Q1 2026 The Hershey Co Earnings Call

Speaker #1: Greetings and welcome to the HERSHEY CO first quarter 2026 question and answer session. To join the question queue, please press star one on your telephone keypad.

Speaker #1: 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, Vice President of Investment Relations for the HERSHEY CO.

Speaker #1: Thank you. You may begin.

Speaker #2: Good morning, everyone. Thank you for joining us today for the HERSHEY CO first quarter 2026 earnings Q&A session. I hope everyone is at the chance to read our press release and listen to our pre-recorded management our website.

Speaker #2: In addition, we've 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Finally, please note that we may refer to certain non-GAAP financial measures that we believe provide useful information for investors. The information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Speaker #2: 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 Sockel.

Speaker #2: With that, I will turn it over to the operator for the first question.

Speaker #3: Thank you. As a reminder, if you'd like to join the question queue, please press star one. Also, we'd like to remind you to please keep to one question and one follow-up.

Speaker #3: Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Speaker #4: Great. Thanks so much. Good morning, everybody. Good morning. I was hoping to focus in a little bit on North American factionaries' art. I think in the press release, you mentioned that lower year-over-year CMG market share due to increased marketplace competition.

Speaker #4: And I know investors are sensitive to this, just given the significant drop in the cocoa prices of late and the concern that this could lead to sort of incremental competitive activity to spur volumes in light of elasticity.

Speaker #4: I was maybe hoping you could dig into just what you're seeing in the marketplace a bit more and what would you expect as some of the activations and tent elev pole events sort of kick in and would you, I guess, anticipate that HERSHEY returns to share growth either in Q2 or as we move through the year?

Speaker #5: Yeah. Great. Great question. Yeah. Let's start with competition continues to be highly rational. So it's no change in the pricing environment. I just want us to start with that.

Speaker #5: We have seen increased competitive innovation and merchandising from both mainstream and premium competitors. That's what makes this category so attractive to consumers. It's one of the reasons it's so resilient.

Speaker #5: And so some of that happened a little earlier than we expected. We feel really good about our position as we exit spring resets in a net positive position across items and innovation and key channels.

Speaker #5: And our spring and summer merchandising programs ramp up. Premium chocolate continues to be that segment that grows really well, but we are charging into that space aggressively.

Speaker #5: And we have plans in the back half of this year to have some innovation and we'll continue to develop that. But overall, yeah, we're in a competitive environment.

Speaker #5: We feel good about where we're going. We have momentum planned for the second half of the year that we feel really good about. But it is a rational pricing environment, Andrew.

Speaker #4: Great. That's really helpful. And then you mentioned Easter sell-through with ahead of expectation. I guess it looks like maybe share was a bit weaker just in the past few weeks of data just hoping you could sort of square those two things for us.

Speaker #4: And I guess how is Easter share sort of versus your expectations? Thanks again.

Speaker #5: Yeah. I mean, look, I look at the category in the first quarter and overall the category in confection was really resilient, growing high single digits as expected.

Speaker #5: Overall, Easter was good for us. Category sales declined really due to the two fewer weeks. Versus last year, but our sell-through was really strong and outperformed our expectations.

Speaker #5: I'd say that's the notable part given that HERSHEY share, we're a share leader at the season, and we typically index much higher. And so the two weeks was a big impact on the overall season.

Speaker #5: But we're very happy with our performance and the sell-through that we saw. Those exceeded our expectation. And our share was also ahead of our expectations coming out of Easter.

Speaker #4: Thanks so much.

Speaker #3: Thank you. Our next question comes from the line of Megan Clapp with Morgan Stanley. Please proceed with your question.

Speaker #6: Great. Thanks so much. Good morning. I wanted to start on the macro. When we sat here two and a half months ago, I think the initial outlook you provided included what you called prudent assumptions, which you reiterated today, but obviously since then the backdrop has gotten more challenging.

Speaker #6: You talked in your remarks there's elevated geopolitical uncertainty and we're seeing higher gas prices as a result. So I wondered if maybe you could just unpack a little bit more in terms of what you've seen in the macro so far relative to your expectations, particularly in things like SNAP where maybe you have a little bit more data?

Speaker #6: And then just broadly, as you sit here today, do you think the guidance that you have for the remainder of the year still kind of gives you the same degree of cushion on the macro as you thought in the beginning of the year?

Speaker #6: Thanks.

Speaker #5: Yeah. Really, really relevant question. Thanks for that. Consumer behavior, let's just kind of start with this quarter and then as we move through the year.

Speaker #5: But consumer behavior remained really steady throughout the quarter with shoppers making thoughtful choices. GLP-1 trends remained consistent. SNAP impact was mild given waivers were limited to five states.

Speaker #5: And higher gas prices had minimal effects. We continue to monitor those very closely. But overall, the macro environment is tracking within our expectations of the year.

Speaker #5: When we talk about SNAP specifically, we realistically modeled the possible effects right from the beginning. In the first quarter, the five SNAPs or the five states were in place, which means you'll run impact was, as I mentioned, pretty mild or minor.

Speaker #5: In those states, the effect of both the category and our business aligned with our estimates, which gives us much more confidence for the full-year outlook.

Speaker #5: Now, where it implemented, we do see considerable consumer confusion. And it's possible that that would improve over time. So we planned for this headwind to increase over the course of the year, with SNAP.

Speaker #5: And we will adjust our plans to meet the needs of the consumer with portfolio impact types. But it's in our assumptions. I think that's the important thing.

Speaker #5: We're not seeing anything that's kind of out of how we've modeled the year. And our outlook for the year. So I think that stays on track as far as SNAP goes.

Speaker #6: Great, that's helpful. And maybe just a related question on elasticity: last quarter, you talked about planning for around 0.8, even though actual is running better, and talked about that as maybe being potential upside to your expectations for the guidance.

Speaker #6: This quarter you talked about elasticity is being favorable versus planned levels. So has anything changed in April so far or are you still embedding that same level of conservatism elasticities for the balance of the year?

Speaker #6: And as we think about the second quarter and what's implied from an organic sales growth perspective, how much of that is just the shipment timing and Easter reversing versus maybe something more fundamental in how you're thinking about demand?

Speaker #5: Yeah. I'll kick that over to Steve for that one. Sure. Yeah. On the elasticities, you said it. We continue to model what we have for that 0.8.

Speaker #5: We're pleased to see it still holding. We have things that are coming to market price pattern architecture, for example, seeing shelves right now. So we'll continue to watch that to see if elasticities evolve as they can sometimes.

Speaker #5: But right now, right in line with what we've better than what we've modeled and expect that to continue. And then relative to Q2 retail or Q2 sales expectations, yeah, I think it's pieces on the organic side where the timing issues two parts to that.

Speaker #5: Kirk said Easter sell-through was strong. And so one-up up shot from that was earlier shipping in some of our spring programming, including swarms, for example, which actually activated as we see earlier than we typically would have seen.

Speaker #5: We also had a little bit of pull forward internationally. At some customers are doing playing a little bit of defense trying to get ahead or offense trying to get ahead of potential disruption in the Middle East.

Speaker #5: So those were the two big pieces that sort of pulled things forward from our standpoint. Nothing structurally different relative to Q2 expectations.

Speaker #6: Great. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Peter Galvo with Bank of America. Please proceed with your question.

Speaker #4: Hey, good morning, guys. Steve, maybe if I can good morning, Kirk. If I could pick up on the back of Megan's question there on Q2 organic sales, I think the implied is that confection organic may actually dip negative in the second quarters given some of the timing aspects.

Speaker #4: So I just wanted to press on that a little bit just as a clarification point.

Speaker #5: Yeah. This effectively slightly down in Q2 due to that timing that we just talked about.

Speaker #4: Okay. Great. Thanks for that. And then just a broader question, Steve, in terms of just a margin cadence over the rest of the year, obviously there's a little bit of favorability, I think, on the gross margin side.

Speaker #4: Maybe because of some of the volume, but maybe you can just help us think about gross margin facing over the back three quarters of the year.

Speaker #4: Thanks very much, guys.

Speaker #5: Sure. Well, we're expecting in Q2 a gross margin increase by nearly 300 basis points versus the prior year period. So that's where you really start to see the inflection.

Speaker #5: And then as we get to the back half of the year, we expect something greater than 500 basis points. And again, we've got the year pretty well planned out.

Speaker #5: So I'd say we have good visibility to that. But that's how that inflection starts in Q2 and then accelerates in the back half.

Speaker #4: Great. I'll pass it on.

Speaker #3: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Speaker #7: Great. Thank you. And good morning, everyone. So Kirk, in your prepared remarks, you touched on some of the drivers that you believe will keep timeline momentum in the back half of the year as you annualize pricing impact.

Speaker #7: So can you maybe just unpack that a bit more and maybe more specifically what's the degree of visibility or level of confidence on that momentum or for that momentum to be sustained as you look ahead?

Speaker #5: Yeah. Good question. Yeah. We have confidence in H2. Driven by a few things. One, we see a real strong seasons plan for the second half.

Speaker #5: Our tentpole will deliver a full point of growth. Americana, the Hershey movie—we've got a lot built into that, a lot of support from our customers.

Speaker #5: Resets have been really important. So gains across several channels mass grocery dollar drug. So we see real positive position coming out of the spring reset, which is important to us.

Speaker #5: And then innovation. That we've got good innovation. We'll have a big innovation on Hershey's in the fall as well that we're really excited about. It gets us into that accessible premium space.

Speaker #5: So that is really important. Now, of course, we're watching the macros just like everyone. But when we think about what we can control, we feel really good.

Speaker #5: And we have a lot of confidence in where we're going as we ramp up our execution and delivery against our plan. So we feel good about H2.

Speaker #5: Again, we'll keep an eye on the macros and control what we can control.

Speaker #7: That's great and very helpful. And then just a follow-up on SNAP. A strong quarter at 5%. I think it was a bit below what we've seen in terms of consumption.

Speaker #7: And then the remarks you touched on some reduction and probably a little reduction and product recall. So do those items count for the entire gap relative to what we see in consumption?

Speaker #7: And then maybe specifically any thoughts around how we should be thinking about growth for this segment moving forward, especially just in the context of the impact guidance?

Speaker #5: Yeah. One thing that I would say on SNAPs or on our policy SNAPs is that's primarily driven by private label and so our core brand in Salty are up nearly 10%.

