Hershey (HSY) Q2 2026 Earnings Call Transcript

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DATE

Thursday, July 30, 2026 at 8:00 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer - Kirk Tanner
• Senior Vice President and Chief Financial Officer - Steve Voskuil
• Vice President of Investor Relations - Anoori Naughton

TAKEAWAYS

• U.S. Confection Retail Consumption -- **The Hershey Company** (NYSE:HSY) reported that consumption grew 3% in the second quarter, which management stated understated demand by 2 points due to growth in nonmeasured channels.
• Retail Inventory Replenishment -- Added 1 percentage point to growth as inventory levels recovered following an April transition to new pack prices.
• Q3 Merchandising Pull-Forward -- Represented over 1 point of shipments moved into the second quarter, which management expects to neutralize against an extra shipping day in the fourth quarter.
• Full-Year Adjusted EPS Guidance -- Reaffirmed at 30% to 35% growth, supported by first-half performance and an extensive second-half innovation calendar.
• Full-Year Net Sales Guidance -- Projected at 4% to 5% growth, with organic net sales growth estimated between 2.5% to 3.5%.
• Gross Margin Outlook -- Adjusted to just below 400 basis points of improvement for the back half of the year, slightly lowered from previous projections.
• Advertising, Marketing, and Consumer Expense -- Decreased 3% in the second quarter due to the timing of programming, with a planned increase in investment for the second half of the year.
• North America Confectionery Sales Algorithm -- Management maintained a long-term organic net sales growth target of 2% to 4% for the segment.
• 2027 Organic Net Sales Floor -- Set at 2% for the North America Confectionery segment to account for a shorter Easter period that year.
• Capital Expenditures -- Expected to range between $425 million to $475 million for the full year.
• Agility & Automation Savings -- On track to deliver approximately $100 million in savings during 2026 through the Advancing Agility & Automation Initiative.
• Interest Expense -- Projected at $200 million to $210 million for the fiscal year.
• Effective Tax Rate -- Expected to range from 25% to 27% for both reported and adjusted results.
• Dots Brand Capacity -- Faced supply chain growing pains that necessitated automation and capacity investments scheduled to come online in 2027.
• Salty Snacks Segment Margin -- Recorded at 9.8% in the first quarter, representing a 530 basis point decrease due to supply chain challenges and higher spot freight usage.
• First-Quarter Consolidated Net Sales -- $3.1 billion, representing a 10.6% increase compared to the prior-year period.
• First-Quarter Adjusted EPS -- $2.35, reflecting 12.4% year-over-year growth.
• North America Confectionery Price Realization -- Reached 12% in the first quarter, which offset a 4% volume decline.
• LesserEvil Acquisition Impact -- Provided a 20-point benefit to the North America Salty Snacks segment growth in the first quarter.
• International Organic Net Sales -- Increased 9.3% in the first quarter, driven by 12 points of price realization across select markets.
• Halloween Orders -- Management reported good visibility to orders as shipping for the season has already commenced.
• Snap Impact -- Described as modest and in line with expectations, with Texas and Florida showing lower impacts than early adopting states.
• Cocoa Price Deflation -- Management expects cost deflation in 2027 based on current futures levels and healthier global inventories.
• International Segment Margin -- Decreased 680 basis points to 5.8% in the first quarter, driven by higher commodity and manufacturing costs.
• Unallocated Corporate Expense -- $155.4 million, a 2.1% decrease due to reduced consulting fees and lower compensation costs.

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RISKS

• Voskuil stated, "operating margin came in a bit below expectations due to those supply chain challenges," referring to elevated freight and logistics costs in the snacking segment.
• Voskuil noted, "we’ll still have, like I said, at least a tail of elevated freight and logistics, mostly because we’re going to spot market to maintain service while we optimize internally."
• Tanner stated, "low-income households certainly are feeling more pressure," as the company monitors price elasticity across different consumer cohorts.

SUMMARY

Management reported that the business is on track to meet its 2026 financial targets, supported by price realization in confectionery and the integration of an acquisition in the salty snacks segment. While the second quarter showed a consumption gap due to holiday timing and inventory replenishment, leadership stated that second-half growth is centered on an innovation calendar and a film partnership for the Hershey brand. The company is managing supply chain constraints within its salty snacks segment by increasing automation and using spot freight to maintain service levels. Management indicated visibility into 2027, projecting cocoa cost deflation and maintaining long-term organic sales growth targets despite a dynamic macro environment.

