Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of Hershey’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This MD&A should be read in conjunction with our Unaudited Consolidated Financial Statements and accompanying notes included in this Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2024 (“this Quarterly Report on Form 10-Q”). This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as the Risk Factors and other information contained in our 2023 Annual Report on Form 10-K, as updated by our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, for information concerning the key risks to achieving future performance goals.

The MD&A is organized in the following sections:

• Overview

• Trends Affecting Our Business

• Consolidated Results of Operations

• Segment Results

• Liquidity and Capital Resources

• Safe Harbor Statement

OVERVIEW

Hershey is a global confectionery leader known for making more moments of goodness through chocolate, sweets, mints and other great tasting snacks. We are the largest producer of quality chocolate in North America, a leading snack maker in the United States (“U.S.”) and a global leader in chocolate and non-chocolate confectionery. We market, sell and distribute our products under more than 90 brand names in approximately 80 countries worldwide.

Our principal product offerings include chocolate and non-chocolate confectionery products; gum and mint refreshment products and protein bars; pantry items, such as baking ingredients, toppings and beverages; and snack items such as spreads, bars, and snack bites and mixes, popcorn and pretzels.

Business Acquisitions

On May 31, 2023, we completed the acquisition of certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc. (“Weaver”), a leader in the production and co-packing of microwave popcorn and ready-to-eat popcorn, and former co-manufacturer of the Company’s SkinnyPop brand.

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TRENDS AFFECTING OUR BUSINESS

Throughout the first nine months of 2024, U.S. consumer behavior has continued to shift and evolve, as cost fatigue and labor markets restrict income growth and constrain consumer spending and purchasing patterns. As a result, consumer behavior related to our products has shifted. As such, during the nine months ended September 29, 2024, we continued to experience a dynamic macroeconomic environment, including price volatility related to select commodities, resulting in corresponding incremental costs and gross margin pressures, and net sales and net income declines. Despite specific actions taken to mitigate these gross margin pressures, we continue to experience overall declines in consumer demands for our products, and higher prices for direct materials used to manufacture our products were, and continue to be, the primary incremental cost to our business (see Consolidated Results of Operations included in this MD&A). We utilize many exchange traded commodities for our business that are subject to price volatility, specifically cocoa products, which experienced a market price increase of approximately 70% since the beginning of the year (see Part I, Item 3 - Quantitative and Qualitative Disclosures about Market Risk included in this Quarterly Report on Form 10-Q).

Furthermore, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty. For the nine months ended September 29, 2024, this conflict did not have a material impact on our commodity prices or supply availability. However, we are continuing to monitor for any significant escalation or expansion of economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of operations.

As of September 29, 2024, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements in both the short-term and in the long-term; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can operate effectively during the current economic environment. We continue to monitor our discretionary spending across the organization (see Liquidity and Capital Resources included in this MD&A).

Based on the length and severity of the fluctuating macroeconomic environment, including price volatility for our commodities, the possibility of a recession, changes in consumer shopping and consumption behavior, and changes in geopolitical events, including the ongoing conflict between Russia and Ukraine, we may experience increasing supply chain costs, higher inflation and other impacts to our business. We will continue to evaluate the nature and extent of these potential and evolving impacts on our business, consolidated results of operations, segment results, liquidity and capital resources.

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CONSOLIDATED RESULTS OF OPERATIONS

						Three Months Ended																		Nine Months Ended
						September 29, 2024						October 1, 2023						Percent Change						September 29, 2024						October 1, 2023						Percent Change
In millions of dollars except per share amounts
Net sales						$	2,987.5					$	3,030.0					(1.4)		%				$	8,314.7					$	8,507.9					(2.3)		%
Cost of sales						1,754.8						1,669.7						5.1		%				4,572.2						4,633.2						(1.3)		%
Gross profit						1,232.7						1,360.3						(9.4)		%				3,742.5						3,874.7						(3.4)		%
Gross margin						41.3		%				44.9		%										45.0		%				45.5		%
Selling, marketing & administrative (“SM&A”) expenses						591.9						624.4						(5.2)		%				1,750.9						1,777.8						(1.5)		%
SM&A expense as a percent of net sales						19.8		%				20.6		%										21.1		%				20.9		%
Business realignment activities						27.6						—						NM						32.6						0.4						NM
Operating profit						613.2						735.9						(16.7)		%				1,959.0						2,096.5						(6.6)		%
Operating profit margin						20.5		%				24.3		%										23.6		%				24.6		%
Interest expense, net						44.3						39.8						11.5		%				125.5						114.1						10.0		%
Other (income) expense, net						50.1						42.7						17.1		%				82.7						130.2						(36.5)		%
Provision for income taxes						72.5						134.8						(46.3)		%				326.2						339.5						(3.9)		%
Effective income tax rate						14.0%						20.6%												18.6%						18.3%
Net income						$	446.3					$	518.6					(13.9)		%				$	1,424.6					$	1,512.7					(5.8)		%
Net income per share—diluted						$	2.20					$	2.52					(12.7)		%				$	7.00					$	7.36					(4.9)		%
NOTE: Percentage changes may not compute directly as shown due to rounding of amounts presented above.
NM = not meaningful