Speaker #5: So that is not the issue. Now, as you know, as we brought those businesses in, we have private label business. That's getting smaller in our business over time.

Speaker #5: So that's a bit of it. Our Salty brand are doing exceptionally well.

Speaker #2: Yeah. And I'll just say in terms of the probability side, you really pointed to two things. We had a couple of discrete things: the voluntary withdrawal was actually immaterial in total, but that combined with the delayed opening of the DC meant that we spent more on logistics trying to deal with a fast-growing business trying to maintain strong service.

Speaker #2: And so those additional costs were incurred in the quarter. They're done, and so now we're in a better spot. We expect operating income to grow and increase by double digits for the year.

Speaker #2: So small speed bump in the first quarter, but past it and back on track.

Speaker #7: Yeah. Great. Thank you so much. I'll pass on.

Speaker #3: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.

Speaker #8: Hi. Good morning, everyone. Can I just follow up on the SNAPs margin? So obviously, kind of some discrete headwinds in the quarter. Relatively low watermark on margins.

Speaker #8: You talked about accelerating profit from here. Is that mostly driven by just the sequential improvement in margins? As opposed to, say, top line and then you still feel good about the margin targets that you had put out there at Investor Day?

Operator: Greetings, and welcome to The Hershey Company Q1 2026 Question and Answer Session. To join the question 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'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.

Speaker #8: Maybe contextualize that and have a follow-up.

Speaker #5: Yeah. It's really the marginal improvement on the basis of just not having those one-time issues that'll be the biggest factor. We are going to have some amortization that will come along with the less repo acquisition.

Speaker #5: So that sort of invades. And there's some mixed impact with less repo in the mix at a kind of total Salty level. But those are expected.

Anoori Naughton: Good morning, everyone. Thank you for joining us today for The Hershey Company's Q1 2026 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks. At the conclusion of today's live Q&A session, we will also post a transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements, including expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events.

Speaker #5: And aside from that, you're kind of on core business will continue to see that margin improvement over the course of the year.

Speaker #8: Okay. Thanks. And just a follow-up on the spring resets. A lot of exciting activity from here. Can you just give us a bit more insight on some of the key wins that you expect those benefits to come through in some of the timing?

Speaker #8: Thanks so much.

Speaker #5: Yeah. Yeah. I think about those in two things. Space in the number of new facings, new SKUs that we have in this asset across the primary channels across mass dollar drug and grocery.

Speaker #5: That's a big part. So winning at the shelf is the first thing I think about. And we're in a positive position there. The second is the support that we're getting from retailers on the perimeter with our tentpost events.

Anoori Naughton: A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filing. Finally, please note that we may refer to certain non-GAAP financial measures that we believe provide useful information for investors. The information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations for the GAAP results are included in this morning's press release. Joining me today are Hershey's President and CEO, Kirk Tanner, and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question.

Speaker #5: So I think a combination of both winning at the shelf and winning on the perimeter supported by our retail sales team is really how we're thinking about that.

Speaker #5: And that's really the one to punch of the momentum that we see in the second half. And that shows up in tentpost season events too on the perimeters and the support that we get.

Speaker #5: But it really is both winning across CMG and Salty. We're both shelf space wins and perimeter inventory. And we're tracking that. We're very disciplined about looking at that every single week.

Speaker #5: So we feel really about where we're going.

Operator: Thank you. As a reminder, if you'd like to join the question queue, please press star one. We'd like to remind you to please keep to one question and one follow-up. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Speaker #8: Okay. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question.

Speaker #9: Thank you. Good morning. We noted a mild impact from higher gas prices on a consumer, but do you think we could provide more color on how your sales have trended in the C-SPORT channel specifically and how you think about potentially supporting that channel if these macro challenges sustain?

Andrew Lazar: Great. Thanks so much. Good morning, everybody.

Kirk Tanner: Good morning, Andrew.

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

Speaker #5: Yeah. We made those comments early in Q1, right? We saw very little impact because it was a later event. I think it really comes to why the prices go and how long they stay detour is the right question to ask.

Speaker #5: We look at that as well in our confection business continues to perform in line with our expectation. We look at things like our immediate consumption business.

Andrew Lazar: I was maybe hoping you could dig into just what you're seeing in the marketplace a bit more and, you know, what you would expect as, you know, some of the activations and tent pole events sort of kick in and, you know, would you, I guess, anticipate that Hershey returns to share growth either in Q2 or as we move through the year?

Speaker #5: And those continue to do well through this time. Again, we know that this is a longer issue that could have a bigger impact. But right now, we see that performance standing in check.

Kirk Tanner: Yeah. Great, great question. Yeah. Well, I'd start with competition continues to be highly rational, so it's no change in the pricing environment. I just want to start with that. We have seen increased you know, competitive innovation and merchandising from both mainstream and premium competitors. That's what makes this category so attractive to consumers. It's one of the reasons it's so resilient. Some of that happened a little earlier than we expected. We feel really good about our position as we exit spring reset in a net positive position across items and innovation in key channels. Our spring and summer merchandising programs ramp up.

Speaker #5: And so we feel good about that. But we're always staying focused on that and looking for other things that we can do with our retail partners in the convenience channel to keep the business front in mind.

Speaker #5: We know that when high gas prices happen, frequency goes up with consumers. So they come to the gas station more. They buy less. They're purchasing less.

Speaker #5: But frequency goes up. That keeps the channel robust, at least with our category. And again, we continue to see results as expected right now.

Speaker #5: So we're feeling good about it. But we'll very stay focused on stay very focused on that.

Kirk Tanner: Premium chocolate continues to be, you know, that segment that grows really well, but we are charging into that space aggressively, and we have plans in H2 this year to have some innovation, and we will continue to develop that. Overall, yeah, we are in a competitive environment. We feel good about where we are going. We have momentum, you know, planned for H2 of the year that we feel really good about. You know, it is a rational pricing environment, Andrew.

Speaker #9: Okay. Great. Thank you. And then just a quick follow-up from an earlier question. Just seeing if you could provide more color on your visibility maybe around cost for packaging and point specifically.

Speaker #9: I guess, what have you actually seen in higher costs so far? And what are you baking in for the back half?

Speaker #5: Yeah. I'm happy to take on still we're really not seeing a big impact. Again, in the hedging program and our commodities team, some of these impacts in commodities are managed to that group.

Andrew Lazar: Great. That's really helpful. You mentioned Easter sell-through was ahead of expectation. I guess it looks like maybe share was a bit weaker just in the past few weeks of data. Was just hoping you could sort of square those two things for us. I guess, how was Easter share sort of versus your expectations? Thanks again.

Speaker #5: And so we've got good visibility really through this year. And in some cases, even beyond. And so now, having said that, like Chris said, if it looks like it's going to be prolonged and it's going to be significant, then we'll be looking further out at some of the implications.

Kirk Tanner: I mean, look, I look at the, you know, the category in Q1. Overall, the category in confection was really resilient, growing high single digits as expected. Overall, Easter was good for us. Category sales declined really due to the 2 fewer weeks versus last year, but our sell-through was really strong and outperformed our expectations. I'd say that's the notable part, given that Hershey's share, you know, we're a share leader at the season, and we typically index much higher, and so the 2 weeks, you know, was a big impact on the overall season. We're very happy with our performance and the sell-through that we saw. Those exceeded our expectations. Our share was also ahead of our expectations coming out of Easter.

Speaker #5: But right now, from everything we can see, we're in a good spot. We're well covered for 2026.

Speaker #9: Great. Thank you.

Speaker #3: Thank you. Our next question comes from the line of David Palmer with EVCOR ISI. Please proceed with your question.

Speaker #10: Thanks. Good morning. I wanted to ask you a couple of questions on the merchandising front and some of the stuff you touched on in your prepared remarks and back in the Investor Day.

Speaker #10: You talked about the evolution of hack types and shelf sets and I know some of that was planned maybe more into the fall, like I think you said the stand-up bags for take-home were maybe something that would get increased distribution into the second half of the year.

Speaker #10: But you mentioned some stuff earlier on. So maybe you can give a summary of maybe what you're doing now and what's coming and then as far as promotions.

Steve Voskuil: Thanks so much.

Operator: Thank you. Our next question comes from the line of Megan Clapp with Morgan Stanley. Please proceed with your question.

Megan Clapp: Great. Thanks so much. Good morning. I wanted to start on the macro. When we sat here, you know, 2 and a half months ago, I think the initial outlook you provided included what you called prudent assumptions, which you reiterated today. Obviously, since then, the backdrop has gotten more challenging. You talked in your remarks there's elevated geopolitical uncertainty and we're seeing higher gas prices as a result. Wondered if maybe you could just unpack a little bit more in terms of what you've seen in the macro so far relative to your expectations, particularly on things like SNAP, where maybe you have a little bit more data.

Speaker #10: I wonder, are we going to see in scanner data more display year-over-year in the data as you're more all months on, so to speak?

Speaker #5: Yeah. We're running the right questions when you get down to the details of how we execute at retail. I think that's really important, David.

Speaker #5: We start with the number of SKU gains that we are getting across mass grocery dollar, and we're building that into the pipeline.

Speaker #5: We are deploying the stand-up bags versus life out bags. So that is something that is consumer-preferred. It elevates. We've tested that. That is well received by consumers.

Megan Clapp: Just broadly, as you sit here today, do you think, you know, that the guidance that you have for the remainder of the year still kind of gives you the same degree of cushion on the macro as you thought in the beginning of the year? Thanks.

Speaker #5: And it just drives visibility and something that makes the category easier to navigate, shop accessible, all those things that category management drives. So that's the first.

Kirk Tanner: Yeah. Really, really relevant question. Thanks for that. Consumer behavior. Let's just kinda start with, you know, this quarter and then as we move through the year. Consumer behavior remained really steady throughout the quarter, with shoppers making, you know, thoughtful choices. GLP-1 trends remain consistent. SNAP impact was mild, given waivers were limited to 5 states, and higher gas prices had minimal effects. We continue to monitor those, you know, very closely. Overall, the macro environment is tracking within our expectations of the year. When we talk about SNAP specifically, we, you know, we realistically modeled the possible effects right from the beginning. In Q1, the 5 states were in place, which means the overall impact was, as I mentioned, pretty mild or minor.

Speaker #5: So we're looking at how productive the shelf is. We're measuring on-shelf availability. Just as our customers do. And we go over that every single week.

