Melissa A. Poole - The Hershey Co. Michele G. Buck - The Hershey Co. Patricia A. Little - The Hershey Co.

Kenneth B. Goldman - JPMorgan Securities LLC Kanika Goyal - Deutsche Bank Securities, Inc. David Cristopher Driscoll - Citigroup Global Markets, Inc. Robert Moskow - Credit Suisse Securities (USA) LLC John Joseph Baumgartner - Wells Fargo Securities LLC Jonathan Feeney - Consumer Edge Research LLC Andrew Lazar - Barclays Capital, Inc. Bryan D. Spillane - Bank of America Merrill Lynch Steven Strycula - UBS Securities LLC Alexia Jane Howard - Sanford C. Bernstein & Co. LLC Jason English - Goldman Sachs & Co. LLC Aatish Shah - Susquehanna Financial Group LLLP

Good morning, everyone, and welcome to The Hershey Company's First Quarter 2018 Results Conference Call. My name is Erica, and I will be your conference operator today. All participants have been placed in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please note this call may be recorded and I'll be standing by if you should need any assistance. Thank you. Ms. Melissa Poole, you may begin your conference. Melissa A. Poole - The Hershey Co.: Thank you, Erica. Good morning, everyone. We appreciate you joining us for The Hershey Company's first quarter 2018 earnings conference call and webcast. Michele Buck, President and CEO; and Patricia Little, Senior Vice President and CFO, will provide you with an overview of our results followed by a Q&A session. Before we begin, please remember that during the course of this call we may make forward-looking statements within the meaning of the Federal Securities laws. These statements are based on our current expectations and involve risks and uncertainties that could differ materially from actual events and those described in the forward-looking statements contained in our 2017 10-K filed with the SEC and today's press release. Finally please note that on today's call we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, I would like to turn the call over to Michele. Michele G. Buck - The Hershey Co.: Good morning, everyone, and thank you for joining us today. And thank you, Melissa and a special welcome to you as the head of our Investor Relations team. For those of you who haven't had the chance to spend time with Melissa yet, Melissa has deep knowledge of our business and the marketplace and a strong financial acumen. I think those of you in the investment community will find Melissa a great resource given that expertise and her very straightforward approach. Now to the business at hand. We delivered first quarter net sales and EPS both in line with our expectations. Constant currency net sales increased 4.4% for the first quarter including a 340 basis point benefit from the Amplify acquisition. EPS of $1.41 increased 8.5% compared to the first quarter of last year. We continue to make progress against our key strategic focus areas, driving growth in our core confection business, expanding breadth in snacking, reallocating resources to expand margins, and investing to strengthen capabilities. Our core brands continue to grow behind balanced activation and investment. Our Amplify acquisition is on track, delivering Q1 as planned and is now expected to be $0.08 to $0.12 EPS accretive in 2018. Our international business delivered another quarter of profitable growth and we are investing in new capacity and capabilities for future sustainable growth. We generated strong earnings results for the quarter, although we got there differently than we had originally planned. We had anticipated gross margin contraction in the first quarter due to higher freight and logistics costs as well as incremental investments in trade and packaging. However, this contraction was greater than we expected due to unfavorable mix, cost of complexity via incremental supply chain touch points and waste, as well as higher input costs. Overall first quarter gross margin declined 260 basis points compared to the prior year period. As a result, we are now expecting full-year gross margin to decline around 125 basis points versus prior year. You have heard us comment over the years that we are a gross margin focused company, so reversing these declines is a high priority for us and is central to driving profitable growth. We are taking swift action to mitigate these challenges. First, we are further increasing our supply chain capacity and flexibility as well as investing in improved forecasting tools by shifting our planned tax reinvestment spend from SG&A to capital expenditure. We believe this will address some of the margin pressures we are experiencing and better position us for profitable growth in the future. Second, we are expanding our SKU rationalization program to the U.S. This effort is in line with our goal to reduce U.S. business complexity and cost (04:55). We feel confident in these efforts given the significant progress we've made in our international businesses on a similar initiative. We think there is great opportunity to capitalize on our ongoing organization work to reduce complexity and enhance margins by providing an even higher level of service and product assortment to our customers. In concert with our SKU rationalization efforts, we will leverage our best-in-class category management capabilities to minimize any sales impact and optimize the shelf with our fastest turning items. We believe this portfolio and shelf transformation is the right long-term initiative to drive profitable growth for us and our retailers. Therefore, we have chosen to rebalance some priorities in the second half, which will result in slightly less but more profitable sales. As a result of this decision, we now expect to be within our organic net sales guidance but towards the low end of our previously communicated range of slightly up to 2% for 2018. At Hershey we have a strong track record of consistently delivering our bottom line without compromising key business initiatives and investments and we plan to do so again this year. Therefore, we are reaffirming our EPS guidance of $5.33 to $5.43. We expect our gross margin headwinds will be offset by improved SG&A and taxes, specifically about half of the recovery will be from delivering the high end of our Margin for Growth target and greater than anticipated Amplify accretion via accelerated synergies and lower deal amortization, about a quarter from a more favorable full-year tax rate of approximately 19% to 20% versus the previous guidance of around 20% to 22%. And the remaining quarter from a shift in planned tax reinvestment spend from SG&A to capital expenditures as discussed previously. We expect gross margin to begin to improve and expand as we enter 2019 based on these new initiatives combined with our ongoing continuous improvement and strategic revenue management capabilities. We are benefiting from our organization's stellar SM&A discipline and prioritization in addition to favorable taxes which will help offset certain cost headwinds and enable us to continue to deliver solid shareholder returns as we transform the business for future long-term profitable growth. We remain a consumer-centric brand-building company that will continue to invest to fulfill our vision to become an innovative snacking powerhouse. Now let me provide a marketplace update. The U.S. snacking market remains an advantaged category and continues to grow about 2%. The categories we participate in; confection, salty snacks and meat snacks, are leading this growth. Total Hershey Q1 U.S. retail takeaway growth, including Amplify, was up 10.2%. This was driven by Hershey CMG growth of 10.7%, benefiting from an early Easter. The CMG category grew 11.8% resulting in a Hershey CMG share loss of approximately 30 basis points. This was in line with our expectations given the timing of Easter, innovation and promotional activity. Given the 15-day shorter Easter season, Easter category retail sales declined approximately 8% versus last year. Hershey retail sales declined approximately 10% versus last year, consistent with our plans given consumer shopping behavior in a shorter season. Given the shift, April retail takeaway is expected to be down significantly versus prior year. We expect April year-to-date retail takeaway to be slightly down versus prior year. Our core brands continue to drive growth, and the variety brands we activated are responding nicely to the renewed investment. Base velocities are showing strong acceleration from previous trends and delivering positive ROIs. Our new Reese's manufacturing line is up and running here in Hershey, unlocking additional capacity and new opportunities for growth. We also recently broke ground on our new Kit Kat manufacturing line in Hazleton, Pennsylvania. Hershey's Gold is off to a great start and trial and repeat are encouraging. Importantly, we are leveraging this launch to not only bring excitement but also to drive additional merchandising growth on our core base business as well. New pack types are shipping now to deliver on more consumer usage occasions and drive incremental growth. Our Reese's Outrageous instant-consumable innovation is on track for a May launch. Our retail partners and consumers are excited for this new twist that builds upon the success of our Reese's Pieces Peanut Butter Cup launch by adding Reese's Pieces to our Reese's Nutrageous Bar. The new Hershey's Chocolate World on the corner of 7th and 47th in the heart of Times Square launched last year just in time for the holiday season. The new store is three times larger than the original store and includes a Hershey's kitchens baking area and a one-of-a-kind S'mores making experience. The store has hosted well over a half a million Hershey enthusiasts already and is on track to connect with over 4 million guests this year. We continue to strengthen our digital commerce capabilities and have made meaningful progress over the past few months. Net sales were up around 30% in the first quarter, and we expect this trend to accelerate as we move through the year and fully activate the digital strategy I shared with you at CAGNY. We have recently allocated incremental investment to further these initiatives and drive awareness, equity and conversion across the ecosystem from any touch point, physical or digital. The Amplify business is on track, and integration in Austin is proceeding nicely. As I mentioned earlier, we are successfully capturing cost synergies sooner than previously anticipated. There is no change to our ongoing synergy estimate of approximately $20 million by end of 2019. SkinnyPop ready-to-eat popcorn year-to-date retail takeaway grew 3.1% versus the year ago period. This was driven by strong base sales growth of 6.9% with velocities improving versus 2017. These base sales gains were partially offset by planned declines in low ROI promotional activity. We have line of sight to distribution expansion that we expect to help further drive second-half growth and I feel great about this business and great about the talent we have in place to lead this business. Now for an update on our International and Other segment, net sales of $220 million for the quarter were slightly ahead of expectations. We continue to make meaningful improvements to segment profitability with Q1 operating income of $18 million, an increase of $16 million versus Q1 2017. I am really proud of the work the team has done to deliver these results. We expect this segment to continue generating operating income gains as we move through the year, albeit at a slightly lower pace. Our performance in Mexico, Brazil and India remains strong with Q1 combined constant currency net sales growth of 12% versus last year. Our China performance continues to sequentially improve as we execute our Margin for Growth initiative with constant currency