Core Insights - Hershey is optimistic about cocoa inflation turning deflationary by 2026, with expectations of a lower tariff impact than previously anticipated for this year [1][5][6] Sales Performance - The North America confectionery division generated $2.62 billion in sales during Q3, contributing to a total group revenue of $3.18 billion, with organic growth rates of 5.2% and 6.2% respectively [2] - Hershey has raised its fiscal 2025 sales guidance, now expecting a sales increase of about 3%, up from the prior estimate of "at least" 2% [3][2] Cocoa Pricing and Cost Management - Cocoa prices remain 70% higher than two years ago, despite recent declines from historical highs, prompting Hershey to continue managing cost inflation through various strategies [4][5] - CFO Steve Voskuil indicated that Hershey is modeling a net price realization of five to six percentage points for fiscal 2025, with a more positive outlook for the upcoming year [4] Earnings Outlook - Earnings per share (EPS) are forecasted to decline, with reported EPS expected to decrease by 48-50%, slightly adjusted from a previous forecast of 50% [3] - On an adjusted basis, EPS is now anticipated to fall by 36-37%, compared to the earlier estimate of a 36-38% drop [3] Tariff Impact - Hershey has reduced its tariff implications by $10 million, now estimating a range of $160-$170 million for the year [2] - The company has modeled an additional $200 million in tariffs for the upcoming year, while still anticipating cocoa inflation [6]

Core Insights - American retailers are increasing discounts on Hershey products ahead of Halloween due to price hikes from tariffs and cocoa inflation [1][2] - Hershey is among the food makers with the largest increase in discounted goods sold, as reported by Jeffries [2] - The overall chocolate candy sales per unit remained flat despite an 8% price increase, indicating potential challenges for Hershey [5] Pricing and Sales Trends - The cost of chocolate has surged nearly 30% since last Halloween and is up almost 78% from five years ago [6] - A 100-piece bag of assorted Halloween candy now averages $16.39, a significant increase from $9.19 in 2020 [6] - Nearly 80% of Halloween shoppers expect to pay more this year, reflecting broader inflationary pressures [11] Market Response - Experts attribute rising cocoa prices to a global shortage linked to poor harvests and climate changes in West Africa [9] - Candy makers are adapting by shrinking product sizes and introducing new varieties, including fruit-flavored and cocoa-free options [9] - Hershey's CEO indicated that the company is experiencing disappointing Halloween sales and plans to adjust its seasonal product and marketing strategies [5]

Financial Data and Key Metrics Changes - The company reported a 26% increase in net sales compared to the same period last year, with organic constant currency net sales growth of 26.3% driven by net price realization of approximately five points and volume growth of approximately 21 points [29] - Adjusted gross margin decreased by five to ten basis points to 38.1% due to commodity inflation and incremental tariff expenses, although gross margin was higher than expected due to timing of cocoa hedges and lower tariff expenses [33][40] - Adjusted earnings per share declined by 4.7% year over year, impacted by incremental commodity costs and a higher tax rate [37] Business Line Data and Key Metrics Changes - North America Confectionery segment net sales grew by 32%, with volume increasing by 25%, benefiting from Easter timing and inventory changes related to ERP system implementation [30] - North America Salty Snacks segment net sales increased by 8.8%, with volume growth of over 4% driven by Dots and Skinny Pop [31] - International segment net sales increased by 4.4%, but volume growth was below expectations primarily due to category softness in Mexico and lower export market demand [32] Market Data and Key Metrics Changes - Hershey's U.S. retail sales for candy, mint, and gum increased by 21.8%, outpacing the category increase of 17.9% [8] - The company gained approximately 90 basis points of market share in the non-seasonal candy, mint, and gum category [9] - Constant currency net sales in Brazil increased by double digits, while growth in Europe was mid-single digits led by the U.K. [20] Company Strategy and Development Direction - The company aims to be a leading snacking powerhouse, with a focus on balanced growth and mitigating cocoa inflation through enhanced productivity and strategic pricing [7][21] - A new pricing action on the entirety of the U.S. Confection portfolio is expected to deliver an estimated 16 points of pricing contribution to overall company