Speaker #5: So that intensity around the shelf is really important. The second area is this perimeter. And what does tentpost activation on top of seasons do?

Speaker #5: And we measure inventory points of interruption on the floor, amount of inventory that we have on the floor, and location, the store. And I think that helps us drive what incremental how this delivers against the plan, how much growth we're getting into this space, and what new occasions we're driving.

Speaker #5: New occasions are like as we come into the celebration of the 250-year celebration of our country for the 4th of July, we are bringing Hershey kisses or Hershey bars platform, our s'mores platform, and our dots pretzel platform into that.

Kirk Tanner: In those states, the effect of both the category and our business aligned with our estimates, which gives us much more confidence for the full year outlook. Where implemented, we do see considerable consumer confusion, and it's possible that that would improve over time. We plan for this headwind to increase over the course of the year with SNAP, and we will adjust our plans to meet the needs of the consumer with portfolio and pack types. It's in our assumptions. I think that's the important thing. We're not seeing anything that's kind of out of how we've modeled the year and our outlook for the year. I think, you know, that stays on track as far as SNAP goes.

Speaker #5: So we're going after that new occasion being a part of that celebration and a part of that incremental to what we have done in the past.

Speaker #5: And that's really the element of what tentpole brings. It is more activation on the perimeter, getting into more occasions and more moments that consumers are celebrating.

Speaker #5: And the combination of those two things is what we give us a lot of confidence for the second half of the year.

Speaker #10: Yeah. Thanks for that. And just wanted to get a sense from you and the member last Halloween you were talking about how you maybe had some regret about some bits of execution maybe pack types you're promoting and some other things.

Megan Clapp: Great. That's helpful. Maybe just a related question on elasticities. You know, last quarter you talked about planning for around 0.8, even though actuals are running better, and, you know, talked about that as maybe being potential upside to your expectations for the guidance. This quarter you talked about elasticities being favorable versus planned levels. You know, has anything changed in April so far, or are you still embedding that same level of conservatism on elasticities for the balance of the year? As we think about the Q2 and what's implied from an organic sales growth perspective, you know, how much of that is just the shipment timing and Easter reversing versus, you know, maybe something more fundamental in how you're thinking about demand?

Speaker #10: But it's bigger picture. It feels like seasons were such a rich harvest for Hershey. You guys were leaning into it, particularly during the COVID era.

Speaker #10: And maybe some of this is just an era that happened where seasons the going was good and you got a lot out of it.

Speaker #10: But I'm wondering how you're thinking about seasons going forward, not just Halloween, but is this going to be something that kind of tracks with confectionery growth overall for you or how do you think about seasons going forward?

Speaker #5: Yeah. We have a great foundation for seasons. But I think that we could be even more disruptive and looking for what consumers are looking for.

Speaker #5: As we go into Halloween even this year, we feel really good about what we've learned. And then what new things we can bring to consumers that they are looking for that make that season even more robust.

Kirk Tanner: Yeah, I'll kick that over to Steve for that one.

Steve Voskuil: Sure. Yeah. On the elasticities, you said it. You know, we continue to model what we have before that 0.8. You know, we're pleased to see it still holding. You know, we have some things that'll be coming to market. Price pack architecture, for example, hitting shelves right now. You know, we'll continue to watch that to see if the elasticities evolve, as they can sometimes. Right now, right in line with what we've, better than what we've modeled and expect that to continue. Relative to Q2 retail or Q2 sales expectations, yeah, the biggest pieces on the organic side were the timing issues. Two parts to that.

Speaker #5: So that as a leader in seasons, it's on us to be much more thoughtful about where consumers are going, continuing to modernize it. We're building from a very strong base.

Speaker #5: As I look at seasons, in the second half, we feel really good. We can see the buys with our customers. We can see what's landing.

Speaker #5: And you can evaluate, "Hey, are we going to have a really good season? Is this going to be an okay season?" We're feeling really good about the back half seasons with what we've been able to partner with our customers with.

Speaker #10: Great. Thank you.

Steve Voskuil: You know, Kirk said Easter sell-through was strong, one upshot from that was earlier shipping of some of our spring programming, including s'mores, for example, which is actually getting activated as we speak. That's earlier than we typically would have seen. We also had a little bit of pull forward internationally, as some customers were playing a little bit of defense trying to get ahead or offense trying to get ahead of potential disruption in the Middle East. Those were the two big pieces that sort of pulled things forward from our standpoint. Nothing structurally different relative to Q2 expectations.

Speaker #3: Thank you. Our next question comes from the line of Tom Palmer with JPMorgan. Please proceed with your question.

Speaker #11: Good morning and thanks for the question. I'm sorry to kind of be the third person to ask here, but I did just want to maybe clarify on the expected headline organic sales growth slowdown in the second quarter.

Speaker #11: I appreciate you've really highlighted this as more shipment time than anything else. But could we just kind of quantify the specific items that are driving the slowdown?

Speaker #11: There was two points for, I think, ship ahead in the first quarter that was maybe some Easter timing to consider. Is there anything else?

Megan Clapp: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question.

Speaker #11: Just, could we kind of quantify, underlying, maybe what one quarter would look like versus two quarters if we strip out some of this timing?

Peter Galbo: Hey, good morning, guys. Steve, maybe.

Speaker #5: Yeah. You've got the biggest pieces. You said lately down in Q2 due to the timing. Easter sales was strong. So Q2, in fact, is bigger than anticipated.

Steve Voskuil: Morning.

Peter Galbo: Morning, Kirk. If I could pick up on the back of Megan's question there on Q2 organic sales. I think the implied is that confection organic may actually dip negative in Q2, just given some of the timing aspects. I just wanted to press on that a little bit just as a clarification point.

Speaker #5: That, and a little bit in international that we talked about, are really the two biggest drivers of pulling forward. Yeah. I'll just share a little bit of how I think about it.

Steve Voskuil: Yeah. It is expected to be slightly down in Q2 due to that timing that we just talked about.

Speaker #5: So, Easter was a significant timing issue, right? So we saw that. We saw sell-through go really well. That pulled a few of our programming into Q1.

Peter Galbo: Okay. Great. Thanks for that. Then just a broader question, Steve, in terms of just the margin cadence over the rest of the year, obviously there was a little bit of favorability, I think, on the gross margin side, maybe because of some of the volume. Maybe you can just help us think about gross margin phasing over the back 3 quarters of the year. Thanks very much, guys.

Speaker #5: But then if I look at what success looks like, the overall consumption trends are staying consistent. So once you get through the overlap in April, you'll see momentum pick up in May and you'll see momentum pick up in June.

Speaker #5: So you think about those consistencies. If you remove those one-time events, I think you're going to see very consistent performance on consumption. So execution looking at April, the impact of Easter, May with some momentum, certainly building and getting back on track in June following that.

Steve Voskuil: Sure. Well, we're expecting in Q2, gross margins to increase by nearly 300 basis points versus the prior year period. That's where you really start to see the inflection. Then as we get to H2 of the year, you know, we expect something greater than 500 basis points. Again, we've got the year pretty well planned out, so I'd say we have good visibility to that. That's how that inflection starts in Q2 and then accelerates in H2.

Speaker #11: Okay. Thank you for that color. And then a question on the spring shelf resets. Maybe frame it relative to past years. Is this more impactful, more changes than we've seen recently?

Peter Galbo: Great. I'll pass it on.

Operator: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Speaker #5: Yeah. We feel good about what we're seeing from an increase versus a year ago versus what we've seen in the last couple of years.

Peter Grom: Great. Thank you, good morning, everyone. Kirk, in your prepared remarks, you touched on some of the drivers that you believe will keep top line momentum in H2 as you annualize pricing impact. Can you maybe just unpack that a bit more and maybe more specifically, what's the degree of visibility or level of confidence on that momentum or that momentum can be sustained as you look ahead?

Speaker #5: So I'm confident that this is a win for us. It's a win for the portfolio that we have, plus some of the moves we made for making the gondola much more shoppable and inspiring for consumers.

Speaker #5: So when you package it all together, the number of facings stand up, merchandising, and how we were merchandising with category management insights, I feel really good about where we're going this year versus last year.

Kirk Tanner: Yeah, good question. Yeah, we have confidence in H2, driven by a few things. One, we see a really strong seasons plan for H2. Our tentpoles will deliver a full point of growth. You know, Americana, the Hershey movie, we've got a lot built into that, a lot of support from our customers. Resets have been really important, gains across several channels, mass, grocery, dollar, drug. We see real positive position coming out of the spring resets, which is important to us. Innovation. You know, that, we've got good innovation. We'll have a big innovation on Hershey's in the fall as well, that we're really excited about. Gets us into that accessible premium space. That is really important. Now, of course, we're watching the macros just like everyone.

Speaker #5: Yes.

Speaker #11: Awesome. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Robert Moskow with TD Cowan. Please proceed with your question.

Speaker #12: Hi, thanks. A couple of questions about innovation. I wanted to know, what are your expectations for this Hershey premium product you're launching in the second half?

Speaker #12: And Hershey has struggled to introduce viable premium offerings in the past. I think there's questions out there about how far the brand can stretch.

Speaker #12: So I'm trying to figure out how big of a bet it is, and then I had a follow-up.

Speaker #5: Yeah. Well, overall, innovation, we feel really good about. Let me talk about Hershey and this elevated experience. This is a truly elevated and maybe Robert, if you were at Investor Day, had the opportunity to try this.

Kirk Tanner: When we think about what we can control, we feel really good, and we have a lot of confidence in where we're going as we ramp up our execution and deliver against our plan. We feel good about H2. Again, we'll keep an eye on the macros and control what we can control.

Speaker #5: I absolutely love these products. How do—so hopefully, you love them. All right. Well, I love them. They're an important part, right? I think that when you look at innovation, it is a collection of those things.

Peter Grom: No, that's great and very helpful. Just a follow-up on snacks. You know, a strong quarter at 5%, but I think it's a bit below what we've seen in terms of consumption. In the remarks, you touched on plan reduction and private label reduction and product recall. Do those items account for the entire gap relative to what we see in consumption? Maybe specifically, you know, any thoughts around how we should be thinking about growth for this segment moving forward, especially just in the context of the implied guidance?

Speaker #5: We have high expectation for that brand, and we think it's right in the sweet spot of what Hershey can deliver. And that's on deep consumer research and understanding and testing.

