Earnings Call Transcript - HSY Q1 2026

Operator, Operator

Greetings, and welcome to the Hershey Company First Quarter 2026 question-and-answer session. Operator provided instructions. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for the Hershey Company. Thank you. You may begin.

Anoori Naughton, Vice President, Investor Relations

Good morning, everyone. Thank you for joining us today for the Hershey Company's First Quarter 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 include expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe provide useful information for investors. 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.

Operator, Operator

Operator provided instructions. Our first question comes from the line of Andrew Lazar with Barclays.

Andrew Lazar, Analyst

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 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 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 expect as some of the activations and tentpole events sort of kick in? And would you, I guess, anticipate that Hershey returns to share growth either in 2Q or as we move through the year?

Kirk Tanner, President & CEO

Yes. Great question. I'd start with competition continues to be highly rational. There's no change in the pricing environment. I just want to start with that. 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. 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 key channels and as our spring and summer merchandising programs ramp up. Premium chocolate continues to be that segment that grows really well, and we are charging into that space aggressively. We have plans in the back half of this year to have some innovation, and we'll continue to develop that. But overall, yes, we're in a competitive environment. 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.

Andrew Lazar, Analyst

Great. That's 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. I was just hoping you could sort of square those two things for us. And I guess how is Easter share sort of versus your expectations?

Kirk Tanner, President & CEO

I look at the category in the first quarter. Overall, the category in confectionery was really resilient, growing high single digit. 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. I'd say that's the notable part, given that Hershey is 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. But we're very happy with our performance and the sell-through that we saw; those exceeded our expectations, and our share was also ahead of our expectations coming out of Easter.

Operator, Operator

Our next question comes from the line of Megan Klepp with Morgan Stanley.

Megan Klepp, Analyst

Great. I wanted to start on the macro. When we sat here 2.5 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 about elevated geopolitical uncertainty and we're seeing higher gas prices as a result. So I wondered if, in terms of what you've seen in the macro so far relative to your expectations, particularly on things like SNAP where you may have a little more data, and then more broadly, as you sit here today, do you think the guidance you have for the remainder of the year still gives you the same degree of cushion on the macro as you thought at the beginning of the year?

Kirk Tanner, President & CEO

Really relevant question. Consumer behavior, let's start with this quarter and then as we move through the year: consumer behavior remained really steady throughout the quarter with shoppers making thoughtful choices. GLP-1 trends remain consistent. Net impact was mild given waivers were limited to five states and higher gas prices had minimal effects. We continue to monitor those very closely. But overall, the macro environment is tracking within our expectations for the year. When we talk about SNAP specifically, we realistically modeled the possible effects right from the beginning. In the first quarter, the five states that were in place meant the over-amp impact was, as I mentioned, pretty mild or minor — in those states, they affected 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. So 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 pack types, but it's in our assumption. I think that's the important thing. We're not seeing anything that's 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.

Megan Klepp, Analyst

Great. That's helpful. And maybe just a related question on elasticities. Last quarter, you talked about planning for around 0.8% even though actuals are running better and talked about that as maybe being potential upside to your expectations for the guidance. This quarter, you talked about elasticity is seeing favorable versus planned levels. So has anything changed in April so far? Or are you still embedding that same level of conservatism on elasticity for the balance of the year? 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 use reversing versus maybe something more fundamental in how you're thinking about demand?

Steve Voskuil, Senior Vice President & CFO

Sure. On elasticity, we continue to model what we had before that point. We're pleased it is still holding. We have some things that will be coming to market — price pack architecture, for example, hitting shelves right now. So we'll continue to watch that to see if elasticity has evolved as they can sometimes. But right now, it's right in line with what we've modeled and better than what we've planned, and we expect that to continue. Relative to Q2 sales expectations, the biggest piece is on the organic side were the timing issues. Two parts to that: Kirk said Easter sell-through was strong. One upshot from that was earlier shipping of some of our spring program, 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 doing a bit of defense, trying to get ahead of potential disruption in the Middle East. So those were the two big pieces that sort of pulled things forward from our standpoint, nothing structurally different relative to Q2 expectations.

Operator, Operator

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

Peter Galbo, Analyst

Steve, maybe if I can pick up on the back of Megan's question there on second quarter organic sales. I think 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.

Steve Voskuil, Senior Vice President & CFO

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

Peter Galbo, Analyst

Okay. Great. 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 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.

Steve Voskuil, Senior Vice President & CFO

Sure. 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, we expect further improvement in gross margin. 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.