Results of Operations - Third Quarter 2024 vs. Third Quarter 2023

Net Sales

Net sales were $2,987.5 million in the third quarter of 2024 compared to $3,030.0 million in the same period of 2023, a decrease of $42.5 million, or 1.4%. The net sales decrease was driven by a volume decline of approximately 3%, due to declines across our reportable segments, primarily in salty snack brands. Foreign currency exchange rates resulted in an unfavorable impact of less than 1%. The net sales decrease was partially offset by a favorable price realization of approximately 2%, driven by higher list prices across reportable segments.

For the purpose of correcting an inaccuracy in the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, with respect to second quarter 2024 performance, the North America Salty Snacks volume growth reported as “approximately 9%” should have stated “approximately 11%”, the North America Salty Snacks price decline reported as “approximately 3%” should have stated “approximately 5%”, the International volume declines reported as “approximately 16%” should have stated “approximately 12%”, and the International price increase reported as “approximately 5%” should have stated “approximately 1%.” As a result, the Total Consolidated volume decline reported as “approximately 18%” should have stated “approximately 17%” and the price increase reported as “approximately 1%” should have stated “less than 1%.”

Key U.S. Marketplace Metrics

For the third quarter of 2024, our total U.S. retail takeaway declined 1.4% in the expanded multi-outlet combined plus convenience store channels (Circana MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway declined 2.6% and experienced a CMG market share decline of 97 basis points. Our Salty consumer takeaway increased 2.8% in the third quarter of 2024 and experienced a Salty market share increase of 11 basis points.

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

Cost of Sales and Gross Margin

Cost of sales were $1,754.8 million in the third quarter 2024 compared to $1,669.7 million in the same period 2023, an increase of $85.1 million, or 5.1%. The increase was driven by $171.7 million of higher costs, primarily due to higher commodity costs from cocoa, higher supply chain costs, and incremental business realignment costs. The increase was partially offset by $71.4 million primarily related to lower sales volume, in line with the declines in net sales noted above. The increase was further offset by $15.2 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases (See Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q for more information).

Gross margin was 41.3% in the third quarter of 2024 compared to 44.9% in the same period of 2023, a decrease of 360 basis points. The decrease was driven by unfavorable commodity costs, higher supply chain costs, unfavorable mix, and increased business realignment costs. The decrease was partially offset by lower sales volume.

SM&A Expenses

SM&A expenses were $591.9 million in the third quarter of 2024 compared to $624.4 million in the same period of 2023, a decrease of $32.5 million, or 5.2%. Total advertising and related consumer marketing expenses decreased 0.6% driven primarily by a decrease in the North America Confectionery segment, partially offset by an increase in North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, decreased 7.5% in the third quarter of 2024 driven by lower compensation costs across segments, partially offset by $20.0 million of incremental business realignment costs.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Excluding the portion recorded within Cost of Sales and SM&A expenses (as noted above), we recorded $27.6 million business realignment costs during the third quarter of 2024. There were no business realignments costs in the third quarter of 2023. The costs in 2024 related to the Advancing Agility & Automation (“AAA”) Initiative, which commenced in 2024, focused on leveraging new technology to improve supply chain and manufacturing-related spend, and optimize selling, general and administrative expenses. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit was $613.2 million in the third quarter of 2024 compared to $735.9 million in the same period of 2023, a decrease of $122.7 million, or 16.7%. The decrease was primarily due to lower gross profit and higher business realignment costs, partially offset by lower SM&A expenses, as noted above. Operating profit margin decreased to 20.5% in 2024 from 24.3% in 2023 driven by the same factors noted above that resulted in lower gross margin for the period.

Interest Expense, Net

Net interest expense was $44.3 million in the third quarter of 2024 compared to $39.8 million in the same period of 2023, an increase of $4.5 million, or 11.5%. The increase was primarily due to higher short-term debt balances in 2024 versus 2023, specifically related to outstanding commercial paper and short-term foreign bank borrowings.