Speaker #5: So we know that we have the opportunity with Hershey to nail it and knock it out of the park with that innovation. We also look at innovation and totality.

Speaker #5: So across our portfolio, across our sweets portfolio with Jolly Rancher, we also continue to see recent Oreo be a standout add-on. The Hershey innovation and you see that, plus then we have a big Hershey experience with Hershey movie coming out in quarter four.

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

Speaker #5: It's the collection of those things that's how we model and build our business. It's not reliant on one thing. It is the collection of those things that make the business strong.

Speaker #5: Having said all that, we have really good expectations for this elevated Hershey experience, and we are launching a product that consumers and in testing have loved.

Steve Voskuil: Yeah. I'll just say in terms of the profitability side, you really pointed to the two things. We had a couple of discrete things. The voluntary withdrawal was actually immaterial in total, but that combined with the delayed opening of the DC meant that we spent more on logistics trying to, you know, with a fast-growing business, trying to maintain strong service. Those additional costs were incurred in the quarter. They're done, now we're in a better spot, we expect operating income to grow and increase by double digits for the year. You know, small speed bump in Q1, but past it and back on track.

Speaker #12: Got it. Okay. My follow-up was about sweets. Can you teach out sweets performance in first quarter and what you're expectations are for this year?

Speaker #12: The data shows that the Shack product line is down substantially. But the sweets portfolio has been growing 20% plus. I just want to get a sense of your confidence that you can capitalize on a strong consumer demand, especially among young people, for this segment.

Speaker #5: Yeah. I mean, our biggest brand in sweets is Jolly Rancher, and Jolly Rancher performed very well within our opening comment. It performed much faster than the category.

Peter Grom: Great. Thank you so much. I'll pass it on.

Operator: Thank you. Our next question comes from the line of Chris Carey with Wells Fargo Securities. Please proceed with your question.

Speaker #5: So that continues there with some really good innovation on heat waves etc. Now, we've launched a new item with the Shack lineup that will give us momentum later this spring and in the summer.

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

Speaker #5: So we feel good about where we are with sweets. Jolly Rancher will continue to be a hero in the space. We've got a strong program around Twizzlers this summer.

Speaker #5: And we have a robust pipeline in 2027 and 2028 across sweets. It will share. We've shared some of the sweets portfolio and the innovations coming.

Speaker #5: So we're going to continue to invest in this. When we talk about investing in R&D, there's some specific areas that we're focused on. One is premium.

Speaker #5: Two is sweets. Three is better for you. And you'll see us continue to make that pipeline much more robust in the future. And we've seen that.

Steve Voskuil: Yeah. It really the marginal improvement on the basis of just not having those one-time issues, that'll be the biggest factor. You know, we are gonna have some amortization that will come along with the LesserEvil acquisition, so that's sort of in the base. There's some mix impact with LesserEvil in the mix at a kind of total salty level. Those are expected, and aside from that, you kind of on the core business will continue to see that margin improvement over the course of the year.

Speaker #5: We're that is in our R&D right now, and we've seen that pipeline. So we feel really good about where we're going.

Speaker #12: Great. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Max Support with BMP Baraba. Please proceed with your question.

Speaker #13: Hey. Thanks for the question. I wanted to return to some of the macro headwinds you're watching. So two of them include the accelerated health and wellness trends and increasing GLP-1 adoption.

Chris Carey: Okay, thanks. Just as a follow-up on the spring resets, a lot of exciting, you know, activity, you know, from here. Can you just give us a bit more insight on, you know, some of the key wins, how you expect those benefits to come through and some of the timing? Thanks so much.

Speaker #13: Can you provide an updated view on what you're seeing there and also how you're looking to navigate your portfolio through these events? Thanks very much.

Speaker #5: Yeah. Hey, thanks for the question. I would just going to go back. So one of the key drivers of the infection category in particular is that this is a emotional category.

Kirk Tanner: Yeah. Yeah, I think about those in two things, you know, space and the number of new facings, new SKUs that we have in the sets across, you know, the primary channels across mass, dollar, drug and grocery. That's a big part. Winning at the shelf is the first thing I think about, and we're in a positive position there. The second is the support that we're getting from retailers on the perimeter with our tent pole events. I think the combination of both winning at the shelf and winning on the perimeter, supported by our retail sales team, is really how we're thinking about that, and that's really the one-two punch of the momentum that we see in the H2. That shows up in tent pole and season events too on the perimeters and the support that we get.

Speaker #5: It is a treat, not a meal. And I think that's playing out with GLP-1 users. And the overall health and wellness trends. Consumers on these drugs, specifically GLP-1, continue to enjoy the category in smaller portions.

Speaker #5: We know that. Our research supports that confection category is relatively insulated compared to other food categories. Our framework for estimating the GLP-1 impact includes scenario assumptions for both near and the long-term horizon for adoption rates.

Speaker #5: We have been monitoring calorie reduction, user lap rates, and other behavior changes. Now, the accelerated adoption rate alongside affordability and new formats are well contemplated in our outlook.

Kirk Tanner: It really is both winning across CMG and salty for both, you know, shelf space wins and perimeter inventory. We're tracking that. We're very disciplined about looking at that every single week. We feel really good about where we're going.

Speaker #5: So, we spend a great deal of time understanding this. It is in our outlook. It is in line with what we've seen and what we expect.

Chris Carey: Okay. Thank you.

Speaker #5: But we'll continue to do this. But this is something that we are continuously monitoring. But overall, in the category is about a treat. It's still being enjoyed through this again.

Operator: Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question.

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

Speaker #5: It's about 40 calories per day, two to three servings per week for the average American on infection. So that's the scope of what we're seeing and so that gives us the confidence of where we're going here with this macro.

Kirk Tanner: Yeah. We made those comments early in Q1, right? We saw very little impact because it was a later event. I think it really comes to how high the prices go and how long they stay. C store is the right question to ask. We look at that as well. Our confection business continues to perform in line with our expectation. We look at things like our immediate consumption business. Those continue to do well through this time. Again, we know that if this is a longer issue that could have a bigger impact. Right now, we see that performance standing in check. You know, we feel good about that.

Speaker #12: Great, thanks very much. And then just returning to ICLS, please. It sounds like everything you're seeing is quite good so far—it's running better than planned, competitors have followed, and retailers have accepted.

Speaker #12: Obviously, the price is the response to just consumers. Some are not showing a worse reaction there. But can you just provide a bit more color about how this informs your view of your performance from here and also how it factors into the two to four percent organic sales to a target you gave for 2027 some months ago?

Speaker #12: Thanks very much.

Speaker #5: Yeah. Sure. I'd be happy to take that one. So as you said, elasticity is our running favorable. They have so far they continue to.

Kirk Tanner: We're always staying focused on that and looking for other things that we can do with our retail partners in the convenience channel to, you know, keep the business front in mind. We know that when high gas prices happen, frequency goes up with consumers. They come to the gas station more, they buy, you know, they're purchasing less, but the frequency goes up. That keeps the channel robust, at least with our category. Again, we continue to see results as expected right now, so we're feeling good about it. You know, we'll, you know, stay very focused on that.

Speaker #5: And it just points to the resilience in these categories especially in instant consumables refreshment season. We've talked about how seasons are so precious to consumers.

Speaker #5: So, as we look out, we don't see a material change. It doesn't change as we think about the outlook for the year. We're not changing the guides.

Speaker #5: We're still inside the earlier guidance even though the Q1 results look strong. And it's partly because we still have that price pack architecture hitting shelves as we speak.

Speaker #5: And no elasticity can move. So I'd say we're being a little bit cautious there. But we'll continue to monitor it over the coming quarters.

Speaker #5: We'll get a better spot to take a look at the guide at the mid-year mark. We'll have most of the price pack architecture placed at that point.

Speaker #5: And have a better view. We're really encouraged by what we're seeing so far and the resilience of the consumer in the category.

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

Speaker #3: Thank you. Our next question comes from the line of Jim Solera with SkinZinc. Please proceed with your question.

Speaker #14: Hi. Good morning. Thanks for taking my question. For our kitchen dentals are poised to have full-blended growth this year. I'm wondering if you can offer some detail around the retail execution given there's a much higher frequency compared to traditional calendars with really just the seasons and there's at least some kind of different messaging whether it's marketing or in-store that's going to call attention to kind of uniqueness of each of those dentals.

Steve Voskuil: Yeah. I'm happy to take that one. So far, we're really not seeing a big impact. You know, again, in the hedging program and our commodities team, you know, some of these impacts and commodities are managed through that group. We've got good visibility really through this year and in some cases, even beyond. Now having said that, you know, like Kirk said, if it looks like it's gonna be prolonged and it's gonna be significant, then we'll be looking further out at some of the implications. Right now, from everything we can see, we're in a good spot. Feel well covered for 2026.

Speaker #14: Could you just walk through how the salesforce is dealing with that maybe how the marketing team is calling attention to each of those unique occasions?

Speaker #5: Yeah. I think that is a great question. This really brings the best of demand creation and demand execution or demand fulfillment. So these moments like the 4th of July is typically where we did not participate, right?

Leah Jordan: Great. 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: Thanks. Good morning.

Speaker #5: This between salty and sweet, we have this great opportunity to participate in these big moments of celebration that are relevant with consumers. So that's kind of the that's the motivation, the inspiration behind it.

Kirk Tanner: Good day.

David Palmer: wanted to ask you a couple questions on the merchandising front and some of the stuff you touched on in your prepared remarks. Back in the Investor Day, you talked about the evolution of pack types and shelf sets and, I know some of that was planned maybe more into the fall. Like, you said the stand up bags first take home were maybe something that would get increased distribution into H2 of the year. You mentioned some stuff earlier on, so maybe you can give a summary of, you know, maybe what you're doing now and what's coming.

Speaker #5: Now, what we've done is we've worked with our customers. We've put the demand creation together with the marketing. And then what we do is we bring that to life like we've never done before at the 4th of July.

Speaker #5: And we've activated that with our salesforce. Our customers are encouraged by this because it just makes these events bigger in store. It brings more retail theater to the store with our big brands like Hershey and Dots.

David Palmer: As far as promotions, I wonder, are we gonna see in scanner data more display year over year in the data as you're more, you know, all months on, so to speak?

Speaker #5: And that makes the overall season better for the retailer. So that is kind of leveraging our strength as a business to bring more relevance to these holidays.