• CEO Tanner attributed untracked channel growth primarily to the foodservice business, which he noted saw a "pretty big pickup" during the period.
• CFO Voskuil indicated that the third quarter would see the "highest earnings growth" for the year as the company laps the "highest cocoa cost" and the "full brunt of tariffs" from 2025.
• Regarding the movie partnership for the Hershey brand, CEO Tanner stated the program has been "really supported by customers" and serves as a primary merchandising driver for the second half of the year.
• Management noted that the Dots salty snack business faced volume throughput limits, leading the company to optimize its internal supply chain and logistics through 2027.
• CEO Tanner stated that the company gained share across seasonal categories in the first half and anticipates "strong seasonal performance" for Halloween and the winter holidays.
• For the International segment, management identified Brazil, the U.K., and India as anchor markets where demand currently exceeds internal plans.
• CEO Tanner referred to the early start of the Halloween season as "summer wind," noting that activation plans with the frontline sales team have been increased this year.

INDUSTRY GLOSSARY

• CMG: Candy, mint, and gum; a standard category grouping for confectionery products.
• MULO+: Multi-outlet plus convenience; a retail tracking category that includes grocery, mass, club, drug, and convenience stores.
• Elasticity: The measure of change in consumer demand in response to changes in product price.
• Net Price Realization: The net change in price received for products after accounting for discounts, promotions, and trade allowances.
• Tentpole: A significant marketing or merchandising event designed to drive consumer engagement and sales between major holiday seasons.
• Advancing Agility & Automation Initiative: Hershey's strategic program focused on improving supply chain spend, leveraging technology, and generating long-term savings.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Hershey Company Second Quarter 2026 Question-and-answer session. As 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: Good morning, everyone. Thank you for joining us today for the Hershey Company's Second 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 financial and operating 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. This information is not intended to be consideration 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, we will take the first question.

Operator: Our first question is from Andrew Lazar with Barclays.

Andrew Lazar: Maybe to start, I'm curious what some of the sort of key puts and takes in the first half and specifically the second quarter were and where do you think consumption came in for the quarter relative to shipments as I know there's a lot of noise in the data we all get due to holiday timing and such.

Kirk Tanner: Yes, you bet. I'm happy to take that one. And I'll speak to the first half as Easter creates a lot of noise in Q2 as you said, Andrew. U.S. confection retail consumption of about 3% understated our real demand by about 2 points, primarily due to the nonmeasured channel growth and the year-over-year concentration of Easter shipments in 2026. There's an additional point of growth reflected the retail inventory replenishment after levels ran low during the April transition to new pack prices. We expect that gap to be narrower as we look ahead to the second half shipments.

Andrew Lazar: Okay. You mentioned elasticity is running a bit better than your full year assumption. Underlying consumption is clearly better than what we saw for the quarter in scanner data, as you noted. And it seems for the most part that the headwind in the quarter from maybe some of the overshipping in 1Q was more or less offset by some of the shipping ahead of 3Q holiday activations and plans. So I guess my question is, with the magnitude of the upside versus consensus in the quarter, really on both organic sales and EPS, why there would not be more flow through to the full year guidance?

And it's greater investment behind all the activity you have coming, why would that not result in even better organic for the year, especially as the category overall seems really quite healthy.

Kirk Tanner: Yes. Let me take that one. Hey, first of all, we really like our position in the second half to deliver growth, and we think we should look at the business in 2 ways. One, on a 1-year basis, you'll see growth on a 2-year basis, you'll see really good growth. We, of course, encounter tougher comps in the second half, led by the RESISOREO innovation that we had last year. That is still performing very well. but it was a very big success that we're overlapping.

But we have plans so we have some big opportunities to build on our second half with our half 2 innovation and merchandising programs, things like Hershey the crem bars and we have the big Hershey movie also that has been really supported by customers. So we have some exciting programs in place for that. And we have solid visibility into our cost structure. So you should see we should see some good growth on a 1-year basis, and we should see really good growth on a 2-year basis. I think 1 other thing that I'm encouraged by in the second half is we have a robust Halloween plant. And so we can see those the visibility to that.

So we're encouraged by what we see with Halloween.

Steven Voskuil: Yes. I'll just add. We always expected the first half to be weighted to the top line given the laps that Kirk mentioned on the second half the modest guidance increase reflects the replenishment that was expected to happen more gradually over the course of the year, but was largely completed in Q2. And the balance is really just continued prudence for the macro factors. As you said, Andrew, the kind of working in our favor or at least inside our expectations so far. But yes, we want to be prudent as we get to the back half. Still a lot of moving variables.

And as Dirk said, we do have some reinvestment planned on the back of that sort of action-packed innovation calendar.

Operator: Our next question is from Max Gumport with BNP Paribas.