Other (Income) Expense, Net

Other (income) expense, net was $50.1 million in the third quarter of 2024 versus net expense of $42.7 million in the third quarter of 2023, an increase of $7.4 million, or 17.1%. The increase in net expense was primarily driven by $11.6 million of higher write-downs on equity investments qualifying for tax credits in 2024 versus the third quarter of

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2023, partially offset by a decrease of $4.3 million of non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

The effective income tax rate was 14.0% for the third quarter of 2024 compared with 20.6% for the third quarter of 2023. Relative to the 21% statutory rate, the 2024 effective tax rate was primarily impacted by investment tax credits, partially offset by state taxes. Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by investment tax credits, partially offset by state taxes and tax reserves.

Net Income and Earnings Per Share-diluted

Net income was $446.3 million in the third quarter of 2024 compared to $518.6 million in the same period of 2023, a decrease of $72.3 million, or 13.9%. EPS-diluted was $2.20 in the third quarter of 2024 compared to $2.52 in the third quarter of 2023, a decrease of $0.32, or 12.7%. The decrease in both net income and EPS-diluted was driven by lower gross profit, higher business realignment costs and higher other income and expenses, partially offset by lower income taxes and lower SM&A expenses. Our 2024 EPS-diluted benefited from lower weighted-average shares outstanding.

Results of Operations - First Nine Months 2024 vs. First Nine Months 2023

Net Sales

Net sales were $8,314.7 million in the first nine months of 2024 compared to $8,507.9 million during the same period of 2023, a decrease of $193.2 million, or 2.3%. The net sales decrease was driven by a volume decrease of approximately 5%, due to declines across our reportable segments. The net sales decrease was partially offset by a favorable price realization of approximately 3%, primarily due the North America Confectionery and International segments, partially offset by declines in North America Salty Snacks. There was no foreign currency exchange impact.

Key U.S. Marketplace Metrics

For the first nine months of 2024, our total U.S. retail takeaway decreased 0.1% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. CMG consumer takeaway declined 0.9% and experienced a CMG market share decline of 76 basis points. Our Salty consumer takeaway increased 3.2% and experienced a Salty market share increase of 7 basis points.

Cost of Sales and Gross Margin

Cost of sales were $4,572.2 million in the first nine months of 2024 compared to $4,633.2 million in the same period of 2023, a decrease of $61.0 million, or 1.3%. The decrease was driven by $220.1 million of lower costs, primarily related to lower sales volume, in line with the declines in net sales noted above. The decrease was further driven by an incremental $191.7 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases (See Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q for more information). The decrease was partially offset by $350.8 million of higher costs, primarily driven by higher commodity costs from cocoa, higher supply chain costs, unfavorable mix and incremental business realignment costs.

Gross margin was 45.0% in the first nine months of 2024 compared to 45.5% in the same period of 2023, a decrease of 50 basis points. The decrease was driven by higher commodity costs, higher supply chain costs, including higher logistics and labor costs, unfavorable product mix and increased business realignment costs. The decrease was partially offset by favorable year-over-year mark-to-market impact from commodity derivative instruments, favorable price realization and volume declines.

SM&A Expenses

SM&A expenses were $1,750.9 million in the first nine months of 2024 compared to $1,777.8 million in the same period of 2023, an decrease of $26.9 million, or 1.5%. Total advertising and related consumer marketing expenses decreased 0.9%, driven by a decrease in North America Confectionery, partially offset by an increase in North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, decreased approximately 1.8% in the first nine months of 2024 driven by a decrease in compensation costs, partially offset by an

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increase of $57.6 million of incremental business realignment costs, as well as higher investments in capabilities and technology.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Excluding the portion recorded within Cost of Sales and SM&A expenses (as noted above), we recorded business realignment costs of $32.6 million during the first nine months of 2024 versus $0.4 million in the first nine months of 2023. The costs in 2024 related to the AAA Initiative, which commenced in 2024, focused on leveraging new technology to improve supply chain and manufacturing-related spend, and optimize selling, general and administrative expenses. The costs in 2023 related to the International Optimization Program, which completed in 2023. The International Optimization Program was focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit was $1,959.0 million in the first nine months of 2024 compared to $2,096.5 million in the same period of 2023, a decrease of $137.5 million, or 6.6%. The decrease was predominantly due to lower gross profit and higher business realignment costs, partially offset by lower SM&A expenses, as noted above. Operating profit margin decreased to 23.6% in the first nine months of 2024 from 24.6% in the same period in 2023 driven by the same factors that resulted in lower gross margin for the period.