net sales up approximately 1% in the first quarter. We had a solid Chinese New Year, growing share in our focus SKUs for the first time in several years. In summary, we will continue to balance our top and bottom line in this complex environment. We will invest in our brands and capabilities to drive growth while hitting our bottom line commitments. As we look ahead, we are intently focused on managing the controllable aspects of our business and making the choices needed to further position us to achieve growth, both today and into the future across our portfolio of iconic brands. I'll now turn it over to Patricia who will provide you with details on our financial results. Patricia? Patricia A. Little - The Hershey Co.: Thank you, Michele, and good morning, everyone. First quarter net sales of $1.97 billion increased 4.9% versus the same period last year, including a 3.4 point benefit from the Amplify acquisition and a 0.5 point benefit from favorable foreign currency translation. Volume increased 2.4 points, which was partially offset by planned negative net price realization of 1.4 points. Adjusted earnings per share-diluted came in at $1.41, an increase of 8.5% versus the same period last year. Gains from volume, acquisition and a more favorable tax rate were partially offset by gross margin declines. Note that due to the adoption of ASU No. 2017-07 Compensation-Retirement Benefits, our 2017 results have been restated. Due to the change in the standard, we have also revised our calculation of non-GAAP earnings, which is positively contributing to the 2018 year-over-year EPS percentage change versus prior year. A reconciliation of these changes, as well as restated quarterly and full-year 2017 results, are available in the Investors section of our website. As Michele stated, there is no change to our expected adjusted full year EPS guidance of $5.33 to $5.43. However, given the restated 2017 non-GAAP results, full-year EPS is now expected to increase 14% to 16% versus prior year. By segment, North America net sales increased 4.4% versus the same period last year. The Amplify acquisition and foreign exchange currency rates were a 3.8 point and a 0.2 point benefit, respectively. Volume was a 1.8 point contribution to sales growth. Net price realization was a 1.4 point headwind due to the impact of first quarter true-up adjustments related to prior-year trade programs as well as planned increased levels of trade promotional spending in support of 2018 programming. Due to the earlier Easter, we accelerated execution of some of our summer promotional activity, including S'mores and Twizzlers. This resulted in some merchandising volume being shipped in the first quarter of this year versus the second quarter of last year. Also recall that in the second quarter of last year, net sales outpaced retail takeaway due to key retailer distribution and some packaging changes that temporarily elevated customer inventory levels. Therefore, we anticipate second quarter net sales will be pressured versus the second quarter of 2017. In total, taking into account our first quarter net sales and the timing of shipments, we expect first half organic net sales and retail takeaway to be relatively in line with the first half of last year. North America advertising and related consumer marketing spend increased on our core confection brands but was offset by spend optimization and shifts within emerging brands, resulting in an overall decline of 5.3% in the first quarter. First quarter total International and Other segment net sales increased 8.8% including a 2.4 point benefit from favorable foreign currency exchange. Volume was up 8.1 points, as we expected, driven by solid sales growth in Mexico, Brazil and India, which grew a combined 12% on a constant currency basis. We're pleased that net sales growth in China continued to improve as we execute our Margin for Growth initiative and optimize our portfolio. China net sales grew 0.9% on a constant currency basis compared to a 29.5% decline in the fourth quarter of last year. International and Other advertising and related consumer marketing declined 2%, in line with our expectations, as we continue to right-size our investments to drive more profitable growth. Now turning to gross margins, adjusted gross profit declined 0.9%, resulting in adjusted gross margin of 44.9%, a decline of 260 basis points versus the first quarter of last year. As we communicated at CAGNY and on our last earnings call, we did anticipate gross margin to be pressured in the first half of the year due to higher freight and logistics costs as well as incremental investments in trade and packaging to drive sales growth and to remain competitive at retail. However, as Michele discussed, first quarter gross margin was below our expectations and we now expect full-year gross margins to decline around 125 basis points versus prior year. Given the pattern of last year's gross margin inflationary pressures, we expect to see improvements in the second half of the year on a year-over-year basis. First quarter adjusted operating profit of $428 million resulted in an operating profit margin of 21.7%, a decline of 150 basis points. The marketing spend shifts and optimization I mentioned, in addition to continued SG&A discipline, partially offset the decline in gross margin. Moving down the P&L, interest expense of $29 million increased $6 million versus Q1 of last year driven by the additional commercial paper debt secured to fund the Amplify acquisition. We plan to issue bonds in early May to permanently finance the acquisitions. Bond principal amounts and maturities are aligned to rapidly de-lever the company, consistent with our targeted capital structure, maintaining a 1.5 times to 2 times debt-to-EBITDA ratio. Even with this additional debt, we have maintained our strong A1 and A debt ratings from Moody's and S&P respectively. We will utilize our healthy cash generation to repay these bonds as well as our existing bonds coming due in 2018 and 2020, upon maturity. Full-year 2018 interest expense is expected to be in the $130 million to $140 million range, in line with our previously stated estimates. The adjusted tax rate for the first quarter was 24.9% versus 31.5% in the year ago period driven by U.S. tax reform. With the additional time we've had to evaluate the impact of the U.S. Tax Cuts and Jobs Act of 2017, in combination with prudent tax planning, we are updating our full-year 2018 expected tax rate to be approximately 19% to 20% versus our previous estimate of approximately 20% to 22%. First quarter other income and expense was $1.9 million. We expect full-year 2018 expense to be approximately $65 million to $70 million as we continue our investment tax credit strategy. This was a slight increase versus our initial estimate. For the first quarter of 2018, weighted average shares outstanding on a diluted basis were approximately 212 million. The company repurchased $140 million of common shares in the first quarter. This completes the $500 million January 2016 share repurchase authorization while $60 million remains on the October 2017 $100 million authorization. We also repurchased $38 million of common shares in connection with the exercise of stock options. Total capital additions including software were $60 million. For the full year 2018, we now expect CapEx to be in the $355 million to $375 million range. This updated estimate reflects the increase of approximately $25 million that Michele discussed, which will go to further enhancing supply chain capacity and flexibility, as well as for forecasting tools, all of which we believe will help address gross margin pressures. Total depreciation and amortization for the first quarter was $74 million. This was slightly lower than our planned level driven by favorable Amplify amortization versus initial estimates. We are making progress on our strategic review of the Amplify international business. We have now reached a point where we believe it is likely that we will sell the business in the next 12 months. Therefore, you will now see this reported as an asset held for sale in the 10-Q we're filing this quarter. The business is still included in our guidance as we're not certain if and when a sale will occur. To assist with your modeling, 12 month sales are approximately $125 million and operating income is immaterial. We continue to return cash to our shareholders, with first quarter dividends of $134 million. This was our 353rd consecutive quarterly dividend on the common stock. We take a holistic long-term view to deliver value to our consumers, shareholders and communities. We remain committed to investing in our brands and our business model to deliver great tasting products and delight our consumers. We generate strong cash flow and have a healthy balance sheet that enables us to return value to our shareholders through dividends and buybacks. And we continue to support the communities where we do business. Most recently, we announced our comprehensive strategy, Cocoa for Good that addresses the most pressing issues facing cocoa growing communities. We're investing half a billion dollars by 2030 to nourish children, elevate youth, build prosperous communities and preserve natural ecosystems. To close, we have good visibility into plans that we believe will enable us to deliver on our earnings outlook in a difficult cost environment. Despite recent pressures, we believe our margin structure remains advantaged and we are aggressively taking steps to address these headwinds in a sustainable way while we transform our business model. Before I summarize the year, let me provide some thoughts on the next quarter. As I mentioned earlier, we expect Q2 gross profits to be pressured. This, combined with the timing of some of our capability investments such as ERP, is expected to result in lower Q2 EBIT versus last year. Our revised tax rate will be somewhat of an offset and we expect nominal Q2 EPS growth. To summarize for the full year, we are reaffirming full-year adjusted earnings per share-diluted of $5.33 to $5.43, an increase of 14% to 16% versus last year. We're refining our reported net sales estimates toward the lower end of the previously communicated range of 5% to 7% to reflect the new initiatives we are implementing to reduce complexity and improve margins. Full-year adjusted gross margin is now estimated to decline around 125 basis points versus prior year. We'll continue to invest in DMEs and business building initiatives. The Margin for Growth program savings in 2018 are estimated to be $80 million to $90 million, an increase of approximately $25 million versus our initial estimate as we now expect to deliver the high end of the $150 million to $175 million overall program target. Amplify accretion has also increased from initial estimates and is now estimated to be $0.08 to $0.12 EPS accretive for the full year. The adjusted 2018 effective tax rate is approximately 19% to 20% and CapEx spending is estimated at $355 million to $375 million, an increase of $25 million versus initial estimates. Thank you for your time this morning. I'll now turn it back over to Michele for some closing remarks. Michele G. Buck - The Hershey Co.: Thank you, Patricia. Hershey is a category leader with compelling snacking tailwinds. As we transform our business in both domestic and international markets, we believe our core brands and expanding portfolio, our relentless focus on innovation, proprietary insights, and in-store capabilities, and our strong margins and cash flow will help us maintain our competitive advantage, fuel continued earnings growth, and deliver long term shareholder value. This concludes our prepared remarks. Patricia, Melissa and I are now available to take your questions.

