Good morning, everyone, and welcome to The Hershey Company's second quarter 2015 results conference call. My name is Steve, and I'll 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. Thank you. Mr. Mark Pogharian, you may begin your conference.

Thank you, Steve. Good morning ladies and gentlemen. Welcome to The Hershey Company second quarter 2015 conference call. J.P. Bilbrey, Chairman President and CEO and Patricia Little, Senior Vice President and CFO, will provide you with an overview of results which will then be followed by a Q&A session. Let me remind everyone listening that today's conference call may contain statements which are forward looking. These statements are based on current expectations which are subject to risk and uncertainty. Actual results may vary materially from those contained in the forward-looking statements because of factors such as those listed in this morning's press release and in our 10-K for 2014 filed with the SEC. If you have not seen the press release, a copy is posted on our corporate website in the Investor Relations section. Included in the press release is a consolidated balance sheet and a summary of consolidated statements of income prepared in accordance with GAAP. Within the note section of the press release, we have provided adjusted pro forma reconciliations of select income statement line items quantitatively reconciled to GAAP. The company uses these non-GAAP measures as key metrics for evaluating the performance internally. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the company believes the presentation of earnings excluding certain items provides additional information to investors to facilitate the comparison of past and present operations. As a result, we will discuss 2015 second quarter results excluding net pre-tax charges of $282 million or $1.23 per share diluted primarily related to a non-cash impairment charge and cost associated with the business productivity initiative announced in June. Our discussion of any future projection will also exclude the impact of these net charges. With that out of the way, let…

Our first question is from Matthew Grainger from Morgan Stanley. Your line is open.

Good morning, Matthew. John P. Bilbrey - Chairman, President & Chief Executive Officer: Good morning, Matthew. Matthew C. Grainger - Morgan Stanley & Co. LLC: Good morning. Thanks. J.P., I just wanted to ask two questions, which I guess point a little bit toward setting our expectations for the next 12 to 18 months. Just firstly on the international and other business, you've faced some structural issues in the category, but obviously a fair number of temporary headwinds as well. And just as we're thinking about your expectations for the margin profile of that segment, is there any guidance you can give us just to help set our bearings for where things could correct to in 2016 once promotion subsides, once all the inventory absorption is behind you? John P. Bilbrey - Chairman, President & Chief Executive Officer: Specifically on that, I think I would make two comments. The first comment is we're always gross margin focused, and we're always very aware of how can we ensure that the activities that we have outside the U.S. are directionally constructive for us from a gross margin standpoint as we continue to build our manufacturing footprint around the world. We continue I think to head in a positive direction there. In terms of investment and structure, we want to make sure that we continue to pace ourselves to right-size for what we see as the opportunity. So as you know, we currently have this project in place where we're looking at the structure of the organization, so we'll be very mindful of that. And then as we specifically look at a market like China and we think about investments in the second half, we want to make sure that the profile that we have in terms of DMEs, et cetera, is appropriate…

Our next question is from Bryan Spillane from Bank of America.

Good morning, Bryan. John P. Bilbrey - Chairman, President & Chief Executive Officer: Good morning, Bryan.

Hi. Good morning, everyone. J.P., my question is about your long-term growth objectives. And I guess when you set them originally, there was better growth, especially in the international markets you were targeting, so the macro was better. And since then, the growth has slowed. And also, frankly, you've made an acquisition which isn't going to turn out to grow as fast as you thought. And you made that acquisition with the assumption of it helping you achieve your growth objectives. So I guess my question is, A), why not, or are you considering, and why shouldn't the long-term growth objectives come down? And second, if they're not, what's going to be better to help you get there? Because the goodwill write-down in and of itself suggests that Golden Monkey won't deliver as much growth as you thought, and also it seems like the macro is slower. So if you could just square those for us, that would be helpful. Thanks. John P. Bilbrey - Chairman, President & Chief Executive Officer: It's probably a bit too early to talk about some of the long-term guidance as we continue to look at a number of the forces and factors that we're dealing with. At the same time, we continue to be very positive on a number of pieces of our business. Certainly, we feel like North America is firming and heading in the right direction. We want to continue to invest there. And our other international markets, ex-China things are about where we thought they would be. Obviously, FX is a headwind and is beyond our ability to predict perfectly. And so before we add specificity, I would say, to how we want to think about the long term, we really need to get our hands around some of these shorter-term issues. But in terms of our business model strategies that we have, we're still very committed to that. And I guess one of the things I would say is, when you look at a focused strategy like we have in our international businesses around some very attractive core markets, we don't have a legacy of businesses in every corner of the earth. We get the significant advantage of those markets when they're doing really well, and we feel that when there could be some bumps along the way, but we still think it's the right approach. We're still very early in building our brands. And so I continue to be really optimistic about the long-term forecast. And usually, we talk about that in the fall, and we'll add specificity at that time.

