Q1 2025 Earnings Summary
- Robust Innovation Pipeline: The company is rolling out significant brand innovations, including what they describe as the "biggest innovation ever on the Reese’s brand," expected to drive consumer engagement and market share in the fall.
- Proactive Pricing Strategy and Value Extraction: Hershey is successfully leveraging price pack architecture and pricing increases—evidenced by everyday chocolate pricing up 8% even as volumes slightly decline—which positions the firm to maintain margins amid commodity pressures.
- Effective Mitigation of Tariff Impacts: Despite potential tariff headwinds (with unmitigated impacts up to $100 million per quarter in Q3/Q4), the company is deploying multiple levers (including productivity, sourcing, and pricing actions) to offset these costs and preserve earnings growth next year.
- Significant Tariff Exposure: The management outlined an unmitigated tariff impact of up to $100 million per quarter in Q3 and Q4, with about 2/3 of that exposure tied to cocoa tariffs. This presents downside risk if mitigation actions or exemptions fail to materialize.
- Margin Pressure from Cost Increases: Guidance indicated that gross margins are expected to decline by approximately 700 basis points in Q2, alongside materially higher SG&A expenses. Combined with elevated cocoa costs, these factors could squeeze earnings further.
- Competitive and Operational Challenges: The discussion highlighted intensified competition—especially from smaller players in U.S. chocolate—and uncertainty around channel trends amid a softening consumer sentiment. This competitive pressure, along with potential regulatory impacts (e.g., SNAP restrictions), adds to the risk profile of the business.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue (Net Sales) | 14% decline (from $3,252.7M in Q1 2024 to $2,805.4M in Q1 2025) | Lower volume (approximately 15% decline driven by ERP-related accelerated shipments in Q1 2024, fewer shipping days, and timing shifts such as Easter) led to a significant drop in net sales despite slight price offset effects. |
North America Confectionery | 15% decline (from $2,707.3M in Q1 2024 to $2,300.1M in Q1 2025) | Accelerated shipments in the prior period and resultant volume declines in Q1 2025 critically impacted sales, reflecting challenges in managing inventory and seasonal timing adjustments. |
North America Salty Snacks | 1% increase (from $275.1M in Q1 2024 to $277.8M in Q1 2025) | Stable performance in this segment was due to modest volume gains of about 4% (driven by Dot’s Homestyle Pretzels) being almost completely offset by unfavorable price realization (around 3%), resulting in essentially flat net sales. |
International | 16% decline (from $270.3M in Q1 2024 to $227.5M in Q1 2025) | Unfavorable foreign currency impacts and volume declines (with about 8% drop due to ERP timing and fewer shipping days) were primary drivers behind the significant reduction in international net sales. |
Operating Profit | 65% decline (from $1,058,100K in Q1 2024 to $369,221K in Q1 2025) | Sharp reductions in gross profit (due to lower sales and higher costs) combined with increased mark-to-market derivative losses, higher interest expense, and an elevated tax rate contributed to the dramatic drop in operating profit. |
Net Income | 72% decline (from $797,453K in Q1 2024 to $224,203K in Q1 2025) | Drastic compression in profitability resulted from lower net sales, increased cost of sales, substantial derivative losses, and a higher effective tax rate; these factors cumulatively impacted net income compared to the strong performance in Q1 2024. |
Gross Profit | 44% decline (from $1,676,081K in Q1 2024 to $944,267K in Q1 2025) | Combination of lower net sales volume and an 18% increase in cost of sales led to a fall in gross profit with gross margin dropping from 51.5% to 33.7%, illustrating worsening cost pressures compared to Q1 2024. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Margin | Q1 2025 | 41% | no current guidance | no current guidance |
Shipping Days | Q1 2025 | Two fewer shipping days | no current guidance | no current guidance |
Gross Margin | Q2 2025 | no prior guidance | Down about 700 basis points | no prior guidance |
SG&A | Q2 2025 | no prior guidance | Up meaningfully with high teens y/y growth | no prior guidance |
Tariff Impact | Q2 2025 | no prior guidance | $15 million to $20 million | no prior guidance |
Pricing | Q2 2025 | no prior guidance | Pricing expected to increase | no prior guidance |
Tariff Impact | Q3 2025 | no prior guidance | Unmitigated tariff impact up to $100 million per quarter | no prior guidance |