Thank you. And we'll go first to the line of Ken Goldman from JPMorgan. Please go ahead. Kenneth B. Goldman - JPMorgan Securities LLC: Hi. Thank you. Good morning, everybody. Michele G. Buck - The Hershey Co.: Hi, Ken. Kenneth B. Goldman - JPMorgan Securities LLC: I think if I heard you correctly, your outlook for the gross margin was to expand, I think you said improve and expand as you enter 2019. I know we can't really talk in detail about 2019 right now, but I think most of us are modeling in some cocoa headwinds as that year begins. And I think most of us would assume that the pricing environment doesn't get a whole lot better right now. So I realize you have some tailwinds, but historically Hershey's gross margin has been pressured when cocoa rises no matter what else is really going on behind the scene. So I wanted to get a little bit more comfort if I can in what gives you that confidence in seeing that gross margin improvement as maybe 2018 progresses or into 2019? Michele G. Buck - The Hershey Co.: So let me – I'll start off. It's Michele, and I'll also ask Patricia to add some commentary on this as well. First of all, as we mentioned, we think we're taking some very specific actions to address some of the things that hit us that are within our control. We had some customer-specific programming that leaned towards value-oriented packs and created some unfavorable mix, and as we go forward we are working to fix that and address that. As we look at our SKU rationalization plan, a real focus on the core is going to help us tremendously to address some of those mix opportunities for us. And so we think that we've got a good plan against that. I'd also say as we look at input costs (00:29:02) comments about cocoa in particular and then I'm going to turn it over to Patricia. Certainly the fundamentals of the cocoa crop, weather, supply and demand are all relatively healthy, but it is a commodity that we know has some high volatility given just some things that are outside the fundamentals. So with that, let me just turn it over to Patricia to talk a little bit in more detail about the recovery on gross margin. But I think if you think about it at a very macro level, there's a lot of recovery that's just grounded in the lapping of prior-year gross margin. Patricia A. Little - The Hershey Co.: Yeah, I think that's a good summary. So as you know, we started to experience some freight inflation and some other inflationary pressures in the back half of last year, and so as we lap those, that will give us some easier comps in the back half of this year. And then as we exit that into 2019, while we really don't see a lot of relief on some of the cocoa and other inflationary pressures, we are very focused as a team on reducing some of the costs that we can control, things like the mix that Michele talked about, some of the – some of our go-to-market, things like our packaging changes. And then really just getting at this issue of complexity and that's where we want to focus our SKU rationalization on making sure that we're really providing the right package to the right customer at the right time with the right value, but not doing that in a way that overcomplicates our supply chain and logistics system, which is where we've seen some of the cost pressures come in that we do believe are controllable. And those are the things that we're looking to improve in 2019. Michele G. Buck - The Hershey Co.: Yes. Remember, Ken, some of our capacity investments, the Reese's line came online this quarter, and we have a new Kit Kat line coming online at the end of the quarter. So as we look at the mix of what we've been able to sell, we were a bit constrained on some of our most profitable items, and as we get that addressed that's going to help us quite a lot in terms of driving mix on the business. Kenneth B. Goldman - JPMorgan Securities LLC: Great. Thanks so much. Patricia A. Little - The Hershey Co.: Thank you.