sales [25] - The company is implementing a Smart Complexity initiative to simplify packaging and optimize manufacturing efficiency, raising its savings target to $400 million [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying trajectory of the business, expecting robust results to continue in the second half of the year [21] - The company anticipates adjusted earnings per share to decline between 36% to 38% for the year due to higher cocoa costs and tariffs [40] - Management remains hopeful for improvements in tariff conditions but does not plan for relief in 2025 [39] Other Important Information - The company announced the appointment of Kirk Tanner as the new President and CEO, effective August 18 [5] - The Pokémon program has shown strong initial velocities, significantly outperforming other limited-time offers [14] - Capital expenditures in Q2 totaled $231 million, with full-year expectations between $425 million and $450 million [37] Q&A Session Summary Question: What are the expectations for the second half of the year? - Management expects an acceleration in performance to 2% to 4% growth, supported by strong innovation and merchandising plans [38] Question: How is the company addressing cocoa inflation? - The company is implementing pricing actions and hedging strategies to manage cocoa costs and restore margins over time [22][28] Question: What is the outlook for international markets? - The full-year constant currency segment net sales growth outlook for international markets remains low single digits, with expectations for reacceleration in the second half [20]

Financial Data and Key Metrics Changes - The company reported a 3.1% growth in organic net revenue for Q1 2025, driven by strong pricing execution in the chocolate business despite significant cocoa input cost inflation [6][18] - Adjusted gross profit was significantly impacted by record cocoa costs, leading to an 18% decline in EPS on a constant currency basis [9][32] - Free cash flow for the quarter was $800 million, indicating strong cash generation capabilities [9][33] Business Line Data and Key Metrics Changes - The chocolate segment grew by 10.1%, with significant growth across both developed and emerging markets, although volume mix was down 5.7% due to elasticity and trade destocking [22][24] - The biscuits and baked snacks category grew by 0.3%, with notable brands like Loo and Seven Days contributing to growth, but faced challenges in the U.S. due to retailer destocking [20][21] - Gum and candy grew by 1%, driven by performance in China and Mexico, but faced volume mix challenges due to trade destocking in the U.S. [22] Market Data and Key Metrics Changes - North America experienced a decline of 3.6% primarily due to retailer destocking and softer consumer demand, particularly in the food and mass channel [26] - Europe grew by 8.9% in Q1, with strong execution and growth in key countries like the UK, France, and Germany [24] - Emerging markets grew by 3.9%, with Brazil and China showing strength, while India faced challenges due to inflationary pressures [19][28] Company Strategy and Development Direction - The company remains committed to its strategic growth agenda, focusing on brand reinvestment, expanding distribution, and sustainability initiatives [11][14] - The chocolate strategy is on track, with a focus on offering a variety of pack sizes to cater to different consumer needs and maintaining entry-level pricing [15][16] - The company aims to continue innovating with new flavors and formats, leveraging strong brand loyalty to drive long-term success [17][78] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year outlook despite external volatility, highlighting strong pricing execution and category growth [6][7] - Consumer sentiment is mixed, with significant declines in the U.S. due to inflation fears, while European consumer confidence remains stable [46][49] - The company anticipates a gradual improvement in the U.S. biscuits category as destocking subsides and promotional activities increase [107] Other Important Information - The company achieved a top-tier ranking in the global advantage survey for retailer partnerships, reflecting strong relationships with retailers [13] - Sustainability efforts are progressing well, with 91% of cocoa volume sourced through the Cocoa Life program and a 12% reduction in carbon emissions since 2018 [14] Q&A Session Summary Question: Trends in key regions for the year ahead - Management noted strong pricing execution in Europe and share gains in emerging markets, particularly in China and Brazil, despite softness in North America [41][44] Question: Key considerations for North America and pricing in Europe - Management reaffirmed confidence in pricing strategies and noted that the Easter season was strong, with expectations for improved results in Q2 [55][58] Question: Strategy to mitigate cocoa inflation - The company is executing a multifaceted strategy involving pricing, productivity, and RGM, with a focus on maintaining key price points and offering a range of pack sizes [67][70] Question: Profit dollar generation and future cadence - Profit dollar generation exceeded expectations due to better pricing, productivity improvements, and favorable commodity procurement [93][96] Question: Insights on North American biscuit category softness - Management highlighted the need to focus on price points and promotional activities to address category softness, with expectations for gradual improvement [102][106]

Financial Data and Key Metrics Changes - The company reported a 3.1% growth in organic net revenue for Q1 2025, driven by strong pricing execution in the chocolate business despite significant cocoa input cost inflation [6][18] - Adjusted gross profit was significantly impacted by record cocoa costs, leading to an 18% decline in EPS on a constant currency basis [9][32] - Free cash flow for the quarter was $800 million, with a stock repurchase of $1.5 billion at an average price of $57.91 [9][33] Business Line Data and Key Metrics Changes - The chocolate segment grew by 10.1%, with significant growth across both developed and emerging markets, although volume mix was down 5.7% due to elasticities and trade destocking [22][24] - The biscuits and baked snacks category grew by 0.3%, with notable brands like Loo and Seven Days contributing to growth, but faced challenges in the U.S. due to retailer destocking [20][21] - Gum and candy grew by 1%, driven by performance in China and Mexico, but faced volume mix challenges in the U.S. [22] Market Data and Key Metrics Changes - North America experienced a revenue decline of 3.6%, primarily due to retailer destocking and softer consumer demand, particularly in the food and mass channel [26] - Europe saw an 8.9% growth in Q1, with strong execution in key countries like the UK, France, and Germany, benefiting from successful pricing execution and Easter season performance [24][25] - Emerging markets grew by 3.9%, with strong performance in Brazil and China, although India and Southeast Asia showed some softness [19][28] Company Strategy and Development Direction - The company remains committed to its strategic growth agenda, focusing on brand reinvestment, expanding distribution, and sustainability initiatives [11][14] - The chocolate strategy is on track, with a focus on offering a variety of pack sizes and maintaining entry-level pricing to drive consumption [15][16] - The company aims to navigate cocoa cost challenges while driving long-term category health and share gains [17][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year outlook despite external volatility, highlighting strong pricing execution and category growth [6][7] - Consumer sentiment is mixed, with North America facing significant challenges due to inflation fears, while Europe shows stable consumer confidence [46][49] - The company expects to see an acceleration in top-line growth in Q2, driven by successful Easter activations and improved pricing strategies [60][62] Other Important Information - The company achieved a top-tier ranking in the global advantage survey for retailer partnerships and made significant progress in sustainability targets [13][14] - Cocoa prices remain elevated, but the company anticipates a small surplus for the year, with expectations of potential demand declines impacting future cocoa prices [33][34] Q&A Session Summary Question: Trends in key regions for the year ahead - Management noted strong pricing execution in Europe and share gains in emerging markets, while North America remains softer due to retail destocking [41][44] Question: Key considerations for North America and pricing in Europe - Management reaffirmed guidance for 2025, highlighting successful customer negotiations and strong pricing execution across markets [55][56] Question: Strategy to mitigate cocoa inflation - The company emphasized a balanced approach involving pricing, productivity, and RGM strategies, with ongoing monitoring of consumer reactions [67][68] Question: Insights on North American destocking - Destocking was primarily observed in food and mass channels, with DSD systems not fully mitigating the impact [88][89] Question: Profit dollar generation and future cadence - The company experienced better-than-expected profit dollar generation due to improved pricing and productivity, with manageable tariff impacts anticipated [93][96]