HERSHEY CO

Net Sales

Net sales were $2,805.4 million in the first quarter of 2025 compared to $3,252.7 million in the same period of 2024, a decrease of $447.3 million, or 13.8%. The net sales decrease was driven by a volume decline of approximately 15%, primarily related to everyday core U.S. confection, as a result of accelerated shipments in the first quarter of 2024 in anticipation of our enterprise resource planning (“ERP”) system implementation, which was completed in the beginning of the second quarter of 2024, and declines in our International reportable segment. Foreign currency exchange rates resulted in an unfavorable impact of less than 1%. The net sales decrease was partially offset by a favorable price realization of approximately 2%, driven by higher list prices across our North America Confectionery segment.

Key U.S. Marketplace Metrics

For the first quarter of 2025, our total U.S. retail takeaway declined 6.7% in the expanded multi-outlet combined plus convenience store channels (Circana MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway declined 9.0% and experienced a CMG market share decline of 46 basis points. Declines were primarily driven by the timing of Easter, which shifted into mid-April in 2025, compared to March in 2024. Our Salty consumer takeaway increased 9.6% in the first quarter of 2025 and experienced a Salty market share increase of 37 basis points.

The CMG consumer takeaway and market share information reflects measured channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers, and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels. These metrics are based on measured market scanned purchases as reported by Circana, the Company’s market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.

Cost of Sales and Gross Margin

Cost of sales were $1,861.2 million in the first quarter 2025 compared to $1,576.6 million in the same period 2024, an increase of $284.6 million, or 18.0%. The increase was driven by $618.9 million of higher costs, primarily due to unfavorable commodity costs from cocoa and $251.6 million of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases (See Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q for more information). The increase was partially offset by $334.3 million, primarily related to lower sales volume and lower supply chain costs, in line with the declines in net sales noted above.

Gross margin was 33.7% in the first quarter of 2025 compared to 51.5% in the same period of 2024, a decrease of 1,790 basis points. The decrease was driven by unfavorable activity on our mark-to-market impact from commodity derivative instruments, lower sales volume, unfavorable commodity costs, and unfavorable mix. The decrease was partially offset by lower supply chain costs and favorable price realization.

SM&A Expenses

SM&A expenses were $558.7 million in the first quarter of 2025 compared to $618.0 million in the same period of 2024, a decrease of $59.3 million, or 9.6%. Total advertising and related consumer marketing expenses decreased 14.2% driven primarily by a decrease in the North America Confectionery segment, partially offset by an increase in North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, decreased 7.0% in the first quarter of 2025 driven by lower compensation costs across our reportable segments, as well as $4.6 million of incremental business realignment costs.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Excluding the portion recorded within Cost of Sales and SM&A expenses (as noted above), we recorded $16.4 million business realignment costs during the first quarter of 2025. The costs in the first quarter of 2025 related to the Advancing Agility & Automation (“AAA”) Initiative, which commenced in 2024, focused on leveraging new technology to improve supply chain and manufacturing-related spend, and optimize selling, general and administrative expenses. There were no business realignments costs in the first quarter of 2024. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit was $369.2 million in the first quarter of 2025 compared to $1,058.1 million in the same period of 2024, a decrease of $688.9 million, or 65.1%. The decrease was primarily due to lower gross profit and higher business realignment costs, partially offset by lower SM&A expenses, as noted above. Operating profit margin decreased to 13.2% in 2025 from 32.5% in 2024 driven by the same factors noted above that resulted in lower gross margin for the period.

Interest Expense, Net

Net interest expense was $44.6 million in the first quarter of 2025 compared to $39.8 million in the same period of 2024, an increase of $4.8 million, or 12.1%. The increase was primarily due to higher long-term debt balances in 2025 versus 2024, driven by the February 2025 debt issuance.

Other (Income) Expense, Net

Other (income) expense, net was $0.9 million in the first quarter of 2025 versus net expense of $32.0 million in the first quarter of 2024, a decrease of $31.1 million, or 97.0%. The decrease in net expense was primarily driven by $31.4 million of lower write-downs on equity investments qualifying for tax credits in 2025 versus the first quarter of 2024, partially offset by an increase of $0.7 million of non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

The effective income tax rate was 30.7% for the first quarter of 2025 compared with 19.1% for the first quarter of 2024. Relative to the 21% statutory rate, the 2025 effective tax rate was primarily impacted by foreign tax differential and state taxes. Relative to the 21% statutory rate, the 2024 effective tax rate was impacted by investment tax credits partially offset by state taxes.

Net Income and Earnings Per Share-diluted

Net income was $224.2 million in the first quarter of 2025 compared to $797.5 million in the same period of 2024, a decrease of $573.3 million, or 71.9%. EPS-diluted was $1.10 in the first quarter of 2025 compared to $3.89 in the first quarter of 2024, a decrease of $2.79, or 71.7%. The decrease in both net income and EPS-diluted was driven by lower gross profit, higher business realignment costs and higher interest expense, partially offset by lower other income and expenses, lower income taxes and lower SM&A expenses. Our 2025 EPS-diluted benefited from lower weighted-average shares outstanding.