Thank you. And we'll go next to the line of Rob Dickerson from Deutsche Bank. Please go ahead. Kanika Goyal - Deutsche Bank Securities, Inc.: Good morning. This is Kanika Goyal on for Rob. Thanks for the question. I wanted to ask a little bit about the top line trends. Considering how strong organic sales came in for Q1 and the guidance for Amplify is unchanged at 5%, currency still neutral, could you just explain a little bit more on why the full-year guidance was taken down to the lower end? Like where is the pressure actually coming from? I know the shorter Easter period and SKU rationalization was expected to impact sales by 1%, but is that more profound than what you initially expected? And thank you. Michele G. Buck - The Hershey Co.: Yeah, so first of all, a little bit of perspective on the full year. We always expected – we had expected in our plan for the first half to be a bit pressured, primarily driven by promotional (32:03) and innovation timing but primarily the shorter Easter. So that was in our plans. As we look at the last – at the second half, we remain really bullish (32:16) including Outrageous which is launching, Reese's Outrageous, in May, continued Gold success, and very strong sell-in behind Halloween and holiday. The key difference as we look at the back half of the year is this focus for us to really balance the P&L and drive for profitable growth and thus the SKU reduction program. We think it's the right thing to do to really shift and work to drive mix. And we do know, though, that there will be some short-term impact as we make those changes. So really that choice is the primary driver that led us to call the low end of the guidance. We just want to give all of you the heads-up, relative to what the impact of that program could be as we initiate it. Kanika Goyal - Deutsche Bank Securities, Inc.: Okay. Great. Thank you.

