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.

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.

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…

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.…

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.

Hi. Thank you. Good morning, everybody.

Hi, Ken.

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?

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.

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.

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.

Great. Thanks so much.

Thank you.

Thank you. And we'll go next to the line of Rob Dickerson from Deutsche Bank. Please go ahead.

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.

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.

Okay. Great. Thank you.

Thank you. And our next question will come from David Driscoll from Citi. Please go ahead.

Great. Thank you and good morning.

Hi, David.

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?

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.

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?

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?

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.

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.

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.

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?

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?

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?

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.

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.

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.

Okay, great. Thank you.

Thank you. We'll go next to the line of Jonathan Feeney from Consumer Edge. Please go ahead.

Good morning. Thanks very much for the question.

Hi, Jon.

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.

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.

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.

So they don't move quarterly, basically quarter-to-quarter or go together on a yearly basis?

They go together on a quarterly basis.

Thank you very much. Appreciate it.

Thank you. We'll go next to Andrew Lazar from Barclays. Please go ahead.

Good morning, everybody.

Hi, Andrew.

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?

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?

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.

Thank you.

Thank you. And we'll go next to the line of Bryan Spillane from Bank of America.

Hi, Bryan.

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?

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.

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?

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.

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?

Yeah, Patricia, go ahead, you can take that.

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.

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.

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.

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.

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?

Yeah.

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.

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?

Yeah, that clarifies it. Thank you so much.

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.

Good morning.

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.

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?

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.

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?

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?

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.

Operator, we have time for one more question.

Thank you. We'll go to Pablo Zuanic with SIG.

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?

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.

Yeah. We are not under-indexed in seasonal. It's clearly a strength of ours in the marketplace.

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?

Patricia, do you want to talk about that?

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.

Great. Thank you.

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