Good morning, everyone, and welcome to the prerecorded discussion of The Hershey Company's 2nd Quarter 2020 Earnings Results. My name is Melissa Poole, and I'm the Vice President of Investor Relations at Joining me today are Hershey's Chairman and CEO, Michelle Buck and Hershey's Senior Vice President and CFO, Steve Voskull. In addition to these remarks, we will host an analyst Q and A only session at 8:30 am Eastern on the morning of July 23rd. A replay of this webcast and our subsequent Q and A session will be available on the Investor Relations section of our website along with their corresponding transcripts. During the course of today's discussion, management will make forward looking statements that are subject to various risks and uncertainties.
These statements include expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-nineteen pandemic. Actual results could differ materially from those projected as a result of the COVID-nineteen pandemic as well as other factors. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that during today's discussion, we will refer to certain non GAAP financial measures that we believe will provide useful information for investors.
The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations to the GAAP results are included in this morning's press release. It is now my pleasure to introduce our Chairman and CEO, Michelle Buck.
Thank you, Melissa, and good morning, everyone. On behalf of the entire company, we hope you, your colleagues and your loved ones are continuing to stay safe and healthy. We have all experienced significant change and new challenges over these past several months. Things we never predicted are now realities that we are all adapting to. Things we thought would evolve over the course of several years have changed in weeks.
I could not be prouder of the Hershey organization for how they have responded. At the center of our culture is the shared belief that Hershey and its people stand for togetherness, integrity, excellence and making a difference. These values have shined even more brightly over the past several months. Our teams have worked together tirelessly to keep each other safe, our supply chain running, our customers' needs met and our consumers stocked with snacks that make their lives a little more delicious during these very difficult times. Our teammates have done this with care and compassion for each other and the communities in which they live.
And they are energized and inspired to leverage this moment to drive positive change for the future. I want to thank the entire organization from retail to manufacturing and across our corporate, international and regional offices marketplace remains volatile as the virus and consumer behavior evolve. We saw significant changes as we progress through the Q2, but our teams did a fantastic job of adapting to these changes and continued to execute exceptionally well. The first half of the quarter was particularly challenging as global economic growth contracted and government mandated restrictions and closures impacted consumer mobility and in turn our performance. We did see an improvement later in the quarter as economies began to reopen and consumers return to more activities outside the home.
We continue to feel good about our long term strategies and the strength we saw in our core products and channels during the quarter. Despite new challenges and increased complexities, we delivered profitable category leading sales growth in North America. These gains were offset by sales declines in areas heavily impacted by the pandemic and related government restrictions and consumer mobility limitations. Our agile investment mindset enabled us to quickly pivot and mitigate sales declines in areas impacted by consumer mobility restrictions. In addition, our advantaged margin structure and strong cost management helped us to mitigate incremental COVID-nineteen related costs to enable us to deliver adjusted earnings per share in line with last year.
We expect accelerated sales growth in the second half of the year based on momentum exiting the quarter, assuming there's no significant disruption to current consumer trends. We also expect pricing and strong cost management to drive margin expansion and earnings growth in the second half of the year. Now let me share some details on our North American business. While we have seen significant channel disruption and changes in consumer behavior, our brands and categories remain an important part of consumers' lives and have performed relatively well. We saw strong performance in the food, mass, dollar and e commerce classes of trade, consistent with broader channel trends.
Our e commerce sales growth remains significantly higher than our pre COVID baseline, with year over year sales growth accelerating further in the 2nd quarter to 200%. Category trends in drug, convenience and club channels were more pressured, though all sequentially improved as we progress through the quarter as consumers return to more normal activities away from home. While COVID-nineteen has impacted traffic to some key channels in the short term, we continue to believe our channel diversification is a long term strategic advantage. Despite some of these pressures, our combined retail takeaway in measured channels was up over 4% in the quarter and it was up almost 9% in June. Importantly, we are winning share in every channel this year And our share growth is strongest in the largest channels that are experiencing the most growth.
We are leading not only through our portfolio of iconic brands, consumer relevant marketing and strong execution, but with our thought leadership as well. Within Confection, this has enabled us to drive growth that far exceeds the category and expand our number one share position in the U. S. Our category share grew 2 25 basis points in the 2nd quarter, bringing our year to date share gain to 150 basis points. The chocolate category is performing well with growth of approximately 4% in measured channels for the first half of the year despite a shorter Easter.
