Greetings, and welcome to the Hershey Company first quarter 2026 question and answer session. To join the question queue, please press star 1 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, Anuri Noor, Vice President of Investor Relations for the Hershey Company. Thank you. You may begin.

Good morning, everyone. Thank you for joining us today for the Hershey Company's first quarter, 2026 Earnings Q&A. Everyone is at the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remarks. At the conclusion of today's live Q&A session, we will also post a transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements including expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC 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 GAP. Reconciliations for the GAP 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 Boskell. With that, I will turn it over to the operator for the first question.

Thank you. As a reminder, if you'd like to join the question queue, please press star 1. Also, 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.

Great. Thanks so much. Good morning, everybody. Good morning, Andrew. Morning. I was hoping maybe to focus in a little bit on North America confectionary to start. I think in the press release, you mentioned that lower year-over-year CMG market share due to increased marketplace competition. And I know investors are understandably sensitive to this just given the significant drop in cocoa prices of late and the concern that this could lead to sort of incremental competitive activity to spur volumes in light of elasticity. So I was maybe hoping you could dig into just what you're seeing in the marketplace a bit more and what would you would expect as, you know, some of the activations and tentpole events sort of kick in? And, you know, would you, I guess, anticipate that Hershey returns to share growth either in 2Q or as we move through the year?

Yeah, great question. Yeah, well, I'd start with competition continues to be highly rational in the environment. I just want to start with that. You know, competitive innovation and merchandising from both mainstream and premium competitors, that's what makes this items and innovation and key channels. And our spring and summer merchandising program needs to be, you know, that segment that grows really well, but we are charging into that space. And the back half, we need to develop that.

Really helpful. And then you mentioned Easter sell-through was ahead of expectation. I guess it looks like maybe share was a bit weaker just in the past few weeks of data. We're just hoping you could sort of square those two things for us. And I guess, how is Easter share sort of versus your expectations? Thanks again.

Yeah, I mean, I look at the, you know, the category in the first quarter, overall the category in confection was really resilient, growing high. Overall, Easter was good for us. Category sales deformed 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 two weeks, we saw those also ahead of our expectations.

Thanks so much.

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

Please proceed with your question.

Great. Thanks so much. Good morning. Maybe 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. 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 on things like SNAP, where maybe you have a little bit more data. And then just broadly, as you sit here today, do you think, 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?

Yeah, really, really relevant question. Thanks for that. Consumer behavior, let's just kind of start with, you know, this quarter and then as we move through the year. But consumer behavior remained really steady throughout the quarter with shoppers making, you know, thoughtful choices. GLP-1 trends remained consistent. Snap impact was mild given waivers were limited to five, had minimal effects. We continued to monitor those, you know, very closely. If we talk about SNAP in the first quarter, I mentioned pretty mildly in our business aligned with our ethical, that that would improve. I think that's the important.

That's helpful. And maybe just a related question on elasticity is, 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 elasticity as being favorable versus planned levels. So, 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? And as we think about the second quarter 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?

Yeah, I'll kick that over to Steve for that one. sure yeah on the elasticities you said it you know we continue to model uh what we have before that point aid you know we're pleased to see it's still holding you know we have some things that'll be coming to market price pack architecture for example is hitting shelves right now so you know we'll continue to watch that to see if elasticity has evolved as they they can sometimes but right now right in line with what we've uh better than what we've modeled and expect that to continue And then relative to Q2 retail or Q2 sales expectations, yeah, the biggest pieces on the organic side were the timing issues. Two parts to that, you know, Kirk said Easter sell-through was strong, and so 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. 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. So those were the two big pieces that sort of standpoint, nothing structurally different relative to Q2 expectations.

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

Please proceed with your question.

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

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

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

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

Great. I'll pass it on.

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

Please proceed with your question.

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

Yeah, good question. Yeah, we have confidence in H2, driven by a few things. One, we see a really strong seasons plan for the second half, the Hershey movie. We've got a lot built into that, a lot of support from our customers. 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. It gets us into that accessible premium space. We're watching them. We can control. No, that's great and very helpful.

