The Hershey Company

Company Overview

Business Model: The Hershey Company is a global confectionery leader, primarily known for chocolate, sweets, mints, and other snacks. It operates as the largest producer of quality chocolate in North America, a leading snack maker in the United States, and a global leader in chocolate and non-chocolate confectionery. The Company markets, sells, and distributes its products under more than 85 brand names in approximately 65 countries worldwide. Its principal product offerings include chocolate and non-chocolate confectionery, gum and mint refreshment products, protein bars, snack items such as popcorn, pretzels, spreads, snack bites and mixes, and pantry items like baking ingredients, toppings, and beverages. Customers primarily consist of wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, and department stores.

Market Position: The Hershey Company holds a leading market position as the largest producer of quality chocolate in North America and a significant snack maker in the United States. Many of its confectionery and salty snack brands enjoy wide consumer acceptance and are among the leading brands in North America and certain international markets. For the full year 2025, the Company's total U.S. retail takeaway increased 5.4% across expanded multi-outlet and convenience store channels. Specifically, U.S. candy, mint, and gum consumer takeaway increased 4.9%, though market share declined by approximately 10 basis points. In the salty snack category, consumer takeaway increased 11.3%, and market share rose by approximately 40 basis points.

Recent Strategic Developments:

• Acquisitions:
  • LesserEvil, LLC (November 18, 2025): Acquired for an initial cash consideration of $769,090 thousand, this privately held company produces organic popcorn and puffed snack products, complementing The Hershey Company's portfolio and increasing manufacturing capacity.
  • Sour Strips brand (November 8, 2024): Acquired from Actual Candy, LLC for an immaterial initial cash consideration, this emerging sour candy brand expanded The Hershey Company's presence in various food distribution channels in the United States.
  • Weaver Popcorn Manufacturing, Inc. assets (May 31, 2023): Acquired for $165,818 thousand, these assets provided additional manufacturing capacity and strengthened the supply chain for ready-to-eat popcorn, including the SkinnyPop brand.
  • Fulfil brand (2025): Purchased the North America rights for $73,597 thousand.
• Strategic Initiatives:
  • Advancing Agility & Automation Initiative (February 2024): A multi-year productivity program approved by the Board of Directors, targeting improvements in supply chain and manufacturing spend, optimization of selling, general, and administrative expenses, and leveraging new technology for process simplification and automation. This initiative is expected to incur total pre-tax costs of $200,000 thousand to $250,000 thousand through 2026, with anticipated ongoing annual savings of approximately $400,000 thousand.
  • International Optimization Program (completed 2023): This program streamlined resources and investments in select international markets, particularly optimizing the China operating model to enhance operational efficiency. Total pre-tax costs for this program amounted to $53,799 thousand.
  • Digital Transformation: Ongoing efforts include expanding presence in digital commerce, transforming manufacturing, commercial, and corporate operations through digital technologies, and enhancing data analytics capabilities to generate commercial insights.
• Product Portfolio Adjustments: The Company announced a decision to remove all certified Food, Drug & Cosmetic colors from its snacks by the end of 2027, in response to evolving regulatory environments and consumer expectations.

Geographic Footprint: The Hershey Company operates and distributes its products in approximately 65 countries worldwide. Its primary operational regions and manufacturing facilities are located in Mexico, Brazil, India, and Malaysia, serving consumers in these regions. Additionally, it distributes and sells confectionery products in export markets across Asia, Latin America, the Middle East, Europe, Africa, and other regions. The United States remains the principal market, accounting for 87.7% of total consolidated net sales in 2025. Businesses outside the United States contributed 12.3% of total consolidated net sales in 2025, and 15.9% of total long-lived assets were located outside the United States as of December 31, 2025.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 33.5% (2025)
• Operating Margin: 12.3% (2025)
• Net Margin: 7.6% (2025)

Investment in Growth:

• R&D Expenditure: $61,655 thousand (0.53% of revenue)
• Capital Expenditures: $454,622 thousand
• Strategic Investments:
  • LesserEvil, LLC acquisition: $769,090 thousand (2025)
  • Sour Strips brand acquisition: $75,500 thousand (2024)
  • Weaver Popcorn Manufacturing, Inc. assets acquisition: $165,818 thousand (2023)
  • Fulfil brand in North America: $73,597 thousand (2025)

Business Segment Analysis

North America Confectionery

Financial Performance:

• Revenue: $9,479,700 thousand (+4.0% YoY)
• Operating Margin: 26.3% (2025), 32.3% (2024)
• Segment Income: $2,493,800 thousand (-15.3% YoY)
• Key Growth Drivers: Favorable price realization of approximately 6% in 2025, primarily due to a pricing action announced in July 2025. The 2024 acquisition of the Sour Strips brand contributed a benefit of less than 1%.
• Key Performance Challenges: Volume declined approximately 2% in 2025, driven by price elasticity impacts in everyday core U.S. confection. The segment experienced higher commodity and tariff costs and an unfavorable mix.

