The Hershey Company Earnings: Pricing Bought Time — 2026 Is the Margin Test
- Hardik Shah
- 3 hours ago
- 3 min read
Hershey Earnings Snapshot: What Happened
Hershey closed 2025 with solid top-line performance but heavily pressured profitability, reflecting one of the most volatile cost environments in the company’s history.
Q4 net sales: +7.0% reported; +5.7% organic
FY 2025 net sales: +4.4% reported; +4.2% organic
Growth was driven primarily by ~9–10 points of net price realization, partially offset by elasticity-driven volume declines
Adjusted gross margin declined sharply in 2025 due to cocoa inflation, tariffs, and derivative impacts
Adjusted EPS: $6.31 for FY 2025, down materially year over year
Management framed 2025 as a defensive year, prioritizing revenue durability and brand investment over near-term margin protection.
Core Driver 1: Pricing Did the Heavy Lifting
Pricing was the central lever across Hershey’s portfolio in 2025. In Q4 alone, net price realization contributed approximately nine points of growth, enabling the company to offset unprecedented cocoa inflation and tariff-related cost pressure.
Volumes declined across North America Confectionery and International, reflecting elasticity, but management characterized demand response as orderly and within expectations.
“Net price realization contributed approximately nine points of growth, partially offset by elasticity-driven volume declines in the North America Confectionery and International segments.”— Steve Voskuil, Senior Vice President and Chief Financial Officer
The takeaway for investors is not that volumes declined, but that pricing achieved its objective: protecting the earnings base and funding continued investment through peak cost pressure.
Core Driver 2: Portfolio Mix Is Absorbing the Shock
Pricing alone did not stabilize the model. Portfolio mix mattered — materially.
Hershey’s North America Salty Snacks segment delivered:
+28.0% reported growth in Q4
+18.2% organic growth, driven by volume, distribution, and variety-pack expansion
Margin expansion, supported by productivity and lower promotional intensity
Brands such as SkinnyPop, Dot’s Pretzels, and the newly acquired LesserEvil are scaling faster than the core confection business and carry lower commodity risk, providing an important counterbalance to cocoa-driven volatility.
Margins: What Broke in 2025 vs. What Fixes in 2026
Reported margin performance in 2025 was heavily distorted by:
Elevated cocoa and input costs
Incremental tariff expenses
Significant derivative mark-to-market losses tied to hedging mechanics
Adjusted gross margin declined 650 basis points in Q4, but management emphasized that results still exceeded internal expectations due to supply chain productivity and transformation savings .
Importantly, management was explicit that 2025 represented the margin trough.
“We expect to deliver approximately 400 basis points of gross margin recovery in 2026.”— Kirk Tanner, President and Chief Executive Officer
Margin recovery is expected to be back-half weighted, as higher-cost inventory and tariff impacts roll off through the first half of the year.
2026 Outlook: An Earnings Algorithm, Not a Hopeful Reset
Hershey’s 2026 guidance reflects a margin-led earnings recovery, not a volume-driven rebound.
Management outlined a clear operating algorithm:
Net sales growth: 4–5%
Gross margin recovery: ~400 bps
Productivity & transformation savings: ~$230 million
Adjusted EPS growth: 30–35%
Notably, this recovery is expected despite higher investment levels, including double-digit increases in advertising and stepped-up spending on R&D, data, and supply chain capabilities.
The message: margin recovery is coming from cost normalization and productivity, not from pulling back on growth investments.
Capital Allocation: A Confidence Signal
Capital allocation reinforces management’s confidence in the margin recovery thesis.
Key actions include:
A 6% dividend increase
Continued elevated capital expenditures focused on automation, technology, and capacity
Disciplined bolt-on M&A, highlighted by the LesserEvil acquisition
Flexibility to resume share repurchases over time
Rather than retrenching, Hershey is choosing to reinvest and return capital simultaneously, signaling belief that pricing has largely reset and margins are structurally positioned to recover.
What to Watch for 2026
Hershey exited 2025 having stabilized the business through pricing, productivity, and portfolio diversification amid extraordinary cost pressure.
The focus now shifts to execution. In 2026, earnings growth is expected to be driven by margin recovery and mix, not incremental pricing. With costs easing, productivity gains in place, and capital deployed toward both reinvestment and returns, the setup is clear.
The remaining question is straightforward: can Hershey convert a defensive pricing reset into sustainable margin expansion while maintaining demand? 2026 will provide the answer.
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