Operator, Operator

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

Peter Grom, Analyst

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 topline 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?

Kirk Tanner, President & CEO

We have confidence in H2, driven by a few things. One, we see a really strong seasons plan for the second half. Our tentpoles 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. Resets have been really important, so gains across several channels — mass, grocery, dollar, drug. We see a positive position coming out of the spring resets, which is important to us. And then innovation: we've got good innovation. We'll have a big innovation on Hershey in the fall that we're really excited about that gets us into that accessible premium space. So that is really important. Of course, we're watching the macros like everyone. But 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. So we feel good about H2. Again, we'll keep an eye on the macro and control what we can control.

Peter Grom, Analyst

No, that's great and very helpful. And then just a follow-up on snacks — 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 private label reduction and private label production and product recall. So do those items account for the entire gap relative to what we see in consumption? 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 implied guidance?

Kirk Tanner, President & CEO

One thing I would say on salty snacks: that's primarily driven by private label. Our core brands in salty are up nearly 10%. So that is not the issue. 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.

Steve Voskuil, Senior Vice President & CFO

I'll just add 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 distribution center meant that we spent more on logistics, trying with a fast-growing business to maintain strong service. So those additional costs were incurred in the quarter. They're done now, and so we're in a better spot than before, and we expect operating income to grow and increase by double digits — it was a small speed bump in the first quarter, but we've passed it and are back on track.

Operator, Operator

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

Christopher Carey, Analyst

Can I just follow up on the Snacks margin. So obviously, some discrete headwinds in the quarter, relatively low watermark on margins. 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 do you still feel good about the margin targets that you had put out there at Investor Day? Just maybe you contextualize that and then I have a follow-up.

Steve Voskuil, Senior Vice President & CFO

Yes, the margin will improve on the basis of just not having those one-time issues. That will be the biggest factor. We are going to have some amortization that will come along with the LesserEvil acquisition, so that's in the base, and there's some mix impact with LesserEvil in the mix at a total salty level. But those are expected. Aside from that, on the core business we'll continue to see margin improvement over the course of the year.

Christopher Carey, Analyst

Okay. 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?

Kirk Tanner, President & CEO

I think about those two things: space and the number of new facings, new SKUs that we have in the sets across the primary channels — 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 tentpole events. The combination of both winning at the shelf and winning on the perimeter supported by our retail sales team is really key. It really is both winning across confectionery and salty for both shelf space wins and perimeter. We're tracking that and are very disciplined about looking at that every single week. So we feel really good about where we're going.

Operator, Operator

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

Leah Jordan, Analyst

You noted a mild impact from higher gas prices on the consumer. But just 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?

Kirk Tanner, President & CEO

We saw very little impact early in Q1 because it was a later event. I think it really comes to how high the prices go and how long they stay. C-stores are the right question to ask. We look at that as well, and our confection business continues to perform in line. We look at things like our immediate consumption business, and those continue to do well through this time. We know this could be a longer issue that could have a bigger impact, but right now we see that performance holding steady. We're always focused on that and looking for other things we can do with our retail partners in the convenience channel to keep the business strong. We know that when high gas prices happen, frequency goes up but basket sizes often shrink; consumers may visit more often but purchase less each time, which keeps the channel robust for our category. Again, we continue to see results as expected right now. So we're feeling good about it, but we remain very focused on monitoring and supporting the channel.

Leah Jordan, Analyst

Okay. Great. And then just a quick follow-up from an earlier question. Could you provide more color on your visibility maybe around cost for packaging and freight specifically? What have you actually seen in higher costs so far? And what are you baking in for the back half?

Steve Voskuil, Senior Vice President & CFO

So far, we're really not seeing a big impact. In our hedging program and through our commodities team, some of these impacts in commodities are managed through that group. We have good visibility really through this year and in some cases even beyond. Having said that, if it looks like it will be prolonged and significant, then we'll be looking further out at some of the implications. But right now, from everything we can see, we're in a good spot and feel well covered for 2026.

Operator, Operator

Our next question comes from the line of David Palmer with Evercore ISI.

David Palmer, Analyst

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 at 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 versus take-home where 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 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 displays year-over-year in the data as you're more on months on, so to speak?

