, I hope that helps. Not much movement year-over-year, other than the one-timers. Bryan Spillane: Yeah. No, that's helpful. And then just a follow-up on the capacity expansion. I guess two questions related to that. One is, what type of investment is it? Meaning is it actual physical product production lines, or is it investments in further down the manufacturing, like packaging capacity? Just trying to get a sense of actually what type of capacity you're adding. Michele Buck: Yes, we're adding capacity on both. Both, in terms of product production, as well as packaging across multiple brands. I think we spoke before about building our agile fulfillment center. That is up and coming online. So, it's really across the board. Bryan Spillane: And then if we're thinking about or if you could give us a sense of the capacity now that you're planning to add just where you stand now in terms of capacity utilization or available capacity. And I guess, what's underneath my question is, we've been adding incrementally to this -- to CapEx over the last couple of years, and just trying to get an understanding of whether we're going to stay in this elevated cycle for a while or are we getting to the point where you feel like you're going to have enough flexibility in capacity? Michele Buck: I'd start by saying capacity utilization varies by brand and piece of the business, so each brand is in a slightly different position. We certainly have invested several hundred million dollars to install at least 9 new lines since the pandemic began, and we do have more planned for '23 and for '24. But Steve, do you want to talk a little bit more about where we are in that total investment? Steve Voskuil: Yeah. If you look back really the last 2 years and this year, we have done a lot of infrastructure spending. So, we talked about the agile fulfillment center. We've got a Canadian DC that's in process, and of course, the ERP transformation, which is a big component as well. Now, I'd say we have to finish those projects of our pivoting more towards the capacity side. So, I think like we talked about machines packaging. So far, we haven't had the need to build buildings and infrastructure of that sort. But as we look at the total, next year, as we talked about a slight increase versus this year from a CapEx standpoint, really due to project timing this year more than anything else. And then, as we look further, I know we get more guidance on that, as we get into next year. Bryan Spillane: Okay. Thanks. I'll leave it there. Thanks, everyone. Operator: Our next question comes from the line of Nick Modi with RBC Capital Markets. You may proceed with your question. Nick Modi: Thank you. Good morning, everyone. Michele, I wanted to ask about market share, if you could just give us some context. Obviously, I think a big question has been, how much of the share gains you -- Hershey has had over the last 12 to 18 months and how much of that was taken. Looks like quite a bit was taken. So can you just talk about where you see the most stickiness, where things have retrenched. And then obviously discussions are taking place now about 2022 shelf allocation. Just wanted to get some of your early thoughts on how you think you'll progress there. Michele Buck: Yeah, sure. Since the pandemic, we have been able to hold on to about 50% of the market share gains that we had realized. We see certain areas of the business where those numbers are very strong seasons in particular, as we mentioned in our remarks. We had gained 500 basis points and we held on to about 75% of that. Take-home also has been very strong in terms of our retention. So, we're pleased with what we've been able to hold onto. And as we continue to unlock more capacity and reinstate some of that advertising, we believe that we'll see some continued strengths going forward. Nick Modi: And then just a follow-up on assortment because I know that's been a big area that retailers have been focused on given all the supply chain challenges. So, as you engage with retailers regarding space with some of your initiatives, how are you guys thinking about your overall assortment on the shelf? Michele Buck: Yes. So, I would say, we know that assortment bags are really big sellers with consumers. And there's been a trend towards that, particularly during the seasons and especially during Halloween. So, we have definitely seen that part of the category tick up relative to assortment bag. If I look broadly at assortments and what is on-the-shelf, what we've been trying to do is to optimize our portfolio of SKU for right now based on what consumer demand is, where the demand is, and availability of capacity. And we've really prioritized a lot of our core items that the core of the core of the core items, which are the highest velocity item even to the point where we're focusing in some places, on shelf you will see double facing of those items as opposed to the presence of perhaps some second or third tier items. So, we've spent a lot of time on this, and we think we've taken a really smart approach that has enabled us to generate that very positive demand and at the same time, maximize the available output that we have on capacity and on supply. Nick Modi: Excellent. Thank you. I'll pass it on. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. You may proceed with your question. Michael Lavery: Good morning. Thank you. Steve Voskuil: Good morning. Michael Lavery: Just wanted to come back to the trajectory of capacity relief. I know you've quantified the reload hit for this year. Just in terms of at least how you're planning for it, assuming that's all set for next year, can you give us sense of how you expect that to unfold and just how soon you can start to see a relief and reloading retailer inventories? Michele Buck: Steve, you want to talk about that. Steve Voskuil: Yeah. I think it's hard to call exactly how that's going to phase over next year. We've got -- as we've talked about in the prepared remarks, we've got capacity that's come online this year. We've got more coming online next year. And I think, between consumer demand and our capacity coming online, it's going to be a challenge to quarterly profile that. We'll hear more in February. I will have a better picture at that point. Michael Lavery: But and is the issue more the production lines or labor or is it both? Steve Voskuil: It's a bit of both. Labor only from availability. Like everyone, we've done a lot of hiring this year. We talked about it again in the prepared remark. We've increased headcount but we've also seen more attrition than we've had in the past. So, there's a labor component, but there's also a machine capacity component. Michele Buck: And I'd also say there has been a logistics and shipping component, as well, although we've been able to take some actions and have seen some improvement on that. Michael Lavery: Okay. Thanks. And you mentioned in the prepared remarks about the strength in unmeasured channels and just how your total sell-through is stronger than what we see in the measured channels. Can you give a sense of if there's any certain products or channels in particular driving that and just how sustainable it might be? Michele Buck: Yeah. I mean, we're seeing it the up versus the pre -pandemic levels. And I think over a 2-year, it's relatively in line with what we would call normal. So, low single-digit growth is kind of what you should be thinking there. Michael Lavery: Okay. Thanks a lot. Operator: Our next question comes from the line of Alexia Howard with Bernstein. You may proceed with your question. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Steve Voskuil: Morning. Alexia Howard: Right. 