The Hershey Company Q2 2026 Earnings Call

Greetings and welcome to the Hershey Company second Quarter 2026. Question and Answer Session. To join the question queue. Please press star one on your telephone keypad. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for the Hershey company. Thank you. You may begin.

Good morning everyone. Thank you for joining us today for the Hershey Company's second quarter 2026 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remarks at the conclusion of today's live Q&A session. We will also post a transcript and audio replay of this call Please note that during today's Q&A session, we may make forward looking statements that are subject to various risks and uncertainties. These statements 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 take the first question.

Our first question is from Andrew Lazar with Barclays.

Great. Thanks so much. Good morning everybody.

Good morning. Maybe to start. Hi there.

Hi there. 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 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 Yeah. 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 two points, primarily due to Non-measured channel growth and the year over year concentration of Easter shipments in 2026. There was 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.

Okay, thanks for that. And elasticity is running a bit better than your full year assumption. Underlying consumption is clearly better than 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 from maybe some of the over shipping in one Q was more or less offset by some of the shipping ahead of three Q 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 if 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? Thanks so much.

Yeah. Let me 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 two ways. One on a one year basis. You'll see growth on a two year basis. You'll see really good growth. We of course encounter tougher comps in the second half, led by the Reese's Oreo innovation that we had last year, that that is still performing very well. But it was, you know, a very big success. That we're overlapping., but, you know, we have plans. So we have some big opportunities to build on our second half with, you know, our half, half, two innovation and merchandising programs, things like., Hershey. Cream 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 one year basis. And we should see,, really good growth on a two year basis. I think one other thing that I'm encouraged by in the second half is we have a robust Halloween plan.

And so we can see those, you know, the visibility to that. So we're,, you know, we're encouraged by what we see with Halloween. Yeah. I'll just add, you know, 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 yet we want to be prudent as we get to the back half. Still a lot of moving variables., and as Kirk said, you know, we do have some reinvestment planned,, on the back of that sort of action packed innovation calendar.

Thanks so much.

Our next question is from Max Gumport with BNP Paribas.

Hey, thanks for the question. I just wanted to double click on on the second half. Specifically with regard to merchandising shipments. So your commentary included remarks about managing the timing of three key merchandising shipments. I just want to make sure that there wasn't any unexpected pull forward of merchandising items into to Q relative to your initial plans. If you could offer any color on that, please Sure. Be happy to. So there was a little over a 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.

Marie Claire. And then looking a bit forward, is that your investor day you provided growth 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 through 26? And also perhaps comment on the interplay between these two? I'm specifically curious about how dependent your EPS target is on your organic sales outlook. Thanks very much Sure. Yeah. 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, is going to vary based on category dynamics, seasonal timing, etc. for 2027. Given the shorter Easter. We would see 2% to sort of the starting point for that segment. In the 27 framework. On top of that, of course, we expect salting 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 as achievable. The environments dynamic for sure, particularly around consumer behavior, competition, commodities, etc.. But our plan was built with that flexibility and multiple levers to manage through the uncertainty. So we have good visibility into coco deflation next year, even if futures remain around current levels. And of course, we'll provide much more detail as we get closer to issuing 27 guidance. Formally. But in summary, nothing we see today. Commodities or otherwise, would cause us to move away from that framework.

Great. Thanks very much. I'll leave it there.

Our next question is from Robert Moskow with TD Cowen.

Thanks for the question. Can we dig a little bit deeper into dots? You cited some supply chain challenges at I think, at the manufacturing facilities., can you 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, to upgrade the facilities Yeah. Yeah, I'll take.

That one. And thanks for the question. Yeah. The dots business is, is very encouraging. But let me let me talk some few 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, we 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've had some growing pains in 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 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, you know, we're we're in pretty good shape. And so, you know, I think the the tough spot, the growing pains are largely behind us. And we're ahead of, 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.

Yeah. And I'll just add, you know, 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 cost, 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.

Okay. Can I follow up? July 4th was like one of these tentpole events that you called out ., how did that go? And did these issues on dots impact it at all? Or is it executed okay?

No. No, not really. I think that Dot's still has,,. Got tremendous,, opportunities around these, especially these salty tentpole moments. So you'll see dots come to life later this fall with fall football. It was not a massive part of our 4th 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 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 4th of July.

Thank you very much.

Our next question is from Leah Jordan with Goldman Sachs.

Hi. Good morning. Thank you for taking my question. I wanted 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 your coverage or visibility on your costs into next year? At this point, you know, 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 El Nino environment this year?

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. You know, we've got a good track record of managing through commodity volatility. Again with our hedging pricing strategies, resilient categories, the productivity and 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 we're in a spot where we'd typically be at this time of the year., and with all those levers available to us as we look to 27. Yeah, yeah.

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 2324 cycle, this is very different from that. And a couple couple factors that we're seeing. One, we're coming off, excuse me. Historic surpluses. Inventories. Are healthier supply. Excuse me. Supply is more diversified. And the industry is much more agile. So 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. You know.

And given that view that there's room for prices to come down, you know, as you can imagine, the hedging strategies we use will allow flexibility to participate in further deflation as the markets normalize.

Thank you both. That was 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 costs in the back half? And, and any phasing we should keep in mind for three versus four. Q on gross margin. Thank you.