Max Andrew Gumport: A good question. I just wanted to double-click on the second half. Specifically with regard to merchandising shipments. So your commentary includes remarks about managing the timing of 3 key merchandising shipments. I just want to make sure that there wasn't any unexpected pull forward of merchandising items into 2Q relative to your initial plans? If you could offer any color on that, please?

Kirk Tanner: Sure, I'd be happy to. So there was a little over 1 point of shipments for Q3 merchandising that happened in Q2 that was just a little bit ahead of our expectations. However, that impact will largely neutralize against the extra shipping day in Q4, which is why we say the gap will be less material in the second half.

Max Andrew Gumport: Very clear. And then looking a bit forward at your Investor Day, you provided great targets for organic sales and adjusted EPS in 2027. Can you provide an update on your visibility to these targets now that we're halfway to 26? And also perhaps comment on the interplay between these 2. And I'm specifically curious how dependent your EPS target is on your organic sales outlook

Kirk Tanner: Sure. Yes, great question. So to clarify, the 2% to 4% range that we talked about is our long-term organic net sales growth algorithm for North America confectionery annual growth, of course, could vary based on category dynamics, seasonal timing, et cetera. For 2027, given the shorter Easter, we would see 2% is sort of the starting point for that segment in the '27 framework. On top of that, of course, we expect Salt and international to be accretive to total growth, and that's what keeps us within the long-term enterprise long-term algorithm. . And then keep in mind, when we set the earnings outlook for 2027, that framework was where we started.

So the earnings outlook is based on that. If we now kind of say, okay, hey, we're halfway through the year, how do we feel? I would say based on what we know today, we continue to look at that framework that we laid out is achievable. The environment is dynamic, for sure. particularly around consumer behavior, competition, commodities, et cetera. But our plan was built with that flexibility and multiple levers to manage through the uncertainty. So we have good visibility into cocoa deflation next year, even if futures remain around current levels. And of course, we'll provide much more detail as we're closer to issuing 2017 guidance formally.

But in summary, nothing we see today, commodities or otherwise would cause us to move away from that framework.

Operator: Our next question is from Robert Moskow with TD Cowen.

Robert Moskow: Can we dig a little bit deeper into dots. You cited some supply chain challenges, I think, the manufacturing facilities can you tell us specifically what happened? And is it an easy fix? Or is there something some kind of capital investment that needs to be made to upgrade the facilities?

Kirk Tanner: Yes. Yes, I'll take that one, and thanks for the question. Yes, the dots business is very encouraging, but let me talk about a few specifics on this one. We really like what we're seeing from a consumer standpoint. I think first and foremost, with strong brand health metrics and consumer demand across the portfolio. So we continue to see robust runway for growth with our core brands and dots is leading the way. Now we have having said that, we have had some growing pains and keeping up with strong demand, particularly the dots business. and that is largely behind us.

We saw this coming and we had already increased our investment in automation and capacity with capacity coming online in 2027 and so we feel good about that. Automation will start helping us right now. So that's why I say it's largely behind us because we can see the forecast, and we're in pretty good shape. And so I think the tough spot, the growing pains are largely behind us, and we're ahead of that for '27. So I feel like that's where we're at with dots and dots continues to be a growth driver for us.

Steven Voskuil: And I'll just add, at the segment level, obviously, operating margin came in a bit below expectations due to those supply chain challenges. And as a result of that, we had to use more spot freight usage, a little bit higher logistics costs and some limited volume throughput versus what we had planned. Again, looking ahead, as Kirk said, we expect to see some margin improvement in the second half as we move to capture that demand and also optimize the supply chain while still having a little bit of a tail of elevated freight and logistics costs.

Robert Moskow: Okay. Can a follow-up. July 4 was like 1 of these tech events that you called out. How did that go? And did these issues on dots impacted at all? Or is it executed, okay?

Kirk Tanner: No, not really. I think that dots still has got tremendous opportunities around these, especially the salty temple moments. So you'll see that come to life later this fall with fall football. It was not a massive part of our fourth of July execution in the first place. And now that's an opportunity for our future. But when you see the balance of the year, you're going to start seeing dots in a lot of these salty moments where consumers are looking for brands like this. So you'll see some more breakthrough through that. So I feel good about where we're going. It didn't impact us that much for fourth of July. .

Operator: Our next question is from Leah Jordan with Goldman Sachs.

Leah Jordan: I want to follow up on the CoCo comments. You noted that you could see cost deflation into next year, even if they stay at current levels, and we've seen it creep up again here recently. Just curious if you could provide more color on your coverage or visibility on your cost into next year at this point. how we should think about the potential magnitude of deflation we could see? And any views on how you're thinking about cocoa supply? And are you planning any differently as you think about this potential omninew environment this year?

