The paragraph is an introduction to The Hershey Company's first quarter 2025 earnings Q&A session. Anoori Naughton, Senior Director of Investor Relations, begins by welcoming participants and noting that the session is being recorded. She highlights the availability of a press release, pre-recorded management remarks, and corresponding transcripts on the company's website. The session may include forward-looking statements subject to risks and uncertainties, as detailed in the press release and SEC filings. Non-GAAP financial measures may also be discussed. Joining Anoori are Hershey's CEO, Michele Buck, and CFO, Steve Voskuil. The operator is then invited to start the session.

In the paragraph, Ken Goldman from JPMorgan asks about the potential risk if a tariff exemption isn't granted, specifically concerning the impact on future quarters. Steve Voskuil addresses the question, explaining that while they have enough clarity on mitigating the impact for Q2 due to inventories, the unmitigated impact could reach up to $100 million per quarter for Q3 and Q4. Most of this impact is associated with Cocoa and Canadian retaliatory tariffs. The company is actively working on influencing government action to change these tariffs and plans to use various strategies to mitigate any remaining impact in the latter half of the year.

The paragraph discusses company expectations for financial performance in the coming quarters. It outlines strategies for mitigating costs, such as productivity, pricing, and manufacturing changes, in response to challenges like Cocoa prices and incremental tariffs. The first half of the year is expected to see a 30% decline in EPS, with a more significant decline of about 40% anticipated in the second half. The second quarter is expected to show strong net sales, attributed to a long Easter and adjustments from the previous year's ERP change. However, gross margins are projected to decline by about 700 basis points due to tariffs and other factors. SG&A expenses will increase significantly, mainly due to increased marketing spend following the last year's ERP transformation. The paragraph emphasizes the variability in financial outlook due to these changes.

The paragraph is part of a conference call discussion where Andrew Lazar from Barclays asks about the company's earnings outlook and pricing strategy. Steve Voskuil affirms that the company still anticipates earnings growth next year despite challenges like tariffs, though the path is narrower and depends on mitigation actions. Andrew also inquires about the company's nuanced pricing actions aimed at gaining more shelf space, particularly in the instant consumable space. Michele Buck responds, noting that there have been improvements, particularly in consumer trips to convenience stores, with the worst months being January and February, followed by some moderation.

In April, the company began seeing positive developments in their instant consumable business due to improved merchandise placement and anticipates more progress as the year continues. They expect increased car travel to potentially benefit convenience stores if air travel declines, though this hasn't been factored into their projections. The company is pleased with its year-to-date market share, which became positive following a stronger Q2, and anticipates neutral to increased share in the second half. They are particularly performing well in the sweets category, boosting their business by 10% and gaining 100 basis points in share. They expect ongoing strength in seasonal products and improvement in chocolate and refreshment sales. Andrew Lazar acknowledges this before the operator introduces Max Gunport from BNP Paribas, who notes that, excluding tariffs, EBITDA expectations have risen slightly.

In the discussion, Steve Voskuil addresses a question about their business outlook, indicating that any changes in guidance are due to rounding rather than substantial shifts in business performance. Max Gunport raises concerns about US consumer behavior, particularly regarding snacking habits, amid softening consumer sentiment. Michele Buck responds by acknowledging the weak consumer confidence but notes that their categories, especially chocolate, have remained resilient. She highlights chocolate's emotional significance and the strong performance of the salty snack category, despite premium pricing. Overall, pricing and volume data suggest the categories are performing well, even with current economic pressures.

In the paragraph, David Palmer from Evercore ISI discusses with Michele Buck about the company's performance in the chocolate and sweets segment. David notes the strong performance of seasonal chocolates and inquires about the potential growth in everyday chocolate in the second half of the year. Michele Buck expresses confidence in their plans for innovation and expects low-single-digit growth in the everyday chocolate segment. David also asks about the strong performance and strategic outlook in the non-chocolate or sweets category. Michele Buck believes that the growth in this segment is not just temporary but has long-term potential, driven by consumer interest and demographic trends, especially among younger consumers and diverse families.

The paragraph discusses the expansion of a chocolate processing facility as part of a billion-dollar investment plan. Robert Moskow raises concerns about the volume outlook for chocolate due to high cocoa prices and a weaker consumer environment. Michele Buck responds by highlighting that the new plant enhances agility and supply chain control by producing chocolate paste, addressing prior capacity constraints experienced during COVID periods. Buck emphasizes that the investment has enabled the company to meet demand more effectively, particularly during peak seasons, resulting in significant growth and market share gains over multiple seasons.