Thank you. And our next question will come from David Driscoll from Citi. Please go ahead. David Cristopher Driscoll - Citigroup Global Markets, Inc.: Great. Thank you and good morning. Michele G. Buck - The Hershey Co.: Hi, David. David Cristopher Driscoll - Citigroup Global Markets, Inc.: Okay. So I wanted to ask just a little bit more about the gross margins. So pricing is down, and I believe you used the word planned in the prepared remarks. Can you talk a little bit more about the planned pricing reduction? I mean, it feels kind of counterintuitive that pricing is down as much as it is with gross margins under this much pressure and cocoa kind of screaming higher. So are you under retailer pressures and this is why pricing is down? Or are there other good explanations? Michele G. Buck - The Hershey Co.: We're always balancing the mix of our investment behind the business between advertising and trade, and as we looked what we thought we needed to do this year to really be competitive, we did make some additional shifts between advertising and trade on certain parts of our business. I wouldn't say that we see that as major pressure but rather continued optimization to maximize the business going forward. And not all of that is necessarily showing up in price. So as you think about our investment with trade, is really about investment with customers at retail. Merchandising, merchandising racks, things like that also fall into that line. David Cristopher Driscoll - Citigroup Global Markets, Inc.: Can you guys explain just a little more on the "complexity" that you're talking about? I'm still not understanding how that comes as a surprise, if you will, in the quarter to drive the gross margins perhaps so much lower than what you initially expected. And I feel like that's really what you're trying to tell us on today's call because it seems to want to drive the SKU rationalization in the second half of the year. Could you just spend a little bit more time on this complexity? And what really this meant? And then why was it kind of something that was a surprise within the quarter to drive this gross margin miss? Michele G. Buck - The Hershey Co.: So David, I'd say a couple things. First of all, C-store trends were a little bit lighter than we anticipated, and that really had a bit of a mix impact for us. As we looked at – so I'm going to address complexity as well as the mix piece. Some of the customer-specific programming we had, some of the areas of the business that did the best were some of our bigger more value-oriented packs, and that created some unfavorable mix. So those are two things we didn't anticipate that hit gross margin. As we look at kind of the complexity piece, what I would say is in a difficult growth environment and with some capacity constraints, we've leaned into some areas of the business to drive revenue that we think have created complexity. They also created sales obviously, but they added some incremental touches in our supply chain. And we just have to get after those. And given that we have these capacity investments in some of our biggest businesses, this gives us the opportunity to better control what we are selling. Patricia, anything else you want to add to that? Patricia A. Little - The Hershey Co.: The other thing that we've really explored with the complexity is how much it puts a stretch on our demand planning system. And as we just add SKUs, it just gets that much harder to plan at that SKU level, and that frankly drives some of the cost, too, for things like the extra touches or in our supply chain or added freight. Things like that. So that's one of the areas that we think is a real opportunity for us going forward. Michele G. Buck - The Hershey Co.: And, David, I would say like some of the mix things – obviously, I think some of those marketplace dynamics were a bit out of our control. I think the complexity caught us a little bit more. We knew there was complexity. It caught us a little bit more than we thought it would. And so what we are focused on is we can take the actions to fix that, and we are. David Cristopher Driscoll - Citigroup Global Markets, Inc.: Thank you for the comments. I'll pass it along.

Thank you. And we'll go next to Robert Moskow from Credit Suisse. Please go ahead. Robert Moskow - Credit Suisse Securities (USA) LLC: Hi. Thank you. Michele G. Buck - The Hershey Co.: Hi, Rob. Robert Moskow - Credit Suisse Securities (USA) LLC: Hi. Good morning. I wanted to focus on Amplify for a second. I thought I heard you say that sales were up versus year-ago only about 3%. Our Nielsen data tracking indicates that SkinnyPop popcorn in the U.S. was up more than that. Can you help us reconcile those two things? Like, is the Nielsen data overstating the growth rate of SkinnyPop? Patricia A. Little - The Hershey Co.: Are you referencing the 360 basis points which is just for us the amount that Amplify contributed to our sales given that it was zero last year, and we had a partial quarter? Robert Moskow - Credit Suisse Securities (USA) LLC: Maybe I misunderstood in your opening remarks, Patricia. So maybe just tell us, like, what's SkinnyPop's growth rate versus year-ago on a retail basis? Patricia A. Little - The Hershey Co.: Hang on. 6.6%. Robert Moskow - Credit Suisse Securities (USA) LLC: Okay. So it's up about 6.6%. Is that decelerating versus its normal rate because I remember this used to be like a double-digit growth kind of brand? Michele G. Buck - The Hershey Co.: If we look at the latest 12 weeks, it's about 6.3%. Yeah, if we go to the back part of the year – I'll have to see if we have those numbers here. I thought we did. Hold on. Yeah, we can follow up with you on that. There may be a little bit of deceleration as it's gotten larger, but there's tremendous growth in the category and we're pretty happy with the mid-single-digit growth. Certainly in the first quarter, the team had built some plans to remove some of the lower ROI trade promotion events that they had prior year, and so that's causing a little bit of an offset to some of the momentum that they had. But as we look at the full-year basis, we're feeling really good. And we have line of sight to some distribution expansion which is, frankly, well deserved on the business, which is going to, I believe, reaccelerate that growth rate. Robert Moskow - Credit Suisse Securities (USA) LLC: Okay. Thank you.

