Q2 2025 Hershey Co Earnings Call
[music].
Greetings and welcome to the Hershey Company's second quarter 2025 question and answer session.
Anoori Naughton: Greetings and welcome to The Hershey Company second quarter 2025 question and answer session. To join the queue, please press star one on your telephone keypad. 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 the call over to your host, Anoori Naughton, Vice President of Investor Relations for The Hershey Company. Thank you. You may begin.
She joined the queue. Please press star one on your telephone keypad 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 the call over care hosts and Marina and Vice President of Investor Relations for the Hershey Company. Thank you you may begin.
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 Q&A session. We will also post the transcript and audio replay.
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 filing.
At 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 to that.
Detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings.
Anoori Naughton: 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. Reconciliation 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. Before turning it over, I would personally like to thank you, 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. With that, let's get started with the first question.
Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors.
That 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 of 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 also before turning it over I would personally like to thank Michele for being inspiring for it.
A clear vision and unwavering dedication to excellence have shaped the company and will continue to motivate us for years to come.
With that let's get started with the first question.
Sure.
Our first question is from Andrew Lazar with Barclays. Please proceed.
Michele Buck: Our first question is from Andrew Lazar with Barclays. Please proceed.
Andrew Lazar: Great. Thanks so much. Good morning, everybody.
Great. Thanks, so much good morning, everybody.
Michele Buck: Good morning.
Good morning.
Andrew Lazar: Hey, 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 Congratulations to you our best wishes going forward and congratulations to Kirk as well as he prepares to take the helm in mid August.
Thank you I guess my question Michelle is that.
Michele 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, you know, to set a 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?
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 its a situation where there's been let's say Underinvestment Kirk will obviously come in and get under the Hood and make his own determination, but I guess from where you sit.
We put issues like cocoa and tariffs aside do you see the underlying health of the business as a need of this sort of a reset and I guess more importantly, what specifically did you and the board see and Kirk that made him the right choice.
Sure. So first of all I'll reiterate certainly as Kirk who walks in who have the opportunity to form his own opinion.
Michele Buck: Sure. First of all, I will reiterate, certainly as Kirk walks in, he will have the opportunity to form his own opinion. 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. 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. We have done that. We have continued to spend on our brand. We have invested in technology, with our new ERP platform and new AI and tech-enabled capabilities that have driven significant efficiency, whether in the transformation program or other places.
But what I would share is as you know her she has been a company that has stated are beliefs and investments in brands and capability overtime to consistent we ensure that we can drive sustainable growth and.
We have proven that we consistently do reinvest during periods of change as we you know 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 and 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.
Michele Buck: On top of that, we are seeing top-line momentum on the business. We have our profit recovery plans well underway, and we will talk more about that today. As I look at the past 18 months where we have 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 are headed in, and perhaps even with tariffs. If I put all of that together, I do not see a need to really reset. I think we have been consistently investing and we have momentum on our side.
On top of that we're seeing topline 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. We're I would say Ah 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 to really reset I think we've been consistently investing and we have momentum on our on our side.
Andrew Lazar: Okay. Thank you for that.
Thank you for that and they look at yes, correct, Yes, Kirk and what made him. The best candidate I mean, certainly Turk has three 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.
Michele Buck: Look at.
Andrew Lazar: Yes, Kirk.
Michele Buck: Yes. Kirk, what made him the best candidate? Kirk has three decades of experience in consumer packaged goods at Pepsi, a leading talent house. He has very relevant experience in snacking and also in beverage, which has many corollaries to our business. It is not only an iconic brand business, it is 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. I think all of that and his performance orientation will make him a great person to continue moving forward our ambition to be a leading snacking powerhouse and continue to deliver sustainable growth.
You know, it's not only an iconic brands 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 and delivering results. So I think all of that and to kind of performance orientation will make can be a great person to continue moving forward already.
Ambition to be a leading snacking powerhouse and continue to deliver sustainable growth.
Andrew Lazar: Great. All right. Thank you for that. Then a quick one, Steve, just it appears at least as a starting point in 2025. You are looking for elasticity of roughly one to one on the new pricing that was recently announced. Is this a reasonable expectation for 2026 as well, at least at this stage, just given the magnitude of the pricing being taken? Or how do you assess elasticity when it is certainly a greater amount of pricing than you have typically taken in a situation like this? Thanks so much.
Thank you for that and then a quick one Steve just it appears at least as a starting point and twenty-five youre looking for elasticity of roughly one to one on the new pricing that was recently announced I mean is this a reasonable expectation for 2006 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 thanks so much.
Steve Voskuil: Sure. As you can imagine, our teams have modeled this exhaustively. You know, I would put up our strategic revenue management team against anyone. They are very, very thoughtful in the way we approach this. Overall, the elasticities are probably a little bit more favorable than what we have seen in history. Part of that is because of the breadth. 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. As we set both the pricing assumption and the elasticity assumption, we did that with a very thoughtful modeled approach. We will be watching it closely. Right now, we feel we have got a good bead on how it will play out for this year and next year.
Sure Yeah as you can imagine our teams have modeled this exhaustively and I'd put up our.
Strategic revenue management team against any one of the very very thoughtful in the way we've approached us.
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 you know there are parts that we know parts of our portfolio like seasons that are a little bit less elastic are there other parts more elastic and so.
As we said both the pricing assumption and the elasticity assumption you know we did 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 right.
Andrew Lazar: Great. Thank you.
Thank you.
Our next question is from Max Gunport with BNP Paribas. Please go ahead.
Michele Buck: Our next question is from Max Gumport with BNP Paribas. Please proceed.
Yeah.