Kirk Tanner: Yeah. Those are really the right questions when we get down to the details of how we execute at retail. I think that's really important, David. We start with the number of SKU gains that we are getting across mass, grocery, dollar, and we're building, you know, that into kind of a pipeline. We are deploying the stand up bags versus lie flat bags, so that is something that is consumer preferred. It elevates. We've tested that. That is, you know, well received by consumers, and it just drives visibility, and it's something that, you know, makes the category easier to navigate, shop accessible, all those things that category management drives. That's the first.

Speaker #5: And it gives us a chance to capture some of that share, that share of that occasion. And this allows us to go from a season into a tentpole into a season into a tentpole again.

Speaker #5: And that allows our salesforce to be constantly focused on how they develop those big moments in retail and our customers are very supportive of this.

Speaker #5: It gives more for the shopper to engage with. But this is I would say this is playing to our strengths.

Speaker #15: Do you have any sense for how much of a gap there is between some of the tentpoles and the traditional seasons events? I just wonder if there might be a concern of some overlap if somebody stocked up on Hershey kisses or leather evil popcorn.

Kirk Tanner: We're looking at how productive the shelf is. We're measuring on-shelf availability just as our customers do, and we go over that every single week. That intensity around the shelf is really important. The second area is perimeter, and what does tentpole activation on top of seasons do? We measure inventory, points of interruption on the floor, amount of inventory that we have on the floor, and location in the store. I think that helps us drive what's incremental, how this delivers against the plan, how much growth we're getting into this space, and what new occasions we're driving.

Speaker #15: Ahead of what would otherwise be kind of seasonal purchase window?

Speaker #5: No. I mean, there's enough gap between these that we're measuring incrementality and the breadth of our portfolio allows us to play in these tentpoles and seasons without being redundant or cannibalizing each other.

Speaker #5: We are the number one season executor in CMG. We have the largest share of seasons. So when you bring tentpoles to life, we're bringing them to life with different brands, different opportunities.

Kirk Tanner: New occasions are, as we come into the celebration of the 250 year celebration of our country for the Fourth of July, we are bringing Hershey's Kisses, our Hershey bars platform, our s'mores platform, and our Dot's pretzel platform into that. We're going after that new occasion, being a part of that celebration and a party. That's incremental to what we have done in the past, and that's really the element of what tentpoles brings. It is more activation on the perimeter, getting into more occasions and more moments that consumers are celebrating. The combination of those two things is what we, you know, gives us a lot of confidence for the H2 of the year.

Speaker #5: And we're making them incremental as possible. I would tell you a big collaborator in this is our customers. Our customers own categories as well.

Speaker #5: And this is leveraging the best of what we have and the best insights that they have and that's really what the magic is. But right now, I feel like there's a really good cadence.

Speaker #5: So you'll see this summer. You'll see us execute the 250 anniversary. You'll see us execute some more and some are traveled. Then you're going to go into Halloween.

Speaker #5: And there's a nice gap between those to have sell down and then the build for Halloween. It really makes sense retail.

Speaker #15: Great. I appreciate the thumbs up. I can do.

David Palmer: Yeah. Thanks for that. I just wanted to get a sense from you. I remember last Halloween you were talking about how you know, maybe had some regrets about some bits of execution, maybe pack types you're promoting and, you know, and some other things. It's bigger picture, it feels like seasons were such a rich harvest for Hershey. You guys were leaning into it, particularly during the COVID era. Maybe some of this is just, you know, an era that happened where seasons, the going was good and you know, you got a lot out of it. I'm wondering how you're thinking about seasons going forward, not just Halloween, but is this gonna be something that kind of tracks with confectionery growth overall for you? You know, how do you think about seasons going forward?

Speaker #3: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Speaker #16: Good morning, everyone. We're going to talk about these recent expansion in Europe. I know a while back you mentioned that in the UK, the household penetration was in the high teens, I believe.

Speaker #16: But that was a while ago. Where have you got to now? I believe you may have gone into some other countries in Europe with Reese's.

Speaker #16: And at what point do you start to think about actually putting plant manufacturing capacity into that region?

Speaker #5: Yeah. Great question. We've continued to see Reese's thrive in the UK. And other European countries are planning to continue to develop that. We have a excuse me.

Kirk Tanner: Yeah, we have a great foundation for seasons, but I think that we can be even more disruptive and looking for what consumers are looking for. As we go into Halloween, even this year, we feel really good about what we learned, and then what new things we can bring to consumers that they are looking for that make that season even more robust. That as a leader in seasons, it's on us to be much more thoughtful about where consumers are going, continuing to modernize it, but we're building from a very strong base. As I look at seasons in H2, we feel really good. We can see the buys with our customers, we can see what's landing, and you can evaluate, hey, are we gonna have a really good season? Is this gonna be an okay season?

Speaker #5: We have a win with Reese's plan that is working. We see innovation off that platform. And that is a real platform in the UK.

Speaker #5: We're today leveraging a couple of things. We are leveraging imports. And we're leveraging local manufacturing for some of the products. The plan is to scale Reese's internationally, especially in the UK and Europe.

Speaker #5: Once we scale, then we'll look to in-source. I think that's the natural progression of how we build that business and make it much more profitable.

Speaker #5: I would tell you what we've learned in the playbook that we've learned in the UK and Europe is allowing us to take other places.

Kirk Tanner: We're feeling really good about the H2 seasons with what we've been able to partner with our customers with.

Speaker #5: So I was just recently in Brazil starting in Brazil to have the same impact. Brazilians love peanut butter. And so it is again, we'll run that playbook and allow us to build that platform.

David Palmer: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Tom Palmer with JPMorgan. Please proceed with your question.

Speaker #5: So we're also working in Mexico. Now we manufacture it in Mexico. So it's a little closer to home. But those are the playbooks that we are developing in one country or one market that we're able to take into other markets.

Thomas Palmer: Good morning, and thanks for the question. Sorry to kind of be the third person to ask here, but I did just wanna maybe clarify on the expected headline organic sales growth slowdown in Q2. I appreciate you've really highlighted it as more shipment timing than anything else. Could we just kind of quantify the specific items that are driving the slowdown? There was 2 points for, I think, ship ahead in Q1. There was maybe some Easter timing to consider. Is there anything else? Just could we kind of quantify like underlying maybe what Q1 would look like versus Q2 if we strip out some of this timing?

Speaker #5: And Reese's has been very exciting for us in that regard.

Speaker #16: Great. And then just to follow up on Rob Moskow's question, innovation. Are you able to quantify where you're at in new products as a percent of sales introduced over, say, the last three years?

Speaker #16: And are you at a level that you think you want to be at? Can you sustain the level? Or do you need to go higher?

Speaker #5: Well, I think that's a great question. From it's a high single-digit level of contribution to percent of sales for us. I think there's always opportunity.

Kirk Tanner: Yeah. You've got the biggest pieces. You know, we said slightly down in Q2 due to the timing. Easter sell-through was strong, the Q2 impact is bigger than anticipated. That, that and the little bit in international that we talked about are really the two biggest drivers of pulling forward. Yeah. I'll just share a little bit of how I think about it. Easter was a significant timing issue, right? We saw that. We saw sell-through go really well. That pulled a few of our programming into Q1. If I look at, you know, what success looks like, the overall consumption trends are, you know, are staying consistent. Once you get through the overlap in April, you'll see momentum pick up in May, and you'll see momentum pick up in June.

Speaker #5: And I would tell you that our innovation strategy is one of focus. I mean, we are innovating in those places that we have the greatest opportunity for us.

Speaker #5: That is premium. Sweets, better for you. I think I would think about that also in concert of growing our core brands. Our core continues to grow faster than the category.

Speaker #5: And so we have a healthy core business. And Reese's and Hershey, your innovation is even more meaningful. So, again, innovation will be focused. I think there's always more for us to do, especially when we get more breakthroughs with sweets, premium, and better-for-you.

Speaker #5: That will give us even further traction as we develop the portfolio. Now, on the salty snack side, we continue to innovate as well. Also really important part of building our portfolio.

Kirk Tanner: You think about those consistencies. If you remove those one-time events, I think you're gonna see very consistent performance on consumption, sell-through, and execution. I'm looking at April, the impact of Easter. May with some momentum certainly building, getting back on track, and June following that.

Speaker #5: We just recently launched the snack mix behind the Dot brand. And that's done exceptionally well. So again, that same model of healthy core and then innovation that's more disruptive in nature and salty where we're taking the snack mix category and disrupting it with Dots and seeing a lot of traction with consumers there.

Thomas Palmer: Okay. Thank you for that color. A question on the spring shelf resets. Maybe frame it relative to past years. Is this more impactful, more changes than we've seen recently?

Speaker #5: I would tell you this company is very focused on raising the bar on innovation. And we have a lot of momentum in front of us.

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

Speaker #5: All right. Well, there's one of the reasons we talk about incremental R&D investment coming to build that capability and build that muscle for the future.

Speaker #16: Great. Thank you very much. I'll pass it on.

Speaker #3: Thank you. Our next question comes from the line Scott Marks with Jefferies. Please proceed with your question.

Speaker #17: Hey. Good morning, all. Thanks very much for taking our questions. First thing I wanted to ask you about in the prerecorded remarks, you noted that the Hershey and Reese's brand non-seasonals grew prematurely.

Speaker #17: I think you called that 11 and 10 percent growth there. Could you help us understand the drivers behind that? I know you called out March Madness tentpole but is there anything else kind of helping support that strong performance?

Thomas Palmer: Thank you.

Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.

Speaker #5: Yeah. There's a couple of things. On our Hershey campaign, if you remember, during the Olympics, it was very well received. And that gave a lot of lift to the Hershey brand.

Robert Moskow: Hi, thanks. A couple of questions about innovation. I wanted to know, what are your expectations for this Hershey premium product you're launching in H2? You know, Hershey's struggled to introduce viable premium offerings in the past. I think there's questions out there about how far the brand can stretch. I'm trying to figure out, you know, how big of a bet it is. I had a follow-up.

Speaker #5: That, I think, is really important. On Reese's, Reese's was the center of our Big Tentpole event for March Madness. That allowed us to build inventory and get traction on the brand.

Speaker #5: But when we look at programming behind creating demand for Hershey or the brand Hershey's and Reese's, this is an example of how it comes alive and works.