Kirk Tanner, President & CEO

When you get down to the details of how we execute at retail, that's really important. We start with the number of SKU gains that we are getting across mass, grocery, dollar, and we're building that into the pipeline. We are deploying the stand-up bags versus the take-home bags. That is something that is consumer preferred. It elevates visibility — we've tested that — it is well received by consumers, and it drives visibility and makes the category easier to navigate and shop. So that's the first thing. We are 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 the perimeter and what tentpole activation on top of seasons does. We measure inventory points of interruption on the floor — the amount of inventory that we have on the floor and location in the store — and 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. New occasions include, for example, the 250-year celebration of the country for the Fourth of July: we're bringing Hershey Kisses, our Hershey Bars platform, our S'mores platform and our Dots pretzel platform into that. We're going after that new occasion and being a part of that celebration in a way that's incremental to what we have done in the past. That's really the element of what tentpoles brings: more activation on the perimeter, getting into more occasions and more moments that consumers are celebrating. The combination of those two things gives us a lot of confidence for the second half of the year.

David Palmer, Analyst

I remember last Halloween you talked about having some regrets about bits of execution, maybe pack types you promoted and some other things. But more broadly, it feels like seasons were such a rich harvest for Hershey and you guys were leaning into it, particularly during the COVID era. Maybe some of this is just an era where seasons were strong and you got a lot out of it. How are you thinking about seasons going forward, not just Halloween? Is this going to be something that tracks with confectionery growth overall for you? How do you think about seasons going forward?

Kirk Tanner, President & CEO

We have a great foundation for seasons, but I think we can be even more disruptive and thoughtful about what consumers want. As we go into Halloween this year, we feel really good about what we learned and what new things we can bring to consumers that they are looking for that make that season even more robust. As a leader in seasons, it's on us to be much more thoughtful about where consumers are going, continuing to modernize it, and we're building from a very strong base. As I look at seasons in the second half, we feel really good. We can see customers and what's landing, and we can evaluate whether we'll have a really good season. We're feeling really good about the back half seasons with the partnerships we've developed with our customers.

Operator, Operator

Our next question comes from the line of Tom Palmer with JPMorgan.

Thomas Palmer, Analyst

Sorry to be the third person to ask here, but I just wanted to clarify 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. Could we quantify the specific items that are driving the slowdown? There was two points for ship ahead in the first quarter, there was maybe some Easter timing to consider? Is there anything else? Could we quantify the underlying performance in Q1 if we strip out some of this timing?

Steve Voskuil, Senior Vice President & CFO

Yes, you've got the biggest pieces. We said slightly down in Q2 due to timing. Easter sell-through was strong, so the Q2 impact is bigger than anticipated. That and a little bit of international pull forward are really the two biggest drivers pulling things forward.

Kirk Tanner, President & CEO

I'll share how I think about it. The Easter timing is a timing issue — we saw sell-through go really well and that pulled some programming into quarter one. But overall consumption trends are staying consistent. Once you get through the overlap in April, you'll see momentum pick up in May and June. If you remove those one-time events, you'll see very consistent performance on consumption, sell-through and execution. So I'm looking for April to reflect the impact of Easter, with momentum building in May and getting back on track in June.

Thomas Palmer, Analyst

Okay. And then a question on the spring shelf resets. Frame it relative to past years: is this more impactful, more changes than we've seen recently?

Kirk Tanner, President & CEO

We feel good about the increase versus a year ago and versus the last couple of years. I'm confident this is a win for us. It's a win for the portfolio with making the gondola much more shoppable and inspiring for consumers. When you package it all together — number of facings, stand-up packaging, merchandising and category management insights — I feel really good about where we're going this year versus last year.

Operator, Operator

Our next question comes from the line of Robert Moskow with TD Cowen.

Robert Moskow, Analyst

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? Hershey has struggled to introduce viable premium offerings in the past, so I'm trying to figure out how big of a bet it is. How far can the brand stretch? How should we think about the risk?

Kirk Tanner, President & CEO

Overall innovation, we feel really good about. When we talk about Hershey and an elevated experience, this is a truly elevated product. If you were at Investor Day you had the opportunity to try it — I absolutely love the product. We have high expectations for that brand. It's right in the sweet spot of what Hershey can deliver, based on deep consumer research and testing. We know we have the opportunity with Hershey to nail it. But we also look at innovation in totality across our portfolio — across sweets and other platforms. So while we have really good expectations for this elevated Hershey experience and the product consumers in testing have loved, our model and business is not reliant on one item. It's the collection of tentpoles, innovation and core growth that supports our outlook.

Robert Moskow, Analyst

Got it. My follow-up was about sweets. Can you tease out sweets performance in the first quarter and what your expectations are for this year? The data shows that one product line is down substantially while the sweets portfolio had been growing 20% plus. I want to get a sense of your confidence to capitalize on strong consumer demand for this segment.