Kirk Tanner: Sure. Well, let me take the first part and Kirk and I can tag team on the Cocoa supply chain question. So we've got good visibility into cocoa deflation next year. I don't think we're at this point in the year, we're going to get real specific on as we will as we get closer to year-end. But right now, we feel good about the deflation we're seeing. We've got a good track record of managing through commodity volatility. Again, with our hedging, pricing strategies, resilient categories, the productivity and every all the other levers that we routinely use to manage that. So we'll share a lot more detail.

I would just say we're in a spot where we didn't typically be at this time of the year and with all those levers available to us as we look to '27.

Steven Voskuil: Yes. Let me talk a little bit about what we're seeing in the cocoa supply. So El Nino, you brought that up. El Nino speculation is certainly impacting pricing today and lately but we do not expect Cocoa to remain at current levels long term for a few reasons. If you remember the '23, '24 cycle, this is very different from that. And a couple of factors that we're seeing. One, we're coming off of historic surpluses. Inventories are healthier supply is more diversified, and the industry is much more agile. The recent '26 and '27 West African crop data is, I'd say, encouraging after a slow start.

So even if some of the origins are impacted by El Nino, we believe the market is already pricing it in. There is plenty of cocoa supply globally. And given that view that there's room for prices to come down, as you can imagine, the hedging strategies we use will allow flexibility to participate in further deflation as the markets normalize.

Leah Jordan: That was great color. And then I just wanted to ask about gross margin for this year. You slightly lowered the guide, I think, now slightly below 400 basis points versus just 400 basis points before. Maybe you could help us think about the magnitude we should think about there? Or how do you characterize the word slightly. And I guess what are you embedding in the guide for higher logistics cost in the back half? And any phasing we should keep in mind for 3Q versus 4Q on gross margin?

Kirk Tanner: Yes. So we still have as you have pointed out, a significant lift in gross margins in the back half. We continue to see the commodity benefit coming through much more significantly than we did in the first half. And so that remains unchanged. And we're just below 400. We're not materially shy of the 400 kind of use that as the reference point, we used previously a little above, I would say now just a little bit below. And some of that is just some of the salty components coming through as we work through those challenges. On the other side, productivity is doing really well. And so we're encouraged by what we see.

I think we'll have a strong finish on productivity. We just have to work through those optimization components on salty here over the last quarter.

Operator: Our next question is from Peter Galbo with Bank of America.

Peter Galbo: Steve Kirk. I wanted to circle back on the confection piece of it and maybe drilling a bit more on the untracked piece. It's not something we often hear a lot about. And again, if the math is correct, it suggests it was like 200 basis points of growth for the first half. So maybe you can just, again, unpack that untracked piece a bit more. I don't know if it was World Cup-driven, people descended on the Times Square Hershey store? Like what exactly is going on in that piece that we all can see to kind of drive the outperformance?

Kirk Tanner: Yes, happy to take that one. Really, it's not quite that much. The biggest component inside there is food service, and we did see a pretty big pickup on the foodservice side. We also have some specialty retail and some other things that fold into that nonmeasured channel, but probably foodservice was the biggest piece. It also includes some compression of Easter shipments inside that number as well. So those are the factors. I think those are the biggest ones probably to call out. .

Peter Galbo: Okay. And maybe just, Steve, to your commentary in the prepared remarks, you mentioned that 3Q is still expected to kind of be strongest year-over-year earnings growth period. I think that was always the case, just given some of the comps, but maybe you can just remind us like what's embedded in the base period of 3Q of last year that still drives that pretty material earnings growth for 3Q specifically.

Steven Voskuil: Sure. Yes, the biggest factor is you had the highest cocoa cost last year. And I would say the full brunt of tariffs. And so those are the 2 biggest things we'll be lapping in the third quarter this year. So bigger tailwind in the third quarter than we'll see in the fourth. .

Operator: Our next question is from Michael Lavery with Piper Sandler.

Michael Lavery: I just wanted to touch on international. You called out in the prepared remarks, good momentum there, but there's also some margin pressure and we look back at like 22, 3 and 4, full year margins were above double digits. But last 6 or so quarters, it's running close to flat. Is there a structural change? Is that just some investments? And I guess also, can you just elaborate some on what is working with the top line? And just to give an update on all that.

Kirk Tanner: Sure. I'm happy to take kind of a start through that. Some real pockets that we're excited about, Brazil, the U.K., India, in particular, has were probably some of our strongest performing markets through the first part of the year, demand is running ahead of plan. So I feel good about that. Mexico, macro conditions continue to be challenging. But as we look across international in total, there's probably nothing from a competitive standpoint that were that kind of changes our long-term view that this is a positive opportunity for continued growth.