Product Portfolio:

• Major product lines include chocolate offerings such as Hershey’s, Reese’s, Kisses, Almond Joy, Brookside, barkTHINS, Cadbury, Heath, Kit Kat®, Payday, Rolo®, Whoppers, and York.
• Non-chocolate confectionery brands include Jolly Rancher, Good & Plenty, Twizzlers, and Sour Strips.
• Protein bar products include ONE bar.
• Gum and mint products include Ice Breakers mints and chewing gum, Breath Savers mints, and Bubble Yum bubble gum.
• Pantry items include baking products, toppings, and sundae syrups sold under the Hershey’s, Reese’s, Heath, and Lily’s brands, as well as Hershey’s and Reese’s chocolate spreads and snack bites and mixes.
• The segment also includes retail operations such as Hershey’s Chocolate World stores and licensing activities for certain trademarks and products.

Market Dynamics:

• The U.S. candy, mint, and gum consumer takeaway increased 4.9% in 2025, but the segment experienced a market share decline of approximately 10 basis points. The market is highly competitive.

North America Salty Snacks

Financial Performance:

• Revenue: $1,271,300 thousand (+11.9% YoY)
• Operating Margin: 19.0% (2025), 17.6% (2024)
• Segment Income: $241,800 thousand (+21.3% YoY)
• Key Growth Drivers: Volume increased approximately 8% in 2025, primarily driven by Dot’s Homestyle Pretzels and SkinnyPop. Price realization increased approximately 1% due to lower trade promotional activities. The 2025 acquisition of LesserEvil, LLC contributed approximately 2% to the increase. The segment also benefited from net savings related to the Advancing Agility & Automation Initiative.
• Key Performance Challenges: Partially offset by a reduction of net sales to private label customers and higher advertising and related consumer marketing expenses.

Product Portfolio:

• Ready-to-eat popcorn brands include SkinnyPop and LesserEvil.
• Baked and trans fat-free snacks include Pirates Booty.
• Pretzel products include Dot’s Homestyle Pretzels.

Market Dynamics:

• The U.S. Salty consumer takeaway increased 11.3% in 2025, and the segment experienced a market share increase of approximately 40 basis points. The Company is expanding its brands to capture new snacking occasions amid increased competition from other snack items.

International

Financial Performance:

• Revenue: $941,600 thousand (-0.7% YoY)
• Operating Margin: 0.4% (2025), 11.8% (2024)
• Segment Income: $3,300 thousand (-97.0% YoY)
• Key Growth Drivers: Favorable price realization of approximately 3% in 2025, primarily due to strategic pricing actions across key markets. The segment also benefited from supply chain productivity and net savings related to the Advancing Agility & Automation Initiative.
• Key Performance Challenges: The decrease in net sales reflected an unfavorable impact from foreign currency exchange rates of approximately 3%, primarily driven by Mexico and Brazil, and a volume decrease of approximately 1%. Sales declined 4.3% in Brazil and Latin America, and 4.5% in APAC and India. Segment income was significantly impacted by higher commodity and manufacturing costs.

Product Portfolio:

• The segment manufactures, markets, and sells many of the same brands as in North America, along with regionally marketed brands such as Pelon Pelo Rico confectionery products in Mexico, IO-IO snack products in Brazil, and Sofit beverage products in India.

Market Dynamics:

• The Company has operations and manufactures products in Mexico, Brazil, India, and Malaysia, primarily for consumers in these regions, and distributes and sells confectionery products in export markets across Asia, Latin America, the Middle East, Europe, and Africa. The segment faces an uncertain macroeconomic environment in many of these markets.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: The Company did not make any share repurchases in 2025. In 2024, $494,191 thousand was used to repurchase 2.0 million shares. In 2023, $264,913 thousand was used to repurchase 1.0 million shares, in addition to a $239,910 thousand repurchase of 1,000,000 shares from Hershey Trust Company.
• Dividend Payments: Total dividend payments were $1,085,296 thousand in 2025, $1,084,802 thousand in 2024, and $889,071 thousand in 2023. The annual dividend rate on Common Stock was $5.480 per share in both 2025 and 2024.
• Future Capital Return Commitments: Approximately $470 million remains available under the December 2023 share repurchase authorization, which has no expiration date.