Hi, Thanks for the question and Michelle Congrats as well and hope you enjoy the retirement.
Peter Galbo: Thanks for the question. Michele, congrats as well, and hope you enjoy the retirement.
At Cagny you observed that if your realized cocoa costs in 2006 matched your costs and 24, then you could do $10 plus in adjusted EPS in 2006, and I realize we're nowhere near that situation currently and we also need to factor in Paris, as well, which were not contemplated in that.
Michele Buck: Thank you.
Peter Galbo: At Cagney, you observed that if your realized cocoa costs in 2026 matched your costs in 2024, then you could do $10 plus an adjusted EPS in 2026. I realize we are nowhere near that situation currently. 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 you are pricing very much close to the gap to the total cost of 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 2024 levels. Also, your comment of the price increase and other initiatives supporting 500 basis points or more gross margin expansion in 2026 before considering partial offsets from cocoa costs and tariffs would support that reasoning as well.
That said with the announced price increase it does seem like you're pricing the bowl.
Pretty much closed the gap to the total Cogs inflation that you have seen in recent years dollar terms, which with regard to EPS might have an equivalent impact as costs falling back 24 levels.
And also your comment of the price increase and other initiatives supporting 500 basis points or more gross margin expansion in 'twenty six but for considering partial offsets from cocoa costs and tariffs would support that recently as well so I'm hoping.
Peter Galbo: I am 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 is a lot in there, but I am hoping for a bit of an update on that. Thanks so much.
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, yes.
Cocoa futures were to hold at current levels I realize there's a lot in there, but hoping for a bit of an update on that thanks. So much.
Steve Voskuil: Sure. Can definitely give some perspective. So you are right. When we gave that back at CAGNY, we talked about $10 and $12 possibilities with assumptions from 2025 and 2024 carrying forward without inflation. Some things have changed since then, tariffs being the biggest one. Tariffs was not 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. 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 is a big step in the right direction, but it is not enough to fully compensate for cocoa inflation up to this point.
I can definitely give some perspective, so you're right. When we gave that back at Cagny, you talked about 10, and $12 possibilities with assumptions from a 25% and 24 carrying forward without inflation.
Some things have changed since then could tariffs being the biggest one right tariffs. It 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 you know this pricing move does make a material impact in the right direction of margin recovery for for 2026. It does not by itself recover all of the cocoa inflation that we've 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.
Steve Voskuil: 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 have seen us take our transformation savings up. We are 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. This price increase, while significant, does not get us all the way to flat year over year. Having said that, some things do feel more optimistic than maybe they did, even on our last call. Cocoa has come back some. Like everyone, we are 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 has taken a step in the right direction. We will continue to optimize tariffs.
As we look forward you know all of the other levers we're going to continue to be important we talked about in the prepared remarks smart complexity.
Have you seen them, let's take our transformation savings up.
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 you know Coco 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 and will continue to optimize tariffs, but if we could get relief in either tariffs or koko reverts back.
Steve Voskuil: If we could get relief in 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.
Either one of those could give us a path to something better than an algorithm earnings for 2026, which is a little bit different than probably we thought in our last conversation.
Great and then just related to the pricing how should we think about any need for incremental reinvestment next year or two to support that that price increase and keep the consumer coming into your into your brands and your franchises.
Peter Galbo: Right. 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?
Into our pricing into our pricing assumptions Michelle touched on this already you know 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.
Steve Voskuil: Yeah, into our pricing assumption. Michele touched on this already. We always want to make sure that we are investing back in the brands, that we are investing on competitive events with our customers. We have got a big innovation calendar already planned for next year. We have got some big tentpole events around Olympics and The Hershey Company movie. So we feel like those will be fully funded. Of course, we will be agile when we get into it. If we do see pressure in some spots or the elasticities are not what we expected, we can revisit.
Those will be fully funded and of course, we'll be agile when we get into it and if we we do see pressure in some spots of the elasticities are not what we expected we can revisit.
Okay. Thanks, very much I'll leave it there.
Peter Galbo: Okay. Thanks very much. I'll leave it there.
Thank you.
Steve Voskuil: Thank you.
Our next question is from Megan Clark with Morgan Stanley. Please proceed.
Michele Buck: Our next question is from Megan Klapp with Morgan Stanley. Please proceed.
Hi, good morning, and congratulations to Michelle as well.
Megan Klapp: Hi. Good morning and congratulations to Michele Buck as well. I wanted to ask about the non-seasonal performance in CMG in the quarter. I think you talked in mid-single-digit growth in the quarter that is better than we had seen previously. You still have a lot of activations planned for the second half. 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 have seen in that non-seasonal portfolio in the second quarter and what is driving the acceleration. Then B, how you are thinking about second-half growth and kind of the puts and takes. Thank you.
I wanted to ask about the non seasonal performance in EMG in the quarter. It you know I think you talked to mid single digit growth in the quarter, that's no better than we'd seen previously and you still have a lot of activations planned for the second half and.
Thank you were expecting some incremental shelf space along side.
Some of those plans in the second half. So maybe you could just expand on what you've seen in that non seasonal portfolio in the second quarter and what's driving the acceleration and then b, how youre thinking about second half growth in kind of the puts and takes thank him.
Sure. So first of all we're feeling very good about what we're seeing on overall chocolate category growth and there are really three 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.
Michele Buck: Sure. First of all, we are feeling very good about what we are seeing on overall chewing category growth. There are really three key factors that we think are driving a lot of what we are 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. There has 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. We have seen some correlations as we look at studies that are out relative to consumers' mindset and emotional well-being and where we are seeing growth tick up in the category. We also had some periods where we were lapping some soft comps, and that helped us relative to every day as well.