On the margin side, in particular, you're seeing the higher cocoa costs flow through with a little bit of a delay in international as well as some higher logistics and freight impacting that segment as well. And then as we turn the year, so the first half is very strong as we kind of move to the second half, we are going to continue to do some optimization work to help long-term profitability in the international business. We'll probably share more about that as we get further in towards the end of the year.

But that will be that's expected to be a little bit of a drag on margins in the back half relative to the front half will ultimately unlock further margin improvement as we look forward. So in total, very excited about that business, strong first half, some real pockets of strength, but also we're making choices to set it up for long-term success.

Steven Voskuil: Yes. I'll just add a few things. When we look at the portfolio in these anchor markets. We like what we're seeing. We like the competitiveness, how we're performing in markets like Mexico, Brazil, Canada, the U.K. So we like the performance. We're building momentum. There's certainly some opportunities, and we've seen real progress inside the business.

Michael Lavery: Okay. Great. That's helpful. Just coming back to buybacks. You seem to have indicated typically, it's 1 of the lower priorities in capital allocation you've obviously been investing in the business. It doesn't look like you've got M&A as that we're aware of kind of ready to get announced. But is there room for more deployment to buybacks for the second half? How should we think about that?

Kirk Tanner: So we always want to be good stewards of the shareholders' capital. And so as he said, I would never call it a low priority. It's probably down the pecking order behind the organic investment and smart M&A choices and so forth. And as you've heard, we've got some great organic investments for waking behind the pack innovation calendar, et cetera. The M&A pipe, we continue to work in that space and want to make sure that we always have capacity but share buybacks puts good tension into the process.

And so as we sit here today, I would say we don't have anything in the back half plan for additional share buybacks, but we're going to remain optimistic and you saw we've got some additional authorization and that just reflects, again, the ability to make sure we're being good stewards of cash, not sitting on it, making sure we're deploying it wisely. So nothing more planned, but we're going to remain optimistic or opportunistic, I should say.

Operator: Our next question is from Chris Carey Wells Fargo.

Christopher Carey: Hi. Good morning, everybody. Good morning. Steve, I wanted to just ask a question about the medium-term targets that you've laid out at the recent Investor Day and in light of the recent rise in cocoa prices. I think there's a dynamic where the year-to-date cocoa prices will have allowed you to be quite well hedged for 2027. That in mind, 2028 prices are tracking around over 2027. And certainly, your medium-term outlook implies maybe like a low double-digit growth rate from where guidance is today? I realize that can move around based on where 2027 and 2028 land, but certainly strong earnings growth over the next several years into 2028.

And I guess my question is, how much of that path into your 2028 aspirations will be dependent on you needing to see cocoa deflation maybe material relative to where your 2026 cocoa coverage is, rather than things that you can control yourselves or potential longer-dated hedging that you could do earlier than normal to give you the sort of visibility to achieve those targets?

Kirk Tanner: Sure. 2028 is a long time away. So we'll have some work to do to fine-tune the outlook there. But philosophically, we have good visibility into deflation for cocoa for 2027. Certainly, we'd love to see it have a multiyear run where we could capture that. At the same time, we're not sitting still basing the whole business around cocoa, right? We want to continue to drive meaningful top line growth. We want to restore volume over time. We want to bring the best innovation to the category, be the best partner for retailers, and we want to be smart between the lines driving ongoing productivity savings, particularly off the back of our technology and capacity investments.

So I would say, as I look to the future, continuing to grow the business and have margin improvement is not solely resting on cocoa deflation by itself. Certainly, that's going to be help for 2027. It's in the plan.

Christopher Carey: Okay. The second is around margins in the second but you've seen an increase in freight and logistics costs that's part of the slightly lower gross margin outlook for the year. Can you give us a sense of how you're viewing margins in your snacking business in the back half of this year and perhaps more term given some of the dynamics you're dealing with right now?

Kirk Tanner: Yes. We've got some margin pressure in the snacking business in the back half, really principally around those factors as we get further into fully optimizing the supply chain off the back of the investments that Kirk mentioned earlier, we do expect modest margin improvement as we go through the second half. So we're expecting improvement but we'll be in better shape as we get to 2027, and I'd say we've got the supply chain more fully optimized. Until then, we're going to still have, like I said, at least a tail of elevated freight and logistics, mostly because we're going to spot market to maintain service while we optimize internally.

Operator: Our next question is from David Palmer with Evercore ISI.