Balance Sheet Position:

• Cash and Equivalents: $925,859 thousand as of December 31, 2025, an increase from $730,746 thousand as of December 31, 2024.
• Total Debt: $5,401,868 thousand as of December 31, 2025 (comprising $218,546 thousand short-term debt and $5,183,322 thousand long-term debt). This compares to $5,497,185 thousand as of December 31, 2024.
• Net Cash Position: -$4,476,009 thousand as of December 31, 2025.
• Debt Maturity Profile:
  • 2026: $500,000 thousand
  • 2027: $193,639 thousand
  • 2028: $850,000 thousand
  • 2029: $300,000 thousand
  • 2030: $850,000 thousand
  • Thereafter: $2,450,000 thousand

Cash Flow Generation:

• Operating Cash Flow: $2,277,367 thousand in 2025, a decrease from $2,531,596 thousand in 2024.
• Free Cash Flow: $1,822,745 thousand in 2025 ($2,277,367 thousand operating cash flow - $454,622 thousand capital expenditures).
• Cash Conversion Metrics: Net working capital items (trade accounts receivable, inventory, accounts payable, and accrued liabilities) generated $129,100 thousand in cash in 2025, an increase from $102,200 thousand in 2024. This increase was primarily driven by an increase in accounts payable and accrued liabilities due to the timing of vendor and supplier payments, partially offset by higher inventory levels.

Operational Excellence

Production & Service Model: The Hershey Company manufactures primarily for stock, fulfilling customer orders typically within a few days. Its operational philosophy is underpinned by a Product Excellence Program, which is integral to its global supply chain platform. This program ensures that all purchased, manufactured, and distributed products are safe, high-quality, and compliant with applicable laws and regulations. The Company regularly improves its facilities to incorporate the latest technologies.

Supply Chain Architecture: Key Suppliers & Partners:

• Cocoa Products: Sourced directly from third-party suppliers, with cocoa beans grown principally in Far Eastern, West African, Central, and South American regions. West Africa accounts for approximately 70% of the world’s supply. A trading company in Switzerland manages cocoa procurement, price risk management, physical supply, and sustainable sourcing.
• Other Raw Materials: Substantial quantities of sugar, corn products, Class II and IV dairy products, wheat products, peanuts, almonds, and energy are used. Most inputs for domestic and Canadian operations are purchased from U.S. suppliers, while international operations may import.
• Distribution Partners: McLane Company, Inc. is a significant wholesale distributor in the United States, accounting for approximately 27% of consolidated net sales in 2025, and serves as the primary distributor to Wal-Mart Stores, Inc. Facility Network:
• Manufacturing:
  • United States: Three principal plants in Hershey, Pennsylvania; Lancaster, Pennsylvania; Hazleton, Pennsylvania; Robinson, Illinois; and Stuarts Draft, Virginia (confectionery and pantry products). Edgerton, Kansas; Bluffton, Indiana; Plymouth, Indiana; Lawrence, Kansas; and Whitestown, Indiana (salty snack products).
  • Mexico: Monterrey and El Salto (confectionery and pantry products).
  • Malaysia: Johor (confectionery products).
• Research & Development: Activities are conducted in the U.S., Mexico, Brazil, India, and Malaysia.
• Distribution: Key distribution centers are located in Annville, Pennsylvania; Palmyra, Pennsylvania; Edwardsville, Illinois; Ogden, Utah; Kennesaw, Georgia; Whitestown, Indiana; and Brewster, New York (United States), and Brantford, Ontario (Canada). Operational Metrics: The Company's facilities are well-maintained and generally possess adequate capacity to manage seasonal demands, evolving product mixes, and additional growth. The Advancing Agility & Automation Initiative is a multi-year productivity program aimed at improving supply chain and manufacturing-related spend.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: The Company sells its products through a diverse network including wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, and department stores.
• Digital Platforms: The Hershey Company is actively expanding its presence in digital commerce.
• Logistics: Products are primarily delivered from strategically located distribution centers to customers using common carriers.