Yeah. So we we still have, as you pointed out, a significant lift in gross margins in the back half. You know, we continue to see the commodity benefit., coming through much more significantly than we did in the first half. And so that that remains unchanged., and we're just below 400, you know, we're not materially shy of the 400. Kind of use that as the reference point we've used before. You know, previously a little above, I would say now just a little bit below. And some of that is just,, you know, again, some of the salty components coming through as we work through those challenges., on the other side, productivity is doing really well., and so, you know, we're encouraged by what we see. I think we'll have a strong finish on productivity and we just have to work through those optimization components on salty here over the, over the last quarter.

Okay. That's very helpful. Thank you.

You bet.

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

Hey, good morning. Steve Kirk. Thanks for the question., I wanted to circle back on,, the confection, you know, piece of it and maybe drill in 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, of, 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, you know, World Cup driven people descended on the Times Square Hershey store. Like what exactly is going on in that untracked piece that that we all can't see to kind of drive the outperformance?

Yeah. 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 food service side., we also have some,, you know, specialty retail and some other things that fold into that non-measured channel, but probably food service was the biggest piece ., it also includes some compression of Easter shipments inside that number as well. So, so those, those are the factors,, I think those are the biggest ones probably to call out.

Thanks for that, Steve. And maybe just Steve to your commentary in the prepared remarks ,, you mentioned. That that three Q is still expected to kind of be strongest,, year over year earnings growth period ., you know, 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 three Q of last year that still drives that,, you know, pretty material earnings growth for for three. Q specifically, thanks very much.

Sure. Yeah. The biggest factor is three. Q had the highest cocoa cost last year. And I would say the full brunt of tariffs. And so those are the two biggest things we'll be lapping in the third third quarter this year. so bigger tailwind in the third quarter. Then we'll see in the fourth.

Great. Thanks very much.

Our next question is from Michael Lavery with Piper Sandler.

You. Good morning.

Good morning. 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 I guess if we look back at like 22, three and four, a full year margins were above, double digits. But last six or so quarters, it's it's run. Close to flat Is there a structural change? Is, is that just some investments? And I guess also can you just elaborate some on what is working with the top line and just give an update on all that Sure. I'm happy to take kind of a start through that. You know, some real pockets that we're excited about. You know, Brazil, the UK, 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 feel good about that. Mexico macro conditions continue to be challenging, but as I as we look across international. In total, there's probably nothing from a competitive standpoint that we're kind of changes our long term view that this is a, you know, positive opportunity for continued growth on the margin side in particular, you're seeing the higher cocoa cost 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, you know, 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 into towards the end of the year, but that'll be that's expected to be a little bit of a drag on margins in the back half, relative to the front half, but will ultimately unlock further margin improvement as we look forward. So, 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.

Yeah, I'd just add a few things. You know, when we look at the portfolio and these anchor markets, we like what we're seeing. We like the competitiveness., how we're, you know, performing in markets like Mexico, Brazil, Canada, the UK. So, you know, we like the performance. We're building momentum. There's certainly some opportunities and we've seen real progress inside the business.

Okay, great. That's helpful. And. Can I just come back to buybacks. Excuse me. You., seem to have indicated typically it's ,, you know, one 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, obviously, that we're aware of,, you know, kind of ready to get announced, but is there room for more,, you know,, deployment to buybacks for, for the second half? How should we think about that?

So. You know, we're always going to be good stewards of the shareholders capital. And so as you 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. We're working behind the Pact innovation calendar, etc. the M&A pipe. You know, we continue to work in that space. And want to make sure that we always have capacity. So, 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 planned for additional share buybacks. But we were going to remain optimistic. And as you saw, we've got some additional authorization. And that just reflects, you know, again, the ability to make sure we're being good stewards of of cash, not sitting on it and making sure we're deploying it wisely. So, so nothing more planned, but we're going to remain optimistic. Our opportunistic, I should say.

Okay. Thanks so much.

Our next question is from Chris Carey with Wells Fargo.

Hi. Good morning everybody.

Good morning.

Steve. I wanted to just ask a question about the medium term. You targets that you've laid out at the recent Investor Day. And in light of the recent rise in cocoa prices ,, you know, 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 where 2027 are. And certainly your medium term outlook implies maybe like a low double digit growth rate from where guidance is. Today, I realized that can 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, you know, how much. Of that path into your 2028. Aspirations will be dependent on you needing to see, you know, cocoa deflation. Maybe material relative to where your 2026 cocoa coverage is ., you know, rather than. An things that you. Can control yourselves or potentially potential longer dated hedging that you could do earlier than normal to give you the sort of visibility to to achieve those targets.

Sure. 2028 is a long time away. So we'll have some some work to do to probably fine tune the outlook there. But you know, philosophically we have good visibility into deflation for cocoa for 2027., certainly we'd love to see it have a multi-year run where we could capture that at the same time, you know, 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 innovations 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 so I would say as I look to the future, you know, the continuing to grow the business and have margin improvement is not solely resting on,, you know, cocoa deflation by itself., certainly that's going to be a help for 2027. It's in the plan.

That we need. An overall.

Business health.

Okay., the second. Around margins in the snacking., 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 medium term, given some of the dynamics you're dealing with right now.

Yeah, we've got some margin pressure in the snacking business in the back half, really, principally around those factors. You know, 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 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, to maintain service while we optimize internally.

Okay, great. Thank you.

Our next question is from David Palmer with Evercore ISI.

Good morning., just a first of all, thanks for the comments on 2027 and including that,, 2% confection sales growth target. I, I would imagine that will be a focus area for people that if you as confidence grows that you could do that, then, then that would be reflected,, in the stock. So maybe that's worth double clicking about what you think will be