But fair to say that's part of the process that you're going through your planning process for next year and your evaluation phase, it's something you are evaluating? John P. Bilbrey - Chairman, President & Chief Executive Officer: Absolutely. And I think it's important to remember that North America is probably growing at a 3% to 4% range. That's really healthy. We feel good about our innovation pipeline. So as we talk about our growth algorithm, that is still in place. We continue to grow market share. So let us get back to you with the specificity in the fall, and just assume that we want to have the best sense of how we see the business coming out of this year.

Okay, thank you. John P. Bilbrey - Chairman, President & Chief Executive Officer: Okay, thank you.

Our next question is from Ken Goldman. John P. Bilbrey - Chairman, President & Chief Executive Officer: Operator, do we have another question?

Yes. Our next question is from Ken Goldman.

Can you hear me?

Our next question is from Ken Goldman. John P. Bilbrey - Chairman, President & Chief Executive Officer: Good morning, Ken.

Good morning, everyone, so two questions. This was the second biggest 2Q gross margin in company history, just by higher inputs. Your gross margins are going up at a time when many food companies are heading the other way. You have cocoa and milk dropping next year, which is possible, and you keep getting productivity, you're going to see another gross margin jump again. So I just wanted to pick your brain a little bit, not to criticize actually, it's obviously a great trend, but how sustainable is that? Because I know the chocolate category has very little private label, but the history of food, right, is when gross margins get too high, eventually value-oriented competitors are going to sniff out an opportunity here. So I'm just curious, how do you balance that between the goal of taking margin and growing it and making sure you're not creating a price umbrella to create or attract competition? John P. Bilbrey - Chairman, President & Chief Executive Officer: I think a couple of things that I would just point to is we always talk being gross margin focused, but we also at the same time don't really set for ourselves a specific level of gross margin that we have to be at. And if you look at the scale that we have in North America and the value of high quality chocolate that's available in North America. It's the best cost per pound of chocolate really anywhere in the world across the major manufacturers. And I think that's one of the things that the value that the category offers has really been one of the things that's insulated it from significant owned label or private-label entry points. So that's really the biggest thing that's probably kept it there. I think another thing that we're thinking a little bit differently about, Ken, that may be from some of the things we've said in the past, while we still have the majority of our portfolio which is both a good value and really mass-position, we also are really spending a lot of time thinking about the premium segment as well, and so we're really thinking about it a little bit more broadly in terms of total available share across the categories. So I think that's another way that we look at within our core business expanding our footprint.

That's helpful. Shifting quickly, one of the reasons Golden Monkey was bought was for the distribution right, and the ability of Hersey to flow its legacy product into some new regions or channels. John P. Bilbrey - Chairman, President & Chief Executive Officer: Sure.

I realize Golden Monkey itself has been disappointing, but has that other element of its appeal, right, that opening of new paths for Kisses, et cetera, been, I guess, impaired in any meaningful way? John P. Bilbrey - Chairman, President & Chief Executive Officer: I think the strategy and intent we have with Golden Monkey is still intact. I think what we're really looking at is understanding the rightsizing and some of the business model practices that we have on a global basis and how do we integrate the broadest spectrum of distributors into that. So I think in terms of if you look at that business on a weighted basis and do we still have value within some of those distributors, the fact of the matter is, yes, and the strategy is right. At the same time, as you can imagine, as you take a significant number of distributors and you try to align them into a new business model, there's things that you've got to make changes, and we're addressing that quite transparently upfront. We want to get moving ahead with building the business, so all the reasons that drew us to that business and being able to expand our footprint in China, still are there. We just have to get all the business practices aligned with what we believe is appropriate and what's required of us as a U.S. corporation.

Thanks, and congrats on the new headquarters, too. John P. Bilbrey - Chairman, President & Chief Executive Officer: Thank you.