Customer Portfolio: Enterprise Customers:

• McLane Company, Inc.: This wholesale distributor is a principal customer, accounting for approximately 27% of consolidated net sales in 2025 and approximately 16% of total accounts receivable as of December 31, 2025. McLane Company, Inc. is also the primary distributor of The Hershey Company's products to Wal-Mart Stores, Inc.
• Customer Concentration: No other single customer accounted for more than 10% of year-end accounts receivable.

Geographic Revenue Distribution:

• United States: $10,251,643 thousand, representing 87.7% of total revenue in 2025.
• Other (International): $1,440,933 thousand, representing 12.3% of total revenue in 2025.
• Growth Markets: The Company has operations and manufactures products in Mexico, Brazil, India, and Malaysia, primarily for consumers in these regions, and distributes and sells confectionery products in export markets of Asia, Latin America, the Middle East, Europe, and Africa.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The global confectionery and snacks packaged goods industry is intensely competitive and continues to experience consolidation. Competition is primarily based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing and promotional activity, the ability to identify and satisfy consumer preferences, and convenience and service. The Company has observed increased competition from other snack items, prompting expansion of its brands into new snacking occasions through innovation and acquisitions. The industry is also subject to evolving legislative and regulatory efforts concerning climate change, including greenhouse gas emissions, and increasing U.S. administration priorities related to food industry laws and regulations, such as nutrition, food date labeling, traceability, and consumer expectations (e.g., the FDA's phasing out of petroleum-based synthetic dyes by the end of 2027).

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The Company competes with many global multinational, national, regional, and local firms. Some competitors are large private companies and large retailers with significant resources and international operations. No specific competitor names are disclosed in the filing.

Emerging Competitive Threats: New entrants, disruptive technologies, and alternative solutions pose competitive threats. The rapid development of artificial intelligence (AI) technologies is noted as a potential risk, as competitors may integrate AI more successfully, impacting The Hershey Company's competitive position and operations.

Competitive Response Strategy: The Company's strategy involves continuous product innovation, maintaining product quality, strategic pricing, leveraging strong brand recognition and loyalty, effective marketing and promotional activities, and adapting to consumer preferences. It actively expands its brands to capture new snacking occasions through innovation and acquisitions. The Company also plans to increase expenditures for promotions and advertising and introduce new products. Strategic initiatives include expanding digital commerce presence, transforming operations with digital technologies, and enhancing data analytics capabilities.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Demand Decline: The Company operates in highly competitive markets and relies on sustained demand for its products. Factors such as effective retail execution, appropriate advertising and marketing, adequate shelf space, sustainable innovation, ability to react to changes in product category and channel consumption, consumer demographics and trends (including digital commerce), and consumer health and wellness concerns (e.g., weight management, ingredient consumption) can impact demand.
• Competitive Pressure: The global confectionery and snacks packaged goods industry is intensely competitive, with ongoing consolidation. Competition from large private companies, retailers with significant resources, and other snack items can pressure category growth and market share.
• Technology Disruption: The rapid development of artificial intelligence (AI) technologies poses a risk if the Company cannot successfully integrate AI in a timely, cost-effective, and compliant manner, potentially leading to a competitive disadvantage.
• Customer Concentration: McLane Company, Inc. accounted for approximately 27% of consolidated net sales in 2025, indicating a concentration risk.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Disruption: Manufacturing operations or the supply chain can be disrupted by natural disasters, pandemics, climate change, extreme weather, fires, terrorism, labor strikes, unavailability of raw or packaging materials, third-party service provider disruptions (including cyber breaches), operational/financial instability of key suppliers, and suboptimal production planning.
• Raw Material & Energy Costs: The Company uses many commodities (cocoa products, sugar, corn products, dairy products, wheat products, peanuts, almonds, natural gas, diesel fuel) subject to price volatility and supply changes due to market fluctuations, currency exchange rates, supply/demand imbalances, inflation, climate change, speculative influences, trade agreements, political unrest, and governmental policies.
• Capacity Constraints: Suboptimal production planning could impact the ability to cost-effectively meet product demand.
• Pricing Elasticity: Price increases, while necessary to offset cost increases, may lead to reduced sales volume and/or consumption due to pricing elasticity.
• International Operations: International operations face risks including inability to manage operational stability, establish market acceptance for brands, comply with complex laws, unexpected regulatory changes, political and economic instability, nationalization of properties, higher tax rates, tariffs, increased shipping costs, and challenges in recruiting and retaining talent.
• Strategic Initiative Execution: There is a risk that the Company may not fully realize expected cost savings or operating efficiencies from strategic initiatives or restructuring programs, such as the Advancing Agility & Automation Initiative.
• ERP System Implementation: Complications with the design or implementation of the new enterprise resource planning (ERP) system could adversely impact business operations, including forecasting, manufacturing, shipment, revenue recording, and accounts receivable collection, and could affect internal control over financial reporting.