2 questions from me. Firstly, you mentioned in the prepared remarks that some of the emerging markets are still holding up well. I wonder if you could give us a quick tour of India, Brazil, and Mexico. How long do all they collectively and what are the main initiatives that are in those areas? And then I have a follow-up. Steve Voskuil: Yeah. Michele Buck: Steve, do you want to talk about the size and -- Steve Voskuil: Sure. The 3 markets are doing well. I think, as we started the same point, I think on the second quarter call, but we are gaining share in all 3 of those markets in our key brands. And so, we're pleased with the progress that we're making. You can continue to see a fact from the top line due to the benefits of some of the go-to-market work, including the model in China but also efficiencies in the other markets. So, we're pleased with the way things are going with. We look to the fourth quarter, some of the same capacity challenges that we've seen in the U.S. and North America are going to have some impact on those markets as well. But really pleased -- with pleased with the distribution gains. We've seen the velocity and the share across those 3 markets. Michele Buck: I'd say in terms of the key initiatives, I would probably bucket them across in terms of it is investing in the core. So, India, we're still focused on the chocolate expansion and broadening that. In Mexico, we have both a strong chocolate portfolio as well as Pelon Pelo Rico in the sweets area and in Brazil continuing to fill out our portfolio. We launched Halloween in Brazil for the first time. We had a premium dark line that came out in Brazil a while back that's been very successful. And across all of those markets, investing to continue to build those brands and to build distribution I think are really the key priorities there. Alexia Howard: Great. And then as a follow-up. I didn't see any reference to the e-commerce channels in the prepared remarks this time around. Has that channel slowed down materially? Obviously, it was very elevated during the pandemic and I'm just wondering what's happening over there and whether that's becoming maybe less of a focus this year? Michele Buck: Yes. So overall, I think perhaps not totally unexpectedly, from a broad consumer perspective, overall trips to stores, both brick-and-mortar and e-commerce are up both versus 2020 and 2019. In-store trips have pretty much rebounded to the pre -pandemic level. And in e-commerce, what we've seen is the trips have largely maintained versus last year. But we have seen the dollar per trip go down as many of those consumers who were more exclusively purchasing in e-commerce, shifted more of their spend back into bricks and mortar. Most of the e-commerce shoppers are not exclusively e-commerce, they shop omni-channel. So, we saw some of that shifting occur. Relative to our business in particular, our e-commerce retail sales are up versus last year with our omni-channel partners, despite the significant growths that we had year ago. And also, despite the significant growth that we're seeing in bricks-and-mortar as well. Alexia Howard: Great. Thank you very much. I'll pass it on. Operator: Our next question comes from the line of Steve Powers, with Deutsche Bank. You may proceed with your question. Steve Powers: Thanks. Good morning. With the -- just back to the capacity question. Again, just with the timing of exactly when you might be able to alleviate pressure on those most capacity constraints of brands hard to call as you talked about with Michael, I guess I wanted to cycle back to Rob's question, just get a sense for how long you think this lower run-rate on marketing could continue, and how long you'd be comfortable letting it run, just given the competitive backdrop. Michele Buck: I think relative to the marketing investment, we're just going to -- we're continuously being agile and flexible. And as we are able to either bring new capacity online or make adjustments in how we are operating, because we've done -- we've had a lot of focus in things like freeing up additional capacity by reducing changeovers, by focusing on core SKU. So, I'd say we're in a period of continuous improvement both in terms of capacity investment and maximizing the capacity we have. So, we closely monitor that so that as we do see upticks, we can then quickly reassess and adjust our spending accordingly. Steve Voskuil: Yeah. All I would add is when we talked in the past about the analytics that we have around our media investment, and we put a lot of our own investment in building out that analytics capabilities. So don't think of the media tests as sort of a peanut butter approach. It's very surgical, very precise to the areas where we have capacity constraints and very protective of the high ROI core brand advertising. Steve Powers: Yeah. That makes sense. Just if I could, how much of those analytics and those considerations are driven by your internal -- aspects that are internal to you and your control in your capacity versus, versus the competitive backdrop, right? So, right now, it sounds like you and competitors are all on that kind of a similar spot. And so, as you pull back, you're not overly concerned about share of voice being lost, etc. But if you got -- if you felt you were more offside on capacity relative to competitors and saw them picking things up, how does that affect you? And would you be ramping up ahead of capacity on marketing just to maintain that share of voice or how do you think about that? Steve Voskuil: Yes. I know our retail sales team, has very strong presence to start the week. Between what's on air and what's on-shelf and what's being promoted. We have very good data coming back on what's happening from a competitive set. And all of that does feed into the decision as we think about how we're going to optimize our marketing and media spend. Steve Powers: Okay, great. Just one last question if I could. You called out the price increase executed recently in the U.S. and your expectation for pricing to play a bigger role in next year's growth, which makes good sense. Is there any color you can provide just in terms of the cadence of how you expect net-realized price to flow? Is it going to be relatively even throughout the year, is it -- does it build? Just any context there would be helpful. Thank you. Steve Voskuil: Yeah. We're going to have more in the first half of '22. Think about the most recent price increase will kick in in the first quarter plus we'll have carryover from the price increases that we announced earlier this year. So, the first half will have more price relative to the back-half. Steve Powers: Perfect. Thank you. Operator: Our next question comes from the line of Jonathan Feeney with Consumer Edge. You may proceed with your question. Jonathan Feeney: Hey, good morning and thanks. Just a quick one for me. I'm trying to understand, for Q3 and your numbers, I'm off by a few days and your numbers probably they're mine, but clearly, I have 9, 7 for pricing in measured pricing in Q3, U.S. scanner channels. And that's significant -- when pricing broadly is -- at retail is ahead of what wholesale pricing appears to be, what's going on and does that tell us something about the kind of pricing you'd expect to flow through? And is there any possibility that retailers are margining up a little bit, at least relative to what you would consider standard operations. Thanks very much. Steve Voskuil: We're not seeing retailers margin up in a material way. What you do see is a lot of impact of mix and retail when you really got to click down to get down to pack type and see what's happening. And when you get down to that level, it's consistent. More than what you see when you look at just at the top level. Jonathan Feeney: Got you. So, you say, it's more of a mix phenomenon then? Steve Voskuil: That's right. Jonathan Feeney: Cool. Thanks very much. Steve Voskuil: You bet. Operator: Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Ms. Melissa Poole for closing remarks. Melissa Poole: Thanks so much for joining us this morning. We'll certainly be available throughout the day for any additional questions you may have. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.