Kirk Tanner: Yeah. Well, overall innovation we feel really good about. When we talk about, you know, Hershey, this elevated experience, this is a truly elevated. Maybe Robert, if you were at Investor Day, you had the opportunity to try this.

Speaker #5: And it works on the core. So this is Q1 is just an example of how that can come to life.

Speaker #17: Okay. Clear on that. And then second question for me. In terms of how you're thinking about cocoa market and outlook, one of your chocolate competitors earlier this week said that they believe current prices fairly reflect where supply and demand are.

Robert Moskow: I did.

Kirk Tanner: love these products. Well, hopefully you love them. I know.

Robert Moskow: I did.

Kirk Tanner: All right. Well, I love them. They're, you know, an important part, right? I think that when you look at innovation, it is a collection of those things. We have high expectations for that brand, and we think it's right in the sweet spot of what Hershey can deliver. That's on deep consumer research and understanding and testing. We know that, you know, we have the opportunity with Hershey to nail it and knock it out of the park with that innovation. We also look at innovation in totality. Across our portfolio, across our sweets portfolio with Jolly Rancher, we also continue to see Reese's, Oreo, be a standout.

Speaker #17: Globally, just curious if you can give us an update on your thoughts around the cocoa market and how you're thinking about going forward from here.

Speaker #5: Sure. Yeah. We still remain of view that long term, cocoa could remain above some of those really low or historical levels that we see now.

Speaker #5: We'll see how it plays out. So I'd say long term, if I have a somewhat cautious view, in the near term, we continue to anticipate larger surplus in '25 and '26.

Speaker #5: Partly the diversification of the supply chain, strong crops, declining demand. Continued expansion in new origins and so forth. So if that happens, if we would see cocoa fall, as we talked about at the investor conference, we have ability to participate, particularly in '27 and beyond, in that downside.

Kirk Tanner: You add on the Hershey innovation, and you see that plus then we have, you know, a big Hershey experience with Hershey movie coming out in Q4. It's the collection of those things is how we model and build our business. It's not reliant on one thing. It is the collection of those things that make the business strong. Having said all that, we have, you know, really good expectations for this elevated Hershey experience. We, you know, are launching a product that consumers in the testing have loved.

Speaker #5: And so those would be things that could trigger upside opportunity to our '27 and '28 outlook. But we're watching the space closely. Obviously, making sure that we're managing the business for the long term in terms of hedging but also in structures that allow agility to participate in downside.

Speaker #17: Appreciate the thoughts. I'll pass it on.

Speaker #3: Thank you. Our next question comes from the line Michael Avery with Piper Salma. Please proceed with your question.

Robert Moskow: Got it. Okay. My follow-up was about sweets. Can you tease out sweets performance in Q1 and what your expectations are for this year? The data shows that the Shaq-A-Licious product line is down substantially. You know, the sweets portfolio had been growing, you know, 20% plus. I just wanna get a sense of your confidence that you can capitalize on the strong consumer demand for, especially among young people, for this segment.

Speaker #18: Thank you. Good morning. Yeah. Just picking up on '27 there. I know it was only a month ago you gave a preliminary outlook there.

Speaker #18: But any thoughts since? And maybe in particular, could you help contextualize how to think about some of the risks from higher oil-related costs? Maybe how much about percent of costs that impacts or just how to think about what to watch there?

Speaker #5: Sure. I'm happy to kind of take that. I think we talked a little bit about the conference in general about things that could go upside or downside for '27.

Kirk Tanner: I mean, our biggest brand in sweets is Jolly Rancher, and Jolly Rancher performed very well. In my opening comments, it performed much faster than the category. That continues. There was some really good innovation on Heatwave, et cetera. Now we've launched a new item with the Shaq lineup that will give us some momentum later this spring and in the summer. We feel good about, you know, where we are with sweets. Jolly Rancher will continue to be a hero in the space. We've got a strong program around Twizzlers this summer. We have a robust pipeline in 2027 and 2028 across sweets that we'll share. We've shared some of the sweets portfolio and the innovation that's coming. We're gonna continue to invest in this.

Speaker #5: And we kind of broke them into controllables, non-controllables. And I think that basket is still largely the same. The things that we can control around innovation and media, ROIs, tentpoles, as we just talked about, elasticity to some degree, and of course, continuing to deliver on productivity and cost savings.

Speaker #5: All of those things we continue to have high confidence on our ability to manage and execute. We do have some factors outside of our control.

Speaker #5: We just touched on cocoa being one that could be potentially be upside. We'll see where the market goes. And then the macro headwinds and of course, competition.

Speaker #5: So far, I'll come to oil. As Kirk said earlier, from a macro standpoint, there's nothing we're seeing that's sort of outside the bounds of what we would have talked about back at the conference.

Speaker #5: We didn't expect those areas to get better. In '27, that's factored into the outlook. With respect to oil in particular, it's pretty small exposure for us.

Kirk Tanner: When we talk about investing in R&D, there's some specific areas that we're focused on. One is premium, two is sweets, three is better for you. You'll see us continue to make that pipeline much more robust in the future. You know, we've seen that. That is in our R&D right now, and we've seen that pipeline, so we feel really good about where we're going.

Speaker #5: The bigger impact would be indirect through packaging and so forth. Those impacts take time. So it does lack a little of what Kirk said of how high and how long with the oil price impact lasts.

Speaker #5: At this stage, sitting here, we wouldn't change anything as we look to '27 and beyond.

Robert Moskow: Great. Thank you.

Speaker #17: Okay. That's helpful. And just a follow-up back on the '26 outlook. You had pointed to elasticities remaining favorable as a potential driver of upside to guidance.

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

Speaker #17: And it sounds like that's, so far, sticking and staying true. I guess, what are some of your thoughts on holding it then? Is it just that it's a little bit early still?

Speaker #17: I know you mentioned some price pack architecture changes still coming. Are those maybe more significant than we might appreciate or how do you help us think about that?

Kirk Tanner: Yeah. Hey, thanks for the question. You know, I was just going to go back. One of the, you know, the key drivers of the confection category in particular is that this is an emotional category. It is a treat, not a meal. I think that's playing out with GLP-1 users and the overall health and wellness trends. Consumers on these drugs, specifically GLP-1, continue to enjoy the category in smaller portions. We know that. Our research supports the confection category is relatively insulated compared to other food categories. Our framework for estimating the GLP-1 impact includes scenario assumptions for both the near and the long-term horizon for adoption rates. We have been monitoring calorie reduction, user lap rates, and other behavior changes. Now, the accelerated adoption rate alongside affordability and new formats are well contemplated in our outlook.

Speaker #5: Yeah. I think it's just being cautious. We're really pleased with the start of the year. If you're really confident about the balance of your items that we can control, elasticities, as they move around, we like what we see in our projection is still strong.

Speaker #5: But like we just talked about, oil price is kind of a new macro to keep an eye on. And in general, there's still a lot of movement and evolution in those macros.

Speaker #5: So I think it's just a prudent approach. By the time we get to the mid-year mark, we'll have a lot more visibility on all of this.

Speaker #5: And be able to take a potentially a different position.

Speaker #17: Okay, thanks. I'll pass it on.

Speaker #3: Thank you. Our next question comes from the line of Steve Powers. Deutsche Bank. Please proceed with your question.

Speaker #19: Hey. Thanks very much. Just first, a quick follow-up. Kirk, I think you mentioned earlier just in talking about the fast growth rate that your choice is to deprioritize some of the non-core, non-branded parts of the portfolio was a bit of a notable drag on the top line relative to consumption.

Kirk Tanner: We spend a great deal of time understanding this. It is in our outlook. It is in line with what we've seen and what we expect, we'll continue to do this. This is something that we are continuously monitoring. Overall, again, the category is about a treat. It's still being enjoyed through this. Again, it's about 40 calories per day, two to three servings per week for the average American on confection. That's just the scope of what we're seeing and that gives us the confidence of where we're going here with this macro.

Speaker #19: I guess just to frame how big that non-core part of the portfolio is today and whether that is something that you keep in mind as a drag that will continue or if it was more just isolated this quarter.

Speaker #5: Yeah. It will continue to be a drag. And I will continue to communicate kind of where the brand performance is versus the private label.

Speaker #5: I mean, this is something that was planned and something we're working with our customers on. So we feel really good about that. I think our focus is on driving meaningful volume and growth with our branded products.

Speaker #5: And we like where we're going. We are driving a significant amount of the growth in the category. So if you look at Salty, the drivers of growth are definitely dots in a pot lesser evil.

Max Gumport: Great. Thanks very much. Just returning to price elasticity. It sounds like everything you're seeing is quite good so far. It's running better than planned. Competitors have followed, retailers have accepted. Obviously, the price elasticity response suggests consumers are not showing a worse reaction than feared. Can you just provide a bit more color about how this informs your view of your performance from here, and also how it factors into the 2% to 4% organic sales growth target you gave for 2027, just a month ago? Thanks very much.

Speaker #5: They're driving exceptional growth. And we see that continuing. Now, part of the private label, yes, there'll be a drag. But overall, we'll be in a really good place full year on both top line and bottom line for our Salty portfolio.

Speaker #17: Okay. Perfect. And then I just wanted to ask on functional tracking. I don't think we've talked about it yet on this call. It was one of the higher growth platforms that I think you highlighted and discussed as an investor day.

Kirk Tanner: Yeah, sure. I'd be happy to take that one. Yeah, as you said, elasticities are running favorable. They have so far. They continue to. It just points to the resilience in these categories, especially in instant consumables, refreshment, and seasons. You know, we've talked in the past how seasons are so precious to consumers. As we look out, you know, we don't see a material change. You know, as we think about the outlook for the year, we're not changing the guides. We're still inside the earlier guidance, even though the Q1 results look strong. It's partly because we still have that price pack architecture hitting shelves as we speak. We know elasticities can move, so I'll say we're being a little bit cautious there.

Speaker #17: Just a little perspective on how that part of the business is situated as we go into the balance of the year. And I guess from maybe your perspective, if perhaps that is a higher priority for incremental investment attention than maybe on the outside, it's perceived.

Speaker #5: Yes. Absolutely. And that's a big growth. I mean, the business is relatively small compared to the rest of our business. That is an area that we are investing in.

Speaker #5: This is a space that consumers are they're in. And we're seeing a high level of growth reflected in our earlier comments. That will be that will continue to be a part.