Financial & Regulatory Risks

Market & Financial Risks:

• Demand Volatility: Operations are impacted by consumer spending levels and impulse purchases, which are sensitive to macroeconomic conditions, consumer confidence, employment levels, credit availability, interest rates, consumer debt, and energy costs.
• Foreign Exchange: Exposure to currency fluctuations arises from manufacturing or selling products in currencies other than the U.S. dollar.
• Credit & Liquidity: Changes in financial market conditions could make it difficult to access credit, reducing liquidity or increasing borrowing costs. A significant reduction in liquidity could increase counterparty risk with suppliers and service providers, or impact customers, leading to reduced revenue or increased bad debt expense.

Regulatory & Compliance Risks:

• Industry Regulation: The manufacture and sale of consumer food products are highly regulated by various government agencies in the U.S. and internationally. Changes in food and drug laws, advertising and marketing practices, accounting standards, taxation, competition laws, employment laws, import/export requirements, AI regulations, and environmental laws could increase costs and liabilities or impact product demand.
• EU Deforestation Regulation (EUDR): Effective December 2026, this regulation will require extensive diligence on commodities like cocoa, palm oil, and soy, increasing compliance costs and potentially depressing sales if products are not compliant.
• FDA Regulations: The FDA's phasing out of petroleum-based synthetic dyes in food products by the end of 2027 requires product adjustments.
• AI Regulations: New and evolving laws, regulations, or industry standards relating to AI may require significant investment and resources, potentially limiting AI use and leading to reputational harm or legal liability.
• Product Quality & Safety: Issues or concerns related to product quality, safety, ingredients, or packaging, as well as human and workplace rights or other environmental, social, or governance matters, could negatively impact the Company's reputation, brand image, and operating results, potentially leading to litigation or product recalls.

Geopolitical & External Risks

Geopolitical Exposure:

• Geographic Dependencies: International operations expose the Company to risks from global economic and political uncertainty, including international conflicts or geopolitical tensions.
• Trade Relations: Changes in global trade policies, including tariffs on U.S. imports and retaliatory tariffs, quotas, trade barriers, and import/export licensing requirements, can materially impact results of operations and commodity prices.
• Political Instability: Risks include political and economic instability, civil unrest, terrorism, mass violence, armed conflict, and nationalization of properties by foreign governments.

Innovation & Technology Leadership

Research & Development Focus: The Hershey Company engages in diverse research and development activities in the U.S., Mexico, Brazil, India, and Malaysia. Its R&D efforts are focused on developing new products, enhancing the quality of existing products, modernizing production processes, and implementing new technologies to improve the quality and value of current and proposed product lines. In 2025, R&D expenditure totaled $61,655 thousand. Core Technology Areas: The Company is leveraging advanced data and analytical techniques to gain deep insights into consumers, customers, shoppers, the end-to-end supply chain, the retail environment, and key economic drivers, including digital transformation and new media models.

Intellectual Property Portfolio: The Company owns various registered and unregistered trademarks and service marks, with those covering its key product brands being of material importance. It actively seeks trademark protection in the United States and other key international markets.

• Licensing Programs: The Hershey Company grants trademark licenses to third parties for the production and sale of pantry items, flavored milks, and other products, primarily under the Hershey’s and Reese’s brand names. Significant licensing agreements include those with Kraft Foods Ireland Intellectual Property Limited (York, Peter Paul Almond Joy, Peter Paul Mounds), Cadbury UK Limited (Cadbury Caramello), Société des Produits Nestlé SA (Kit Kat®, Rolo®), and Iconic IP Interests, LLC (Good & Plenty, Heath, Jolly Rancher, Milk Duds, Payday, Whoppers, York).