Operator: Greetings, and welcome to The Hershey Company Second Quarter 2021 Question-and-Answer Session. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin. Melissa Poole: Thank you. Good morning, everyone. Thank you for joining us today for The Hershey Company second quarter 2021 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded Management presentation, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks. At the conclusion of today's live Q&A session, we will also post a transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risk and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially from those projected as a result of the COVID-19 pandemic, as well as other factors. The Company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risk and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck, and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Good morning, everybody. Michele Buck: Good morning, Andrew. Steve Voskuil: Good morning. Andrew Lazar: Hi. First off, I guess, I wanted to dig in a little bit more on the cost to serve dynamic that you talk about in the prepared remark. I guess, it should not come as a surprise that 15% organic sales growth in a given quarter would kind of stress any supply chain, no matter how efficient. So, my question is, I guess, are there any structural investments needed in the supply chain going forward or any capabilities that were exposed by the volume spike? Or is it simply -- you sort of suck up the higher costs, as they’re transitory, particularly the labor part, and not need to necessarily make any changes, as that sort of volume growth is really not likely sustainable at these extreme elevated levels. Michele Buck: So, Andrew, let me start, and then let me ask Steve to give some more details. I would say at the highest level, there are certainly key parts of our portfolio that have had just extraordinary growth, and we cited some of the numbers, for example, on Reese’s. So, one thing that we are very focused on is investigating capacity behind the brands and businesses that we know have demonstrated track records of strong growth over time and particularly where we've seen strong spikes that we think will have continued strength going forward. Let me have Steve talk a little bit more about some of the other elements of cost and cost to serve. Steve Voskuil: Yeah. I would add on the structural side, one of the benefits is we’ve been working on our supply chain 2.0 program and the Annville fulfillment center comes online later this year, that’ll provide some additional flexibility and agility, so that will certainly be helpful. As Michele said, continuing to invest where we need to on capacity, especially on those fast-growing core brands like Reese. From a cost standpoint and getting into some of the pieces, clearly like you said, Andrew, putting that much pressure on the supply chain at one time pushed us in a number of spots. It pushed us from an overtime standpoint; it pushed us from getting to contract manufacturers and expanding some of their work off an onsite contract rate, and the same on the freight and warehousing side. So, I look at those as pressure points in particular on top of that, or as the result of the higher volumes. And then in addition, I would say labor rates in general and labor availability in general are a pressure point, beyond just volume. The market for labor is challenging, and so just like everyone, we want to make sure we are staying ahead of the curve on hiring, making sure our value proposition at our plants is attractive, and packaging inflation is similar. Packaging inflation we touched on a little bit on the last call. It’s still a pressure point. I think we’re still optimistic we’re going to see that moderate as we go forward, but we haven’t seen it yet. So, it is a combination of those transitory costs on the back of the higher volume, and a few things that are a little bit more sticky here as we look across the balance of the year. Andrew Lazar: Thanks for that. And then, just using our back of the envelope math, it seems like the operating profit upside in the quarter maybe is roughly offset in equal parts by a higher full year tax rate and some of the higher costs that you’ve talked about just now sort of leaving the full year EPS guidance intact. I just wanted to see if I had the magnitude of each of those impacts for the full year more or less right. It seems like they’re of equal magnitude essentially. Steve Voskuil: No, I would look at it as the tax piece was by far the biggest impact on us not taking up our earnings guidance alongside the top line. I think if it wasn’t for the tax piece, we would’ve raised guidance. The cost to serve is a component, but think of that as the 10% or the 15% of the impact where the majority really was the tax impact in the quarter. Andrew Lazar: Really helpful. Thank you. Operator: Thank you. Our next question comes from the line of Ken Goldman with JP Morgan. Please proceed with your question. Ken Goldman: Hi, thanks. Steve, you mentioned that there’s 130 basis point tailwind from inventory loading this quarter, and you said there’ll be a deload in the back half. Two questions on this. First, what’s your best estimate for how large the inventory reduction will be at retail in the back half? Number two, I know it’s not always easy to forecast this, but how should we think about the cadence of that? Is the majority in the third quarter, or the fourth quarter, just for modeling purposes? Steve Voskuil: Yeah. I think in terms of total magnitude for the back half, I think 1.5 to two points of impact. And I would -- I don’t think we’re clever enough to give you the precise quarter. I would say I’d look at it across both quarters, maybe a little bit of skew to the fourth quarter. Ken Goldman: Okay. That’s helpful. Thank you. And then, I think it’s fair to say there’s some frustration among investors this morning that you didn’t raise your EPS guidance. I recognize the $0.04 beat wasn’t huge in the second quarter. There’s some uncertainty around the world in the back half of the year, but your business is doing great. So, I’m just curious, internally, was there any consideration of raising the bottom line guidance, or did you just feel it’s a little early given some of the inflation and the macro risks? Steve Voskuil: Yeah. I think, again, but for the tax piece, we would’ve risen or taken up our guidance. Certainly, there’s caution in the back half relative to the inflation and cost to serve. I think we have our hands around what that looks like and have a pretty good bead on that. But if that were the only piece, we would’ve taken up our guidance, but tax was really the piece that we had to take into account. And we want to make sure we’re not sacrificing investment in the back half of the year. Michele Buck: Yeah. For perspective, tax was $0.17 on EPS, so very meaningful. Ken Goldman: Got it. Thanks so much. Operator: Thank you. Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Robert Moskow: Hi. Thanks for the question. What do you think about the tax rate going forward for 2022, Steve? This looks like a one-time impact, so do you think you’ll have an easy comp in 2022? And then secondly, you talk about some of the cost elements; some are structural, maybe some are short-term. Does any of this impact how you’re thinking about pricing going forward for this year and for 2022? Steve Voskuil: Sure. On the tax side, we look at it as a one-off, so if we were to reset next year -- and again, we’ll talk a lot more later in the year about 2022. But as a starting point, we wouldn’t factor this into the starting point for 2022. So, I hope that’s helpful. And then from a pricing standpoint, and Michele can add on here, pricing is a key part of our strategy, maintaining and growing, our gross margin is a key part of our strategy. I’d say we execute against the trend. We are very aware of the dynamics at play from an inflation standpoint and so on, what competitors are doing, what retailers are doing. So, we are evaluating that environment all the time. And as always, we’re not going to kind of tip our hand as we think through it, but pricing is and will remain a key part of our strategy going forward. Michele Buck: Yeah. As you recall, we did take two different price increases earlier this year on our confection portfolio that will really just begin flowing through in the second half of the year. And we’ll also have some upside from that in the first half of next year. Robert Moskow: Okay. All right. Well, thank you. Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Good morning, everyone. Michele Buck: Good morning. Steve Voskuil: Good morning. Alexia Howard: Hi, there. I guess, the first question is whether you can give us any thoughts on the gross margin outlook from here. Obviously, a lot of other companies are seeing an awful lot of pressure. I remember back in 2018 when there was freight cost inflation. I think you also saw some pressure. Input costs are going up, packaging costs are going up, and yet you held it pretty flat this time around. So, just some thoughts on that, and then I have a follow-up. Steve Voskuil: Sure. Yeah. We were pleased with the Q2 gross margin. We were -- it was a little bit ahead of our plan, I think we managed it well, and of course, implied inside our guidance for the balance of the year is a little softening of the gross margin outlook from being up slightly to being in line with last year. And I think that performance in the face of the inflation that we’ve seen would be good. But our goal, again, looking to next year, building on the last question a little bit, is we want to continue to grow gross margin over time. And we want to do that through a pricing strategy. We want to do that through productivity. We want to do that through all the levers to manage inflation and commodity cost, and so driving that forward remains an important goal. We’ll give more color on next year’s gross margin as we get closer to the end of the year, but that goal remains firmly in our mind. Alexia Howard: Okay. Great. And then just a question on the Lily's acquisition. You recently sold Scharffen Berger and DAGOBA. The company’s been trying to make premium work for quite some time. What’s the difference about Lily's that makes you confident that you can actually make this work this time, versus some of the problems that you’ve had in the past? Thank you. And I’ll pass it on. Michele Buck: Yeah. What we really like about Lily's is, it is a scale business, so it is close to that $100 million in size, whereas Scharffen Berger and DAGOBA were much smaller, in the $30 million range. And we’ve found over time, and I think we’ve shared this before that for us, a good acquisition being around close to that $100 million mark has been built enough that we can really best apply our capabilities around distribution, manufacturing, synergies, additional marketing, kind of more broad-based marketing, et cetera, to really help to make the acquisition a success. The other thing I would say is Lily’s is single mindedly focused on better-for-you. So, while it is premium, it has a very distinct understandable benefit that those consumers understand, which is about the lack of sugar. That also gives us a lot of confidence that it fits very neatly into our operating model. As you know, we have already launched a broader portfolio of better-for-you on our core brands, and so that whole better-for-you area is a big point of focus for us. And there’s some nice synergy in terms of our focus there. Alexia Howard: Great. Thank you very much. I’ll pass it on. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Michele Buck: Good morning. Steve Voskuil: Good morning. Michael Lavery: Just curious how you think about elasticity, and I know it can hard to measure. The ways we’ve tried to come at it, you tend to score quite well. Does that -- is that your sense as well? And how do you think about that in terms of your pricing? How aggressive you may try to be or not be, and just how you anticipate the consumer response to that? Michele Buck: Yes. We have seen -- we have very complex and sophisticated price elasticity models where we look not only at price points within our own categories, price gaps, price thresholds, also around other snack items as well. I think over time, I think we’ve consistently seen that our business, our brands and our category tend to be on the less elastic side versus perhaps some other categories, which is what gives us confidence in pricing power and the ability to take price when we feel it is the right time. Michael Lavery: Okay. That’s helpful. And just a follow-up on Reese's. Can you give a sense for the organic Reese's launch, just how that might be tracking versus your expectations, and maybe a little bit of how it compares from a margin perspective? It looks like, with its price point, it’s probably pretty nicely accretive. Is that directionally correct? Michele Buck: So, it is performing in line with our expectations. It is early days, but it’s absolutely in line with what we expected. It is really in kind of a test-and-learn phase as we move forward. And it’s not, I would say, a big material piece of our better-for-you launch at this point in time, as organic is a little bit more of a targeted offering than say, zero sugar or sugar free. Michael Lavery: Okay. Great. Thanks so much. Michele Buck: Yeah. And to your second part of your question, from a margin perspective, we do charge a higher price point for it. But it also does cost more, obviously, so the margins are comparable to the core. Michael Lavery: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Ken Zaslow with Bank of Montreal. Please proceed with your question. Ken Zaslow: Hi. Good morning, everyone. I had just two quick questions. One is the tax, is it a cash item or a non-cash item? And then the second thing I’ll ask is, implicitly, you’re actually raising the EBITDA, which is more cash oriented. Am I not understanding it correctly? Steve Voskuil: So, the first question is for the second quarter, it’s non-cash, but a portion will become or could become cash in the balance of the year, and that portion will probably be non-cash for the balance of the year, so it is a mix of both for the balance of the year. On your second question, yes, you’re thinking about it the right way from an EBITDA standpoint. Ken Zaslow: Okay. And then just to follow-up on this. The magnitude of the increase on the EBITDA exceeds the amount of cash that will be needed to pay the taxes. Is that a fair way? And then I’ll leave it there. I just want to make sure I understand the tax, because it just seems like it’s more -- if cash flow is actually coming up, not going down, based on what you’re saying. I just want to make I’m understanding it correctly. Steve Voskuil: Yes, that’s true, but I’d say the caveat is time. All right. So, if you’re looking at a longer period of time, it’s more possible that a portion of that reserve could become cash. And so, if you’re looking at next quarter or the balance of the year, that might lead to one answer. If you’re looking at the next two years, it could be a different answer. Ken Zaslow: Great. I appreciate it. Thank you. Operator: Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question. Bryan Spillane: Hey, good morning, everyone. Steve Voskuil: Good morning. Michele Buck: Good morning. Bryan Spillane: Hi. So, I guess, I wanted to maybe follow-up a little bit on Andrew’s questioning at the beginning. And Michele, maybe just stepping back a little bit, this -- in this environment, right, where we’re seeing not just higher cost inflation, but in addition to that, what’s effectively labor shortages, right, and we’ve seen this across a lot of the companies in our coverage universe. So, I guess, I had two questions related to that. One is, if supply chains are kind of running all out, just how you think about stimulating demand when there’s some challenges just in terms of getting product on the shelf? And I guess the second is just, as you step back and you look at all these different dynamics in the economy and the environment in general, it’s definitely a situation that is in some ways unique. Your perspective, have you seen some of this before? And maybe just how you’re thinking about approaching planning for the business over the next, I don’t know, 12 to 24 months, if we continue to be in this type of environment. Michele Buck: Yeah. It’s certainly something that we spend a lot of time, thinking about and working on. And I guess what I would say is, yeah, we