And then just a follow-up on SNAC, you know, a strong quarter at 5%, but I think it's a bit below what we see in terms of consumption. And in the remarks, you touched on plan reduction and probably label reduction and product recall. So do those items account for the entire gap relative to what we see in consumption? And then 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?

One thing that I would say on, 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.

Two things. We had a couple of the voluntary withdrawal was actually immaterial in total, but that combined with the delayed opening of the D.C. meant that we spent more on logistics, trying to, you know, with a fast-growing business, trying to maintain strong service. And so, those additional costs were incurred in the quarter. And so, now we're in a better spot than we expect operating income to grow and increase by double digits for the year.

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

Thank you.

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

Hi. Good morning, everyone. Can I just follow up on the snacks margin? um so obviously um kind of some discrete headwinds in the quarter you know relatively low watermark on on margins you talked about you know accelerating um uh profit from here is that mostly driven by just the um the sequential you know improvement in in margins uh as opposed to say, you know, top line, and then, 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 and have a follow-up.

Yeah, it's really the marginal proof on the basis of just not having those one-time issues. That'll be the biggest factor. You know, we are going to have some amortization that will come along with the Lesser Evil acquisition, so that's sort of in the base. And there's some mixed impact with Lesser Evil in the mix at a kind of total salty level. But those are expected. And aside from that, you kind of on the core business, we'll continue to see that margin improvement over the course of the year.

Okay, 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, how you expect those benefits to come through, and some of the timing?

Yeah, I think about those in two things. you know the number of new facings new you know the primary channels across the 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 fence 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 and that shows up in ten pull, and it really is both winning across CMG and Salty perimeter.

Thank you.

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

Please proceed with your question.

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

Yeah, we made those comments early on our immediate consumption business, and those continue. We know that this is so good about that, but we're always staying focused on that and looking for retail partners in the convenience channel.

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 costs for packaging and freight specifically. I guess, So what have you actually seen in higher costs so far? And then, you know, what are you baking in for the back half?

Yeah, I'm happy to take that one. So far, we're really not seeing a big impact. You know, again, some of these impacts and commodities are managed through that group. And so we've got good visibility really through this year and in some cases even beyond. And so now, having said that, you know, like Kirk said, if it looks like it's going to be prolonged and it's going to be significant then we'll be looking further out at some of the implications but right now from everything we can see if we're in a good spot feel well covered for 2026. great thank you thank you our next question comes from line of david palmer with evercore isi please proceed with your question uh thanks uh good morning i want to ask you a couple questions on on the merchandising front and some of the stuff you touch on in your prepared remarks and 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 I think you said the stand-up bags first take home were maybe something that would get increased distribution into the second half of the year but you mentioned some stuff earlier on so maybe you can give a summary of you know maybe what you're doing now and what's coming. And then as far as promotions, I wonder, are we going to see in scanner data more display year over year in the data as you're more, you know, all months on, so to speak?

Yeah, I mean, the right questions. When you get down to the details of how we execute at retail, I think that's really important, David. SKU gains that we stand up bags, 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. So that's the first. So we're looking at how productive the shelf is. We're measuring on-shelf availability, just as our... The second area is this perimeter, and what does 10 location in the store. And I think that helps us drive into the celebration of the 250-year celebration of our country for the 4th of July. We are bringing Hershey Kisses, our Hershey Bars platform, our S'mores platform, and our Dots pretzel platform into that. So 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 key numbers are celebrating. And the combination of those two things is what we, you know, give us a lot of...

I just wanted to get a sense from you. I remember last Halloween you were talking about how you, you know, maybe had some regrets about some bits of execution, maybe PAC types you're promoting and, you know, and some other things. But it's a bigger picture. It feels like seasons were such a rich harvest for Hershey. You guys were leaning into it, particularly during the COVID era. And 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. 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 confectionary growth overall for you? Or, you know, how do you think about seasons going forward?

Yeah, we have a great foundation for seasons, but I think that we can be even more disruptive. 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're looking for that make that season even more robust. So that, as a leader in season, we're thoughtful about where consumers are going, continuing to modernize it, but we're building from a very good look at the season, the buys with our customers, we can see what's landing.

Thank you.

Thank you. Our next question comes from the line of Tom Palmer with J.P.

Morgan. Please proceed with your question.