Technology Partnerships: While specific partnerships are not detailed, the Company emphasizes leveraging new technology and business models to simplify and automate processes, and integrating innovative technology solutions to support business goals and lead enterprise-wide IT transformation initiatives.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company fosters internal growth, with greater than 70% of director and above roles filled by internal promotions over the past three years.

Board Composition: The Board of Directors possesses a diverse mix of experiences, skills, qualifications, and backgrounds, including expertise in cybersecurity and risk oversight. The Finance and Risk Management Committee, comprising five Board members and one ex-officio member, is responsible for reviewing key enterprise risks, including information security strategies and risks. Hershey Trust Company, as trustee for the School Trust, maintains voting control over The Hershey Company, and three representatives of Hershey Trust Company serve on the Board. Common Stock holders, voting separately as a class, are entitled to elect one-sixth of the Board.

Human Capital Strategy

Workforce Composition: As of December 31, 2025, The Hershey Company employed approximately 17,550 full-time and 2,045 part-time employees worldwide. Approximately 5,570 employees, or 28% of the global workforce, were covered by collective bargaining agreements. In 2026, agreements for approximately 76% of unionized employees (across six facilities, one in the United States) are scheduled for negotiation.

Talent Management: Acquisition & Retention: The Company's success relies on its ability to identify, hire, develop, engage, and retain talented global personnel. It invests significantly in training, coaching, and career development to retain talent and sustain core and developing businesses. Employee Value Proposition: The Hershey Company offers competitive and transparent compensation, comprehensive health and retirement benefits, parental leave and adoption benefits, and an employee stock purchase plan. Incentive compensation is tied to both business and individual performance. Innovative programs promote physical and emotional well-being, including ergonomic workspaces, a fitness center at the Hershey, Pennsylvania campus, and private rooms for reflection. A "Best of Both" flexible work model is offered for corporate and commercial employees, balancing remote and in-office work.

Diversity & Development:

• Diversity Metrics: In 2025, the Company maintained equitable pay achievements, including aggregate salary U.S. gender pay equity.
• Development Programs: Employees are provided opportunities for learning, growth, and ownership of their work through partnerships with online content experts and expanded internal learning development. Individual development plans, learning opportunities, feedback, and coaching support career building, evidenced by over 70% internal promotion rate for director and above roles in the past three years.
• Culture & Engagement: The Company fosters a strong culture and employee relationships through continuous listening surveys, quarterly enterprise connects, and leadership "Ask Me Anything" meetings. Eight employee-led Business Resource Groups provide mentoring, career development, commercial insights, and community connections. In 2025, the Company was recognized for workplace excellence and disability inclusion, including Great Place to Work in nine countries, Leading Disability Employer, and a 100% Disability Equality Index score.

Environmental & Social Impact

Environmental Commitments: Climate Strategy: The Hershey Company has made voluntary commitments to drive long-term growth and business resilience by reducing its environmental impacts. This includes efforts to eliminate commodity-driven deforestation and reduce greenhouse gas (GHG) emissions across its operations and supply chain. Climate change-related investments primarily focus on Scope 1 and 2 GHG emissions, Forest Land and Agriculture (FLAG) emissions, and non-FLAG emissions, consistent with global environmental standards. Supply Chain Sustainability: The Company's sustainability strategy guides how it sources ingredients, operates efficiently, and produces a portfolio of products. It has been working for several years to prevent deforestation and build climate and ingredient resilience in its cocoa supply chain, where GHG impacts of land-use change are most pronounced. The European Union’s Deforestation Regulation (EUDR), effective December 2026, will require extensive diligence on commodities like cocoa, palm oil, and soy to ensure products do not result from recent deforestation.

Social Impact Initiatives:

• Community Investment: The Company's philanthropy and volunteerism efforts reflect its purpose of "Making More Moments of Goodness." This includes supporting causes employees care about, investing in local communities, forging partnerships with non-governmental organizations, providing grants, and organizing volunteer service activities and employee fundraisers. This legacy traces back to its founder's belief in responsible citizenship and investment in local communities, including the establishment of Milton Hershey School.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: The Company's sales are typically higher during the third and fourth quarters of the year, driven by seasonal and holiday-related sales patterns.
• Economic Sensitivity: Operations are impacted by consumer spending levels and impulse purchases, which are influenced by general macroeconomic conditions, consumer confidence, employment levels, credit availability, interest rates, consumer debt levels, and energy costs.