do realize that it is somewhat of a volatile time still, certainly with all the talk of the Delta variant and recent CDC guidance recently. It’s all too much of a reminder that we clearly aren’t fully out of the pandemic. And I personally believe, in September, we know that a lot of companies are implementing kind of a return to office. It seems like a lot of companies are doing that then. Kids going back to school. So, there will be more for all of us to learn about consumer behaviors and what some of those changes mean for that. The way that we think about the supply chain and managing where we are right now is, I guess in a couple ways. How do we maximize -- how do we efficiently maximize and profitably maximize revenue? And so, one of the key things we do focus on is really looking across the portfolio and focusing on really maxing out where we have available capacity and leaning into some of those brands and businesses with greater investment, reallocating investment to those businesses so that we can really take full advantage of that. If there are areas of the portfolio where we -- like a Reese, for example, I think we keep pointing out as an example because it’s such a big piece of our business and growing at such a hefty rate. We have total confidence making big capacity investments on that one, just because of the track record and the dynamics around that. And then -- so we’ll invest in capacity as a piece of that. And then there are parts of the portfolio where we’re not going to lean in right away and invest in capacity, because we want things to play out a bit here more. So, we really leverage the breadth -- one of the strengths we have is the breadth of our portfolio. We’ve got our seasonal portfolio with the consumable take home. We have a range of different brands. And so, we really try and leverage that as best possible to manage through. So, it’s kind of a balance of investing to build supply chain even stronger, which we’re always doing, but we’re doing even more of that right now. Doing what we need now, kind of no regret move, and then planning for the future from a contingency perspective depending on what the potential outcomes are. Bryan Spillane: Okay. Thanks for that. If I could just follow-up with one quick one. Just as you’ve sold in merchandising for holidays in the back half of the year and maybe just more in general, have service levels come up more as sort of a factor that retailers are focusing on? Like, you can sell a program or they can take a program, but are they more sensitive to actually planning to be in stock? Is that becoming more of sort of a factor in that decision-making right now? Michele Buck: Yeah. I mean, I would say absolutely. Retailers were under tremendous pressure this past year with all of the huge shifts that COVID caused on many manufacturers’ businesses. They had, as we all know, tremendous issues with out-of-stocks. And so, their goal is to make sure they remain in stock. In fact, right now, we’ve seen retailers really lean in a bit to inventory and carry a bit more inventory than they have in the past, because I think there’s a little bit of a scarcity mentality. They want to make sure they have product. They also know that manufacturers are taking price, and so in some cases it may allow them to hedge a little bit there. So, I think it is definitely a focal area and, of course, something that we always focus on and are proud of how we’ve been able to deliver for retailers. They’ve continued to come to us, given how we were able to deliver during the worst of the pandemic last year, and have continued to rely on us this year. Bryan Spillane: Okay. Thanks, Michele. Michele Buck: Absolutely. Operator: Thank you. [Operator Instructions] Thank you. It seems there are no other questions at this time. I’ll turn the floor back to Ms. Poole for any final comments. Melissa Poole: Thank you for joining us this morning. I’ll be available throughout the day for any other follow-up questions you may have. Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to the Hershey Company First Quarter 2021 Question-and-answer session. . At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Ms. Melissa Poole, Vice President of Investor Relations for the Hershey Company. Thank you. You may now begin. Melissa Poole: Thanks, Rob. Good morning, everyone. Thank you for joining us today for the Hershey Company's first quarter 2021 earnings Q&A Session. I hope everyone has had the chance to read our press release and listen to our pre-reported management presentation, both are available on our website. In addition, we have posted a transcript of the pre-recorded remarks. At the conclusion of today's live Q&A session, we will also post a transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially from those projected as a result of the COVID-19 pandemic as well as other factors. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP reconciliations to the GAAP results are included in this morning's press release. Joining me today are Hershey's Chairman and CEO, Michele Buck; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: Thank you. [Operator Instructions] And our first question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Robert Moskow: Hi. Thank you for the question and obviously, really great results. I just wanted to get a little more color on your gross margin expectations for the year. You talked about transitory reasons for why gross margin would be down in first quarter. And I think – are you still guiding to gross margin expansion? And to what extent do you need like the incremental pricing to get that gross margin to turn the other way? And I would think some of these higher costs that you're talking about, like freight co-packing, it sounds like you'll need to keep doing those things beyond just first quarter, maybe a little more color there. Michele Buck: So let me have Steve take that one. Steve Voskuil: Sure. Happy to. So yes, we are still calling for modest gross margin expansion on a full year basis. As you noted and we had in the remarks, there were some transitory impacts in the first quarter, some lapping from last year, some also cost in response to the higher volume. As we look forward for the rest of the year, some of the things that are strengths for us, the productivity gains, the additional volume, the pricing that you referenced, all of that will be part of building that gross margin. So far, for the first quarter and even as we look out for the year, I would say our inflation assumptions are largely tracking to what we had in plan, and the one exception that we noted was packaging. And I think that is one we'll watch. Our expectation is that inflation will moderate some as the year plays out, impacted a bit by weather in Texas for the first quarter. So that's one we're watching, and then in any carry forward of incremental cost to support the higher volume. And with more runway here in the balance of the year, we'll have more opportunities to optimize between customer service and manufacturing capacity and the cost of support. So we're keeping a close watch on all those. But yes, at this point, we still see some gross margin expansion over the course of the year. Robert Moskow: Okay. And one follow-up. The new price increase on grocery and non-chocolate, can you give us a sense of what it presents both in absolute terms and also on an annualized basis once its fully flows through? Steve Voskuil: Yes. So we see it total pricing for this year across all the price increases, order of magnitude about 100 basis points, about half of that is the non-chocolate piece. And again, reference there is we haven't priced that part of the portfolio since 2014. So this is in line with our broader strategy. We've talked about of rotating and refreshing pricing in parts of the portfolio. Robert Moskow: Okay. So on an annualized basis, does that mean it's 1%, 2% to the total business? Or… Steve Voskuil: Yes, annualized, it's about a point for this year. It's about 50 basis points. Robert Moskow: Okay. All right. Thank you very much. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your questions. Michael Lavery: Good morning. Thank you. Michele Buck: Good morning. Michael Lavery: Just following on pricing a little bit. You said the 1 point to 1.5 on expectations for the year. And I mentioned that a lot of that reflects the pricing you just took and some of the promotional benefit in the first quarter. You also just mentioned that the packaging inflation should moderate. You've got some relatively benign things like cocoa costs and dairy at least so far. But if you were to look for more pricing, say, if packaging didn't come in the way you're expecting, how nimble can you be? And what sort of timing does it take to flow some of this through? How much upside to the 1 to 1.5, could we end up seeing? Steve Voskuil: Yes. It depends on which parts of the portfolio that we would price. Obviously, the seasonal part takes a pretty long lead time. And so really, that's not something that would be in the card for this year. On an everyday basis, we probably need at least three to four months of lead time. And so you could say there's still some optionality there, if we were to see some worst case scenarios from a cost standpoint. Right now, that's not in the plan. I think we feel good about the plan that we have for pricing. But as I said, we'll monitor what's happening from a cost standpoint. Michael Lavery: Okay. That's great. Thanks. And just a follow-up on the e-commerce side. I believe you've said that those margins might be somewhere around 100 to 150 basis points lower, but as it scales, that should improve. How have you seen that change over this past year with the benefit of the surge and obviously, a bigger scale base now? Steve Voskuil: Yes. From a dilution standpoint, I mean, you're in the right ZIP code. It's a bit dilutive to the overall margin. Obviously, that piece of the business, as we've talked about in prior calls, has gotten bigger. But at the same time, we continue to look for ways to drive efficiency there and optimize inside that business to bring those margins closer in line with the rest of the portfolio. Michael Lavery: Do you have a sense of just the timing for what that might take? Is that a multiyear process? Or would some of this surge that's kind of still sticking now would be a big help towards narrowing that gap? Steve Voskuil: Sure. It's a multiyear process for sure. I mean, the scale does help. We get more scale across some of the investments and capabilities that we put there. So there is some benefit there in the present, but really to address the full dilution, it's going to be a multiyear process. Michael Lavery: Okay. Great. Thanks so much. Operator: Our next question is coming from the line of Nik Modi with RBC. Please proceed with your questions. Nik Modi: Yes. Thank you. Good morning, everyone. I had two questions. First is on just shelf space. So clearly, Hershey has done a phenomenal job on execution, gains in 2020, gains in early 2021. I'm just curious given how your momentum continues, if you would expect to see or have discussions with retailers, providing more space later this year, but also in 2022? That's the first question. And then the second question is just on – given the online momentum that you've been seeing and the clear stickiness that we've seen, how are you thinking about the supply chain and kind of reorienting the supply chain to make sure that you can continue to effectively execute as the online business continues to grow? Thank you. Michele Buck: Good morning, Nik. So let me first go to the space question. As we started out for the year, we always have a focused plan, focused on balanced growth across all levers, driving base velocity, using media to accelerate growth, growth in seasons, distribution gains. So that's always a focus for us. And we are fortunate that we have been able, given the strength of our performance of our supply chain, particularly overall, but also during COVID and some of the needs of our customers to be able to provide some incremental SKUs that were very viable, that our customers were looking for, and we gained about five incremental SKUs for the year. And so certainly, with that comes some shelf space gains. So that's something we've been focused on. As we get that distribution and we get shelf space now, that certainly has some staying power as long as those SKUs perform, which we anticipate that they will. So we are continuing to be focused on that. And as we look throughout the year, believe, we feel pretty good about our ability to continue to drive distribution as well as shelf space gains. And certainly, that kind of coincides with some of the share gains that we have seen on the business have been driven by that. As we look at online momentum as it relates to our supply chain, we've talked before about Supply Chain 2.0, a big initiative that we have to really prepare our business and enable our manufacturing and supply chain for the future. And certainly, as we build that program and that initiative, one of the key legs that we were focused on was the agility to enable us to adapt to the changing retail environment and specifically, e-commerce being one of those areas, because a lot of the packs sold in e-commerce are slightly different than those sold across the business. So some of those investments that we're making there enable us to more efficiently at a better margin, develop the right packs that enable us to win in e-commerce. So big focus in Supply Chain 2.0 against that and in all of our new capacity builds. Nik Modi: Thanks. Thank you, Michele. Michele Buck: Sure. Operator: Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your questions. Jason English: Hey. Good morning, folks. Thank you for sliding me in. I want to come back to the question on pricing, but from a slightly different angle. Michele, if we look back in history, usually, you move Mars follows or Mars moves, you follow, and you follow a similar order of magnitude on similar products. And that consistency has obviously helped investors build confidence in the pricing architecture, the pricing discipline or the pricing power in the category. We're in a bit of a unique circumstance right now where Mars is moving one direction with a higher magnitude, and you're moving in a different direction with a much lower magnitude. And it strikes me is quite a unique moment in time where you guys are diverging. I guess I love a little more clarity to try to understand the motivation for you to go in a different direction? And what if any implications this may have in terms of that pricing discipline we've historically seen in the category? Michele Buck: Yes. So I continue to feel really good about this being a very rational category from a pricing perspective and there being strong discipline from that perspective. Our recent announcements regarding increasing price on seasons and also non chocolate and grocery are very consistent with the strategy we've been executing over the past couple of years of realizing price through different levers and on different parts of the portfolio. And we think that, that's proven effective for us to drive profitable growth and also be able to reinvest in the business, both for us and also for our retailers. But we do know that across competitors in the category, we each do have unique portfolios with different SKUs to our business across pack types and across brands, we have some different capabilities in terms of what we are good at executing and perhaps even different business needs at different points in time. And so while all the pricing isn't exactly pack-to-pack, exactly the same, what we think is important is while those tactics and products might differ, overall, category price realization is pretty consistent. And so if you look at us and you look at the largest player in the second largest player in the category, the magnitude and difference in terms of what we each are getting from price is probably a point or in that range. So it's a significant – it's not a significant difference between. Jason English: Got it. Thank you. That's helpful. I’ll pass it on. Operator: The next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your