Significant innovation makes a difference and delivers value and theres been a lot of investment in innovation across the category.
We do know that our products provide emotional wellbeing and comfort during stressful times and we've seen some correlations as we look at the 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 some 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.
Michele Buck: I think those overall trends tend to be some of the biggest drivers. 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. We saw some very strong positive results and growth behind those programs. 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 are seeing. That said, I would say we are 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.
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.
<unk> brought in 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.
Okay. That's super helpful. Thank you and then maybe just a follow up for Steve too. He answered of Max's question. I think you said if relief in tariffs or Koko.
Megan Klapp: Okay. That is super helpful. Thank you. Then maybe just a follow-up for Steve Voskuil to the answer to Max Gumport's question. I think you said if relief and tariffs or cocoa relief and tariffs happen or cocoa reverts back, you could get to better than on-algo for 2026. So I guess is it fair to say at this point, you do expect you could deliver on-algo growth versus the updated 2025 guide in 2026?
It really can tell what's happened or polka reverts back you could get to.
<unk> better than on I'll go for 26, So I guess is.
Is it fair to say at this point you do expect you could deliver an algo gross versus the updated twenty-five guide in 2026.
Steve Voskuil: 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.
Yes based on what we can see today and again, you know things like tariffs are rapidly moving but based on what we can see today, yes, we see an algorithm earnings growth and top line growth for next year.
Megan Klapp: Awesome. Thank you. I'll pass it on.
Awesome. Thank you I'll pass it on.
Our next question is from Peter.
Michele Buck: Our next question is from Peter Galbo with Bank of America. Please proceed.
<unk> with Bank of America. Please proceed.
Okay.
Peter Galbo: Hey, good morning, Michele and Steve. Thanks for the questions and congrats to Michele as well. Michele, 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. Just curious if you can give us an update there in terms of the discussions that you are having and kind of how you have maybe seen that evolve relative to three months ago.
Hey, good morning, Michelle and Steve Thanks for the questions and congrats to Michelle.
As well.
Michel maybe I wanted to take the tariff discussion and in a little bit of a different direction I think last quarter.
You started hinting at some 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.
Maybe see that evolve relative to three months ago.
Michele Buck: Sure. So, I would say that we are even more optimistic now. As we have 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. We have started seeing more commentary, more publicly addressing that, like the comments that Secretary Letnick made just yesterday. 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. 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.
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 you know Coco can only be grown in sourced outside of the U S and so we feel good that that they they really understand that issue broadly and we have started seeing more commentary.
<unk>.
Or publicly addressing that like the comments that secretary, let Nick May just yesterday.
And we believe that gives us a lot of optimism we understand that there are still a country negotiations that are underway that have to come to fruition.
And so they'll hold cocoa tariff has to be a part of a broader part of that but we are optimistic.
Relative to the fact that there are no public statements being made about this issue.
Great. Thanks for that Michele and then if I can actually pivot to Halloween.
Peter Galbo: Great. Thanks for that, Michele. If I could actually pivot to Halloween, I think in your prepared comment, again, there was a little bit of a maybe a pull forward on shipments from Q3 into Q2. I just want to understand that dynamic. Also, I believe you had a pretty optimistic outlook for Halloween. I just want to understand kind of what's underlying that view as we get into that season. Thanks very much.
I think in your prepared comments again, there was a little bit of a maybe a pull forward on shipments from from Q3 into Q2, just want to understand that dynamic, but then also I believe you had pretty.
Pretty optimistic outlook for Halloween, So just want to understand kind of what's what's underlying that that view as we get into that thanks very much.
Michele Buck: Yeah. 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 midsummer lean-in. There's been a social media trend around Summer Ween, 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 2025. Retailers are definitely excited to set the bar higher this year and continuing to deliver an exciting season for the customers.
So I wouldn't make too much of that was accelerated shipments we see shifts over the years between when Halloween shifts between Q2 and Q3.
It's not uncommon.
Some years the customers wanted 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 weekend, there's been a social media trend around summer, we even which is earlier Halloween celebrations, which is really somewhat taken off with certain consumer groups. So we know that some customers are focused on that and as we talk to customers we feel.
Really good that there are plans in place to deliver another strong Halloween and twenty-five retailer.
Retailers are definitely excited to set the bar higher this year and continuing to deliver an exciting season for the customers.
Great. Thanks very much.
Peter Galbo: Great. Thanks very much.
Our next question is from Jim <unk> with Stephens Inc. Please proceed.
Michele Buck: Our next question is from Jim Salera with Stephens. Please proceed.
Hey, guys. Good morning, Thanks for taking my question.
Jim Salera: Yeah, good morning. Thanks for taking our question. I wanted to shift gears and maybe ask a little bit on the salty snacks piece of the portfolio because, you know, salty as a category has been pressured this year. Yet, it seemed like you guys are seeing strength in both Dot's Homestyle Pretzels and SkinnyPop, which I think play in kind of different value propositions. One obviously more better for you, one more indulgent. Could you just speak to what you are seeing there that is allowing you to deliver kind of above category trends? Then maybe speak to any opportunities to increase multi-bag distribution because that was something you guys called out in the prepared remarks.
Wanted to shift gears, and maybe ask a little bit on the salty snacks piece of the portfolio because he has a category has been pressured this year.
Yet it seems like you guys are seeing strengths in both das and skinny pop, which.
Play in China is different value.
Proposition, one obviously more better for you one more indulgent snack.
To what Youre seeing there that that's allowing you to deliver.
Above category trends.