Interest Expense, Net

Net interest expense was $125.5 million in the first nine months of 2024 compared to $114.1 million in the same period of 2023, an increase of $11.4 million, or 10.0%. The increase was primarily due to higher short-term debt balances in 2024 versus 2023, specifically related to outstanding commercial paper and short-term foreign bank borrowings.

Other (Income) Expense, Net

Other (income) expense, net was $82.7 million in the first nine months of 2024 versus a net expense of $130.2 million in the first nine months of 2023, a decrease of $47.5 million, or 36.5%. The decrease in net expense was primarily driven by $34.4 million of lower write-downs on equity investments qualifying for tax credits in 2024 versus the first nine months of 2023 and a decrease of $14.0 million of non-service cost components of net periodic benefit costs relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

Our effective income tax rate was 18.6% for the first nine months of 2024 compared with 18.3% for the first nine months of 2023. Relative to the 21% statutory rate, the 2024 effective tax rate was impacted by investment tax credits partially offset by state taxes. Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by investment tax credits and employee share-based payments partially offset by state taxes and tax reserves.

Net Income and Earnings Per Share-diluted

Net income was $1,424.6 million in the first nine months of 2024 compared to $1,512.7 million in the same period of 2023, a decrease of $88.1 million, or 5.8%. EPS-diluted was $7.00 in the first nine months of 2024 compared to $7.36 in the same period of 2023, a decrease of $0.36, or 4.9%. The decrease in both net income and EPS-diluted was driven by lower gross profit and higher business realignment costs, partially offset lower other income and expenses, lower SM&A and lower income taxes. Our 2024 EPS-diluted benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

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SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations of our three reportable segments: North America Confectionery, North America Salty Snacks and International. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-related costs and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are largely managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the Chief Operating Decision Maker and used for resource allocation and internal management reporting and performance evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our competitors, as they exclude the activities that are not directly attributable to our ongoing segment operations.

Our segment results, including a reconciliation to our consolidated results, were as follows:

						Three Months Ended												Nine Months Ended
						September 29, 2024						October 1, 2023						September 29, 2024						October 1, 2023
In millions of dollars
Net Sales:
North America Confectionery						$	2,477.3					$	2,457.6					$	6,764.4					$	6,902.9
North America Salty Snacks						291.8						345.2						856.8						887.5
International						218.4						227.2						693.5						717.5
Total						$	2,987.5					$	3,030.0					$	8,314.7					$	8,507.9
Segment Income:
North America Confectionery						$	724.8					$	847.5					$	2,137.5					$	2,392.4
North America Salty Snacks						54.0						57.4						144.9						147.9
International						14.2						31.7						82.0						127.8
Total segment income						793.0						936.6						2,364.4						2,668.1
Unallocated corporate expense (1)						161.8						199.3						496.2						563.0
Unallocated mark-to-market (gains) losses on commodity derivatives (2)						(31.1)						1.8						(195.7)						5.2
Costs associated with business realignment activities						49.1						(0.4)						104.8						3.4
Operating profit						613.2						735.9						1,959.1						2,096.5
Interest expense, net						44.3						39.8						125.5						114.1
Other (income) expense, net						50.1						42.7						82.7						130.2
Income before income taxes						$	518.8					$	653.4					$	1,750.9					$	1,852.2

(1)Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, (d) acquisition and integration-related costs and (e) other gains or losses that are not integral to segment performance.

(2)Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). See Note 13 to the Unaudited Consolidated Financial Statements.

North America Confectionery

The North America Confectionery segment is responsible for our chocolate and non-chocolate confectionery market position in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, gum and refreshment products, protein bars, spreads, snack bites and mixes, as well as pantry and food service lines. While a less significant component, this segment also includes our retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania; New York, New York; Las Vegas, Nevada; Niagara Falls (Ontario) and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. North America Confectionery results, which accounted for 82.9% and 81.1% of our net sales for the three months ended September 29, 2024 and October 1, 2023, respectively, were as follows:

						Three Months Ended																		Nine Months Ended
						September 29, 2024						October 1, 2023						Percent Change						September 29, 2024						October 1, 2023						Percent Change
In millions of dollars
Net sales						$	2,477.3					$	2,457.6					0.8		%				$	6,764.4					$	6,902.9					(2.0)		%
Segment income						724.8						847.5						(14.5)		%				2,137.5						2,392.4						(10.7)		%
Segment margin						29.3		%				34.5		%										31.6		%				34.7		%

Results of Operations - Third Quarter 2024 vs. Third Quarter 2023

Net sales of our North America Confectionery segment were $2,477.3 million in the third quarter of 2024 compared to $2,457.6 million in the same period of 2023, an increase of $19.7 million, or 0.8%. The increase was driven by favorable price realization of approximately 2%, primarily due to list price increases on certain products across our portfolio. The increase was partially offset by volume declines of approximately 2%, primarily driven by a decrease in everyday core U.S. confection.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail decreased approximately 0.3% during the third quarter of 2024 compared to the same period of 2023.