questions. Ken Goldman: Hi. Thank you. You highlighted some recurring headwinds to your gross margin. I think there were some incentive payments, so comment on warehousing costs. Is there any color, Steve that you can provide on how much these may have added to your COGS or just took away from your margin? And do any of those incentive payments bleed into 2Q? Steve Voskuil: Yes. So maybe just taking the incentive piece. So yes, we will see some additional incentives that I go versus prior in second quarter as well. As we get to the back half of the year, it's going to get a little bit narrower year-on-year. And so – but we'll definitely see some impact in the second quarter. We also have some year-over-year investments in capabilities. I think we touched on these a little bit in our last call, still some costs going through OpEx to support Supply Chain 2.0 that Michele mentioned and also the ERP program. So those would be, if I kind of look between the lines, some of the pieces year-over-year, that will be different. Ken Goldman: Okay. And then as my follow-up, I may be pushing you a little harder than what you're willing to talk about, but it's hard not to notice that COCO, it was of the only commodities that hasn't retired lately, has come down actually sequentially in the last couple of months. So I know you don't talk about your specific commodity buys. But can you just walk us through a little bit about how you're looking to lock in maybe some of your favorable inputs a bit longer than you otherwise might have, just given how everything else has risen so much higher? It really could help you in terms of protecting your 2022 numbers at this point? Steve Voskuil: Sure. Yes. I mean, you're right, Ken, we're not going to get too specific. Our hedging horizons vary. We kind of said in the past three months up to two years, depending on what's available on the market, liquidity, pricing, and I will say our commodities team is very good at interpreting the signals and trying to make smart moves with respect to that hedging program. Beyond that, we're probably not going to comment and said cocoa's moved around. It's down a little bit. I'll like you might interpret that as some opportunity if you were to be a little bit longer from a hedging standpoint, but we really don't want to say any more than that yet about 22. Ken Goldman: Understood. Thank you. Operator: Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your questions. Alexia Howard: Good morning, everyone. Hope you can hear me okay? Michele Buck: Yes, we can. Alexia Howard: Perfect. Okay. So I guess my first question is, I wonder if you can give us a little bit more detail and granularity around the away-from-home recovery, particularly in North America. Which regions, which channels, what exactly is playing out there that you're seeing that's so encouraging? And then my second follow-up question, I know you're not giving quarterly guidance, but obviously, 2020 was such an unusual year. And we're going to be lapping some interesting developments in the year ago period as we go into Q2. I think you mentioned the ad spend was going to be up materially in the second quarter. I'm just wondering whether you can give us any other pointers on how the top and the bottom line might be expected to develop? Or what the pluses and minuses are as we think about next quarter? Thank you. And I'll pass it on. Michele Buck: Sure. So relative to the away-from-home strength, I would say it is across the board. So first of all, we did see stronger foot traffic and consumer mobility in North America, and that was really, I believe, from the accelerated vaccine distribution as well as from the stimulus funds that were allocated and that not only drove strength in what we would call our core channels, kind of the more traditional channel, food, drug mass and even some pickup in convenience in Q1. It also had – there was also a very strong positive impact on our non-measured channels as well. So, food service, our own retail stores in a world travel retail some of those businesses that were really big decliners for us last year came faster than we anticipated. So I would say, it was pretty much across the board in terms of all of those venues improving a bit more than we had anticipated. So, some of it was due to the consumer traffic. And then, of course, we were able to also capture incremental distribution and merchandising in our US confection business. And given the strong sell-through that we saw, driven by mobility and foot traffic, strong sell-through Easter then led to accelerated shipments of some of our summer programs, which also helped us across the board. And then even beyond North America, we actually saw increased mobility in the international markets as well, a bit more than we had expected. So with that, I think those were unplanned for us in Q1. We certainly had planned to see those mobility improvements later in the year and have that in our plan, but not in Q1. And with that, I'll turn it over to Steve to talk a little bit about the quarters. Steve Voskuil: Yes. From a quarterly standpoint, as we look at Q2, building on what Michele said, we've got a lot of momentum on the top line coming into Q2. We're able to merchandise early. Some of the summer season, that will get us off to a – to a strong start. As we go forward from there on the top line, you're going to see sales growth moderate. The last get tougher. You'll see pricing start to make a contribution more in the back half. And as Michelle said, our plan assumed mobility would begin to recover as we got to the back half. So that's less of a new piece of the story as we turn the corner on the midyear. And then we'll see some margin improvement as the year progresses. You mentioned ad spending for Q2. It's going to be up pretty big. Year-over-year, that was – the quarter last year where we made some adjustments, some pricing advantage because it was cheaper to buy and some pricing or some adjustments in how much we spent just in response to COVID. So hopefully, that gives you a little bit of color on the balance of the quarter. Alexia Howard: Very helpful. Thank you so much. I’ll pass it on. Operator: The next question is coming from the line of Andrew Lazar with Barclays. Please proceed with your questions. Andrew Lazar: Good morning, everybody. Michele Buck: Good morning. Steve Voskuil: Good morning. Andrew Lazar: Michele, I know this can be a little hard to parse out sometimes. But as you think about how much of the gains that you've made the last couple of quarters, right, in distribution and shelf space, merchandising gains you've talked about, how do you think about like how much of those might be structural, right, based on a lot of the – the good stuff that you're doing around innovation and everything else versus a product of what's been clearly a more accommodative sort of competitive environment from a perspective of some others, whether it be supply chain missteps and things of that nature? So I'm just trying to get a sense, it's a hard one to answer, I know, but how sticky do you think some of those gains in market, right, that you've seen can be over time? Michele Buck: Yes. So I think you're right. It is a little bit tough to parse all of that out. So I would say we came into the year feeling really good about our strategies. And many of those we have laid out pre-COVID relative to really focused on we got to win at the top line with balanced growth, which is driving against distribution, the core innovation, seasons, pricing and volume growth. And I think what we're seeing on the business is that we are delivering on each of those elements. And so certainly, that is a piece that I think has staying power that some of the strategies we put in place relative to pre-COVID optimizing our balanced focus on the core and on innovation, not over rotating on innovation too much. Not over rotating on any one factor, balancing price volume, one of those things. So I think that there is some underlying strength there as well as a lot of the investments that we've made in our core capabilities in our