Kirk Tanner, President & CEO

Our biggest brand in sweets is Jolly Rancher and Jolly Rancher performed very well. It performed much faster than the category. We also had some good innovation on Heat Wave and have launched a new item in the Shack lineup that will give us momentum later this spring and into the summer. We feel good about sweets; Jolly Rancher will continue to be a hero. We also have a strong program around Twizzlers this summer and a robust pipeline for '27 and '28 across sweets. We're investing in R&D in premium, sweets and better-for-you areas and the pipeline is increasingly robust.

Operator, Operator

Our next question comes from the line of Max Gumport with BNP Paribas.

Max Gumport, Analyst

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

Kirk Tanner, President & CEO

One of the key drivers of the confection category is that it's an emotional category: a treat, not a meal. That plays out with GLP-1 users and overall health and wellness trends. Consumers on GLP-1 specifically continue to enjoy the category in smaller portions. Our research supports the idea that the confection category is relatively insulated compared to other food categories. Our framework for estimating GLP-1 impact includes scenario assumptions for both near- and long-term adoption rates. We monitor calorie reduction, usage rates and other behavior changes. Accelerated adoption and affordability are well contemplated in our outlook. So we spend a great deal of time understanding this; it is in our outlook and in line with what we've seen and expect. The category remains a treat: it's about 40 calories per day, two to three servings per week for the average American in confection, and that gives us confidence in our positioning.

Max Gumport, Analyst

And then returning to price elasticities: everything you're seeing so far is running better than planned. Competitors have followed, retailers have accepted the price elasticity response; consumers are not showing a worse reaction than peers. Can you provide more color about how this informs your view of performance from here? And how does it factor into the 2% to 4% organic sales growth target you gave for '27 a month ago?

Steve Voskuil, Senior Vice President & CFO

Elasticities are running favorable so far, which points to the resilience in these categories, especially instant consumables, refreshment and seasons. Seasons are precious to consumers. As we look out, we don't see a material change. It doesn't change how we think about the outlook for the year — we're not changing the guidance, so we're still within the earlier guidance even though Q1 results look strong. Partly that's because we still have price pack architecture hitting shelves. Elasticities can move, so we're being cautious. By midyear we'll have most of the price pack architecture in place and better visibility, and we'll reassess then. We're really encouraged by what we're seeing and the resilience of the consumer in the category.

Operator, Operator

Our next question comes from the line of Jim Salera with Stephens Inc.

James Salera, Analyst

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 seasons. I imagine there's different messaging, whether it's marketing or in-store, that's going to call attention to each of those tentpoles. Please walk through how the sales force is dealing with that and how the marketing team calls attention to each unique occasion.

Kirk Tanner, President & CEO

This brings the best of demand creation and execution. Moments like the Fourth of July are typically where we did not participate fully in the past, but between salty and sweet we have opportunity to participate in big celebratory moments relevant to consumers. We work with customers to bring demand creation and marketing together and bring that to life in-store as we've never done before. Our customers are encouraged because it makes these events bigger in-store and brings more retail theater with our big brands like Hershey and Dots. That makes the overall season better for the retailer. We're leveraging our strength as a business to bring more relevance to these holidays and capture share of occasion. This allows us to go from season to tentpole and back again, and our sales force is focused on developing those big moments in retail. Our customers are very supportive of this and it gives more for the shopper to engage with. It's really playing to our strength.

James Salera, Analyst

Do you have any sense for how much of a gap there is between some of the tentpoles and the traditional season events? I wonder if there might be concern about overlap — if somebody stocked up on Hershey or LesserEvil popcorn ahead of what would otherwise be a seasonal purchase window?

Kirk Tanner, President & CEO

There's enough differentiation and we're measuring incrementality. Our breadth allows us to play in tentpoles and seasons without being redundant or cannibalizing each other. We are the number one season executor in confectionery and have the largest share of seasons. When you bring tentpoles to life, we're using different brands and opportunities to make them as incremental as possible. Our customers own the categories and this leverages the best insights across both of us. There's a good cadence: you'll see the 250th anniversary activation in the summer, then summer travel, and then Halloween — there's a nice gap between these for sell-down and build for the next season. It makes sense for retail.

Operator, Operator

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

Alexia Howard, Analyst

Can I ask about the Reese's expansion in Europe. I know a while back you mentioned in the U.K. household penetration was in the high teens. Where are you now? I believe you may have gone into some other European countries with Reese's. And at what point do you start to think about putting manufacturing capacity into the region?