And then maybe speak to any any opportunities to increase multi back distribution because I was hoping you guys called out in the prepared remarks.
Yes, so first of all both dots are pretty much our entire portfolio and salty snacks does have a permissible and premium halo.
Michele Buck: Yes. First of all, both Dot's Homestyle Pretzels, or pretty much our entire portfolio in salty snacks, does have a permissible and premium halo. Popcorn, clearly, SkinnyPop is pretty obvious. As you think about pretzels, pretzels are perceived as better for you than many other salty snacks. So even Dot's Homestyle Pretzels 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 continued to have upside in driving household penetration, just getting more consumers to be aware of the brands, continued opportunities to gain distribution. Now we have really dialed up the marketing with new packaging on SkinnyPop, our Jennifer Aniston program, exclusive flavors on Dot's Homestyle Pretzels like Buffalo that have generated a lot of consumer interest and fit into some important tentpole events around sports and football.
Popcorn clearly skinny box is pretty obvious, but as you think about pretzels pretzels are perceived as better for you than many other salty snacks, so even docs hands a bit about permissibility halo.
Across those businesses, we just continue to see strong consumer acceptance and momentum.
We bought those businesses you know they were they were relatively nascent. So continued have continued to have upside in driving household penetration just getting more consumers to be aware of with the brands.
Continued opportunities to gain distribution and now we've really dialed up the marketing with new packaging on skinny pop or Jennifer Aniston program.
You know exclusive flavors on dot like Buffalo that have generated a lot of consumer interest and fit into some important tentpole events around sports and football.
So and then pack 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, and engaging with the consumer there just continues to be momentum and we've also launched some.
Michele Buck: PricePack Architecture has been another opportunity of just continuing to fill out all the sizes and price points. So between flavor innovation, PricePack Architecture, engaging with the consumer, there just continues to be momentum. We have also launched some innovation that is kind of between the scenes of those two of some of our categories. 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. You hit MultiPacks, and I would say that is just another lever of growth. Frankly, MultiPacks are a significant size in salty snacks, and we are 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 are continuing to expand the SKUs in that space and gain more distribution there.
And that is kind of between the scenes the seams of those to 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 had multi packs and I'd say, that's just another lever of growth.
Frankly, multi packs 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.
Sure.
Great maybe just one more thought on multi packs.
Jim Salera: Great. 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 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?
Are you able to leverage some of the innovations that you have and kind of package that together and sort of kind of it is just innovation centric multipack offering.
It will 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 try all your innovations in one package.
Yeah, we certainly can combine across the portfolio. For example, we've done a a reef one that we put together that included our reese's animal crackers, our reese's filled pretzels and so yes, we're doing a lot of consumer insight work too.
Michele Buck: Yeah. We certainly can combine across the portfolio. For example, we have done a Reese-like one that we put together that included our Reese's Animal Crackers, our Reese's Filled Pretzels. Yes, we are doing a lot of consumer insight work to optimize what are the most compelling combinations across our portfolio. We have really just gotten some of these MultiPacks into the market. This is an area where there is a lot of upside ahead of us.
To optimize what are the most compelling combination across our portfolio and we've really just gotten some of these multi packs into the market. So this is an area where there's a lot of upside ahead of us.
Okay, Great I appreciate the color Vishal I'll take a few.
Jim Salera: I appreciate the call, Michele. I'll take it too.
Our next question is from Robert Moskow with TD Cowen. Please proceed.
Michele Buck: Our next question is from Robert Moskow with TD Cowen. Please proceed.
Hi, Thanks, and I just want to extend my congratulations to you Michelle for such a great track record and.
Peter Galbo: Hi. Thanks. 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.
Creating so much value at Hershey over the years I wish you the best.
Thank you.
Michele Buck: Thank you.
Peter Galbo: You are welcome. 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. 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? One other 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 for those comparisons where I do not recall from last year? Thanks.
You're welcome and.
I wanted to ask about.
The instant consumable part of the business I think you say in the press release, where the transcript.
Everyday chocolate.
The category was up six 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 why not extra thing I think you said that you thought that the category growth rate.
Not be as strong in the back half because of the comparison.
Can you be more specific with those comparisons where I don't I don't recall from last year.
Yeah, So I'll start on them.
Michele Buck: Yeah. I will 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. We think that that will continue going forward. 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 is where we have had more pressure on the business, particularly from private label and some of the better-for-you and insurgent brands.
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.
Feel good about the actions we put in place relative to partnering on our gold standard planet grams, which enabled us to.
Expand distribution and 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 an insurgent brands.
Michele Buck: It is one of the reasons that as we launch Oreo, we are really focusing on take home because we believe innovation is what is really needed to capture shelf space and to capture the consumer's mind share of the take home set. Relative to year-on-year comparisons, the comparisons are particularly tough in Q4 as that is when we really started to ramp up our big innovation for 2025 at the end of 2024. That is really what is driving that lap.
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, and that's when we really started to ramp up or a big innovation for 25 at the end of our 24, So that's really what's driving.
Driving that lap.
Okay. Thank you.
Peter Galbo: Okay. Thank you.
Yeah.
Our next question is from Alexia Howard with Bernstein. Please proceed.
Michele Buck: Our next question is from Alexia Howard with Bernstein. Please proceed.
Good morning, everyone and congratulations Michele I'm wishing him all the best for your retirement and welcome to Cook.
Alexia Howard: Good morning, everyone, and 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 has stepped up over the last couple of years? It feels as though you are really firing on all cylinders now, and I am wondering if you are 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 reduction?
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'll 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-19 and on the global supply chain reduction.
Yes, so you're absolutely right about that we have dialed up our innovation.