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. I appreciate you've really highlighted it as more shipment timing than anything else, but could we just kind of quantify the specific items that are driving the slowdown? There was two points for, I think, ship ahead in the first quarter. There was maybe some Easter timing to consider. Is there anything else? Just could we kind of quantify, like, underlying maybe what 1Q would look like versus 2Q if we strip out some of this timing?

Yeah, you've got the biggest pieces. You know, we said slightly down in Q2 due to the timing. Easter fell through with strong, so the Q2 impact is bigger than anticipated. That and that little bit in international that we talked about are really the two biggest drivers of...

Yeah, it was significant timing. So we saw that. We saw Seltre go really well. That pulled a few of our programming into quarter one. 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. So you think about those consistencies. I think you're going to see getting back on track.

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?

I'm confident that plus some of the moves we made for making the gundal a much more shoppable and inspiring for consumers. So when you package it all together, number of facings, stand-up, merchandising, and how we were merchandising, well, we're good about where.

Thank you. Our next question comes from the line of Robert Mosca with TD Cowan.

Please proceed with your question.

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? And, 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. So I'm trying to figure out, you know, how big of a bet it is. And then I had a follow-up.

Yeah. Investor Day, you had the opportunity. I absolutely loved these products. How do both of you? I know I, you know, they're an important part, right? I think that when you look at innovation, it is a collection of those things. So we have high expectations for that brand, and we think it's right in the sweet spot of what Hershey can deliver, and that's on deep consumer research and understanding and testing. So we know that, you know, we have the opportunity with Hershey to nail it and knock it out of the park with that innovation. But we also look at innovation in totality. With Jolly Rancher, we also continue to see Reese's Oreo be a standout, the Hershey innovation, and you see that. Plus, then we have a big Hershey experience with Hershey Movie coming out in quarter four. But it's the collection of those things is how we model and build our business. It's not reliant on one thing. It is the collection of those things we have loved.

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

Yeah, I mean, our biggest spread, that continues. Jelly Ranch will continue to be a hero in the space. We've got a strong program around share. We've shared some of the suite's portfolio and the innovation that's coming. So we talk about investing in R&D. There's some specific areas that we're focused on. One is premium pipeline, much more robust in the future. And, you know, we've seen that pipeline, so we feel really good about where we're going.

Great.

Thank you. Our next question comes from the line of Max Gunport with BNP Paraba.

Please proceed with your question.

Hey, thanks for the question. I wanted to return to some of the macro headwinds you're watching. So, two of them included the accelerated health and wellness trends and increasing GLP-1 adoption. Can you spread 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.

Yeah. Yeah, hey, and one of the, you know, is that this is a emotional, and I think that's playing out, and the overall health of WLP1, continue to enjoy the category in smaller portions. We know that. Our research relatively insulated both the near and the long-term. We have been monitoring calorie reduction, user lap rates, and other behavior changes. Now, the accelerated adoption rate alongside affordability, it is seen in what we expect, but we'll continue to do this. but this is something that we are so that's just very much and then just returning to to price

elasticity it sounds like everything you're seeing is is it's quite good so far it's running better than planned um competitors have followed retailers have accepted obviously the price elasticity response suggests consumers um are not showing a worse reaction than feared but can you just provide a bit more color about how this informs your your view of your performance from here and also how it factors into the two to four percent organic sales growth target you gave for for 27 thanks very much yeah sure I'd be happy to take that one so yeah they said last cities are running favorable they have so far they continue to and it just points to the resilience in these

categories especially in instant consumables refreshment and seasons you know we've talked in the past of seasons or so if we look out you know we don't see a material change pack architecture hitting shelves as we speak I'll say we're being a little bit cautious there but we'll continue to monitor it over the over the coming quarters will be in a better spot to take a look at the guide at the mid-year mark we'll have most of the price back architecture in place at that point and have a better be but we're really encouraged by what we're seeing so far in the resilience of the consumer in the category thank you our next question comes from the line of Jim Solera with Stevens Inc please proceed with your question.

Hi, guys. Good morning. Thanks for taking our question. Kirk, you mentioned tent poles are poised to add a full point of growth this year. I'm wondering if you can offer some detail around the retail execution, given there's a much higher frequency compared to traditional calendar with really just the seasons. And I imagine there's at least some kind of different messaging, whether it's marketing or in-store, that's going to call attention to kind of 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?