Our next question is from Robert Moskow from Credit Suisse. Your line's open. John P. Bilbrey - Chairman, President & Chief Executive Officer: Good morning. Robert B. Moskow - Credit Suisse Securities (USA) LLC (Broker): Hi. I was just looking at the forecast for what the implication is for what North America has to do in the back half. And so if you have – I think you said international sales would probably come in around $1 billion for the year, and so it's pretty easy to paint that out for international. I'm getting something along the lines of like 3.5% top line growth for North America, then. And that would be an acceleration from the first half, and I just want to understand if I'm getting the numbers right and whether you're expecting the business to be better in the second half?

Hey, Rob, it's Mark. I know going back to even the January and the April calls, we've been saying we would expect North America organic sales to be up 3% to 3.5%, and we're certainly tracking towards that today, and the retail takeaway is in line with that. I think through the first half of the year, we're pretty close to actually 3%, and you're right, it is greater than that in the second half, and I know there are a number of new products and fees in that, J.P. or Michele can address. But I think you're thinking about it the right way. John P. Bilbrey - Chairman, President & Chief Executive Officer: Let me – Michele Buck, as you know, is the President of our North American business, he's here with us this morning, why don't I ask her to give us a little bit of perspective on the business in North America. Robert B. Moskow - Credit Suisse Securities (USA) LLC (Broker): Okay.

Hey, hello. Good morning, guys. Let me talk a little bit about North America overall, and then I'll hit some of the highlights of some of the great programming that we have coming in the back half so that you can get a little bit more color underneath what's going on there. As we look at the year, certainly our core brands are doing really well, and a healthy core is a key foundation to our business. We believe our advertising is working, we're investing, as you know, this year incrementally behind that to really support the pricing conversion. Our advertising appears to be working. We have shifted some of our spend to digital. We think that's a really smart move and while we don't have all of the robust analytics we have on base advertising, it appears to be working quite well. We have a new campaign on Hersey that appears to be resonating really well with millennials and driving some nice growth there. As we came into the year, we said a lot of the year would be dependent on us having successful execution of the pricing and the price conversion is on track, so we feel great about that. As I look at innovation, and I'll speak a little bit to the back half of the year, there's a couple of factors that give us confidence in the back half, and I'd say that's innovation, continued momentum on the core and strong visibility to our seasonal sell-ins. Both Halloween and holiday, we have very strong sell-ins. We have the visibility to what the customers are going to buy, so we know what those numbers look like, so feel great about that. And as we look at our innovation, as you recall we launched in Q2 Hershey's Caramels,…

Our next question is from Eric Katzman from Deutsche Bank. Your line is open. John P. Bilbrey - Chairman, President & Chief Executive Officer: Hi, Eric.

Hi. Good morning, everybody. I guess let me ask a bigger picture question, J. P. In terms of the company's, let's say, M&A capabilities, because I know, and this goes back a ways, but I know that at one point in time years ago when you tried to establish a business in China it disappeared overnight and there was a small write-off. The company's history in Europe was one of failure, and now we have this SGM mess. So is there, say, like is there – given the M&A, it seems like it's still going to be part of your future as you move globally, like is there something like culturally missing or on the due diligence process that you've done in the past that's just for whatever reason seemingly made the company deal with M&A problems kind of after the deal is signed? John P. Bilbrey - Chairman, President & Chief Executive Officer: I think, Eric, certainly some of the comments you've made about whether it was Europe or some of these other things, those are certainly pieces of the history. I think also inside there, you look at Brookside, obviously we're on the early side of Krave, Pelon has been a good one. We've had some joint ventures, some have gone quite well, and others we've chosen at particular times to exit from. The thing that I would tell you and I think what's important is we look at this, we've – if you were to put it within the context of our due diligence process, I don't think we've gone about it in any errant way. We use the best advisors, the best names and family names that you can think of in terms of who you would partner with on looking at these things. I think…