David Palmer: Just first of all, thanks for the comments on 2027 and including that 2% confection sales growth target. I would imagine that will be a focus area for people at the as confidence grows that you could do that, then that would be reflected in the stock. So maybe that's worth double-clicking about what you think will be needed to achieve that in terms of market share, how much is market share stabilization, a priority and a necessity to do that type of growth? Just how are you thinking about that? And then how if any way are you adjusting to what you've been seeing so far this year?

Kirk Tanner: David, I'll take that one. Yes, I think that's a really important question because I think it drives this disciplined approach to the balance that we're driving in the business. And we remain confident we can make progress on both margin and share over time. So this year, I would just say we are on track to deliver our top line, our margin and our EPS expectations. Now the market is hypercompetitive. And that the competition in this category really drives the resiliency and the durability of growth. And we're seeing a lot of innovation growth this year. And we're building an innovation pipeline. We have a big innovation plan for the second half.

We talked a little bit about it in our comments. And we have a pipeline in '27 and '28 that we have reviewed already that gives us confidence that we're going to build that share momentum. What I like about margin recovery and share performance, is it's in the right place is innovation that drives growth and profitability is a great way to grow the category and grow the business. That's why we have confidence that we can make meaningful progress on both margin and share performance.

David Palmer: I wonder on the topic of innovation versus perhaps these activations or tentpoles that you've been doing this year. has anything surprised you or in terms of the response on the tentpole stuff? And then how would you characterize sort of the give and takes the year-over-year comparables of your intensity of tentpoles and innovation in '27 versus what we're seeing in '26, and I'll pass it on.

Kirk Tanner: Yes. No, that's a really good question. If you think about how we look at the business, we look at our core everyday business, our performance around seasons. We've added this dynamic with tentpoles. And it's really raised our execution on some key things. I would tell you, I would look to the summer execution with the celebration of 250 and our smores performance. It was exceptional. It gets better every year and the bar gets higher and it's something that we're famous for, but we could take it even further.

We added innovation in the space with I don't know if you guys are making mores, but she got to get on board, especially with the Carmel, that is growing our business, plus the execution around the temp pole is good. I expect us to get even better at these tent-pole moments, I think, about fall football. We like them because they fit nicely in between the seasons. But we look at the business just like that. We look at how we're performing on our everyday business, our immediate consumption business. Our seasons were incredibly disciplined around seasons, and that's why if you think about the first half, we gained share across seasons.

We like what we see in the second half with the holiday season in Halloween. So we'll still stay focused on that because that's a huge part of the business. And then supplement the growth with the tent poles. And I can tell you we're getting better at those as time goes on.

Operator: Our next question is from Alexia Howard with Bernstein.

Alexia Howard: Need you for the question. Can we ask about the outlook for volume recovery in the North American confectionery segment? Obviously, price growth is going to slow. Would you expect a fairly rapid improvement in the volume trends as we move into the back half announcing to 2027?

Kirk Tanner: Yes. Let me take that one. Look, as commodity inflation eases and pricing elasticities normalize, we expect volume trends to improve over time. I'd tell you, in Q4, we still have some high single-digit pricing that's tied into the seasonal actions that we've taken. But we look at the coming year, and we expect early signs of improvement coming across especially our Hershey brand portfolio, we have a lot of activity in Q4 with the Hershey movie. So we see that recovering early, Jolly Rancher, our premium bands, including Cadbury, we see some momentum. That momentum will continue through 2027.

Alexia Howard: Great. And then as a follow-up on continuing with pricing, Salty snacks, you had pricing slightly down this down this quarter. because of the investment in trade promotion, I believe. Is that expected to continue into the back half of the year?

Kirk Tanner: I think from a Cell team perspective, we're going to see balance. Of course, we constantly look at pricing as an equation or certainly strategic pricing understanding inflationary pressures on the business and being competitive and being right with consumers. So it's a balanced approach with that, that's how we take a disciplined approach across all of our businesses. But I think there's not going to be any big surprises from a salt pricing standpoint in the second half of this year.

Operator: Our next question is from Peter Grom with UBS. .

Peter Grom: Great. Thank you. Good morning, everyone. So I wanted to follow up on an earlier question around '27. And I think you noted the framework still holds based on where things stand today. You have good visibility on cocoa depletion but you also touched on kind of the external volatility that has picked up this year. And I guess I would imagine that when you provided annual guidance 2 years out back in March that you probably embedded more flexibility than usual. So just Serus, given how the environment has evolved, has that level of cushion shifted at all? Or is it really unchanged?