Yeah, I think that is, and demand execution or demand fulfillment. So these moments like the 4th of July is typically where we did not participate, right? This, we participate in these big moments of celebration that are relevant with consumers. So that's kind of the, you know, that's the motivation. What we've done is we've worked like we've never done before. It makes these events all season better for some of that share, that share of that occasion, just to go from focused on how they develop.

Do you have any sense for how much of a gap there is between some of the tent poles and the traditional seasons events? I just wonder if there might be a concern of some overlap, you know, if somebody stocked up on Hershey Kisses or lesser evil popcorn ahead of what would otherwise be kind of a seasonal purchase window?

No, 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, you know, these being redundant or, you know, we are the number of seasons, and this is, you'll see us execute. Then you're going to go into Halloween, and there's a nice gap, And then, you know, I appreciate the thought so I'll be back in the queue.

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

Please proceed with your question.

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

Yeah, great question. We continue to see Reese's in the U.K. and continue to develop that is working. The plan is to scale the U.K. and Europe business and make it much more profitable. I would tell you what we've learned in the UK, now we manufacture it in Mexico, so it's a little closer to home. But those are the take into other has been very exciting.

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? And are you at the level that you think you want to be at? Can you sustain the level or do you need to go higher?

At a single-digit level, there's always opportunity. And I would tell you that our innovation strategy is one of focus. Places that we have the greatest opportunity for us, sweets, better for you. And so when you have a healthier innovation, even more many, again, innovation will be, I think there's always more, and premium, and better for you. Continue to innovate as well. Also really important. And then innovation, we're disrupting it with dots and seeing a lot of traction with consumers there. I would tell you, this company is very focused on...

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

Great. Thank you very much.

I'll pass it on.

Thank you. Our next question comes from the line of Scott Marks with Jeffries. Please proceed with your question.

Hey, good morning, all. Thanks very much for taking our questions. First thing I wanted to ask you about, in the pre-recorded 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 March Madness tentpole, but is there anything else kind of helping support that strong performance?

That, I think.

Okay, clear on that. And then second question for 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.

Dana's view that, you know, long-term, COCA could remain above some of those really lower, I'd say long-term, in the near term, you know, 25 and 20, certainly the diversification of the supply chain, strong crops, declining demand, continued expansion and new origins and so forth. So if that happens, as we talked about at the investor conference, you know, we have ability to participate, particularly in 27 and beyond, in that downside.

And so those would be things that could trigger upside opportunity to our 27 and 28 outlooks but we're watching the space closely obviously uh 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 appreciate the thoughts i'll pass it on thank you our next question comes from the line of michael lavery with piper sandler please proceed with your question thank you good morning um yeah just Picking up on 27 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 percent of COGS that impacts, or just how to think about what to watch there?

We talked a little bit about the conference in general, about things that could go up. We kind of broke them into controllables and non-controls. 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 costing. 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 could potentially be an upside we'll see where the market goes and then the macro head you know we didn't expect those areas to get better in 27 and that's factored into the outlook with respect to oil in particular it's pretty small exposure for us the bigger impact would would be indirect through packaging and and so forth and those impacts take time so it does go back a little to what Kirk said about, 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 27 and beyond.

Okay, that's helpful.

And just a follow-up back on the 26 outlook. You had pointed to elasticities remaining favorable as a potential driver of upside 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 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 yeah I think it's just being cautious you know we said we really pleased with the start to the year if you're really confident about the balance of year items that we can

control elasticity they can move around but we like what we see and our projection is still strong but like we just talked about oil prices kind of a new macro to keep an eye on it and in general you know there's still a lot of movement and evolution in those macros so I think it's just a prudent approach by the time we get to the mid-year mark will have a lot more visibility on all of this and be able to take it to you know potentially a different position Okay, thanks, all the questions.

Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank.

Please proceed with your question.

Thanks very much. 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 you wanted to frame how big that non-core part of the portfolio is today and whether that is something that we should keep in mind as a drag that will continue or if it was more just isolated this quarter.