Our North America Confectionery segment income was $724.8 million in the third quarter of 2024 compared to $847.5 million in the same period of 2023, a decrease of $122.7 million, or 14.5%. The decrease was primarily due to higher commodity costs, higher supply chains costs, and unfavorable mix. The decrease was partially offset by lower volume, favorable price realization, and lower advertising and related consumer marketing costs.

Results of Operations - First Nine Months 2024 vs. First Nine Months 2023

Net sales of our North America Confectionery segment were $6,764.4 million in the first nine months of 2024 compared to $6,902.9 million in the same period of 2023, a decrease $138.5 million, or 2.0%. The decrease was driven by volume declines of approximately 5%, primarily driven by a decrease in everyday core U.S. confection brands. The decrease was partially offset by favorable price realization of approximately 3%, due to list price increases on certain products across our portfolio.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 3.0% during the first nine months of 2024 compared to the same period of 2023.

Our North America Confectionery segment income was $2,137.5 million in the first nine months of 2024 compared to $2,392.4 million the same period of 2023, a decrease $254.9 million or 10.7%. The decrease was primarily due to higher commodity costs, higher supply chain costs, and unfavorable product mix. The decrease was partially offset by favorable price realization, lower volume, and lower advertising and related consumer marketing costs.

North America Salty Snacks

The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products. North America Salty Snacks results, which accounted for 9.8% and 11.4% of our net sales for the three months ended September 29, 2024 and October 1, 2023, respectively, were as follows:

						Three Months Ended																		Nine Months Ended
						September 29, 2024						October 1, 2023						Percent Change						September 29, 2024						October 1, 2023						Percent Change
In millions of dollars
Net sales						$	291.8					$	345.2					(15.5)		%				$	856.8					$	887.5					(3.5)		%
Segment income						54.0						57.4						(5.9)		%				144.9						147.9						(2.0)		%
Segment margin						18.5		%				16.6		%										16.9		%				16.7		%

Results of Operations - Third Quarter 2024 vs. Third Quarter 2023

Net sales of our North America Salty Snacks segment were $291.8 million in the third quarter of 2024 compared to $345.2 million in the same period of 2023, a decrease of $53.4 million, or 15.5%. The decrease was driven by volume declines of approximately 17%, predominantly as a result of accelerated shipments in the third quarter of 2023 ahead of our ERP system implementation, which was completed in the beginning of the fourth quarter of 2023. The decrease was partially offset by favorable price realization of approximately 2%, due to list price increases primarily in Dot’s Homestyle Pretzels snacks.

Our North America Salty Snacks segment income was $54.0 million in the third quarter of 2024 compared to $57.4 million in the same period of 2023, a decrease of $3.4 million, or 5.9%. The decrease was primarily due to volume declines, as noted above, and higher advertising and related consumer marketing costs. The decrease was partially offset by lower supply chain costs, favorable commodity costs, and favorable price realization.

Results of Operations - First Nine Months 2024 vs. First Nine Months 2023

Net sales of our North America Salty Snacks segment were $856.8 million in the first nine months of 2024 compared to $887.5 million the same period of 2023, a decrease $30.7 million, or 3.5%. The decrease reflects volume declines of approximately 3%, primarily related to SkinnyPop and Paqui snacks, as well as accelerated shipments ahead of our ERP system implementation in 2023, partially offset by volume growth in Dot’s Homestyle Pretzels snacks. The decrease was further driven by an unfavorable price realization of less than 1%.

Our North America Salty Snacks segment income was $144.9 million in the first nine months of 2024 compared to $147.9 million the same period of 2023, a decrease $3 million, or 2.0%. The decrease was primarily due to volume declines, as noted above, and higher advertising and related consumer marketing costs. The decrease was partially offset by favorable commodity costs, lower supply chain costs, and favorable price realization.