Okay, thanks for that. And then as a follow up, it just seems like in the second half, I guess, were there some, I guess, maybe one time issues, and I'm just kind of wondering initially how we should think about that to next year. Are these tax structures that you're, I guess, benefiting from or unwinding or however you want to describe it, do those go away next year? And is your comp expense being lowered in the second half and therefore is likely a headwind to next year? John P. Bilbrey - Chairman, President & Chief Executive Officer: So let me deal with part of it and probably it's more appropriate if Patricia deal with part of it. As we look at our performance this year, certainly as we accrue for comp, we take into consideration what we believe our performance might be and how that works with our comp plans. But we accrue comp at a rate that assumes what our plan rates are, so we typically don't find big swings there, although if you have a year where adding comp is lower and your performance is higher in the subsequent year, that's a cost but usually the momentum of the business really takes that into consideration. And so usually those are things that aren't that challenging to overcome. And then on the tax bit, I'll let Patricia speak to that. Patricia A. Little - Chief Financial Officer & Senior Vice President: So you're right, the tax credits that we're doing this year are a period. We can do them again next year, so we'll have that opportunity. And frankly, I'm just getting into our tax attributes and looking forward to finding places to improve upon them. I'll just add one point to the comments J.P. made about some of the other things going on in our expense lines, and that is we're really pleased with the execution on our restructuring that we're in the middle of right now. We're very much on plan, on track to get the expected benefit from that next year, so that will be positive momentum for us next year compared to this year. We'll get a piece of it this year, but the bulk of it will come next year.

Okay, thank you. I'll pass it on.

Our next question is from David Driscoll from Citigroup. John P. Bilbrey - Chairman, President & Chief Executive Officer: Good morning, David.

Thank you and good morning. So I wanted to go back to China here and just ask a couple of questions. The first one, J.P., is just, and this has nothing to do with Shanghai Golden Monkey. I want to focus on the chocolate operations. The chocolate category in that market is still a very small category relative to the size of the country, $2.7 billion. John P. Bilbrey - Chairman, President & Chief Executive Officer: Correct.

Your operation is even smaller there. I think last year it was $185 million or something like that. So I suppose what's so hard to understand from the outside is why aren't ongoing distribution gains the dominant factor in driving the business? Why is it that we're looking at – I think in your script you gave like a 4% number for Hershey and a 6% number for the category. I feel like Hershey's story in China is you're in 14 cities where you advertise or something like that, and you should be in 100 cities. So what am I getting wrong here, and why is this growth not being dominated by distribution expansion across this incredibly large and hopefully hungry for chocolate country? John P. Bilbrey - Chairman, President & Chief Executive Officer: So, David, I think your comments are certainly appropriate and interesting, and I think we think about it the same way. I guess the execution of accomplishing it is a bit of the pace and challenge. So let me just reset a little bit. If you think about our business in China and distribution build, as you rightly say, we continue to build out our distribution. It's largely – if you look at our business, about 60% to 65% of our business is done in three channels. It's done in Tier 1 hypermarkets. It's done in supermarkets, and about 15% of the business in both B2C and B2B is done in e-commerce. So our Tier 1 development is pretty significant and specific, and so we've been building – if you go back over the last five years, you've heard us talk about 10 cities and 35 cities and 110 cities. But a lot of that is really focused in very narrow channels versus maybe what we…

I appreciate the comments. Thank you. John P. Bilbrey - Chairman, President & Chief Executive Officer: Thank you.

Our next question is from Chris Growe from Stifel. John P. Bilbrey - Chairman, President & Chief Executive Officer: Good morning, Chris. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Hi. Good morning. Can you hear me okay? John P. Bilbrey - Chairman, President & Chief Executive Officer: You bet, thank you. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Okay, great. I just had a quick question, like a follow up on China and then one question on the U.S. I just wanted to be clear on the inventory situation in China, what's out there, if you know where a lot of the goods may be, and just what effect it may have on revenue in the second half of the year? John P. Bilbrey - Chairman, President & Chief Executive Officer: I think that what you're seeing in the second quarter is that we are recognizing where we've identified inventory and where we want to have in food in every category. You want to have the freshest, best stuff out there. So wherever we believe we've had inventory issues, we're trying to remove that product from the marketplace, make sure that we've got the freshest possible product in place, and so hopefully we've addressed most of that. There could still be some cats and dogs here and there, I suppose. But we think we've done a pretty good job of confronting those types of issues, and that's why you're seeing some of the things you're seeing in our second quarter results. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Okay. And just a question for you then as well or separately on the U.S., just to understand, in the second half of the year as you transition to the seasonal merchandise and some pricing coming through there, do you expect elasticity to increase in the second half around the pricing that's coming through now on the seasonal merchandise, just to get a better sense of how the revenue growth will play out in the U.S. in the second half? John P. Bilbrey - Chairman, President & Chief Executive Officer: So I think that if you look at the way we modeled pricing elasticity and some of the things that were in my comments, we feel really good about how it's progressing. We should get the benefit of pricing in Halloween because that would be with all of the pricing in versus last year where it was. And so again, as we move through the year, we've always said that as we get to the beginning of 2016, we felt as though we would get back to pre-price increase levels, and that appears to be accurate. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Okay, thank you for the color. John P. Bilbrey - Chairman, President & Chief Executive Officer: Okay, thank you.