Michele Buck: Yes. So you are 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 over-leveraging innovation at the expense of the core because we know the core is highly profitable and want to make sure we are focused on that. Our levels are up significantly versus 2019. What we are seeing in the category, frankly, is a little bit more innovation is absolutely necessary in order to compete with, particularly for shelf space with some of the insurgent brands and also private label. Innovation is also perceived as value from the consumers who are looking for value.
We we measure our innovation as a percent of net sales.
And try and target, where we think we need to be to really.
Really leverage that innovation with the out you know over leveraging innovation at the expense of the core because we know the GOR is highly profitable and 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.
That's the theory in order to compete with particularly for shelf space with some of the insurgent brands and also private label and.
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.
Michele Buck: So I do think that we have done a really nice job of getting to a good stride as we look to 2026 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 have put forth in sweets around Jolly Rancher ropes, Freeze-Dried, the SHAQ-A-LICIOUS Gummies brand, our M&A and sour strips, really strategic in terms of hitting new consumers and new occasions. Then also some really big innovation such as the Reese's Oreo Cup that we announced that we think gives us a good blend of news, incrementality, and disruption.
Getting to a good stride as we look to 'twenty six 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 suites around Jolly rancher ropes freeze dried fish.
<unk> brand or our M&A and sour strips.
Oh 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 incrementally and disruption.
Great. Thank you and as a follow up.
Alexia Howard: Great. Thank you. 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 reductions at the individual state level in terms of what SNAP can be spent on, and soda and candy may be 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. Is that something that we should be factoring in? Thank you, and I will pass it on.
It seems to me that there may be some incremental headwinds to consumer demand in indulgent snacking as we enter 2026, a G. L. P. One pill version coming out.
Potential snap benefit reduction at the individual state level in terms of what what's not can be spent on them. So that it can be maybe coming out of that.
How are you thinking about that.
It'll impact next year, obviously, the innovation the marketing are obviously going to counter that but is that is that something that we should be factoring it. Thank you and I'll pass it on.
Michele Buck: Yes. So I would say, first of all, relative to GLP-1s, we continue to see no material impact in 2025. Certainly, we are always monitoring very closely, but at this point, we are not expecting it to be significant in 2026. We broadly look at the consumer trend as it relates to health and wellness. As you know, there has been over time a continuous pressure of consumers being more and more interested in products that have those types of benefits. As well, we always watch kind of the national conversation around health and how that may evolve and change anything. So we are 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 are not expecting material impact in 2026 and 2027.
So I'd say first of all relative to G. O P ones, we continue to see no material impact in 'twenty. Five certainly we are always monitoring very closely but at this point, we're not expecting it to be significant twenty-six we broadly look at the consumer trend as it relates to help.
And wellness as you know there's been you know overtime, 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 Nash 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 arent expecting material impact in 'twenty six 'twenty seven.
We frankly, given the choice of reducing snap or removing CMG.
Michele Buck: We frankly, given the choice of reducing SNAP or removing CMG, we are 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 2027, it is something that we are monitoring to factor into our planning.
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 'twenty seven it is something that we are monitoring to factor into our planning.
Great. Thank you very much and wishing you all the best for the future I think Michelle Thank you.
Alexia Howard: Great. Thank you very much, and wishing you all the best for the future. Thanks, Michele Buck.
Michele Buck: Thank you. Our next question is from Leah Jordan with Goldman Sachs. Please proceed.
Our next question is from Leah Jordan with Goldman Sachs. Please proceed.
Thank you. Good morning, just wanted to go back to the pricing discussion and see if you can help us understand the phasing of the pricing actions, you're making in the back half and into 'twenty six and I guess ultimately why does taking this magnitude of pricing makes sense now given the assumption for 1% elasticity as it's often.
Megan Klapp: Thank you. Good morning. I just wanted to go back to the pricing discussion, see if you can help us understand the phasing of the pricing actions you are making in the back half and into 2026. I guess, ultimately, why does taking this magnitude of pricing make sense now given the assumption for 1% elasticity as it is often just better to keep people in the category versus trying to win them back later?
It's better to keep people in the category versus trying to win them back later.
I mean, I'll start and throw it over to you so.
Michele Buck: I mean, I will start and throw it over to you. So certainly, I think pricing makes sense as we look at the continuous pressures that we have 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 have said all along we were going to watch prices. And certainly, if we could delay taking an increase, do so. But we think that is important. We also believe we are still delivering, and we know we are still delivering compelling value across our portfolio. Over 75% of our items are under the $4 price point. And frankly, we are in pretty good shape on that as we look at where we are relative to the other snacking options in the marketplace.
Certainly I think pricing makes sense as we look at the continuous pressures that we've had from our cocoa pricing on our P&L I'm.
We are committed to margin recovery in 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.
Certainly if we could delay taking an increased do so but we think that's important. We also believe we're still delivering it 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 'twenty 'twenty five in particular in terms of impact of pricing.
Michele Buck: 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 are not 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 are not going to get a full impact in the back half. Steve, I do not know if you want to talk about anything more broadly going forward.
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 the season in the back half.
Between seasons, and then also the support behind Oreo and.
The momentum there, we're not going to get us full an impact in the back half.
I don't know if you want to talk about anything more broadly going forward, yes, I would just say that for this year the impacts about two points to the enterprise on the topline and then obviously it most of that is going to be in the fourth quarter and then as we look to next year, it's more of a mid teens impact about 80% of the profit benefit it'll happen in 'twenty six with a little bit of flow.