manufacturing and our supply chain over the year that have enabled us to deliver perhaps at stronger levels than perhaps some others in the marketplace. And so some of that strength that we're seeing in terms of impact of media, those types of things, they're there without the COVID impact. We tend to always, as you know, strong category managers. So we do tend to do well when it comes to winning at retail. We have our proprietary retail sales force that enable us to do that. At the same time, I say, I guess, if I was going to parse out some places where some of the current dynamics maybe a little bit more transitory. Certainly, we have one more distribution than, I would say, it's probably at the historic level in terms of number of new items, because of our strength in being able to operate in this environment and our agility, we have won some incremental march [ph] associated with the competitive situation as well. So for me, I guess, I kind of – I narrow into probably those two factors being probably the biggest ones that are the most unique. And of course, the other one is that right now in Q1, you asked more about a couple of quarters, in Q1, in particular, we've kind of got that unique duality where we're seeing that we're benefiting both from away-from-home and from at-home behaviors, both being strong. And certainly, I think that, that can't sustain at the level that it did in Q1. So we do think that, that's going to moderate a bit. Does that help yes. Andrew Lazar: Yes. That's very helpful. It will be really interesting to see how much of the at-home moderates as mobility does return for the industry as a whole, obviously, it will be really interesting. But I hear your point about how strong both of those really were at the same time in Q1. So yes, that's very helpful. Thanks so much. Michele Buck: Thank you. Operator: The next question is coming from the line of Rob Dickerson with Jefferies. Please proceed with your questions. Rob Dickerson: Great. Thanks so much. I just wanted to touch on the international segment for a minute. I mean, obviously, performance in Q1 extremely strong. I think originally, right, the expectation was essentially for somewhat modest growth. Guidance now is up for the full year for the total company. And then I know you had comments in your prepared remarks just around basically playing it safe, right? There's some incremental lockdowns occurring, the visibility is that strong. But I guess kind of overall, the question is, could it be actually a lot stronger, right, than we would expect as we go through the year? Because it would seem as if kind of relative to what we're thinking about for North America, is that international piece does continue to play out. And obviously, given those compares are so much easier, it would seem as if the volume-driven year could actually be even more volume-driven off of that international piece as we progress through the year. So kind of simplistically, I'm just asking, I realize you don't have the visibility, but if things were to kind of self-correct and momentum were to continue in international, I mean, could you just not do much better on the top line than you're already currently guiding? That's all. Thanks. Michele Buck: First of all, I'd say, hey, we feel great that we are seeing strength across every piece of our business. In North America, in every component of North America, including US confection and amplify as well as in international. So that's great to see. And certainly, we did have a strong first quarter in international that was significantly ahead of our expectation. I think what was interesting for us was that despite this fact that COVID cases were high in many of those markets, consumer mobility still increased, and that drove demand for our category that was stronger than we anticipated. I think the potential concern and certainly, as you look at the news, you see this everywhere is there certainly are some pretty dire situations, especially in some of the markets that we're in, but certainly, India being one of those, where case counts are rising. There are other markets where the vaccination dissemination is going quite slowly. And as new lockdowns are implemented, we expect that those could hamper mobility and that these trends could moderate. So we know international, things are always volatile, but they certainly are even more volatile during this time. And those markets are not going to have linear behavior. So we expect that we'll see continued volatility. What we're trying to do is to drive what's within our control, and our teams are responding with tremendous agility in adapting the plans based on the stages and the status in each market. So we feel good that all of our key initiatives, whether it's our China transition to the new business model, a restart or upping again our focus in India on our chocolate initiative, all of those things are going well. But there's just a lot outside of our control, and we'll have to see how the year plays out. If things are positive, certainly, there could be upside. And – however, we also know that there could be downside as well. Rob Dickerson: All right. Great. Thanks so much. Operator: Our next question is from the line of Morgan Fletcher with Bank of America. Please proceed with your questions. Morgan Fletcher: Hi, good morning. Thank you for the question. Michele Buck: Good morning. Morgan Fletcher: So I guess my question is on how COVID may have changed your perspective on the portfolio maybe in inorganic, but also an inorganic way? We touched on e-commerce and supply chain earlier, but maybe if we could just go through more how you're looking at categories differently? Like baking mix has had very strong growth, while refreshments have seen decline. So just how you may be thinking about your portfolio on a category basis going forward? Thank you. Michele Buck: Yes, absolutely. I mean, I think one of the things that we feel good about that COVID just reinforced was the strength of the breadth of our portfolio to be able to participate in different occasions. And so I would start first within core confections and say, we have a – our business splits a-third, a-third, a-third, instant consumables, which are all about people being out and about on the go; take home, which is all about people being at home and consuming the products there; and then seasons, which is all about celebrations. And so within confection, what we saw was, wow, normally, we might focus a bit more of our efforts on instant consumable. And when COVID hit, we were able to immediately shift media, in store merchandising, et cetera, more to our take-home portfolio. And we also saw that during a time like COVID, consumers were just hungry for connection and so the roles that our brands play during season to create that connectivity and traditions and rituals with something consumers just were so hungry for. So really leveraging the full breadth of that within confection was important. You raised baking and certainly, consumers were baking more, and we were able to leverage that as part of our portfolio. So I think what it really taught us was this ability to pivot to follow the consumer and to focus on the parts of our portfolio that were most relevant to them at that time. And as I think – if we think organic and inorganic likewise, we were able to take advantage of SkinnyPop which has done incredibly well during COVID. And certainly, we know that category like nutrition bars haven't done quite as well. So it's really playing on the pieces of your portfolio at the right piece of time, but having the options and the breadth across the portfolio to be able to meet those needs. Morgan Fletcher: Thank you. Operator: Thank you. We've reached the end of the question-and-answer session. I'll now turn the call over to Michele Buck for closing remarks. Michele Buck: I'll turn it over to Melissa for closing remarks. Melissa Poole: Thank you for joining us this morning. I know, it's a busy day of earnings. As always, I will be available to answer any additional questions you may have. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.