Everyday chocolate sales have consistently grown 9% since the pandemic began. While take home products are driving outsized growth, instant consumable products are also growing. Hershey has outperformed the category with sales growth across brands that accelerated as we progressed through the quarter. In June, Hershey's chocolate portfolio grew 13% with Reese's, Hershey's and Kit Kat brands each growing 14%. Key brands such as Payday, York, Almond Joy, Mounds, Heath and Rollo also all grew during the month, resulting in a combined growth rate of over 11%.
Our key chocolate innovation is also performing well. As we discussed in April, much of our innovation was launched prior to the pandemic hitting the U. S. Despite softening convenience store trends in the quarter, our instant consumable innovation remains on track. Our Reese's Take 5 relaunch is set to double the size of the brand this year to approximately $70,000,000 of retail sales.
And our Kit Kat flavor innovation is doing very well with KitKat Duos and KitKat Birthday Cake both driving incremental brand household penetration and frequency. Distribution of our new Fins innovation was delayed slightly by the pandemic at several customers, but it's now in full distribution and velocities are strong. We have secured strong merchandising in store for our key summer promotions, including s'mores, Twizzlers and our Reese's lovers in and out promotions. Our teams have shown great agility to adjust messaging and deliver consumer relevant content to drive growth of 14% on these programs versus last year. Our Twizzlers and Jolly Rancher brands grew a combined 6% in the 2nd quarter, also ahead of the category.
Our strong in store merchandising on Twizzlers has been amplified by consumer relevant marketing to drive accelerated growth this summer as consumers enjoy this classic treat while watching movies at home or in the car on their summer road trips. As we mentioned in April, the refreshment category has been negatively impacted by social distancing as the functional need for breath freshening has lessened. While trends have improved since April, the category continued to decline 20% to 25% in June. Our business has trended relatively in line with the category. We expect category trends to remain challenged until social distancing guidelines relax.
Sales for our baking items are performing exceptionally well with growth of over 40% in the Q2. This growth was across products, including syrup, baking chips, toppings and cocoa, as consumers spend more time at home together in the kitchen. We have capitalized on this trend to sustain momentum, increasing marketing spend and generating more content and recipes for our consumers. This is important for the second half of the year when baking takes on an even bigger role in U. S.
Households. Finally, let me touch on our better for you snack portfolio. Our salty snack brands have shown solid growth this year. As we shared on our call in April, we did experience some softness early in the second quarter as our in store presence in supply was negatively impacted by COVID-nineteen. We worked quickly to improve our execution and in store distribution and merchandising, resulting in accelerated performance in late May June.
In the month of June, our Skinny Pop and Pirates Booty brands grew 8.4% and 3.7% respectively in measured channels. And total sales growth outpaced these levels bolstered by strong growth in club and e commerce. While we saw strong sales growth in measured channels as expected, this was partially offset by significant declines in our foodservice and specialty retail businesses. Trends improved as we progressed through the quarter as many locations reopened. However, traffic and sales remained below prior year levels in June.
While we expect the second half headwinds in these channels to be less severe than the 2nd quarter impact, uncertainty remains as consumer behaviors continue to evolve, COVID-nineteen cases rise and regions consider mitigating actions to control the spread of the virus. Before I discuss our international segment, let me spend a few minutes providing an update on Halloween. As many of you know, Halloween is our largest season and it represents approximately 10% of our annual sales. We begin manufacturing product in the Q2 and primarily ship product to stores in the Q3. Halloween celebrations are likely to be different this year, with an earlier start to the season and more geographic differences than in prior years.
We expect that there will be more at home activities with families sharing timeless traditions and new ways for people to celebrate with neighbors. It is important to note that nearly 50% of Halloween candy spend is on treat for me and candy bowl occasions, which start early in the season. Trick or treating represents the other 50% of the season, with sales concentrated in the last 2 weeks of October. While research indicates trick or treating participation will likely be below prior year levels due to COVID-nineteen concerns, the expectation of this holiday tradition has been consistently improving over the past several weeks. We expect to outperform the category given our iconic brands, strong innovation and merchandising and great execution.
While we have visibility to orders and current consumer intentions, we expect the virus and consumer sentiment to evolve in the months leading up to the season, which could present some risk to sell through. We will continue to monitor consumer behavior and local guidelines and partner with our retailers to help consumers celebrate the season of Halloween during this uncertain time. Now let me shift gears and discuss our International and Other segment. As anticipated, 2nd quarter results were significantly impacted by COVID-nineteen. As we shared in April, our owned retail Chocolate World locations were closed during the Q2, and we saw a meaningful impact on our travel retail business as air travel declined.