Kirk Tanner: It's definitely been volatile. But I would say is next year more volatile than this year or last year, it's hard to say. But to your point, when we built that outlook, we take account of all the levers that we have inside the P&L to manage across. So that's levers on sales, pricing and volume, but also levers in the rest of the P&L as well as how we think about investments, reinvestment, productivity and so forth. And again, picking on productivity a little bit, it's a place where we've been able to overdeliver for a number of years. And that make some smart investments in technology and capabilities that will bear increasing impacts as we go forward.

So notwithstanding what will no doubt be a very volatile 2027. We still feel that the framework that we articulated earlier this year is still the right starting point for the year.

Peter Grom: And then you noted that Snap impacts have been pretty modest, and I think reductions have been better recently they were earlier in the year. So can you maybe just speak to that specifically? And maybe what's embedded in the outlook for the year.

Kirk Tanner: Yes. Let me take that one. We've been staying very close, obviously, to this one. The Snap waivers versus the outlook. I would say it is really it's slightly better. And so it's what we plan. I thought we did a really good job planning for the impact of Snap, and we've been very close to it. Where the difference comes in is the early adopting states had a little bit higher of an impact than the recent states, notably, Texas and Florida. So they've been on the lower end. So the balance of that has been where we've seen a little bit of upside. But overall, I would say it's in line with what we planned.

And that for me running this business, it feels like that's the right approach, being able to understand the macro and plan for it accordingly. And so that gives us the confidence moving forward that we can have a good eye on these macro impacts.

Operator: Our next question is from Scott Marks with Jefferies.

Scott Marks: I wanted to ask about the cadence or phasing of the top line in the back half it sounds like there's a lot of moving pieces between lapping tensor innovation, some of the new innovations coming out like cream bars as well as the pieces with cookie, Hershey movie, recovery from some of these salty supply challenges. So just wondering if you can give us an idea of the shape of Q3, Q4 across the different segments.

Steven Voskuil: Yes. I'll just say on the North America confection business, it's possible we'll see some periods of negative everyday confection retail sales growth, but we anticipate strong seasonal performance -- and for organic net sales, we expect growth in both Q3 and Q4 for the segment. So we've got some tough laps, but for the quarters overall for the segment, we expect to see some growth. And as we talked about earlier, the second half shipment gap is expected to be less material in Q3 program shipments and the impact of that extra shipping day will help to neutralize that. So that's about as much color as we're probably going to give on the profile.

It's like Kirk said at the beginning, it's pretty action-packed back half given the innovation launches.

Scott Marks: Understood. Appreciate the color there. And then second question for me. In the prepared remarks, I think you called out ANC expense down about 3% in the quarter. Wondering if you can unpack that a bit for us? Why was it down? And how should we be thinking about the cadence of the ramp into H2 and as we get into next year?

Kirk Tanner: Yes. Let me take that one. It really is tied to the programming that we have. And the balance of the year, we have quite a bit of programming that supports the innovation launch that supports the Hershey movie and then supports movement into 2027, meaning we're investing in things in the fourth quarter that should give us momentum and get off to a good start in 2027. So it comes down to the timing of programming and investments against the big initiatives that we have to create demand and to execute against the demand. It's mostly timing. And then the second half, we have good investment against delivering on our core brands, Reses and Hershey.

But you'll also see programming around Cadbury, PayDay and fulfill. So we like the investments we're making, and they're tied to driving the growth and keeping the momentum going.

Operator: Our next question is from Jim Salera with Stephens Inc.

James Salera: Maybe to circle back to the conversation around pricing on Salt. I know there's been a lot of table discussions about pricing coming down across the categories, some other high-level large brands talking about taking some net price declines. Can you just give us some color on where your brands sit on the price ladder relative to peers in that category?

Kirk Tanner: Yes. What I would tell you is we've been very prudent and patient with pricing on the Salt business. The pricing gaps have narrowed, but we -- if you look at a piece of history, we've been very balanced in our pricing on our selfie business. and very competitive. And I would say that is our focus. We will be competitive with price points in the categories that we participate in. Now we participate in a premium position with our core I mean, our core brands, especially Skinny Pop and three, they are premium and permissible. And of course, now with less Revo performing very well.

I'd say overall, our pricing structure has been very disciplined very competitive position right where consumers expect it. So I think it's a bit different than the rest of the category. I think we're in a really good place.

James Salera: And if I could shift gears and ask, we talked a lot about the tent poles and the contribution this year and in the back half of the year, but give us some thoughts on media consumption occasions and everyday consumption on confectionery particularly in the prepared remarks, you highlighted consumer softness persists, but elasticities are still a little bit better. And so you're trying to square is there something we should be on the lookout for given the macro uncertainty that might swing those elasticities either more to negative or anything that keeps you confident that we'll continue to move forward at a better pace.