Thank you. And we'll go next to John Baumgartner from Wells Fargo. Please go ahead. John Joseph Baumgartner - Wells Fargo Securities LLC: Good morning. Thanks for the question. Michele, wanted to dig into the health of the category a bit more, CMG in the U.S., because it seems as though some of the upstream commodity indicators are broken down. You also have rising gas prices, which can't be helpful for C-stores. So have you become more cautious in the category for 2018 since January? And as a follow-up, if you could speak a bit more to your performance in everyday versus seasonal, given that I think Q1 was your third straight share loss in CMG. Michele G. Buck - The Hershey Co.: Sure. So we haven't really changed our outlook in the category versus what we shared at CAGNY. So we had shared that we believe the long-term outlook for the category was around 1.5% to 2%. As we look at this year, we believe this year is probably 1% to 1.5% because the long Easter drives a 0.5 point swing between a long Easter year and a short Easter year. We also continue to be really bullish about the chocolate and non-chocolate part of the category. If you take refreshment out, it continues to have – grow at an accelerated rate and we anticipate that will be 1.5 points to 2 points of growth for this year. As we look at share, we had shared previously that we saw our plan for the year to be back-half loaded and we anticipated that our share would be softer in the first part of the year, but we expect to end the year gaining share. So some of that's tied to competitive timing of competitive programming as well as the timing of our own programming. It's certainly always our goal to gain share. And I feel good that as we end the year, we will be on track to be doing that. John Joseph Baumgartner - Wells Fargo Securities LLC: Okay, great. Thank you.

Thank you. We'll go next to the line of Jonathan Feeney from Consumer Edge. Please go ahead. Jonathan Feeney - Consumer Edge Research LLC: Good morning. Thanks very much for the question. Michele G. Buck - The Hershey Co.: Hi, Jon. Jonathan Feeney - Consumer Edge Research LLC: One broad question, one detailed question. A lot of talk about complexity on the call and recently, and some amount of complexity, it seems to me, it's always been a trade-off, right? You've been able to grow revenues and profits by great innovation and that innovation necessarily leads to complexity. If anything, the world's become more fragmented and maybe more micro targeting probably is a little bit more rational than necessary, not necessarily for you but for everybody. So I'm trying to understand how reducing complexity, if this – what changed in your kind of calculations to want to go after this opportunity right now? And is it the case that – is it in the future, are we just going to wind up with another more complex business two, three years down the road when we push all the innovation we can with the new SkinnyPop, et cetera, and the great brands that you have? That's much my broad question. And my narrow question is with these tax credits, Patricia, does the tax rate benefit line up on a quarterly basis with the other expense? So if you buy a credit that lowers your tax rate, do we feel that quarter-to-quarter, or is there ever inter-quarter movement between those two phenomenon? Thank you very much. Michele G. Buck - The Hershey Co.: So first on your broad question, this certainly is a category that is complex, right? It's a high SKU-driven category with multiple locations in the store. I think as we look at it, though, there is good complexity, strategic complexity, that adds profitable growth and adds value. And there is also bad complexity, where there can be excess that adds items but not driving really incremental profitable growth. And I think one of the most important things we always have to do is keep track of that. I think we got a little bit out of balance on that, and we think it's really important to address that. So, for example, I'll give you one example. We could have 500 merchandising units, and it might be that when we take a really close look at them, with a couple tweaks, we could get that number in half and generate massive efficiency that takes complexity out of the system. On the other hand, we are going to continue to add SKUs when it comes to innovation that we think is driving incrementality or new pack types on some of our core items. So it's really a balancing act, but it's keeping the good complexity and shedding the nonprofitable, non-incremental complexity. And it's a category that we just have to stay on top of that and stay focused. Patricia, I'm going to turn it over to you for the tax question. Patricia A. Little - The Hershey Co.: We do put those two together in terms of the other income impacts that you see with the cost of the tax credits with the rates. Those two tend to go together. Jonathan Feeney - Consumer Edge Research LLC: So they don't move quarterly, basically quarter-to-quarter or go together on a yearly basis? Patricia A. Little - The Hershey Co.: They go together on a quarterly basis. Jonathan Feeney - Consumer Edge Research LLC: Thank you very much. Appreciate it.

Thank you. We'll go next to Andrew Lazar from Barclays. Please go ahead. Andrew Lazar - Barclays Capital, Inc.: Good morning, everybody. Michele G. Buck - The Hershey Co.: Hi, Andrew. Andrew Lazar - Barclays Capital, Inc.: Hi. I just wanted to dig in briefly to the incremental SKU rationalization that you're doing I guess. I want to make sure I understand specifically where is that rationalization more focused? Is it primarily within the core/noncore chocolate franchise? Is it primarily focused on sort of the other non-chocolate broader snacking activities that you've been getting more involved in over the last couple of years? If it's the latter, I'm just trying to get a sense of whether that works, or is that at odds with the type of actions you're taking to get into this broader snacking environment to go after that growth? Michele G. Buck - The Hershey Co.: Yeah. So Andrew, this is really not tied to the snacking initiative. This is really (45:23). I think we have pretty good line of sight and, frankly, a much smaller number of SKUs in the portfolio in snacking. This is really focused on looking at the broad core confection, all the brands, all the pack types we have and actually all the merchandising units as well. So it's really more focused on optimizing that, making sure that we are as focused as possible on driving the core, and making the decisions to have the highest velocity items on the shelf everywhere we possibly can. So it's really within that core piece of the business. Patricia, anything you want to add to that? Patricia A. Little - The Hershey Co.: Yeah, Michele gave a great example about the merchandising units. I'll give you another one that's really core to us, and that's things like Halloween assortments. We tend to have five different approaches to that, but then over time we've migrated to where we do a lot of customer-specific assortments. And this year what we did is we really optimized our base levels, and those have proved to be so well designed that we can eliminate some of the customer-specific assortments. And that just takes complexity out, makes the customer happy, makes the consumer happy. So that's an example of where we see the complexity creep in that we don't think is adding value to ourselves, the customer or the consumer. Andrew Lazar - Barclays Capital, Inc.: Thank you.