The brand was planned. I'm really good about that. I think our focus is on driving meaningful volume and growth with our branded products. And we like where we're going. We are driving a significant amount of the growth in the category. So if you look at Salty, the drivers of growth are definitely Dots, Skinny Pop, Lesser Evil. They're driving exceptional growth, and we see that continuing. Now, 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.

Okay, perfect. And then I just wanted to ask on functional sacking. 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, um, you highly, you know, highlighted and we discussed as Investor Day. Um, just a little perspective on, on how that part of the business, um, is situated as we go into the balance of the year.

And I guess maybe from your perspective, if, uh, perhaps that is a higher priority for, for incremental investment attention, then, um, you know, maybe on the outside it's, it's it's perceived yes it's a big uh growth i mean the business is relatively small compared to the rest of our business that is an area that we are investing in this is a space that consumers are they're they're in and we're seeing 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 fulfilled. We've also entered into a JV with VitaKey, and that R&D will be meaningfully different. We know that we have to be differentiated in this space and functional business.

And right now we're seeing single digit army on this area it's small but mighty very good thank you so much thank you our next question comes from the line of rob dickerson with jeffries please proceed with your question uh great thank you uh i'm a btig now uh but uh appreciate the shout out um yeah see um i just wanted to come back to the margin question again but more specific to confection um you know i mean And 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. But then, you know, there's some shift in Easter and there's reinvestment, there are activizations coming. And so I'm just kind of curious, I guess it's more specific to Cadence, but also for the rest of the year, but also just kind of relative to history, right? If we kind of exclude the past few years, your confection margin was like somewhat stable, let's say quarter to quarter, you know, clearly some seasonality differences, but somewhat stable. So I'm just curious, like, as we think through kind of this year, right, with cacao coming down, and then also, I guess, into next year, you know, is there kind of a, you know, perspective that, yes, like, I think, you know, the next few quarters, there should be more stability, or should we see it like they've even come down a little bit in Q2 and then really ramp as we get through the back half of the year? And I have a quick follow-up. Thanks.

Yeah, we are going to see email timing, quarter-to-quarter variability related to that. But as we look through the balance sheet, there's nothing big changing. We have more tent poles to plan for, you know, more activation to plan for. But we're going to, particularly as we get to the back half of the year and we start lapping, you know, some of the higher-priced cocoa and commodities, we're going to see that step up. And so, I would say there's nothing to really point out in that sequence.

Okay. So, if we think about kind of where 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?

I understood your question.

Gross margin, right? You spoke earlier to kind of what was implied in Q2 and then the back half. I'm just curious, like, is the cadence kind of, you know, the trajectory on North American confectionary margin, operating margin, you know, kind of should kind of basically track with gross margin? Thanks.

Yeah, the difference is where they will disconnect is the investing in media, which will pick up certainly. So that's where the two are.

Okay, great. All right, great. And then just like that quick follow-up, which you just touched on, you know, SM&A came in a little bit light in q1 uh i think relative to expectations but it sounds like yeah expectations for the year haven't changed and then just given timing of you know shell presets what have you you spoken to it sounds like that sm and a will then be kind of ramping as we get through the year is that right yeah years unchanged still expected 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, and then we've also hit more towards spring activations in the working media.

But overall, for the full year, no change in expectations.

All right, super. Thank you.

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

Good morning. Thanks for the question.

You got it. Good morning.

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 it ended up stalling out on competition. And then in premium trade up to Hershey's Bliss, that was a play on texture, but that faded after a few years. So I'm curious, when you speak to breakthrough now, is the plan here to essentially sort of outpace and out-texture 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?

Consumers are looking for new experience, not changed. We will innovate on Brookside. We're seeing our investing in Cadbury. Cadbury has a lot of potential in this market. It is a, as well. And we'll, part of that, we'll premium on our Hershey's brand in this year for next year that create this great experience for consumers. So indulgent premium, really targeted towards Gen Z consumers. So we feel really good about where we're going, part of that. But I think there's, you know, it's a small part of the business today. So when you think about pure premium, it's about 5% of the total category. Now there's a lot of growth because there's a lot of experience inside premium, and that's drawing consumers to that. So we are definitely going to be in that space and leading in that space.

Okay, thank you. 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.

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

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