The discussion involves a question about potential restrictions on using SNAP dollars for purchasing certain foods, like those with artificial ingredients or highly processed foods. Michele Buck suggests that these restrictions are unlikely to materially affect their business. She notes that only about 2% of SNAP purchases are candy, which is less than other categories like soda and snacks. Furthermore, the purchasing patterns between SNAP and non-SNAP households are similar, and their product portfolio is premium and seen as permissible, suggesting limited impact from the potential restrictions.

The paragraph discusses a company's proactive approach to ensuring the safety and quality of their products by staying ahead of regulatory changes, such as the banning of certain artificial ingredients like propylparaben and Red Dye No. 3 in California. The focus is on using natural ingredients, particularly in the sweets portfolio, as chocolate products are less impacted. In conversations with retail partners, there is a sense that products with fewer artificial ingredients may be favored in planograms, benefiting shelf placement during resets. Michele Buck notes that retailers prioritize high-velocity products that meet consumer demands for health, wellness, and indulgence.

In the paragraph, Michele Buck and Steve Voskuil discuss their company's approach to handling the impact of tariffs in their financial guidance. Michele clarifies that while there was discussion about whether to include the tariff's impact for the full year or just for the second quarter, there wasn't a major internal debate. Steve adds that different companies have handled this issue in diverse ways. Their primary aim is to be transparent, considering the unpredictable nature of tariffs and the efforts to mitigate their impact. They plan to provide more clarity on the net impact of tariffs as the year progresses and hope for possible legislative action that could reduce the tariff burden. Peter Galbo acknowledges their explanation and Steve confirms there are moving pieces affecting revenue timing, particularly in the latter half of the year.

In the paragraph, a discussion is taking place during a conference call about revenue phasing and upcoming innovations at a company, particularly concerning their snack and confectionery segments. Steve Voskuil and Michele Buck address revenue expectations for the latter half of the year, aligning with a long-term growth rate of 2% to 4%. Alexia Howard inquires about a major upcoming innovation related to the Reese's brand. Michele Buck shares that Reese's is planning its biggest innovation yet, driven by consumer demand and extensive research, and although she does not disclose specifics, she indicates it will launch in the fall.

The paragraph is a discussion involving Michele Buck about the effects of a future ban on certain additives by 2027 on the company's products, specifically mentioning products like Twizzlers and Cadbury Eggs. It addresses how the ban will primarily affect the sweets, refreshments, and coated chocolate segments of their portfolio. Although the cost of these ingredients is a small percentage of their total costs, the company feels prepared to comply with the regulation. Michael Lavery then asks about their strategy for 2026 in terms of pricing and demand shaping, with Michele Buck explaining that they are focusing on demand shaping by leveraging less cocoa-intensive products and are already working on sourcing strategies for competitive reasons.

The paragraph discusses a company's strategy to expand its snacking business by adding new categories, such as salty snacks, to reach more consumers and increase snacking occasions. The conversation includes a mention of the LesserEvil deal, which aims to grow their scale in salty snacks, and draws a parallel with Mars' strategy to diversify beyond cocoa. Michele Buck explains that since 2017, the company has aimed to become a snacking powerhouse by leveraging consumer trends and entering into white spaces like sweets, better-for-you options, and salty snacks. They seek high-margin, high-growth brands, highlighting successes with SkinnyPop and Dot's.

The paragraph captures a conversation during an earnings call where Megan Klapp from Morgan Stanley inquires about the potential growth of earnings per share (EPS) for the next year, specifically if tariffs were not a factor. She notes that while cocoa prices remain high, they have decreased, and elasticities have been better than expected. Steve Voskuil responds affirmatively, indicating that the outlook on earnings growth is more positive without the impact of tariffs. However, he acknowledges that achieving growth will still demand aggressive actions. Despite the challenges, they feel confident in progressing on earnings growth, focusing on the base business, and are preparing to address these issues moving into 2026.