Kirk Tanner: We'll continue to monitor it over the coming quarters. We'll be in a better spot to take a look at the guide at the mid-year mark. We'll have most of the price pack architecture in place at that point and have a better read. We're really encouraged by what we're seeing so far and the resilience of the consumer and the category.

Speaker #5: Now, our job is to build this business to be a much larger, more influential part of our business. And we're doing just that. We're investing in R&D, we're updating our formulas you'll see really good brand work across one and fulfill.

Speaker #5: We've also entered into a JV with Vitakey, which is has breakthrough protein delivery that we really like to see. And that R&D will be meaningfully different.

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

Speaker #5: And we know that we have to be differentiated in the space. And we feel really good about where we're going with the protein and functional business.

Speaker #5: And right now, we're seeing high, mid-single digits. For me, double digit growth on our business today. And we know we can build that for the future.

Speaker #5: So more to come from us on this area. It's small but mighty part of our growth. And you'll see the investment and innovation. And we'll have a lot more to talk about first for some of these breakthroughs that we're working on.

Kirk Tanner: Yeah, I think that is a great question. This really brings the best of demand creation and demand execution or demand fulfillment. These moments like the Fourth of July is typically where we did not participate, right? This, you know, between salty and sweet, we have this great opportunity to participate in these big moments of celebration that are relevant with consumers. That's kind of the, you know, that's the motivation, the inspiration behind it. Now, what we've done is we've worked with our customers. We've put the demand creation together with the marketing, and then what we do is we bring that to life like we've never done before at the Fourth of July, and we've activated that with our sales force. Our customers are encouraged by this because, look, it just makes these events bigger in store.

Speaker #17: Okay. Great. Thank you so much.

Speaker #3: Thank you. Our next question comes from the line of Rob Deckerson with Jefferies. Please proceed with your question.

Speaker #17: Great. Thank you. I'm a BTIG now. But I appreciate the shout. Yeah. Steve, I just wanted to come back to margin question again. But more specific to confection.

Speaker #17: I mean, obviously, there's been a lot of volatility over the past few years. For pretty well-understood reasons. Really did better in Q1 versus last year's Q1.

Speaker #17: But then there's some shifts in Easter and there's reinvestment. There are activations coming. And so I'm just kind of curious I guess it's more specific to cadence but also for this year but also kind of relative to history, right?

Kirk Tanner: It brings more retail theater to the store with our big brands like Hershey and Dots. That makes the overall season better for the retailer. That is kind of leveraging our strength as a business to bring more relevance to these holidays, and it gives us a chance to capture some of that share of that occasion. This allows us to go from a season into a tentpole into a season into a tentpole again. That allows our sales force to be constantly focused on how they develop those big moments in retail. You know, our customers are very supportive of this. It gives, you know, more for the shopper to engage with. You know, this is, I would say this is playing to our strengths.

Speaker #17: If we kind of exclude the past few years, your confection margin was somewhat stable quarter to quarter. Clearly, some seasonality differences, but somewhat stable.

Speaker #17: So I'm just curious, as we think through kind of this year, right, with cacao coming down and then also, I guess, into next year, is there kind yes, I think the next few see it maybe come down a little bit in Q2 and then a really ramp as we get through the back half of the year?

Speaker #17: And I have a quick follow-up.

Speaker #5: Sure. Yeah. We are going to see some movement still quarter. Our challenge always is season timing. I feel like forever we'll be talking about seasonal timing quarter to quarter variability related to that.

Speaker #5: But as we look through the balance year, there's nothing big changing. You have more tent poles to plan for, more activation to plan for.

Jim Salera: Do you have any sense for how much of a gap there is between some of the tentpoles and the traditional seasons events? I just wonder if there might be a concern of some overlap, you know, somebody stocked up on Hershey's Kisses or LesserEvil popcorn ahead of what would otherwise be kind of a seasonal purchase window.

Speaker #5: But we're going to particularly as we get to the back half of the year and we start lapping some of the higher priced cocoa and commodities.

Speaker #5: We're going to see that step up, and so we're going to see that play out over the course of the year. I would say there's nothing unusual to really point out in that sequence.

Speaker #17: Okay. So let me think about kind of what a gross margin cadence kind of plan for the year. It seemed like kind of plus or minus, let's say, kind of the op margin and confection would kind of follow.

Kirk Tanner: I mean, there's enough gap between these that, you know, we're measuring incrementality, and the breadth of our portfolio allows us to play in these of, you know, these tentpoles and seasons without being redundant or cannibalizing each other. You know, we are the number one season executor in CMG. We have the largest share of seasons. When you, when you bring tentpoles to life, we're bringing them to life with different brands, different opportunities, and we're making them as incremental as possible. I would tell you, a big collaborator in this is our customers. You know, our customers own the categories as well, and this is leveraging the best of what we have and the best insights that they have, and that's really what the magic is.

Speaker #17: Is that fair?

Speaker #5: Right. Can you say that again? Not sure I totally understood your question.

Speaker #17: Gross margin, right? You spoke earlier to kind of what was implied in Q2 and then the back half. I'm just curious, is the cadence kind of the trajectory on North American confectionery margin operating margin kind of?

Speaker #17: Should kind of basically track with gross margin. Thanks.

Speaker #5: Yeah. The difference is where they're disconnected to the investing in media. Which will pick up certainly in Q2 and even in the back half.

Speaker #5: So that's the disconnect between big gross margin and operating margins as expected. So that's all part of the plan for this year. So that's where the two will have some deviation.

Kirk Tanner: Right now, I feel like there's a really good cadence. You'll see this summer, you'll see us execute the 250 anniversary. You'll see us execute s'mores and summer travel. You're gonna go into Halloween, and there's a nice gap between those to have the sell down and then, you know, the build for Halloween. It really makes sense for retail.

Speaker #17: Okay, great. All right, great. And then just a quick follow-up to what you just touched on—SM&A came in a little bit late in Q1.

Speaker #17: I think relative to expectations. But it sounds like expectations for the year have changed. And then just given timing of shelf recepts, what have you, you've spoken to, it sounds like that SM&A will then be kind of ramping as we get through the year.

Speaker #17: Is that right?

Jim Salera: Great. I appreciate those thoughts. I'll hop back in the queue.

Speaker #5: Yeah. You got it. Yep. Expectation for the full year is unchanged. Still expect to see double-digit increase in marketing and advertising. We did have some movement in Q1 and Q2.

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

Speaker #5: Some of that was delayed on working media development, which slipped into Q2. And then we've also tuned a little bit more towards spring activations in the working media.

Alexia Howard: Good morning, everyone. Can I ask about the Reese's expansion in Europe? I know a while back you mentioned that in the UK, the household penetration was in the high teens, I believe, but that was a while ago. Where have you got to now? I believe you may have gone into some other countries in Europe with Reese's. At what point do you start to think about actually putting plants, manufacturing capacity into that region?

Speaker #5: But overall, for the full year, no change in expectation.

Speaker #17: All right. Super. Thank you.

Speaker #5: Thank you.

Speaker #3: Thank you. Our final question this morning comes from the line of John Baumgartner with Mizuho Security. Please proceed with your question.

Speaker #17: Good morning. Thanks for the question.

Speaker #5: You got it. Good morning.

Speaker #17: Kirk, I just want to come back to premium chocolate. At Investor Day, there was a reference to Brookside, and that seems to be differentiated when it required.

Kirk Tanner: Yeah, great question. We continue to see Reese's thrive in the UK and other European countries. Our plan is to continue to develop that. We have a win with Reese's plan that is working. We see innovation off that platform, and that is a real platform in the UK. We're today leveraging a couple things. We are leveraging imports, and we're leveraging local manufacturing for some of the products. The plan is to scale Reese's internationally, especially in the UK and Europe. Once we scale, then we'll look to insource. I think that's the natural progression of how we build that business and make it much more profitable. I would tell you what we've learned in the playbook that we've learned in the UK and Europe is allowing us to take it other places.

Speaker #17: But they ended up stalling out on competition. And then in premium tradeup, the Hershey bliss, that was a play on texture. But that faded after a few years.

Speaker #17: So I'm curious, when you speak to breakthrough now, is the plan here to essentially sort of outpace and outtexture competitors in the mass market and reset expectations for the mass market?

Speaker #17: Or is the target more so new consumers and channels that may have not been a traditional focus for Hershey? How do we think about that balance there?

Speaker #5: Yeah. I think those are really relevant. I think about premium and I think about accessible premium. Consumers are looking for new experience. I think that is not that's not changed.

Speaker #5: We have three brands that we love for this. One is Brookside, as you mentioned, will innovate on Brookside. We're seeing growth in Brookside. We also are investing in Cadbury.

Speaker #5: Cadbury has a lot of potential in this market. It is a premium experience and accessible as well. And we'll innovate on Cadbury as part of that.

Kirk Tanner: I was just recently in Brazil. It's starting in Brazil. It's having the same impact. Brazilians love peanut butter, again, we'll run that playbook and allow us to build that platform. It's also working in Mexico. Now we manufacture it in Mexico, so it's a little closer to home. Those are the playbooks that we are developing in one country or one market that we're able to take into other markets. Reese's has been very exciting for us in that regard.

Speaker #5: So you got between Brookside and Cadbury, there's really good momentum. And then, like we talked about, we're building some accessible premium on Hershey's brand.

Speaker #5: And we'll have new brands that we talk about later in this year for next year that create this great experience for consumers. So indulgent premium really targeted towards Gen Z consumers.

Speaker #5: So we feel really good about where we're going with our premium business. And being a part of that. But I think there's it's a small part of the business today.

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

Speaker #5: So when you think about pure premium, it's about 5% of the total category. Now, there's a lot of growth because there's a lot of experience inside of premium.

Speaker #5: And that's drawing consumers to that. So we are definitely going to be in that space and leading in that space through some of our key brands that we have.

Kirk Tanner: Well, I think that's a great question. From, you know, it's a high single digit level of contribution to, you know, % of sales for us. I think there's always opportunity, and I would tell you that our innovation strategy is one of focus, meaning we are innovating in those places that we have the greatest opportunity. For us, that is premium, sweets, better for you. I think I would think about that also in concert of growing our core brands. Our core continues to grow faster than the category. When you have a healthy core business in Reese's and Hershey, your innovation's even more meaningful. Again, innovation will be focused.

Speaker #17: Okay. Thank you.

Speaker #3: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to McNaughan for any final comments.