Thank you. And we'll go next to the line of Bryan Spillane from Bank of America. Michele G. Buck - The Hershey Co.: Hi, Bryan. Bryan D. Spillane - Bank of America Merrill Lynch: Hi. So I want to just follow up. You had made a comment earlier, or there was a comment made earlier, just about the sort of the shift between advertising and trade spend. And so leaning a little bit more to trade spend this year, can you just elaborate a little bit more on is that a response to like cross-category type elasticity? So trying to sort of position your core chocolate confections better against maybe some of the other categories where they're near-in? Maybe some of the snack bars, that type of thing? Or is it more a response to just competitive activity near-in within your core chocolate franchise? Michele G. Buck - The Hershey Co.: Yeah. I would say it's much more a near-in chocolate franchise view and looking at a couple specific areas of opportunity on certain pack types and at certain customers that we wanted to take advantage of that made really good business sense. I also just want to reinforce that even with that shift in total, advertising on our core chocolate brands was up in Q1, and we expect it to be up for the full year. So we've shifted the advertising away from places that were less strategically important within the portfolio. Bryan D. Spillane - Bank of America Merrill Lynch: And where you've done it, has it also come with incremental distribution? I guess what I've noticed in some of the impulse channels, like convenience and gas, for instance, where you've had the price – the promotions, you've also had out of aisle display. You've had some sort of display attached to it. So fair to say when you're spending the trade it's not just on price but it's also to get better placement or some merchandising attached to it? Michele G. Buck - The Hershey Co.: Yeah, I would say that is entirely what drove the (48:51) investment. This is a category obviously driven by impulse, and our primary goal with trade is to get merchandising display. Our secondary goal is price. I think that's a very accurate way to think about it. Bryan D. Spillane - Bank of America Merrill Lynch: Okay, great. Thank you.

Thank you. And we'll go to Robert Moskow from Credit Suisse. Please go ahead. Robert Moskow - Credit Suisse Securities (USA) LLC: Wow, a daily double. Okay. Just regarding the guidance, your EPS guidance is unchanged, but you have also lowered the tax rate. So that alone implies a lower operating income for the year. But then I think what you also said is that you're going to cut the SG&A and kind of reallocate it towards CapEx about $25 million. So is this in a way kind of saying that, okay, our operating income is lower than what we thought even though there's another $25 million of SG&A that's being reduced and just kind of reallocated? So it's kind of like, I don't know, maybe $50 million, for example, on a fundamental basis? Michele G. Buck - The Hershey Co.: Yeah, Patricia, go ahead, you can take that. Patricia A. Little - The Hershey Co.: Yeah, I think Michele did a good job of talking about where the recovery comes from, and again about half of it is on that SG&A Margin for Growth target as well as the improved Amplify accretion. And then a quarter of it is that tax rate. So if you think about above the tax rate, yes, that's where you're going to see some leakage. And then the remaining quarter is that shift from where we had some reinvestment sort of earmarked in our P&L at the beginning of the year, and we've moved that to CapEx. So that's a total help. So if you think about it, about three-quarters of it is being offset above taxes, and about a quarter of it is not. Robert Moskow - Credit Suisse Securities (USA) LLC: Okay. So a quarter of it is not being offset by the tax rate? Okay. Patricia A. Little - The Hershey Co.: No, I'm sorry. I want to be super clear. About three-quarters of it is offset at the operating income EBIT line, and about a quarter of it is offset at the tax line to get you the full offset. Just super clear. Robert Moskow - Credit Suisse Securities (USA) LLC: Got it. All right. Thank you.

Thank you. We'll go next to Steven Strycula from UBS. Please go ahead. Steven Strycula - UBS Securities LLC: Hi. Good morning. Just want to follow up on a few of the gross margin questions. Patricia, if we had to boil it down or kind of break down the 120 basis point delta from where you initially guided versus today, how would you kind of segment that between necessarily trade versus freight and logistics versus raw materials if you had to kind of break it down to those three buckets? Just so we conceptually understand where the weakness is coming from. Thank you. Patricia A. Little - The Hershey Co.: It's all of those buckets. We're not getting into that level of specificity, but what we've done is called out the big pieces, and you should think about those as all are (51:57) important to the pressure and all the things that we're going to be tackling with the initiatives that Michele mentioned. Steven Strycula - UBS Securities LLC: And in that vein, should we expect the second quarter gross margin rate of decline to be comparable to the first quarter? Is that kind of what you're trying to insinuate? Is that fair? Patricia A. Little - The Hershey Co.: Yeah. Steven Strycula - UBS Securities LLC: Okay. And the last piece and I'll pass it along, what was the logic in the accounting switch from the ERP spending expensed to capitalized? At what point did you kind of think that that was – you made the decision to go down that path? Thank you. Patricia A. Little - The Hershey Co.: I want to separate those two things. So first of all, in second quarter, we are expecting a little bit more ERP spending. And that's something that I called out, versus what we've been running at. And that's just the normal timing of any kind of program like that. What we did separately from that is we had earmarked some of our savings from the tax benefit, the overall Jobs Act tax benefit, to reinvest in the business. And we decided that the best way to do that was to really focus on CapEx. Some of the capacity or DC initiatives, as well as some programming, but not related to the ERP system. Does that answer your question? Steven Strycula - UBS Securities LLC: Yeah, that clarifies it. Thank you so much. Patricia A. Little - The Hershey Co.: Okay.