Shipping Days | Q4 2025 | One fewer shipping day | no current guidance | no current guidance |
Tariff Impact | Q4 2025 | no prior guidance | Unmitigated tariff impact up to $100 million per quarter | no prior guidance |
Elasticity | FY 2025 | Historic elasticities at minus one level | no current guidance | no current guidance |
Gross Margin | FY 2025 | Implied gross margin: 35% | no current guidance | no current guidance |
Shipping Days | FY 2025 | Net impact – one fewer shipping day | no current guidance | no current guidance |
Sales Outlook | FY 2025 | Muted sales outlook | no current guidance | no current guidance |
International Growth | FY 2025 | Tightened competitive activity in international segment | no current guidance | no current guidance |
EPS | FY 2025 | no prior guidance | Down mid‑30s | no prior guidance |
Revenue Phasing | FY 2025 | no prior guidance | Back half revenue growth expected to align with 2%–4% | no prior guidance |
International Performance | FY 2025 | no prior guidance | Strong international growth in Brazil, India and Mexico | no prior guidance |
EPS Growth | FY 2026 | Path to EPS growth based on cocoa price reductions | no current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Gross Margin | Q1 2025 | 41% | 33.7% (calculated from net salesOf 2,805,419 and cost of salesOf 1,861,152) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Innovation | Mentioned consistently across Q2–Q4 2024 with focus on sweets innovation, incremental launches (e.g. Shaq, JR Freeze Dried, pandemic-era products) and planned major innovations for Reese’s | Q1 2025 emphasizes robust innovation for everyday chocolate, an expanded sweets category, and what is touted as the “biggest-ever innovation for Reese’s” | Consistent focus with enhanced optimism and more ambitious innovation plans in Q1 2025. |
Pricing Strategy and Margin Management | Across Q2 to Q4 2024, detailed discussions on selective pricing increases (6–7% increases, single-digit moves), hedging techniques, managing elasticity, and margin pressures through cost management and ERP impact | Q1 2025 continues a nuanced, multifaceted strategy with measured pricing actions, capacity expansion for flexibility, seasonal pricing adjustments and proactive cost management in response to cocoa inflation and supply challenges | Steady emphasis with ongoing refinement; Q1 2025 shows intensified focus on agility and cost management. |
Tariff Impact Mitigation and Commodity Price Volatility | Earlier periods (Q2–Q4 2024) primarily discussed commodity price volatility—especially cocoa—and hedging practices, with little to no mention of tariff impact mitigation | In Q1 2025, there is an explicit discussion of tariff impact mitigation, estimating up to a $100 million unmitigated impact per quarter and outlining lobbying, sourcing, and packaging initiatives alongside continued monitoring of commodity volatility | New emphasis on tariffs added to ongoing commodity price focus, reflecting increased external cost pressures. |
Margin Pressure and Cost Increases | Q2–Q4 2024 consistently highlighted margin pressures from rising cocoa costs, ERP system timing effects, and volume mix challenges; cost increases due to inflation were a common theme | Q1 2025 reports a projected 700 basis point decline in gross margin for Q2, along with high SG&A growth and elevated cost pressures from cocoa inflation and tariffs, underscoring an even more cautious approach | Persistent concern that is becoming more acute, prompting proactive mitigation amid escalating cost pressures. |
Competitive Landscape and Market Share Dynamics | Discussions in Q2–Q4 2024 described competitive pressures both domestically (private labels, smaller players) and internationally (intense promotions in Brazil/Mexico), along with challenges in market share in core chocolate | In Q1 2025, the competitive environment is described as stable with normalized international competition and market share gains in key territories (India, Brazil, Mexico), driven by innovation and strategic pricing | Slight improvement in market dynamics and share gains despite consistent external pressures. |
Shifting Consumer Preferences and Health/Wellness Trends | Q2–Q4 2024 conversations touched on consumers’ focus on value, health-oriented preferences (low sugar, protein lines) and noted a mild GLP-1 impact in Q3, with overall trends in healthier eating emerging gradually | Q1 2025 confirms continued consumer focus on value and healthier options while emphasizing the emotional, comforting role of chocolate and strong performance in premium and permissible snack categories | Consistent trend with added nuance on emotional connections; companies continue to adapt to health/wellness without drastic shifts. |