While our locations have begun to reopen and air travel is beginning to improve, traffic remains well below historic levels and we anticipate a slower recovery in these channels. In several of our key international markets, notably Mexico, India and Brazil, we have seen a significant increase in coronavirus cases over the past several months. While measures to stem the spread of the virus have varied by country, we have consistently seen these measures and their associated economic impact pressure chocolate category sales. In many of these markets, chocolate consumption is not as embedded in the culture as it is in the United States and it is premium priced versus other food and snacking options. Category trends did improve as the quarter progressed, but they remain below prior year levels.
While we saw strength some of our other items in key markets such as cocoa powder, syrup and spreads, it wasn't enough to offset the chocolate declines. We have responded to these recent trends and scaled back investments accordingly to help mitigate the COVID-nineteen impact on our business. We remain committed to our international strategy over the long term, and we will maintain an appropriate level of investment to capture opportunities as the macroeconomic environment and pandemic improve. Now, let me turn it over to Steve to provide some more details of our financial results as well as our outlook for the rest of the year. Steve?
Thanks, Michelle, and good morning, everyone. Before reviewing the detailed results for the Q2, I want to build on Michelle's remarks and commend our team's ability to adapt, execute and make smart decisions quickly during this unprecedented time. While our top line was challenged due to COVID-nineteen related softness in certain areas of the business and we incurred incremental costs related to the pandemic, strong price realization in North America and proactive cost management allowed us to sustain profitability and deliver earnings in line with last year. As we look to the balance of the year, we anticipate incremental improvement to our top line and feel good about the plans we have in place to continue to adapt and manage the opportunities and challenges that may arise in this dynamic operating environment. During the Q2, reported net sales decreased by 3 point 4% versus the same period a year ago, with an organic constant currency decline of 3.5%.
As Michelle mentioned, these declines were driven by COVID-nineteen related pressures to our international and other segment, as well as non traditional channels in the U. S. Such as food service and specialty retail. These declines were partially offset by strength in our confection business in measured channels, which benefited from elevated at home demand and strong price realization. Despite these top line challenges and incremental COVID-nineteen related manufacturing costs, price realization and productivity savings enabled us to maintain our peer leading adjusted gross margin of 46.4% in the 2nd quarter, relatively in line with prior year.
Adjusted operating profit increased 4.4% in the 2nd quarter, resulting in a 170 basis point improvement to operating profit margin versus the prior year period. Incremental incentives, cleaning and PPE costs were more than offset by travel and meeting expense favorability as well as marketing spend optimization to align with consumer demand changes in the quarter. In North America, organic constant currency sales growth of 0.4% was driven by pricing and elevated at home consumption of our chocolate and baking items. This was partially offset by sales declines in foodservice, specialty retail and our refreshment brands due to COVID-nineteen. Price realization contributed 4.2 points in the quarter, which was slightly ahead of expectations due to incremental trade efficiencies realized from revenue management and selective programming choices related to COVID-nineteen.
We continue to expect second half price realization to be approximately 1.5 to 2 points, driven primarily by our July 2019 price increase. Food service, specialty retail and refreshment were each down approximately 40% during the 2nd quarter. We continue to expect these businesses to be negatively impacted by COVID-nineteen during the balance of the year, but improved incrementally as the economy and consumer mobility continued to recover. In measured channels, retail takeaway for Hershey was 4.1% for the 2nd quarter, driven by strength in demand for our take home confection and baking business and strong execution by our supply chain to ensure product was available and on shelf. We did not see this fully flow through to net sales as retailer inventory levels continue to be depleted to satisfy a portion of this demand.
As a result, we expect these inventory level to be replenished in the coming months, contributing approximately 1 to 2 points of growth in the second half of the year. Adjusted gross margin for the North America segment expanded 20 basis points to 47.5 percent for the 2nd quarter, driven by strong price realization, which more than offset a challenging 2019 lap of favorable mix and incremental COVID-nineteen related costs for incentives, cleaning and PPE. Mix was a slight headwind for the quarter, driven primarily by lapping the significant mix benefit from Q2 of 2019 versus the COVID-nineteen driven mix shifts this year. As Michelle mentioned, our instant consumable business has continued to grow, which has helped to maintain our margin strength. As a result, we do not anticipate mix being a material driver of earnings in the second half.