The paragraph is a conversation from a conference call discussing the impact of tariffs on certain raw materials, specifically Cocoa, with a 10% paused tariff rate being a significant factor. Steve Voskuil confirms that two-thirds of their tariff exposure is related to Cocoa in Canada, with other raw materials also being affected, though to a lesser degree. They are considering tariff exemptions, focusing first on the most impactful areas. Additionally, it touches on a separate discussion about Salty Snacks, where there is a noted 5% to 6% volume decrease due to fewer shipping days and a planned reduction in private-label products, with private label not having been previously mentioned in such a context.

In this section of the article, Steve Voskuil discusses the strategy regarding private label manufacturing in the popcorn space, explaining that as their core branded business, notably SkinnyPop, grows, they are allocating more manufacturing towards it, which acts as a minor headwind but indicates business growth. Thomas Palmer concludes this part of the conversation, and Leah Jordan from Goldman Sachs asks about the international competitive environment, noting previous concerns about rising competition and cost issues. Michele Buck responds, highlighting strong growth in their international markets, particularly with Reese's due to strategic media and distribution efforts, and notes significant sales growth in Brazil thanks to a successful Easter and new innovations. She adds that while the competitive environment remains challenging, it has stabilized rather than worsening, contributing positively to their market strength.

The paragraph discusses the company's capital allocation strategy and buyback plans. Leah Jordan asks about the possibility of buybacks if the year turns out better than expected and tariff issues are resolved. Steve Voskuil emphasizes that while buybacks are still part of their long-term strategy, this year they are focusing more on M&A opportunities. However, share repurchase will remain important in the long term. Voskuil also corrects a previous statement about capacity, clarifying that it was Dot's pretzels capacity, not SkinnyPop. Michele Buck adds about the deprioritization of private labels. The operator then introduces a question from Chris Carey of Wells Fargo Securities about reformulation and price pack architecture efforts, seeking insights into what has worked or not worked in recent months.

The paragraph discusses the concept of price pack architecture (PPA) as a strategy being implemented to optimize value perception for consumers without directly increasing prices. Michele Buck explains that PPA involves a combination of product sizing and pricing adjustments, which can offer consumers a better perceived value if executed well. Buck also highlights that PPA is part of their pricing strategy, along with direct price adjustments, as previously announced in August 2024. Additionally, investments in the supply chain have provided the company with agility and flexibility to efficiently execute PPA and reformulate products to maintain high quality at the best possible cost. Further details on future plans will be shared later.

The paragraph discusses the company's strategic approach to managing costs and pricing in relation to Cocoa's fluctuating prices. Michele Buck explains that they've implemented a transformation program focused on cost control and have taken a balanced pricing approach to account for both short-term and long-term considerations. The company remains confident in its ability to price effectively and is prepared to activate additional strategies to manage Cocoa costs, especially as Cocoa prices haven't decreased as much as desired. Future plans and strategies will be shared in the coming summer.

In the discussion, Scott Marks questions the impact of potential future decreases in cocoa prices on business investment. Steve Voskuil expresses optimism about such a scenario, emphasizing the commitment to reinvest in brand capabilities, technology, marketing, and innovation, regardless of current price levels. Michele Buck adds that cost-cutting measures have been strategically implemented to enhance efficiency while investing in technology and capabilities for long-term strength. The approach aims to ensure the company emerges stronger from the challenges posed by commodity pressures. Scott acknowledges the explanation before moving on to inquire about trends in convenience stores (C-Stores).

In the paragraph, Michele Buck discusses current consumer trends and performance across various retail channels, noting a strong consumer focus on value. She mentions that club stores and dollar channels are performing well, particularly online. She adds that while there hasn't been a significant change in channel trends, take-home segments are experiencing mid-single-digit growth. When addressing competition in the US chocolate market, she notes no significant changes since earlier in the year. Larger players are expected to increase competition through innovation, while smaller players and private labels are losing momentum, although they remain present in the market.

In the article paragraph, there is a discussion about certain brands like Feastables and Tony's maintaining stability despite a shift toward smaller brands. Bingqing Zhu inquires about pricing strategies, noting that Q1 pricing in North America is lower than the market average. Michele Buck responds by explaining that pricing will increase in Q2 and Q3 due to seasonal pricing and price pack architecture, though she cannot disclose future pricing plans. Bingqing Zhu thanks her for the information, and the operator concludes the call, opening the floor for final management comments. Anoori Naughton expresses gratitude to participants and looks forward to future discussions.

This summary was generated with AI and may contain some inaccuracies.