Channel Distribution and Seasonal Performance | Q2–Q4 2024 discussions focused on channel challenges (convenience store softness, shifts to mass/dollar channels), improvements via gold standard planograms, and clear seasonal order visibility, though some seasonal variations (Halloween, Easter) impacted orders | Q1 2025 highlights evolving distribution with shifts toward club stores, dollar and online channels, and strong seasonal performance bolstered by a $1B capacity expansion that improves agility in meeting peak demand | Ongoing adaptation with strategic investments leading to better seasonal and channel performance. |
Operational Efficiency and Supply Chain Optimization | Q2 2024 emphasized transformation programs, cost-saving through ERP and automation, and Q3 2024 detailed productivity programs (AAA, CI) to drive supply chain improvements; Q4 had less detail on this topic | Q1 2025 leverages a significant $1B capacity expansion (notably for Reese’s chocolate processing) to improve supply chain control, vertical integration, and overall operational efficiency | Consistent focus on efficiency, now augmented by major capacity investment to enhance future responsiveness. |
International Market Competition | Q3 and Q4 2024 described intense competition in key international markets (notably Brazil and Mexico) with pricing pressures and heavy promotions, highlighting challenges for smaller market segments | Q1 2025 presents a more normalized international landscape with strong performance, including double-digit organic growth in Brazil and share gains in India and Mexico, reflecting successful innovation and market adjustments | Improvement observed internationally with easing competitive pressures and increased share gains relative to previous periods. |
Financial Performance and Guidance | In Q2–Q4 2024, guidance was cautious with minor adjustments due to inventory and timing, margin pressures explained through ERP benefits, and challenges from commodity inflation, while strategic investments were noted for future EPS growth | Q1 2025 offers a cautiously optimistic outlook with emphasis on long-term earnings growth (targeting EPS growth for 2026), proactive pricing and capacity expansion supporting revenue resiliency, and careful mitigation of cost impacts | Balanced outlook – ongoing caution amid cost challenges but supported by strategic investments and clearer medium-term guidance. |
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Tariff Impact
Q: What’s the tariff risk into Q3/Q4?
A: Management expects unmitigated tariff impact to reach $100 million per quarter, mainly from cocoa tariffs in Canada, though extensive mitigation efforts are underway. -
EPS Outlook
Q: How will Q2 EPS compare to Q1?
A: EPS in Q2 is projected to decline less than Q1’s 30% drop, bolstered by strong Easter sales and ERP adjustments, even as gross margins compress by 700 bps. -
Earnings Growth
Q: Can 2026 earnings grow despite tariffs?
A: Despite high cocoa prices and tariff headwinds, management sees a path to earnings growth in 2026—albeit a narrower one that hinges on robust mitigation measures. -
Pricing & Market Share
Q: Are pricing actions boosting market share?
A: Early pricing initiatives, including price pack architecture, are already improving shelf placements and customer trips, contributing to positive market share trends. -
Nonseasonal Chocolate
Q: Will everyday chocolate grow?
A: Management expects low single-digit growth in everyday chocolate, driven by significant, upcoming innovations in the product line. -
Capacity Expansion
Q: How does capacity expansion work amid volume cuts?
A: The new chocolate processing facility enhances supply chain agility and overcomes past capacity constraints, supporting stronger seasonal performance despite lower volume forecasts. -
Pricing Strategy
Q: What advancements have been made in pricing?
A: Ongoing reforms, including reformulation and price pack adjustments, aim to deliver better consumer value without direct price hikes, balancing short- and long-term needs. -
SNAP Impact
Q: How significant are SNAP purchases?
A: Only about 2% of candy sales occur through SNAP channels, suggesting minimal business impact from potential regulatory changes. -
International Growth
Q: How is international competition faring?
A: Strong performances in markets such as Brazil and India—with normalized competition—are underpinning healthy organic growth internationally.
Research analysts covering HERSHEY.