Steve Voskuil: Yeah, I would just say that for this year, the impact is about 2 points to the enterprise on the top line. Then obviously, most of that's going to be in the fourth quarter. As we look to next year, it's more mid-teens impact. About 80% of the profit benefit will happen in 2026 with a little bit of flow through to 2027 on seasons. The first season to be impacted will be Easter 2026. Hopefully, that gives you some idea of the profile.
<unk> to 'twenty seven on seasons.
In the first season to be impacted will be Easter twenty-six hopefully that gives you some idea of the profile.
Michele 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 brand and to drive the long-term health of the category with new capabilities, etc.
The other thing I would just add as you know 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.
That's very helpful. Thank you.
Megan Klapp: That's very helpful. Thank you.
Yeah.
Yeah.
Our next question is from David Palmer with Evercore ISI. Please proceed.
Michele Buck: Our next question is from David Palmer with Evercore ISI. Please proceed.
Great. Thanks Congrats.
Andrew Lazar: Great. Thanks. Congrats, Michele, and also, congrats to Kirk and welcome. Quick follow-up on the pricing. Is that mid-teens pricing inclusive of tariff-related pricing? I am assuming so. If so, what happens if we do see that exemption from cocoa in the near term? How does that get adjusted? How should we think about that? I have a follow-up.
Congrats Michelle and also congrats to Kirk and welcome.
Quick follow up on the pricing does that mid teens pricing is there.
Inclusive of tariff related pricing I'm, assuming so a night.
So you know what happens if we do see that exemption.
From cocoa in the near term.
Does that get adjusted and how should we think about that I have a follow up.
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 twenty-five inflation yet.
Steve Voskuil: Sure. Yeah. Just to be crystal clear, the pricing has nothing to do with tariffs. This is strictly a catch-up on cocoa component. As you said, we are not fully caught up even on the 2025 inflation yet.
So you're are you currently having discussions where you're talking about two different levels.
Andrew Lazar: All right. So are you currently having discussions where you're talking about two different levels if we see a, I mean, is there a dual track discussion happening on that and through year-end? Because I would imagine there's one window. How are you thinking about that?
If we see it.
Or I mean is there is there a dual track discussion happening.
On that and through year end, because I would imagine there's there's one window. So how how are you thinking about that.
Steve Voskuil: Yeah. 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. We will continue to watch the cocoa markets, but too early to think about that next step.
No I think it's too early but this is now in the market we talked about earlier, we want to make sure. We execute this was excellent and see what the elasticity look like.
And then see what happens with that said, we have some optimism relative to tariffs going forward, particularly on cocoa.
And we'll continue to watch the cocoa market, but too early to think about that next step.
And you mentioned, 80% of that would flow through next year and the previous answer.
Andrew Lazar: You mentioned 80% of that would flow through next year. In that previous answer, if we just were to back up and just look at that North American confectionery price mix flow-through in 2026, what sort of flow-through should we be expecting from that level of pricing in 2026?
You know it if we just were to back up and just look at that North American confectionery price mix flow through in 'twenty, six and what what sort of flow through do we should we be expecting from that level of pricing.
And in 'twenty six.
Yeah, I think we're going to begin to see.
Steve Voskuil: Yeah. I think we are going to begin to see mid-teens again overall for U.S. CMG. We will start from the first quarter. 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.
Mid teens again overall for for U S M D.
Start from the first quarter and then obviously as we talked about with Easter being the first season, you know there'll be a pretty quick start with the new pricing next year for that business.
Got it so we should be expecting double digit.
Andrew Lazar: Got it. So, we should be expecting double-digit price mix to be flowing through in 2026, starting in 2026.
Price mix.
Free flowing through in 'twenty six starting in 'twenty six.
That's right Yeah, Yeah, Yeah got it.
Steve Voskuil: That's right. Yeah.
Andrew Lazar: Yeah, yeah, got it. No, thank you very much.
Thank you very much.
Steve Voskuil: You bet.
You bet.
Our next question is from Michael Lavery with Piper Sandler. Please proceed.
Michele Buck: Our next question is from Michael Lavery with Piper Sandler. Please proceed.
Thank you and good morning, and congrats as well Michel.
Andrew Lazar: Thank you. Good morning and congrats as well, Michele.
Thanks.
Michele Buck: Thank you.
Just wanted to come back to the color you gave on the 2026.
Andrew Lazar: I just wanted to come back to the color you gave on the 2026 gross margin recovery. Can you give a sense? You have 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 are already covered for 2026 at this point as well?
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 the cocoa and maybe how much you are already covered for 2026 are at.
At this point as well.
Sure.
Steve Voskuil: Sure. We will not share specifics on coverage for 2026 other than to say, our policy has not 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 are factoring that into our thinking around coverage and the structures that we are using to hedge. But we are still, based on what we see today, seeing inflationary cocoa for 2026. Again, part of that is based on some of the hedging benefits that we carried into 2025 and off that base into 2026. We will watch closely what happens with cocoa in the balance of the year, and that could move around. But right now, we are expecting it to be inflationary.
Yeah, we won't we won't share specifics on coverage for 2026 other than to say you know our policy Hasnt changed we continue to.
You know 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 'twenty, six and again part of that based on.
Some of the hedging benefits that we carried into 'twenty five and off that base into 2026 now we will watch closely what happens with cocoa in the balance of the year and you know that could move around but right now we're expecting it to be inflationary.
Okay. That's helpful.
Andrew Lazar: Okay. That is helpful. Just as far as a follow-up on the tariff mitigation, you mentioned you are 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?
Just as far as a follow up on on the tariff mitigation you mentioned youre not obviously pricing for that yet you said that.
We'll mitigate your tariff exposure overtime, that's staying door.