International

The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. We currently have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions. International results, which accounted for 7.3% and 7.5% of our net sales for the three months ended September 29, 2024 and October 1, 2023, respectively, were as follows:

						Three Months Ended																		Nine Months Ended
						September 29, 2024						October 1, 2023						Percent Change						September 29, 2024						October 1, 2023						Percent Change
In millions of dollars
Net sales						$	218.4					$	227.2					(3.9)		%				$	693.5					$	717.5					(3.3)		%
Segment income						14.2						31.7						(55.2)		%				82.0						127.8						(35.8)		%
Segment margin						6.5		%				14.0		%										11.8		%				17.8		%

Results of Operations - Third Quarter 2024 vs. Third Quarter 2023

Net sales of our International segment were $218.4 million in the third quarter of 2024 compared to $227.2 million in the same period of 2023, a decrease $8.8 million, or 3.9%. The decrease was due to an unfavorable impact from foreign currency exchange rates of approximately 4%, primarily driven by Mexico and Brazil, and volume declines of approximately 1% across the segment, partially offset by growth in Europe and LATAM. The decrease was partially offset by favorable price realization of approximately 1%, primarily driven by Europe and Mexico.

Our International segment generated income of $14.2 million in the third quarter of 2024 compared to $31.7 million in the third quarter of 2023, a decrease of $17.5 million, or 55.2%, driven primarily by volume declines and higher commodity costs, partially offset by favorable price realization and lower supply chain costs.

Results of Operations - First Nine Months 2024 vs. First Nine Months 2023

Net sales of our International segment were $693.5 million in the first nine months of 2024 compared to $717.5 million the same period of 2023, a decrease $24.0 million, or 3.3%. The decrease was due to volume declines of approximately 6% across the segment, partially offset by growth in AMEA and Europe. The decrease was partially offset by favorable price realization of approximately 2% and a favorable impact from foreign currency exchange rates of less than 1%, primarily driven by Mexico.

Our International segment generated income of $82.0 million in the first nine months of 2024 compared to $127.8 million in the first nine months of 2023, a decrease of $45.8 million, or 35.8%, driven primarily by volume declines, increased commodity costs and unfavorable mix, partially offset by favorable price realization and lower supply chain costs.

Unallocated Corporate Expense

Unallocated corporate expense includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, (d) acquisition and integration-related costs and (e) other gains or losses that are not integral to segment performance.

In the third quarter of 2024, unallocated corporate expense totaled $161.8 million, as compared to $199.3 million in the third quarter of 2023, a decrease of $37.5 million, or 18.8%. The decrease was primarily driven by lower compensation costs, partially offset by higher acquisition and integration related costs.

In the first nine months of 2024, unallocated corporate expense totaled $496.2 million, as compared to $563.0 million in the first nine months of 2023, a decrease of $66.8 million, or 11.9%. The decrease was primarily driven by lower compensation costs and lower acquisition and integration related costs, partially offset by incremental investments in capabilities and technology.

LIQUIDITY AND CAPITAL RESOURCES

Historically, our primary source of liquidity has been cash generated from operations. Domestic seasonal working capital needs, which typically peak during the summer months, are generally met by utilizing cash on hand, bank borrowings or the issuance of commercial paper. Commercial paper may also be issued, from time to time, to finance ongoing business transactions, such as the repayment of long-term debt, business acquisitions and for other general corporate purposes.

At September 29, 2024, our cash and cash equivalents totaled $615.0 million, an increase of $213.0 million compared to the 2023 year-end balance. Additional detail regarding the net uses of cash are outlined in the following discussion. Additionally, at September 29, 2024, we had outstanding short- and long-term debt totaling $5.3 billion, of which $904.8 million was classified as the current portion of long-term debt. Of the $904.8 million, $300 million of 2.050% Notes are due upon maturity on November 15, 2024, $300 million of 0.900% Notes are due upon maturity on June 1, 2025, and $300 million of 3.200% Notes are due upon maturity on August 21, 2025. We believe we can satisfy these debt obligations with cash generated from our operations, issuing new debt, and/or by borrowing on our unsecured credit facility.

Approximately 85% of the balance of our cash and cash equivalents at September 29, 2024 was held by subsidiaries domiciled outside of the United States. A majority of our cash and cash equivalents balance is distributable to the United States without material tax implications, such as withholding tax. We intend to continue to reinvest the remainder of this balance outside of the United States for which there would be a material tax implication to distributing for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings. We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for the foreseeable future. Acquisition spending and/or share repurchases could potentially increase our debt. Operating cash flow and access to capital markets are expected to satisfy our various short- and long-term cash flow requirements, including acquisitions and capital expenditures.