Speaker #5: Thank you all. Look forward to catching up with any of you overcoming days and weeks.

Kirk Tanner: I think there's always more for us to do, especially when we get more breakthroughs with sweets and premium and better for you, that will give us even further traction as we develop the portfolio. On the salty snack side, we continue to innovate as well. Also really important part of building our portfolio. We just recently launched the snack mix behind the Dots brand, and that's done exceptionally well. Again, that same model of healthy core and then innovation that's more disruptive in nature in salty, where we're taking the snack mix category and disrupting it with Dots and seeing a lot of traction with consumers there. I would tell you this company is very focused on raising the bar on innovation, and we have, you know, a lot of momentum in front of us.

Steve Voskuil: All I would add there is.

Alexia Howard: Great

Steve Voskuil: One of the reasons you talked about incremental R&D investment coming to help build that capability and build that muscle for the future.

Alexia Howard: Great. Thank you very much. I'll pass it on.

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

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

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

Steve Voskuil: Sure. We still remain of the view that, you know, long term, cocoa could remain above some of those really low or historical levels that we've seen. Now we'll see how it plays out. I'd say long term, we probably have a somewhat cautious view. In the near term, you know, we continue to anticipate a larger surplus in 2025 and 2026. Partly the diversification of the supply chain, strong crops, declining demand, continued expansion in new origins and so forth. If that happens, if we would see cocoa fall, you know, as we talked about at the investor conference, you know, we have ability to participate, particularly in 2027 and beyond in that downside. Those would be things that could trigger upside opportunity to our 2027 and 2028 outlooks.

Steve Voskuil: We're watching the space closely, obviously, you know, making sure that we're managing the business for the long term in terms of hedging, but also in structures that allow agility to participate in downside.

Scott Marks: Appreciate the thoughts. 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. Yeah, just picking up on 2027 there. I know it was only a month ago you gave a preliminary outlook there, but any thoughts since and, maybe in particular, could you help contextualize how to think about some of the risks from higher oil-related costs? Maybe how much of a % of COGS that impacts, or just how to think about what to watch there.

Steve Voskuil: Sure. I'm happy to kinda take that. I think we talked a little bit about the conference in general about things that could go upsides or downsides for 2027, and we kind of broke them into controllables and non-controllables. I think that basket is still largely the same. You know, the things that we can control around innovation and media, ROIs, tentpoles as we just talked about, elasticity to some degree, and of course continuing to deliver on productivity and cost savings. I think all of those things we continue to have high confidence on our ability to manage and execute. We do have some factors outside of our control. You know, we just touched on cocoa being one that could be potentially be an upside. We'll see where the market goes.

Steve Voskuil: The macro headwinds and of course, competition. You know, and I'll come to oil, you know, as Kirk said earlier, from a macro standpoint, there's nothing we're seeing that's sort of outside the bounds of what we would've talked about back at the conference. You know, we didn't expect those areas to get better in 2027, and that's factored into the outlook. With respect to oil in particular, it's pretty small exposure for us. The bigger impact would be indirect through packaging and so forth, and those impacts take time. It does go back a little to what Kirk said of, you know, how high and how long would the oil price impact last. At this stage, sitting here, you know, we wouldn't change anything as we look to 2027 and beyond.

Michael Lavery: Okay. That's helpful. Just a follow-up back on the 2026 outlook. You had pointed to elasticities remaining favorable as a potential driver of upside to guidance and it sounds like that's so far sticking and staying true. I guess what's some of your thinking on holding it then? Is it just that it's a little bit early still? I know you mentioned some price back architecture changes still coming. Are those maybe more significant than we might appreciate or how do you help us think about some of that?

Steve Voskuil: I think it's just being cautious. You know, we said we're really pleased with the start to the year, feel really confident about the balance of year items that we can control. Elasticities, as I say, can move around, but we like what we see and our projection is still strong. Like we just talked about, oil price is kind of a new macro to keep an eye on and in general, you know, there's still a lot of movement and evolution in those macros. I think it's just a prudent approach. By the time we get to the midyear mark, we'll have a lot more visibility on all of this, and be able to take a, you know, potentially a different position.

Michael Lavery: Okay. Thanks. I'll pass it on.

Operator: Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Steve Powers: Hey, thanks very much. Just first a quick follow-up. Kirk, I think you mentioned earlier just in talking about the snacks growth rate that, your choices to deprioritize some of the non-core, non-branded parts of the portfolio was a bit of a notable drag on the top line relative to consumption. I guess just, you know, wanted to frame, you know, how big that non-core part of the portfolio is today, and whether that is something that we should keep in mind as a, as a drag that will continue or if it was more just isolated this quarter.

Kirk Tanner: Yeah, it will continue to be a drag and I will continue to communicate kind of where, you know, the brand performance is versus the private label. I mean, this is something that was planned, and it's something we're working with our customers on, so we feel really good about that. I think our focus is on driving meaningful volume and growth with our branded products, and we like where we're going. We are driving a significant amount of the growth in the category. If you look at salty, the drivers of growth are definitely Dot's, SkinnyPop, LesserEvil. They're driving exceptional growth and we see that continuing.

Kirk Tanner: Part of the private label, yes, that'll be a drag, but overall, you know, we'll be in a really good place full year on both top line and bottom line for our salty portfolio.

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

Kirk Tanner: Yes. Absolutely. That's a big growth. I mean, the business is relatively small compared to the rest of our business. That is an area that we are investing in. This is a space that consumers are in. We're seeing a high level of growth, you know, reflected in our earlier comments, that will be, you know, that will continue to be a part. Now, our job is to build this business to be a much larger, more influential part of our business, and we're doing just that. We're investing in R&D. We're updating our formulas. You'll see really good brand work across ONE and FULFIL. We've also entered into a JV with VitaKey, which is, you know, has breakthrough protein delivery that we really like to see, and that R&D will be meaningfully different.

Kirk Tanner: We know that we have to be differentiated in this space. We feel really good about where we're going with the protein and functional business. Right now we're seeing, you know, high mid-single digit or maybe double-digit growth on our business today, and we know we can build that for the future. More to come from us on this area. It's small but mighty part of our growth. You know, you'll see the investment in innovation, and we'll have a lot more to talk about for some of these breakthroughs that we're working on.

Steve Powers: Okay. Very good. Thank you so much.

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. I'm at BTIG now, but appreciate the shout-out. Yeah, Steve, I just wanted to come back to the margin question again, but more specific to confection. You know, I mean, obviously there's been a lot of volatility over the past few years, for pretty well understood reasons. You know, clearly, you know, did better in Q1, you know, versus last year's Q1. You know, there's some shifts in Easter and there's reinvestment, there are activizations coming. I'm just kind of curious, I guess it's more specific to cadence, but also for the rest of the year, but also just kind of relative to history, right?

Rob Dickerson: If we exclude the past few years, your confection margin was somewhat stable, let's say quarter to quarter. You know, clearly some seasonality differences, but somewhat stable. I'm just curious, as we think through this year, right, with cacao coming down, and then also I guess into next year, you know, is there a, you know, perspective that, yes, I think, you know, the next few quarters there should be more stability or should we see it maybe even come down a little bit in Q2 and then really ramp as we get through the H2 of the year? I have a quick follow-up. Thanks.

Steve Voskuil: Sure. Yeah. We are gonna see some movements still quarter, you know, our challenge always is season timing. I feel like forever we'll be talking about seasonal timing, quarter to quarter variability related to that. As we look through the balance sheet, there's nothing big changing here. We have more tent poles to plan for, you know, more activation to plan for. We're gonna, particularly as we get to H2 and we start lapping, you know, some of the higher priced cocoa and commodities, we're gonna see that step up. We're gonna see that play out over the course of the year. I would say there's nothing unusual to really point out in that sequence.

Rob Dickerson: Okay. If we think about kind of where the gross margin, the gross margin cadence, you know, kind of planned for the year, it would seem like, you know, kind of plus or minus, let's say, kind of the op margin in confection would kind of follow. Is that fair?

Steve Voskuil: Can you say that again? I'm not sure I totally understood your question.

Rob Dickerson: Gross margin, right? You spoke earlier.

Kirk Tanner: Yeah.

Rob Dickerson: -to kind of what was implied in Q2 and then H2. I'm just curious, like, is the cadence kind of, you know, the trajectory on North American confectionery margin, operating margin?

Steve Voskuil: Oh, gotcha. Sure.

Rob Dickerson: You know, kind of should kind of basically track with gross margin. Thanks.

Steve Voskuil: Yeah. The difference is where they will disconnect is the investing in media, which will pick up certainly in Q2 and even in the back half. That's the disconnect between, say, gross margin and operating margins as expected. That's all part of the plan for this year. That's where the two will have some deviation. I'll follow up in a minute.

Rob Dickerson: Okay, great. All right, great. Just, like, that quick follow-up, what you just touched on, you know, SM&A came in a little bit light in Q1, I think relative to expectations, it sounds like, you know, expectations for the year haven't changed. Just given timing of, you know, shelf resets, what have you spoke it to, it sounds like that SM&A will then be kind of ramping as we get through the year. Is that right?

Steve Voskuil: You got it. Expectation for the full year is unchanged. Still expect to see double-digit increase in marketing and advertising. We did have some movement between Q1 and Q2. Some of that was delayed non-working media development, which slipped into Q2. We've also tuned a little bit more towards spring activations in the working media. But overall, for the full year, no change in expectation.

Rob Dickerson: All right. Super. Thank you.

Steve Voskuil: You bet.

Operator: Thank you. Our final question this morning comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.

John Baumgartner: Good morning. Thanks for the question.

Kirk Tanner: You got it. Good morning.

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

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

Kirk Tanner: Like we talked about, we're building some accessible premium on our Hershey's brand, and we'll have new brands that we talk about later in this year for next year that create this great experience for consumers. Indulgent premium, really targeted towards Gen Z consumers. We feel really good about where we're going with our premium business and being a part of that. I think there's, you know, it's a small part of the business today. When you think about pure premium, it's about 5% of the total category. Now, there's a lot of growth because there's a lot of experience inside premium, and that's drawing consumers to that. We are definitely gonna be in that space and leading in that space, you know, through some of our key brands that we have.

John Baumgartner: Okay. Thank you.

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

Anoori Naughton: Thank you, all. We look forward to catching up with many of you over the coming days and weeks.

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