Kirk Tanner, President & CEO

We continue to see Reese's drive in the U.K. and other European countries. Our plan is to scale Reese's internationally, especially in the U.K. and Europe. Today we leverage a combination of imports and local manufacturing for some products. As we scale, we'll look to in-source manufacturing in the region to improve economics. What we've learned in the U.K. playbook allows us to take the approach to other markets. I was recently in Brazil and it is starting to have the same impact — Brazilians love peanut butter — so we'll run that playbook there and in Mexico, where we already manufacture. Reese's has been very exciting for us internationally.

Alexia Howard, Analyst

And to follow up on innovation: can you quantify new products as a percent of sales introduced over the last three years? Are you at the level you want to be at? Can you sustain this level or do you need to go higher?

Kirk Tanner, President & CEO

New product contribution is in the high single-digit percent of sales for us. There's always opportunity to do more. Our innovation strategy is focused on areas where we have the greatest opportunity: premium, sweets and better-for-you. We also focus on growing our core brands. Our core continues to grow faster than the category, and that makes innovation more meaningful. On salty snacks, we continue to innovate as well — for example, a snack mix behind the Dots brand has done exceptionally well. We're focused on raising the bar on innovation and have a lot of momentum in front of us.

Steve Voskuil, Senior Vice President & CFO

One of the reasons we're increasing R&D investment is to help build that capability and muscle for the future.

Operator, Operator

Our next question comes from the line of Scott Marks with Jefferies.

Scott Marks, Analyst

First, in the prerecorded remarks you noted the Hershey and Reese's brand nonseasonal grew materially — I think you called out 11% and 10% growth. Could you help us understand the drivers behind that? I know you called out March Madness as a tentpole, but is there anything else helping support that performance?

Kirk Tanner, President & CEO

There's a couple of things. On Hershey, the campaign during the Olympics was very well received and gave a lot of lift to the Hershey brand. On Reese's, Reese's was the center of our tentpole for March Madness, which allowed us to build inventory and get traction. Q1 is an example of how well-executed programming and tentpoles can create demand and lift the core.

Scott Marks, Analyst

Okay. And second question: how are you thinking about the cocoa market outlook? One chocolate competitor said current prices fairly reflect supply and demand globally. Any update on your view?

Steve Voskuil, Senior Vice President & CFO

We remain of the view that, long term, cocoa could remain above some of the lower historical levels we've seen. In the near term, we anticipate a larger surplus in '25 and '26, partly due to supply diversification, strong crops, and continued expansion in new origins. If cocoa prices fall materially, as we discussed at the investor conference, we have the ability to participate in that downside, particularly in '27 and beyond, which could create upside to our '27 and '28 outlook. We're watching the space closely and managing the business for the long term with hedging and structures that allow agility to participate in downside.

Operator, Operator

Our next question comes from the line of Michael Lavery with Piper Sandler.

Michael Lavery, Analyst

Picking up on '27: you gave a preliminary outlook a month ago. Any updated thoughts, particularly how to think about risks from higher oil-related costs? How much of COGS would that impact or what should we watch for?

Steve Voskuil, Senior Vice President & CFO

We discussed areas that could be upside or downside for '27; they remain largely the same. We broke them into controllables and non-controllables. Controllables include innovation, media ROI, tentpoles, elasticity and productivity. We have high confidence in our ability to manage those. Outside our control is cocoa, which could be upside if prices fall. Regarding oil, it's a relatively small direct exposure for us; the bigger impact would be indirect through packaging and freight, and those impacts take time. It depends how high and how long oil prices stay. Sitting here today, we wouldn't change anything for '27 based on current oil levels.

Michael Lavery, Analyst

That's helpful. On '26 outlook and elasticity: you've pointed to elasticities as a potential driver of upside. It's sticking so far. Why hold guidance then? Is it just still early? How significant is the remaining price pack architecture impact?

Steve Voskuil, Senior Vice President & CFO

It's being cautious. We're pleased with the start to the year and confident about the balance of the year on items we can control. Elasticities can move, so we're prudent. By midyear we'll have a lot more visibility on the price pack architecture and can take a different position if warranted. For now, we like what we see but remain cautious.

Operator, Operator

Our next question comes from Steve Powers with Deutsche Bank.