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Cash Flow Summary

The following table is derived from our Consolidated Statements of Cash Flows:

						Nine Months Ended
In millions of dollars						September 29, 2024						October 1, 2023
Net cash provided by (used in):
Operating activities						$	1,590.0					$	1,565.6
Investing activities						(549.3)						(735.5)
Financing activities						(847.0)						(784.4)
Effect of exchange rate changes on cash and cash equivalents						19.3						(38.3)
Net change in cash and cash equivalents						$	213.0					$	7.4

Operating activities

We generated cash of $1,590.0 million from operating activities in the first nine months of 2024, an increase of $24.4 million compared to $1,565.6 million in the same period of 2023. This increase in net cash provided by operating activities was mainly driven by the following factors:

• In the aggregate, select net working capital items, specifically, trade accounts receivable, inventory, accounts payable and accrued liabilities, consumed cash of $183.9 million in 2024, compared to $449.6 million in 2023. This $265.7 million fluctuation was mainly driven by a decrease in cash used by accounts receivable due to a decrease in sales of everyday core U.S. confection brands, a decrease in accounts payable and accrued liabilities due to the timing of vendor and supplier payments, and lower inventory levels.

• Timing of income tax payments contributed to an increase in operating cash of $138.5 million in 2024, compared to an increase of $83.2 million in 2023. This $55.3 million fluctuation was primarily due to the variance in actual tax expense for 2024 relative to the timing of quarterly estimated tax payments. We paid cash of $180.3 million for income taxes during 2024 compared to $264.5 million in the same period of 2023.

• Other assets and liabilities consumed cash of $51.8 million in 2024, compared to $93.7 million in 2023. This $42.0 million fluctuation was primarily due to our 2023 purchase of an irrevocable group annuity contract to settle a portion of our post retirement benefit obligation, partially offset by the timing of certain prepaid expenses and other current assets.

• The increase in cash provided by operating activities was partially offset by the following net cash outflows:

◦Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, a write-down of equity investments, unrealized gains and losses on derivative contracts and other charges) resulted in $349.5 million of lower cash flow in 2024 relative to 2023.

Investing activities

We used cash of $549.3 million for investing activities in the first nine months of 2024, a decrease of $186.2 million compared to $735.5 million in the same period of 2023. This decrease in net cash used in investing activities was mainly driven by the following factors:

*•*Capital spending. Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $471.4 million in the first nine months of 2024 compared to $548.6 million in the same period of 2023. The decrease in our 2024 capital expenditures is largely driven by the wind down of our key strategic initiatives, including completion of the upgrade of a new ERP system across the enterprise in 2024. We expect 2024 capital expenditures, including capitalized software, to approximate $575 million to $600 million, a slight decrease from our previously estimated range of $600 million to $625 million. We intend to use our existing cash and internally generated funds to meet our 2024 capital requirements.

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• Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and renewable energy tax credits. We invested approximately $78.2 million in the first nine months of 2024, compared to $18.1 million in the same period of 2023.

• Business Acquisition. In 2024, we had no acquisition activity. In May 2023, we acquired Weaver for a cash purchase price of $165.8 million. Further details regarding our business acquisition activity is provided in Note 2 to the Unaudited Consolidated Financial Statements.

*•*Other investing activities. In the first nine months of 2024 and 2023, our other investing activities were minimal.

Financing activities

We used cash of $847.0 million for financing activities in the first nine months of 2024, an increase of $62.6 million compared to $784.4 million in the same period of 2023. This increase in net cash used in financing activities was mainly driven by the following factors:

*•*Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first nine months of 2024, we generated cash of $482.3 million predominately through the issuance of short-term commercial paper and an increase in short-term foreign bank borrowings. During the first nine months of 2023, we generated cash of $126.1 million predominately through the issuance of short-term commercial paper, as well as an increase in short-term foreign bank borrowings.

• Long-term debt borrowings and repayments. During the first nine months of 2024, we had no long-term debt borrowings or repayments activity. During the first nine months of 2023, we issued $350 million of 4.250% Notes due in May 2028 and $400 million of 4.500% Notes due in May 2033 (the “2023 Notes”). Proceeds from the issuance of the 2023 Notes, net of discounts and issuance costs, totaled $744,092. Additionally, in May 2023 we repaid $250 million of 2.625% Notes and $500 million of 3.375% Notes due upon their maturity.

• Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $814.3 million during the first nine months of 2024, an increase of $163.0 million compared to $651.3 million in the same period of 2023. Details regarding our 2024 cash dividends paid to stockholders are as follows:

						Quarter Ended
In millions of dollars except per share amounts						March 31, 2024						June 30, 2024						September 29, 2024
Dividends paid per share – Common stock						$	1.370					$	1.370					$	1.370
Dividends paid per share – Class B common stock						$	1.245					$	1.245					$	1.245
Total cash dividends paid						$	273.4					$	270.5					$	270.4
Declaration date						February 7, 2024						May 2, 2024						July 31, 2024
Record date						February 20, 2024						May 17, 2024						August 16, 2024
Payment date						March 15, 2024						June 14, 2024						September 16, 2024

*•*Share repurchases. We repurchase shares of Common Stock to offset the dilutive impact of treasury shares issued under our equity compensation plans. The value of these share repurchases in a given period varies based on the volume of stock options exercised and our market price. In addition, we periodically repurchase shares of Common Stock pursuant to Board-authorized programs intended to drive additional stockholder value. Details regarding our share repurchases are as follows:

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						Nine Months Ended
In millions						September 29, 2024						October 1, 2023
Milton Hershey School Trust repurchase (1)						$	—					$	239.9
Shares repurchased in the open market under pre-approved share repurchase programs (2)						400.0						—
Shares repurchased in the open market to replace Treasury Stock issued for stock options and incentive compensation						$	94.2					$	—
Cash used for total share repurchases (excluding excise tax)						$	494.2					$	239.9
Total shares repurchased under pre-approved share repurchase programs						2.0						1.0

(1) In February 2023, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School Trust (the “School Trust”), pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the Milton Hershey School Trust at a price equal to $239.91 per share, for a total purchase price of $239.9 million.

(2) In July 2018, our Board of Directors approved a $500 million share repurchase authorization to repurchase shares of our Common Stock. As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization was completed. In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization, which was completed as of March 31, 2024. In December 2023, our Board of Directors approved an additional $500 million share repurchase authorization. This program commenced after the existing May 2021 authorization was completed and is to be utilized at management’s discretion. As a result of the share repurchase authorization, approximately $470 million remains available for repurchases under our December 2023 share repurchase authorization. We are authorized to purchase our outstanding shares in open market and privately negotiated transactions. The program has no expiration date and acquired shares of Common Stock will be held as treasury shares. Purchases under approved share repurchase authorizations are in addition to our practice of buying back shares sufficient to offset those issued under incentive compensation plans.

*•*Proceeds from exercised stock options and employee tax withholding. During the first nine months of 2024, we received $13.8 million from employee exercises of stock options and paid $30.5 million of employee taxes withheld from share-based awards. During the first nine months of 2023, we received $24.3 million from employee exercises of stock options and paid $34.1 million of employee taxes withheld from share-based awards. Variances are driven primarily by the number of shares exercised and the share price at the date of grant.

Recent Accounting Pronouncements

Information on recently adopted and issued accounting standards is included in Note 1 to the Unaudited Consolidated Financial Statements.

Critical Accounting Estimates

For information regarding the Company’s critical accounting estimates, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Annual Report on Form 10-K. There have been no material changes to the Company’s critical accounting estimates since December 31, 2023.

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Safe Harbor Statement

We are subject to changing economic, competitive, regulatory and technological risks and uncertainties that could have a material impact on our business, financial condition or results of operations. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we note the following factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions that we have discussed directly or implied in this Quarterly Report on Form 10-Q. Many of these forward-looking statements can be identified by the use of words such as “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would,” among others.

The factors that could cause our actual results to differ materially from the results projected in our forward-looking statements include, but are not limited to the following:

• Our Company’s reputation or brand image might be impacted as a result of issues or concerns relating to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters, which in turn could result in litigation or otherwise negatively impact our operating results;

• Disruption to our manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results;

• We might not be able to hire, engage and retain the talented global human capital we need to drive our growth strategies;

• Risks associated with climate change and other environmental impacts, and increased focus and evolving views of our customers, stockholders and other stakeholders on climate change issues, could negatively affect our business and operations;

• Increases in raw material and energy costs, along with the availability of adequate supplies of raw materials and our ability to successfully hedge against volatility in raw material pricing, could affect future financial results;

• Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity;

• Market demand for new and existing products could decline;

• Increased marketplace competition could hurt our business;

• Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures;

• Our international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations;

• We may not fully realize the expected cost savings and/or operating efficiencies associated with our strategic initiatives or restructuring programs, which may have an adverse impact on our business;

• Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products;

• Political, economic and/or financial market conditions, including impacts on our business arising from the ongoing conflict between Russia and Ukraine, could negatively impact our financial results;

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• Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations;

• Complications with the design, implementation or usage of our new enterprise resource planning system, including the ability to support post-implementation efforts and maintain enhancements, new features or modifications, could adversely impact our business and operations; and

• Such other matters as discussed in our 2023 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly periods ending March 31, 2024 and June 30, 2024, and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date this Quarterly Report on Form 10-Q is filed.