Thank you. We'll go next to Alexia Howard from Bernstein. Please go ahead. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Good morning, everyone. Patricia A. Little - The Hershey Co.: Good morning. Michele G. Buck - The Hershey Co.: Hi, Alexia. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Hi. So the deterioration in pricing, particularly in North America this year, do you expect that to rebound going forward, i.e., could we actually get back into positive year-on-year territory in the next quarter or two? And then the follow-up question is are new channels like e-commerce, for example, part of this complexity issue? I guess what I'm really asking is, is e-commerce investment likely to be a big area that you're putting money into going forward? Thank you. And I'll pass it on. Michele G. Buck - The Hershey Co.: So, Alexia, I'll hit the e-commerce one and then I'll let Patricia talk about your first part of your question. We are continuing to increase our investment in e-commerce. And I think you made a mention, perhaps, about complexity when you asked about that. That would be an example of good strategic complexity. I mean, we're certainly looking for efficiency as we build e-commerce, but that would be a place that we'd be investing in because certainly there's a tremendous (54:26) growth opportunity there. So we are continuing to increase our investments there because we're getting really nice growth. Patricia, you want to talk a little bit about the trade price outlook? Patricia A. Little - The Hershey Co.: Yeah. So we were hit a little bit harder, Alexia, in the first quarter on trade because of the true-ups that we do annually in the first quarter related to prior year. And that won't be an impact in the second through the fourth quarters. We're not at the point of giving guidance about specifics down to the pricing level, but we did have an outsized impact in the first quarter. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Thank you very much. I'll pass it on.

Thank you. We'll go next to Jason English from Goldman Sachs. Jason English - Goldman Sachs & Co. LLC: Hello, everyone. Michele G. Buck - The Hershey Co.: Hi, Jason. Jason English - Goldman Sachs & Co. LLC: Thank you for allowing me to ask a question. I appreciate it. Hey, I guess I want to come back to and build off a few of the questions that were asked so far. A lot of what seems to be transpiring with the portfolio seems very reminiscent of what was happening maybe a decade ago. Adding more complexity to the portfolio to drive growth, and I know you're on the back end of that. And also shifting advertising to trade to drive impulse at point of purchase. Those tactics worked well until they didn't a little over a decade ago. And now, we're talking about you still putting more trade in, still suffering market share losses. It feels like they're not working that well today either. Now, last time, it clearly led to a path of the business stalling out, ultimately a rebase that set you up to grow anew. Why shouldn't we be concerned that we're ultimately on the same path, a path to kind of needing to rebase to reinvest to reaccelerate growth? And given the category is not quite as resilient as it was back then, competitive intensity seems more elevated. The input cost curve is going the wrong way. And you've got a lot of other stuff on your plate with diversification. It feels like this time could even be worse. Where do you see us maybe off base with that line of thinking? Michele G. Buck - The Hershey Co.: So first of all, I would say shifting from advertising to trade, we have a very strong investment in advertising. So 10, 12 years ago, advertising as a percent of net sales was 2%. We are about 9% now at industry-leading levels and we are still at that, even with a minor shift. This was a minor shift to trade of like a couple tenths. So we still have very, very strong advertising levels. So on that piece, I would say there's just not even comparability whatsoever. I think from an SKU perspective, we continue with our strategy to be very focused on driving the core. We always have been. And when complexity ekes into the business, we have to address it. So I think from that perspective, you may say that addressing complexity, as we've done it in the past, is something that needs to be done. And that might be similar to where we were at some point in time, but I think the benefit of that drove some significant growth on the business on a go-forward basis because that usually tends to result in a much greater focus on some of the core most profitable SKUs, and I think creates opportunity for us. Jason English - Goldman Sachs & Co. LLC: Okay. I appreciate that. And one sort of unrelated follow-up, in regards to the cost curve, if we look back over history, this has been a category where the pricing power has been exceptional relative to the rest of food. And when you face cost pressure, you're able to pass it through. Great discipline in the industry. In context of sort of the proliferation of broader snacks and the greater array of competitors you're facing today, do you feel that that equation or that relationship may have changed at all, or is it – do you still believe you have the same degree of pricing power and ability that you have in the past? Michele G. Buck - The Hershey Co.: Well, obviously we can't speak directly to pricing. What I would say is we still feel really good about the category, and every category and the dynamics within the categories are different. The category of confection continues to grow. We as a company are somewhat differentiated in terms of that very significant investment that we make in our brands at industry-leading levels, what we just talked about relative to advertising, and we continue to have low private label penetration in our category. So we're always looking to work collaboratively with our retail partners and look at the marketplace and make sure we have the right product news, the right investment, and the right pricing to benefit all of us for the long term health of the category. Jason English - Goldman Sachs & Co. LLC: Thank you so much for your time. I appreciate it. Michele G. Buck - The Hershey Co.: Operator, we have time for one more question.

Thank you. We'll go to Pablo Zuanic with SIG. Aatish Shah - Susquehanna Financial Group LLLP: Hi. Good morning. This is Aatish Shah on for Pablo. Just have a question on seasonal chocolates, specifically if you could tell us what percent of total chocolate for Hershey's sales this is? And then, does this percentage vary much from the first half to second half? And given that Hershey's under-indexed in this, is there an opportunity there? Michele G. Buck - The Hershey Co.: So seasons as a part of our business is about one-third, so our business breaks out about a third seasons, about a third instant consumables, and about a third take home. There does tend to be a little bit of back half focus given the size of Halloween and holidays together, which are larger categories than Valentine's Day and Easter combined, and we continue to feel good about the seasonal chocolate sales that we have in the marketplace. Patricia A. Little - The Hershey Co.: Yeah. We are not under-indexed in seasonal. It's clearly a strength of ours in the marketplace. Aatish Shah - Susquehanna Financial Group LLLP: Got it. And just one quick follow-up. I'm not sure if you touched on this. Could you just comment on your cocoa hedging practices? I don't know if you release that kind of level of detail? Michele G. Buck - The Hershey Co.: Patricia, do you want to talk about that? Patricia A. Little - The Hershey Co.: Yeah. We hedge a number of our commodities. We hedge out for 3 months to 24 months in layers. We look for getting price visibility and sort of easing into any market disruptions. We can't hedge all of our ingredients, but those that we can, we have a longstanding and effective hedging program. Aatish Shah - Susquehanna Financial Group LLLP: Great. Thank you. Melissa A. Poole - The Hershey Co.: Thank you, everyone, for joining us today. We will be available throughout the day for any further questions that you have.

I'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect at any time.