North America advertising and related consumer marketing spend decreased 10.8% in the 2nd quarter, driven by media cost efficiencies and selective programming optimization related to COVID-nineteen. Approximately half of our spend reduction was driven by favorable digital media costs in the marketplace, a portion of which we expect to sustain in the second half. The remaining declines were driven by reduced investment in brands negatively impacted by COVID-nineteen trends, including icebreakers and select chocolate brands that are disproportionately sold in a convenience store class of trade. As consumer trends improved in May June, we began reinvesting in these businesses. These actions are a testament to our capabilities and willingness to adapt quickly to changes in the marketplace.
As we look to the balance of the year, we will continue to be mindful of the evolving operating environment, but plan to invest more in advertising and consumer marketing as sales trends improve. In our International and Other segment, organic constant currency sales declined 33.4% in the 2nd quarter, driven by COVID-nineteen related softness in our owned chocolate world retail locations, large declines in air travel and performance in key international markets. Combined constant currency net sales in Mexico, Brazil, India and China declined 31.8% versus the Q2 in 2019. As Michelle mentioned, we expect our international business to be slower to recover and likely challenged for the balance of year because of both COVID-nineteen related restrictions and economic conditions impacting consumer participation in the chocolate category. Our owned retail businesses were closed for nearly the entire second quarter, though all have reopened on a limited basis with appropriate COVID-nineteen related precautions.
While our stores have reopened, we do expect significantly decreased foot traffic during the second half of the year and therefore expect sales to remain below prior year levels. Given these declines to the top line, we have taken a disciplined look at our variable cost base and optimized where feasible while still maintaining the appropriate level of brand investment. This resulted in savings in advertising and related consumer marketing, along with travel expenses of approximately $15,000,000 The segment reported a slightly negative operating income of $4,000,000 for the 2nd quarter. We continue to expect gradual recovery throughout the second half of the year, but do not expect the segment to return to the same level as last year. While this segment has borne the greatest impact from COVID-nineteen, we remain committed to the right balance of investment and support to ensure acceleration post COVID-nineteen.
Shifting to item below operating profit, interest expense was $38,000,000 for the 2nd quarter, an increase of $4,300,000 versus the same period a year ago due to higher debt balances from debt issuances in October 2019. Other expense of $11,200,000 represented a decline of $1,900,000 due to the purchase of fewer tax credits and lower non service related pension expense. The adjusted tax rate in the 2nd quarter increased by 4.6% to 19.4%. This increase was due to the lapping of a prior period benefit related to the release of valuation allowances in select international markets. At this time, we do not anticipate any material changes to the tax and other income expense outlook that we shared with you in January.
We do, however, expect interest expense to marginally increase over the prior year due to the bond issuance in October 2019 and May 2020. Despite any short term challenges posed by COVID-nineteen, we remain confident in our strong cash flow and healthy balance sheet to manage through the current crisis and beyond. At the end of the second quarter, we had approximately $1,200,000,000 in cash and cash equivalents on our balance sheet, an increase of $800,000,000 versus last year and $614,000,000 in operating cash flow. To further mitigate potential risk and to take advantage of favorable rates in the capital markets, we issued $1,000,000,000 of bonds in the 2nd quarter with staggered maturities while paying long term debt of $350,000,000 that came due in May. We continue to have a peer leading capital structure, providing ability and agility to adapt to the dynamic environment we are operating in.
Given our strong free cash flow and liquidity, we remain committed to our long term capital priorities with a balanced approach to investing in the business and returning cash to our stockholders, all while managing through this volatile environment. 1st, let's discuss our commitment to reinvestment. In the Q2, total capital additions, including software, were approximately $87,000,000 bringing our year to date investment to $186,000,000 As discussed in April, our revised capital spending full year outlook of $400,000,000 to $450,000,000 reflects selectively pausing portions of our ERP transformation and supply chain capacity and capability initiative. Both ERP and our supply chain initiative, while rephased, remain on track in our critical capabilities to deliver our long term strategic initiatives. Now shifting to returning cash to our stockholders, which remains a steadfast priority in our capital allocation strategy.