Planning & Forecasting: Working capital needs generally peak during the summer months. The Company primarily manufactures for stock and typically fills customer orders within a few days of receipt.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: The manufacture and sale of consumer food products are highly regulated. In the U.S., activities are subject to regulation by agencies such as the Food and Drug Administration, Department of Agriculture, Federal Trade Commission, Department of Commerce, and Environmental Protection Agency, as well as state and local agencies. Similar agencies regulate businesses outside the U.S. Evolving U.S. administration priorities, including the "Make America Healthy Again" movement, are leading to increasing laws and regulations concerning nutrition, food date labeling, and traceability. For example, the FDA announced in April 2025 that it would phase out petroleum-based synthetic dyes in food products by the end of 2027. International Compliance: The European Union’s Deforestation Regulation (EUDR), scheduled for effectiveness in December 2026, will require extensive diligence on commodities like cocoa, palm oil, and soy to ensure products sold in or exported from the EU do not result from recent deforestation. This is expected to increase compliance costs. AI Regulations: Compliance with new and evolving laws, regulations, or industry standards relating to AI may require significant investment and resources and could limit the Company's ability to use AI.

Trade & Export Controls: Changes in global trade policies, including tariffs on U.S. imports and retaliatory tariffs, quotas, trade barriers, and import/export licensing requirements, can impact the business. In 2025, the imposition of tariffs on U.S. imports and retaliatory tariffs had a material negative impact on results of operations and commodity prices.

Legal Proceedings: The Company is subject to various legal proceedings and claims arising from its ordinary course of business, covering matters such as trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment, human and workplace rights, and tax. These matters, individually and in aggregate, are not expected to have a material effect on the Company's financial condition, results of operations, or cash flows.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: The effective income tax rate was 27.3% for 2025, compared to 10.2% for 2024 and 14.3% for 2023. The 2025 rate was primarily impacted by state taxes and tax reserves, while the 2024 and 2023 rates benefited from investment tax credits.
• Geographic Tax Planning: Approximately 70% of cash and cash equivalents at December 31, 2025, were held by international subsidiaries. A majority of these earnings are distributable to the United States without material tax implications. The Company intends to reinvest the remainder of international earnings for which there would be a material tax implication for the foreseeable future.
• Tax Reform Impact:
  • One Big Beautiful Bill Act (OBBBA): Signed into law on July 4, 2025, this act introduces changes to U.S. tax policy, trade regulations, and federal spending. It did not have a material impact on the Company’s consolidated financial statements for 2025.
  • OECD Global Anti-Base Erosion and Profit Shifting Pillar Two: The Company is subject to these regulations, which aim for a minimum effective tax rate of 15% for multinational entities. The Company does not anticipate a material impact on its effective tax rate from these rules.
  • Inflation Reduction Act of 2022: This act enacted a 1% excise tax on share repurchases beginning after December 31, 2022. The Company had no share repurchases in 2025, thus no excise tax. In 2024, the excise tax associated with net share repurchases was $4.7 million.

Insurance & Risk Transfer

Risk Management Framework: The Hershey Company utilizes various derivative instruments to manage market risks associated with changes in commodity prices, foreign currency exchange rates, and interest rates.

• Insurance Coverage: The Company maintains a cyber insurance policy to cover security breaches, though it notes such coverage may not be sufficient for all potential claims.
• Risk Transfer Mechanisms:
  • Commodity Price Risk: Futures and options contracts and other commodity derivative instruments are used in combination with forward purchasing of raw materials (cocoa products, sugar, corn products, certain dairy products, wheat products, natural gas, diesel fuel) to mitigate price volatility and provide visibility to future costs, generally for 3 to 24 months. Diesel fuel futures are used to minimize transportation cost fluctuations.
  • Foreign Currency Exchange Rate Risk: Foreign currency forward exchange contracts are used to reduce fluctuations in long or short currency positions related to purchase commitments or forecasted purchases denominated in foreign currencies, typically for periods of 3 to 12 months.
  • Interest Rate Risk: Interest rate swap agreements are entered into to protect against unfavorable interest rate changes related to forecasted debt transactions.
  • Equity Price Risk: Equity swap contracts are used to hedge exposure to market price changes in broad market indices related to deferred compensation obligations.
• Counterparty Risk Mitigation: The Company mitigates counterparty risk by entering into exchange-traded contracts with collateral posting requirements, performing financial assessments, conducting periodic evaluations of counterparty performance, and maintaining a diverse portfolio of qualified counterparties.