Our next question is from Alexia Howard from Bernstein. Your line is open. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Good morning. John P. Bilbrey - Chairman, President & Chief Executive Officer: Hey. Good morning, Alexia.

Good morning, Alexia. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Hi there. I just had a couple of questions. First of all on China, are you able to quantify for us how much of a headwind to company-wide organic sales growth the Shanghai Golden Monkey deal is going to be in the second half? Once we lap the anniversary of the acquisition in September, it's going to become part of the organic sales growth base, so is that already built into expectations? And how much of a headwind is that likely to be? And then I have a follow up.

Yes, Alexia, it's Mark. And we can run through some the math after, but I know in J.P.'s remarks, he talked about excluding China chocolate and all the acquisition and FX. But North America and Rest of World, on an organic basis, we will be up 3.5% to 4%. So outside of China, I mean, I would qualify it as everything else is going pretty well. The 0.5 point reduction in net sales contribution from M&A was obviously all Monkey related. So I can help you back into some of those numbers after the fact. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Great, thank you. And then just a quick follow up. At the beginning of the year you were a little uncertain about the outlook for the U.S. chocolate category, I think some concerns about premiumization and just different trends. Have you become more confident in the outlook as the year has progressed? And are you still planning further diversification moves a similar to Krave? Thank you. And I'll pass it on. John P. Bilbrey - Chairman, President & Chief Executive Officer: Yeah, so I think we do feel good about category and we certainly feel good about our performance within the category as we continue to grow share. As you think about the overall snacking continuum, we continue to be enthusiastic, both with some of our R&D pipeline, which we reviewed with our board, in fact, this past week, and I think it was enthusiastically received, and we'll be introducing some of those to the market later in the fall and certainly into 2016. And we continue to see that as an important opportunity. So I'll just end with this. We love the business we're in. Confectionary is at the heart of everything that we do, and it's on one end of the snacking continuum, and we think is one of the greatest categories there is. At the same time, we also see that consumers have a changing relationship with food. We see snacking as an important occasion and we think we have a go to market capability and an RD capability to meet those needs. So if on one hand you look at indulgent and you were to imagine on the far end functional, we see that we have a broadening role to play across that entire continuum, and I'm enthusiastic to share with you as we go forward what some of those things are. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Great, thank you. I'll pass it on. John P. Bilbrey - Chairman, President & Chief Executive Officer: Thank you.

Operator, we have time for one more question.

Okay. We'll take our final question is a follow up from Robert Moskow from Credit Suisse. Your line's open. John P. Bilbrey - Chairman, President & Chief Executive Officer: Hey, Rob. Robert B. Moskow - Credit Suisse Securities (USA) LLC (Broker): Hi. Sorry. Can you clarify, is your tax rate going to stay at 32.5% next year because of the tax credit, or is this just this year? Patricia A. Little - Chief Financial Officer & Senior Vice President: That particular impact is a single-year impact. But again, it's another tool in our tool chest that we can certainly reuse next year as well. Robert B. Moskow - Credit Suisse Securities (USA) LLC (Broker): You can do it again next year? Patricia A. Little - Chief Financial Officer & Senior Vice President: Yes, we could. That's a discrete event – a decision that we'll make for next year. Robert B. Moskow - Credit Suisse Securities (USA) LLC (Broker): So the write-off, it's positive from the cash flow perspective.

Yes. John P. Bilbrey - Chairman, President & Chief Executive Officer: Yes. Patricia A. Little - Chief Financial Officer & Senior Vice President: Absolutely. Robert B. Moskow - Credit Suisse Securities (USA) LLC (Broker): All right, thank you.

Thank you for joining us today. We'll be available for any follow-up calls you may have later on. Thank you.