Earlier this morning, we announced our 3rd quarter dividend reflecting a 4% increase. While the company did not repurchase any shares in the 2nd quarter against the July 2018 $500,000,000 authorization, we did repurchase $42,000,000 of common stock in connection with replenishment of stock options. We remain confident that our balanced approach to business investment and returning cash to stockholders will continue to provide sustained stockholder returns now and in the future. As you saw in the press release, we are not providing new 2020 fiscal guidance at this time. While company's performance improved over the course of the Q2, the impact of recent spikes in coronavirus cases on consumer mobility, retail operations, government regulations and the macroeconomic environment remains unclear.
With that being said, we do want to provide some visibility into our latest thinking for the balance of the year, which is based on our current understanding of the operating environment. In the North America segment, the company expects accelerated sales growth in the second half of the year, driven by elevated at home consumption, price realization and the replenishment of retailer and distributor inventory levels. These gains are anticipated to offset improving, but still pressured sales in the foodservice and specialty retail channel. The company does not currently expect seasonal performance to have a material impact on second half financial results, though the impact of a resurgence of COVID-nineteen cases on consumer participation in seasonal activities remains uncertain. In the International and Other segment, the company expects demand to slowly rebound in the second half of the year, but remain below prior year levels as owned stores, travel retail and developing markets recover more slowly.
Finally, as it relates to sales, during the Q2, we completed the planned divestitures of our Crave, Da Goba and Sharpenburger brands. These divestitures are expected to have a relatively small 20 basis point impact to sales in the second half and an immaterial impact to earnings per share. Solid price realization and strong cost management are anticipated to offset some of the incremental COVID-nineteen costs we are facing. COVID-nineteen costs are expected to be less in the second half of the year, mainly for increased plant sanitation and personal protective equipment for manufacturing and sales teams. We anticipate that price realization will continue to drive gross margin gains, though to a lesser extent than the first half of the year as we begin to lap the announcement of the 2019 price increase.
Selling, general and administrative expenses should continue to show favorability in the back half of the year behind lower travel and meeting expenses and favorable incentive compensation versus prior year. And finally, as it relates to brand investment, we intend to continue investing in North America and further optimize spend in the International and Other segment in accordance with expected sales trends. While we have not issued new guidance today, we hope this additional perspective pending the continued evolution of the pandemic. We pending the continued evolution of the pandemic. We remain confident in our team, our plan and our agile operating model to deliver solid shareholder returns this year and in the future.
Now, I will turn it back to Michelle.
Thanks, Steve. During a time of extraordinary changes and challenges this quarter, our teams responded with agility and executed well against factors within our control. We have balanced delivering today with making calculated investments that we believe will enable us to emerge even stronger after the pandemic. In times of risk and crisis, cultures are either strengthened or weakened. Hershey has come together and thrived as a team committed to serving our consumers and our communities.
Our purpose and commitment to operating sustainably and responsibly continues to move us forward. Last month, we released our 2019 sustainability report that highlights some of the great progress we have made in this space, as well as some of our key priorities for the future. I encourage you to go to our website and take a look. In addition to the sustainability report, you will also find information on some of our more recent actions and pledges. Let me take a minute to discuss 2 that are top of mind related to recent events.
We have long supported our communities and given the unprecedented need many are facing right now, we have amplified these efforts. In addition to increasing our product and monetary donations, we have invested in our own mask production line to service our employees, their families and our communities. 2nd, for many years, we have pursued a vision of building a more diverse and inclusive company. We have been recognized for our progress, including being named the top food company for diversity by DiversityInc. Recently, we initiated a company wide dialogue to listen, learn and grow together.
Through that dialogue, we have seen the very best of our Hershey culture and a genuine desire to do more in the fight against systemic racism. We announced a set of initiatives to support black and brown communities and accelerate increasing black and brown representation and internal development at Hershey and amongst our key partners to promote social and economic progress. We believe these initiatives will help address the need for meaningful long term change in our society and include evolving our approach to recruiting, talent development, training and reporting as well as pledging monetary donations to organizations actively fight systemic racism. To close, we believe Hershey is well positioned to adapt and succeed over the long term. We have scaled brands in growing categories that consumers love and trust.
We have a highly efficient yet agile supply chain that we are investing in for the future. And we have advantaged capabilities in analytics, media, category management and sales that we believe position us well to drive profitable growth in the future. And we have a team that is dedicated to our purpose of making more moments of goodness. We remain confident and committed to our long term strategies and financial targets. With that, we conclude our prepared remarks for this morning.
Thank you for your time this morning. I invite you to listen to our live question and answer webcast, which will begin today at 8:30 a. M. Eastern Time and will be available at the hersheycompany.com. Thank you.