Kirk Tanner: Yes. The elasticities have been, like we said, they're on track or slightly better. And that's exactly how we look at the business. We look at our immediate consumption business and our execution across convenience and our take-home business. And those are really important core business that we look at. And that's where we've seen stable elasticities or at least against what we've planned. So that gives us the confidence. So that's exactly how we look at it. And then we fold in seasonal performance and then tent poles. But our starting point is always our core business, and that's our take-home business and our immediate consumption business.

And when we talk about those elasticities, those are what we're talking about being on track.

Operator: Our next question is from Tom Palmer with JPMorgan. .

Thomas Palmer: Thanks for the question. Maybe I could just start out on just the topic of price gaps in chocolate. They have widened, especially versus a key competitor. In the release, I think some of the volume share changes we've seen were discussed as more being related to innovation could we maybe just unpack what you're seeing in terms of price gap versus innovation as drivers of that share? And then based on your innovation timing, when do you think we're going to start to see a real shift in kind of unit share on your end?

Kirk Tanner: Yes. Let me take that 1 as well. look, first, the year-to-date share dynamics losing my voice this morning. I apologize to everyone. Look, year-to-date share dynamics is largely driven by innovation. Our pricing and our price gaps are largely as expected and our elasticities, as we just talked about, are tracking slightly ahead of our expectations year-to-date. So we watch these price gaps all the time, and we want to be competitive in the market. We will be competitive in the market. We regularly also make small adjustments where we see opportunities. .

And moreover, we'll invest in trade in the second half to support the big innovation and merchandising programs, just like we talked a little bit about so when we go to market with our customers, we support the things that we're putting out on the perimeter that we're selling that we're driving that growth. But a couple of big drivers that I talked a little bit about earlier that are happening in the category, which I really love about this category and the resilience of it is innovation plays a big role. Innovation has played a big role this year. innovation will play a big role in '27 and '28.

And I love our pipeline that we have on innovation starting in the second half, going into '27 and '28. So that gives you confidence that we're going to be very competitive and grow the category or ahead of the category.

Thomas Palmer: Got it. And then, Steve, maybe could we put a fine. Could we put a finer point on how we think about third quarter in the context of having the highest earnings growth for the year I mean any sort of range maybe would be ideal. But as a starting point, the absolute level of earnings, should we think about 3Q or 4Q being higher?

Kirk Tanner: Yes, I don't want to get as specific as starting to give more quarterly guidance. But I would say, from an EPS, which quarter, they're probably pretty close across the 2 between in absolute dollar EPS and I'm looking across at a Nuro say did I get that right? Yes. So but that's probably as much color as I think it's reasonable give. .

Operator: Our next question is from Steve Powers with Deutsche Bank.

Stephen Robert Powers: Great. Just 2 quick. Follow-ups, I guess. The first one, Kirk, elasticities, as described, tracking in line or slightly better. I guess does that hold true as you look across performance maybe by income cohort. Just curious if there's any subtleties there? And if so, in terms of the broader revenue growth management strategy. Anything that you might tweak in the program looking forward versus what you've been doing so far?

Kirk Tanner: Yes. I mean I think this is always a dynamic place to look. I look at the channels in which we are participating, and we've got really good balanced growth across channels, across the dollar convenience channels. I would tell you, just the consumer studies that we do, low-income households certainly are feeling more pressure, but we're still seeing a balance across those channels right now. I would tell you, so the elasticities that we're seeing are very consistent with what we would expect.

But we're always paying attention to the consumer and what their needs are, and we're looking at solutions through packaging and other offerings for consumers by channel so that we do stay hyper-focused on delivering what they're looking for and driving affordability. And so that's really still important to us. and part of our ongoing strategy.

Stephen Robert Powers: Okay. Great. Great. And then just on the upcoming Halloween season, maybe just a bit of a further preview on programming, just kind of what you're planning, engagement with retailers, et cetera? And maybe if there's anything different than what we've seen in the past?

Steven Voskuil: Yes. Look, we took a lot of learnings from Halloween. And we've already started shipping Halloween, so have good visibility to the orders -- and our activation plan with our frontline sales team is really dialed up this year. And I would say we've got great support with our customer partners on bringing this to life. So again, Helane starts fairly early. We even call it summer wind. It's off to a really good start. So it's coupled to, hey, look, what did you learn from last year how can we reach consumers better, how we can be better partners with our customers.

We put those things into place for this year's Halloween and we feel good about where we're going to be.

Operator: Thank you. We have reached the end of our question-and-answer session. This concludes today's conference. You may disconnect your lines. Thank you, again, for your participation.

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