Stephen Powers, Analyst

Just a quick follow-up. Kirk, I think you mentioned earlier that choices to prioritize some of the noncore nonbranded parts of the portfolio was a notable drag on the top line relative to consumption. How big is that noncore part of the portfolio today and is that a continuing drag or was it isolated to this quarter?

Kirk Tanner, President & CEO

There will continue to be some drag as we reduce private label footprint, and we'll continue to communicate brand performance versus private label. This is planned and we're working with customers on it. Our focus is on driving meaningful volume and growth with our branded products and we like where we're going. In salty, the drivers of growth are Dots, SkinnyPop and LesserEvil — they're driving exceptional growth and we see that continuing. Part of the private label reduction will be a drag, but overall we'll be in a really good place for both top line and bottom line for our salty portfolio.

Stephen Powers, Analyst

And on functional snacking: I don't think we've talked about it yet. It was one of the higher growth platforms you highlighted. A bit of perspective on how that part of the business is positioned as we go into the balance of the year? Is this a higher priority for incremental investment?

Kirk Tanner, President & CEO

Functional snacking is a big growth area. The business is relatively small compared to the rest of our company but we're investing in it. Consumers are in this space and we're seeing high growth. We're investing in R&D, updating formulas, and we've entered into a JV that has breakthrough protein delivery we like. We know we have to be differentiated; we're seeing high double-digit growth in some of these categories and believe we can build it much larger. You'll see continued investment and innovation in protein and functional products.

Operator, Operator

Our next question comes from the line of Rob Dickerson with Jefferies.

Robert Dickerson, Analyst

Great. Steve, I wanted to come back to margins but more specific to confection. There's been a lot of volatility over the past few years for well-understood reasons. You did better in Q1 versus last year's Q1, but then there's some shift in Easter and reinvestment and optimizations coming. As we think through this year, with cocoa coming down, into next year, is there a perspective that the next few quarters should be more stable? Or will we see confection margins come down a little bit in Q2 and then really ramp in the back half? How should we think about cadence relative to history?

Steve Voskuil, Senior Vice President & CFO

We are going to see some movements still remain. Our challenge is seasonality and season timing — we'll always have quarter-to-quarter variability related to that. But as we look through the balance sheet, there's nothing unusual. We have more tentpoles and activation to plan for. As we get to the back half of the year and start lapping some of the higher priced cocoa and commodities, we'll see step-up in margins. So you'll see that play out over the course of the year; nothing out of the ordinary to point to in that sequence.

Robert Dickerson, Analyst

Okay. If we think about gross margin cadence planned for the year, it would seem like operating margin in confection would generally track with gross margin. Is that fair?

Steve Voskuil, Senior Vice President & CFO

The difference is where they can disconnect is the investing in media, which will pick up in Q2 and in the back half. So you'll see gross margin improvement, but marketing and media investments will affect operating margins. That's all part of the plan for this year.

Robert Dickerson, Analyst

All right. Great. And then just a quick follow-up: SG&A came in a little light in Q1 relative to expectations, but it sounds like expectations for the year haven't changed. Given timing of shelf resets, will SG&A be ramping as we get through the year?

Steve Voskuil, Senior Vice President & CFO

Yes, you got it. The expectation for the full year is unchanged — we still expect to see a double-digit increase in marketing and advertising. We did have some movement between Q1 and Q2: some non-working media development slipped into Q2, and we've tuned more towards spring activations in working media. But overall, no change in full-year expectation.

Operator, Operator

Our final question this morning comes from the line of John Baumgartner with Mizuho Securities.

John Baumgartner, Analyst

Kirk, I wanted to come back to premium chocolate. At Investor Day there was reference to Brookside, which was differentiated when acquired but stalled out later. The Hershey Elevated product was a play on texture but that faded. When you speak to breakthrough now, is the plan to outpace competitors in the mass market and reset expectations for the mass market? Or target new consumers and channels that haven't been a traditional focus for Hershey? How do we think about that balance?

Kirk Tanner, President & CEO

Think about premium as accessible premium: consumers are looking for new experiences. We have three brands we like for this. One is Brookside — we'll continue to innovate there; it's showing growth. We are also investing in Cadbury, which has a premium experience and is accessible. Between Brookside and Cadbury there's good momentum. We're also building accessible premium on the Hershey brand and will have new items coming this year that help create that experience, targeted especially to Gen Z consumers. Pure premium is a small part of the business today, about 5% of the total category, but it's growing and we're going to be a leader in that space through our key brands.

Operator, Operator

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, Vice President, Investor Relations

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

Operator, Operator

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