"We had a strong third quarter, with accelerated reported net sales growth of 4%, adjusted diluted EPS growth of more than 15% and confectionery share gains across markets, including an almost 190 basis point gain in the U.S. Our core U.S. business remains healthy as consumers reach for small treats during the pandemic, and our decision to lean into Halloween ahead of the season supported consumers' desire to find new and creative ways to celebrate safely. We also saw sequential improvement in the areas of our business hit hardest by COVID-19, including our international markets, owned retail locations and food service business," said Michele Buck, The Hershey Company President and Chief Executive Officer. "We are continuing to focus on executing with excellence, investing in the business, and advancing our strategic priorities to deliver a strong fourth quarter and position us well for 2021."

Third-Quarter 2020 Results

Consolidated net sales were $2,219.8 million in the third quarter of 2020 versus $2,134.4 million in the year ago period, an increase of 4.0%. Price realization was a 2.9 point benefit and volume growth was a 0.9 point benefit, both driven by strength in the North America segment. The net impact of acquisitions and divestitures was a 0.8 point benefit driven by the acquisition of ONE Brands. Foreign currency exchange was a 0.6 point headwind.

Reported gross margin was 48.7% in the third quarter of 2020, compared to 44.2% in the third quarter of 2019, an increase of 450 basis points. The increase reflects a higher derivative mark-to-market commodity gain in the current period, along with net price realization. Adjusted gross margin was 45.4% in the third quarter of 2020, compared to 44.8% in the third quarter of 2019, an increase of 60 basis points driven by pricing gains which were partially offset by unfavorable commodities and increased warehouse costs related to elevated demand in North America.

Selling, marketing and administrative expenses decreased 2.6% in the third quarter of 2020 versus the third quarter of 2019. Advertising and related consumer marketing expenses decreased 4.6% in the third quarter of 2020 versus the same period last year driven by media cost efficiencies and optimized brand investment. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, decreased 1.5% versus the third quarter of 2019. This decrease was driven by COVID-19 related travel and meeting expense savings and the timing of investments in key strategic initiatives compared to the prior year.

Third-quarter 2020 reported operating profit of $611.4 million increased 32.7% versus the third quarter of 2019, resulting in an operating profit margin of 27.5%, an increase of 590 basis points. This increase was driven by higher gross profit due to the previously mentioned higher derivative mark-to-market commodity gain in the current period. Adjusted operating profit of $543.3 million increased 13.9% versus the third quarter of 2019. This resulted in an adjusted operating profit margin of 24.5%, an increase of 220 basis points versus the third quarter of 2019 driven by strong price realization in the North America segment and corporate and operational cost management.

The effective tax rate in the third quarter of 2020 was 20.5%, an increase of 30 basis points versus the third quarter of 2019. The adjusted tax rate in the third quarter of 2020 was 21.5%, an increase of 140 basis points versus the third quarter of 2019. Both the effective and adjusted tax rate increases were primarily driven by lower excess tax benefits from stock-based compensation.

The company's third-quarter 2020 results, as prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), included items positively impacting comparability of $68.1 million, or $0.28 per share-diluted, as outlined in the table below. For the third quarter of 2019, items negatively impacting comparability totaled $18.4 million, or $0.07 per share-diluted.

North America (U.S. and Canada)Hershey's North America net sales were $2,014.2 million in the third quarter of 2020, an increase of 6.3% versus the same period last year. Price realization was a 3.3 point benefit. Volume contributed an additional 2.2 points, driven by an approximate 1.5 point benefit from retailer inventory replenishment and strong consumer takeaway in our everyday chocolate and baking products. The net impact of acquisitions and divestitures was a 0.9 point benefit, while foreign currency exchange was a 0.1 point headwind.

Total Hershey U.S. retail takeaway for the 12 weeks ended October 4, 20202 in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores) increased 6.6% versus the prior-year period. Hershey's U.S. candy, mint and gum (CMG) retail takeaway increased 6.5%, resulting in a category market share gain of 188 basis points. This gain was largely driven by strong sales of Hershey's chocolate brands, which increased 9.8% versus the prior year period. Sales of Hershey's baking items, including peanut butter, syrup, chips and cocoa continued to remain strong, increasing 15.7%. Hershey's salty snacks also performed well, increasing 11.8% in the 12-week period. This strength was partially offset by 19.2% declines in Hershey's refreshment products as the functional need for breath freshening has lessened with social distancing.

Gross margin expanded 100 basis points as strong net price realization more than offset unfavorable commodities and increased warehouse costs from elevated demand. North America advertising and related consumer marketing expenses decreased by 3.1% in the third quarter of 2020 versus the same period last year, largely driven by media cost efficiencies. Though still a decline versus prior year, a portion of these efficiencies in the third quarter were selectively reinvested in brands, occasions and channels that align with the latest consumer behavior trends in light of the pandemic. These gross margin gains and prudent cost management resulted in a segment income increase of 13.5% to $647.1 million in the third quarter of 2020, compared to $570.4 million in the third quarter of 2019.