This pricing or do you have other levers one of those plans look like.
Steve Voskuil: Right now, we are focused on what we can do in the supply chain. We have got the benefit of a very agile supply chain. We have invested a lot in agility, automation, a lot of cross-border opportunities. We are going to continue to optimize the supply chain part of this. We have done some of that already. I will say for this year, the impact is relatively small. As we go forward, that is going to be, I will say, the principal focus until we see what happens with tariffs long term.
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.
You know 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 it. So we've done that 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 you know what happens with tariffs long term.
Would that be just a different country of origin shift or what supply chain flexibility.
Andrew Lazar: Would that be just a different country of origin shift, or what supply chain flexibility impact is there to impact the tariffs?
Is there the impact of tariffs.
Steve Voskuil: Yeah. 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 insource/outsource and what countries that is located in. So it's sort of all of those things.
There are impacts of where we manufacture we've got you know capacity here in the U S for some things. It's a mix of you know what we in source outsource and what countries that is located in <unk>. So it's sort of all of those things.
Okay, great. Thanks, so much.
Andrew Lazar: Okay, great. Thanks so much.
Steve Voskuil: You bet.
You bet.
Our next question is from Scott Moritz with Jefferies. Please proceed.
Michele Buck: Our next question is from Scott Marks with Jefferies. Please proceed.
Hey, good morning, Thanks, so much for taking my questions and again, congrats Michelle I'm, great great career, and congrats to Kurt coming in and taking over wanted to ask a little bit about the cocoa supply dynamics you made some comments in the prepared remarks around them.
Peter Galbo: Hey, good morning. Thanks so much for taking our questions. Again, congrats, Michele Buck, on a great, great career. And congrats to Kirk coming in, taking over. 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. Just wondering, as we think about maybe the go-forward supply, how much recovery is expected to come from that West Africa region relative to how much is expected to come from sources outside of the West Africa region?
Some investments in new origins you made some comments about Ivory coast is 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 the West Africa region relative to how much is expected to come from sources outside of the.
The West Africa region.
Sure I mean is it.
Steve Voskuil: Sure. As we talked about, I think overall, we feel there are good signs on the cocoa market, some of which we are 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 peaks, 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. I would say all of those feel good at this point. As we talked about in the prepared remarks, we are seeing more fertilizer use, some better agriculture practices as it is more profitable to farm cocoa. To your question, I think we are going to continue to see the origins outside of West Africa continue to invest and play a larger role.
We talked about I think overall, we feel there are good signs on the cocoa markets on which we're seeing now in sum. We expect you know you saw data recently that grinds have come down substantially sort of high single digits and it could be heading lower.
Our ratios have come down from their peak, suggesting some inventory building there potentially.
The current crop we continue to expect a modest surplus in seed next year's main crop looking quite strong.
So I'd say all of those feel good at this point as we talked about 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.
Steve Voskuil: Of course, we have been pivoting into that space already, as many others have as well. 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. 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. I think we could see more of a fall in the second half.
Pivoting into that space already as many others have as well and I think those other origins have responded by investing more in a kind of picking up some of that mantle of a bigger role.
We also have seen more recently of speculators have reduced positions and so forth. So.
We can get to a potential larger surplus without for further recovery in West Africa at new origins.
Double digits and demand continues to decline. So I think we could see more of a fall in the second half.
Got it I appreciate the answer on that and then a last one for me I'm. Just you had made some comments about convenient stores, obviously traffic still being down, but you were still able to grow parts here.
Peter Galbo: Got it. Appreciate the answer on that. Last one from me. You had 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? How are you thinking about the outlook for that space?
Instant consumables business there.
Just wondering as you think about maybe the go forward in C store.
What kind of.
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.
Yeah.
Yeah, I mean, we've had very strong results from the retailers relative to those new initiatives as.
Michele Buck: Yeah. We have had very strong results from the retailers relative to those new initiatives. As we shared in the script, some of the gold standard planograms have certainly resulted in significant category growth for retailers. 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 is a win-win for both of us. We know that we have seen significant high single-digit growth in the categories where we have put those plans into place. There is 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 are seeing on the portfolio there.
As we as we shared in the script some of the the the gold standard plan and Graham 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.
Hmm.
On top of the momentum we already have we have innovation coming in the second half which should further.
<unk> advanced the the momentum and growth that we're seeing on the portfolio. There. So despite you know even if there are continued.
Michele Buck: Despite, even if there are continued declines in trips, I think what we have felt good about is that we have been able to still drive our business and drive conversion despite where trips are.
Declines in trips I think what we felt good about is that we've been able to still drive our business and drive conversion.
Despite where trips are.
Got it thanks, so much will pass it on.
Peter Galbo: Got it. Thanks so much. We'll pass it on.
Our next question is from Chris Carey with Wells Fargo Securities. Please proceed.
Michele Buck: Our next question is from Christopher Carey with Wells Fargo Securities. Please proceed.
Hi, Good morning, everyone 111 quick modeling.
Andrew Lazar: Hi. Good morning, everyone. One quick modeling question, then something more strategic. On the modeling dynamic, which 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 a couple of sound bites on what drove that evolution and how durable it is. I have a follow-up.
A question and then something more strategic.
On the modeling dynamics, which we'll just to have some impact on your model.
Tax rate.
Coming up for the year some evolution of.
Tax credits, Steve is that 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 this that I have a follow up.
