Hershey Earnings: Pricing, Innovation Drive Q2 Beat Despite Cocoa Headwinds
- Hardik Shah
- Jul 30
- 3 min read
TLDR
• Revenue Strength:Net sales surged 26% YoY to $2.61B, driven by strong volume and earlier Halloween shipments.
• Margin Trends:Adjusted gross margin declined 510bps YoY to 38.1%, pressured by cocoa and input cost inflation.
• Forward Outlook:Full-year adjusted EPS revised down to reflect tariffs, but 2026 earnings recovery remains on track with pricing and transformation efforts.
Business Overview
The Hershey Company (NYSE: HSY) is a global leader in snacks, anchored by its U.S. confectionery dominance and expanding salty snacks portfolio. Hershey manages over a dozen billion-dollar brands and operates across North America and key international markets. Channels include retail, convenience, e-commerce, and club, with growing digital and omnichannel penetration. Strategic acquisitions—like Dot’s Pretzels, Lily’s, and upcoming LesserEvil—bolster its positioning in better-for-you and seasonal segments.
Hershey's Earnings
Net Sales: $2.61B (+26% YoY); organic constant currency sales up 26.3%
Volume Growth: +21 pts from lapping prior inventory reductions and seasonal timing
Price Realization: +5 pts YoY
Adjusted EPS: $1.21 (↓4.7% YoY)
Reported EPS: $0.31 (↓65.2% YoY), hit by $200M+ in commodity derivative losses
Gross Margin: 30.5% reported (↓970bps YoY); 38.1% adjusted (↓510bps)
Operating Profit Margin: 7.4% reported (↓650bps); 15.7% adjusted (↓280bps)
“Investments in our brands and impactful innovation, coupled with effective execution, are driving solid sales and share gains,” said CEO Michele Buck.
Forward Guidance
Management Outlook (FY2025)
Net Sales Growth: Maintained at ≥2%
Adjusted EPS: Revised to $5.81–$6.00 (↓36–38% YoY)
Tariff Expense Estimate: $170–$180M, mainly on cocoa
Capex: $425M–$450M
Productivity Savings: Target raised to $150M (from $125M)
Risks & Opportunities
Cocoa inflation and U.S. tariffs remain major headwinds.
Positive momentum in brand innovation, pricing actions, and supply chain automation to support margin recovery in 2026.
“This price increase… makes a material impact in the right direction… [but] it’s not enough to fully compensate for cocoa inflation up to this point,” CFO Steve Voskuil noted.
Operational Performance
North America Confectionery:Sales +32% to $2.09B; driven by Easter timing and earlier Halloween shipments. Segment margin 24.2% (↓520bps).Retail takeaway +21.8%; CMG share +90bps YoY.
North America Salty Snacks:Sales +8.8% to $316M; volume +4%. Dot’s +13%, SkinnyPop +4%. Segment margin up 310bps to 21.1%.Salty innovation (Reese’s pretzel mashups, Buffalo Dot’s) supported growth.
International:Sales +4.4% (10% organic); driven by ERP-related volume lap. Segment margin fell 290bps to 9.3% due to inflation and FX.
Market Insights
Category strength driven by innovation and value-seeking behavior amid stress.
Private label and insurgent brand competition growing in take-home chocolate.
Instant consumables saw improved share after retail partnerships on planograms.
Consumer Behavior & Sentiment
Shoppers respond to innovation (e.g., Reese’s PB&J, Cinnamon Toast Crunch Kisses).
Summerween trend supported early Halloween sell-in.
Salty snacks perceived as “permissible indulgence”—a boon for multipacks and premium formats.
“As the consumer looks for value, significant innovation makes a difference and delivers value,” noted Buck.
Strategic Initiatives
M&A: LesserEvil adds scale in better-for-you snacking.
Transformation Program: Cost savings target raised to $350M.
Innovation Pipeline: Oreo confection, Shaq partnerships, Shackalicious gummies, seasonal activations.
Tech-Enabled Efficiency: AI tools improving media, promotion, and manufacturing ROI.
“We believe we will emerge… even stronger through the transformation, technology, and these capability advancements,” Buck emphasized.
Capital Allocation
Dividend & Buybacks: Not explicitly updated this quarter.
Leverage & Interest: $200M interest expense forecast; higher leverage post note issuance.
Tax Rate: Adjusted tax rate of ~24%; reported rate 27%
The Bottom Line
Hershey’s Q2 results show encouraging top-line momentum from strategic pricing and innovation, but profitability remains pressured by cocoa and tariff impacts. Still, transformation gains and automation investments offer line of sight to margin recovery by 2026. Key watch items include tariff exemption progress, cocoa futures stabilization, and the ramp-up of innovation and seasonal programs.
Investors should monitor:
• Execution of pricing strategies amid elasticity pressures
• Cocoa and tariff policy updates
• Innovation traction and shelf reset progress in H2
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