Steve Voskuil: Sure. Yeah, happy to take that one. The tax has been a challenge. We talked about it in the first quarter call as well. I think as we get to this point in the year, it has been even more of a challenge. It is very hard to say what is in the tax world as much as changing right now, what is permanent. I can talk about what is happening now and how we think about it for 2026 a little bit. The biggest factors right now are a couple of things. One is we have talked about before, our teams are being very creative in areas like cocoa sourcing and procurement. Those drive a great ROI for the company, but there are some tax consequences relative to our overall rate that are a bit dilutive. That is one factor.
Sure Yeah happy to take that one.
Texas 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 is 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 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 is.
Steve Voskuil: I would think about that as I do not know that I would say it is sticky, but it is certainly a piece for this year, and I would imagine we will see some of that next year. A second piece, you mentioned the tax credit strategy. The tax credit strategy is impacted by two things. One is our income is lower, so there are limits on how much tax credit availability we have with that income level. Second, with all the change in the world of tax right now, some of the returns we are seeing on tax credits just are not up to the standard that we look for when we pick those investments. I would see that as also being sticky. I think in the near term, there is not going to be a big change.
I don't know that I would 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.
Second piece and you mentioned the tax credit strategy the tax credit strategies.
Impacted by two things one is our income is lower and so there are limits on how much tax credit.
Availability, we have with 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.
But I would see that as also being sticky I think in the near term, there's not going to be a big change in that 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.
Steve Voskuil: That is why you see the dial down between other income and expense and the tax rate kind of going in the opposite direction. 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. That is the way I think. Beyond that, it is difficult to say. This is an area that is still evolving pretty quickly.
Now that I would expect to carry forward into 2026.
So that's the way to think beyond that it's difficult to say I mean, this is an area that's still evolving pretty quickly.
Okay very very helpful regarding.
Andrew Lazar: Okay. Very, very helpful. Regarding 2026, it is a bit of a multi-layered question, so apologies. 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 are thinking about that, which is tariffs relative to lingering cocoa inflation relative to the pricing that you are taking? Connected to that, one of your peers reported last night, and we are 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.
2026, it's a bit of a multi layered question so apologies but.
You have these great initiatives in place that are going to give you that what sounds like a gross 500.
At this point benefit to gross margin when you think about the offsets which would.
Got you and that sort of algorithm earnings growth next year is there a way to frame.
How much youre 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.
Where we're seeing you know.
We're seeing some I guess.
Packed some months forward of more substantial pricing, which has been taken in Europe and some of the elasticities, which are starting to emerge or are you able to leverage those pricing actions at market and the volume impacts that we're beginning to see from an elasticity standpoint to I guess better serve you.
Andrew Lazar: Are you able to leverage those pricing actions in market and the volume impacts that we are 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 substantial and appropriate price increase going into next year? Thanks for the gross margin and the elasticity. Appreciate it.
You as you think about your own elasticities ahead of this kind of like substantial at an appropriate price increase going into next year. So thanks for the gross margin and the elasticity.
I appreciate it sure sure well, let me maybe helpful on the EPS side, taking the first part of your question I, 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 an algorithm and if a few things break a potential for more than that but if I just step back on <unk>.
Steve Voskuil: Sure. Well, maybe helpful on the EPS side, taking the first part of your question, just kind of walk through some of the puts and takes on 2026 EPS. 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. If I just step back on EPS, obviously, we are going to have pricing coming through next year. We are going to have increased productivity and higher transformation savings. That was one of the things we called on the call this morning. We will see some greater scale in our core brands. This is part of that smart complexity initiative that we referenced, being very thoughtful about how we leverage the core and drive the core. That also leads to some margin accretion.
And 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 will 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 book continue to lean there.
Steve Voskuil: We will continue to press on tariffs relative to the cocoa exemption. That is 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. I do not see that being any better next year. I would probably look at that as a push to next year. On the other side, the deltas, obviously, we talked about incremental cocoa inflation. Elasticities, we will see what we are going to see there. Along with those elasticities, we will have some absorption impact into the P&L that is factored into our outlook in that 500 basis points. That is something we have to account for. Tariffs can also be a negative if they would happen to go the other way. Those are the kind of big moving pieces inside the puts and takes.
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 and I can probably look at that as a push to next year and then on the other side. The Delta is obviously, we talked about incremental cocoa inflation.
Plasticity, we will see what we're going to see there, but along with those last two cities will 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 it earlier.
Steve Voskuil: On the elasticity question, I think, right now we want to see how our assumptions in the market play out here. Like I talked about, I think in an earlier question, we will pivot if we need to. If we see something concerning on elasticities, we are investing behind our brand's strong innovation agenda. Everything is in place to make this a success, working closely with our customers, but we will remain agile as we see this in the market.
<unk> will pivot if we need to if we see something concerning on elasticity.
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 will remain agile as we see this in the market Yeah, I mean at the highest level I think Steve said this before but we feel good about being an algorithm for 'twenty six and as we look at the puts and takes in the marketplace. We think that there are multiple paths to what's being EPS beat.
Michele Buck: Yeah. At the highest level, I think Steve said this before, but we feel good about being on algorithm for 2026. 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 two biggest factors. That is with current cocoa and tariffs as they are that we achieve that on algo.
Well into that double digit range pending what happens with tariffs and cocoa costs, which of course are the two biggest with the two biggest factors that is with current cocoa and tariffs.
They are that we achieved that on Alco.
Thank you very much.
Peter Galbo: Thank you very much.
Thank you there are no further questions at this time I would like to turn the conference back over to Mr. <unk> for closing remarks.
Michele Buck: 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.
Thank you all for joining us this morning, and we look forward to connecting over the coming days.
Anoori Naughton: Thank you all for joining us this morning, and we look forward to connecting over the coming days.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Michele Buck: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your service.
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