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HERSHEY CO (HSY)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 net sales fell 13.8% to $2,805.4M and adjusted diluted EPS declined 31.9% to $2.09 amid higher cocoa/manufacturing costs and derivative mark-to-market losses; reported diluted EPS was $1.10 .
  • Results modestly exceeded Wall Street consensus: adjusted EPS $2.09 vs $1.93 consensus and revenue $2,805.4M vs $2,793.5M; EBITDA missed the $668.1M consensus with actual $509.9M, reflecting margin compression and commodity headwinds (values marked with asterisks from S&P Global)*.
  • 2025 guidance reiterated: net sales growth at least 2%; reported EPS down high-40% range; adjusted EPS down mid-30% range. The company only included Q2 tariff expense ($15–$20M) in guidance and highlighted potential unmitigated H2 tariff impact up to ~$100M per quarter, with mitigation actions forthcoming .
  • Salty Snacks performance was a bright spot (net sales +1%, margin +100 bps), with SkinnyPop and Dot’s gaining share; seasonal sweets consumption remained strong. Dividend declared: $1.370 (Common), $1.245 (Class B), payable June 16, 2025 .

What Went Well and What Went Wrong

What Went Well

  • Salty Snacks resilience: net sales +1.0% and segment margin +100 bps to 15.1% on productivity, favorable mix, and transformation savings; SkinnyPop share +190 bps and Dot’s pretzel share +337 bps .
  • Seasonal/sweets momentum: management noted “consumption exceeded our expectations in both U.S. Candy, Mint, and Gum and Salty Snacks,” driven by seasons, sweets, Dot’s and SkinnyPop .
  • SG&A discipline: selling, marketing and administrative expenses -9.6%; advertising -14.2% YoY, reflecting timing and transformation savings .

What Went Wrong

  • Gross margin compression: reported GM 33.7% (-1,780 bps YoY) and adjusted GM 41.2% (-370 bps), driven by derivative mark-to-market losses, higher commodity/manufacturing costs, unfavorable mix, and lower volumes .
  • Volume headwinds: organic volume/mix -15 pts total; -18 pts in North America Confectionery, impacted by lapping ERP-related inventory build, later Easter, and two fewer shipping days .
  • Higher tax rate and mark-to-market: reported effective tax rate rose to 30.7% (+1,160 bps YoY), while derivative mark-to-market losses reduced comparability; non-GAAP EPS uplift from adjustments totaled $0.99 per diluted share .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$2,987.5 $2,887.5 $2,805.4
Reported EPS - Diluted ($)$2.20 $3.92 $1.10
Non-GAAP EPS - Diluted ($)$2.34 $2.69 $2.09
Reported Gross Margin (%)41.3% 54.0% 33.7%
Non-GAAP Gross Margin (%)40.3% 44.8% 41.2%
Reported Operating Margin (%)20.5% 32.5% 13.2%
Net Margin (%)14.9% 27.6% 8.0%

Segment net sales and income

SegmentQ3 2024 Net Sales ($MM)Q4 2024 Net Sales ($MM)Q1 2025 Net Sales ($MM)Q3 2024 Segment Income ($MM)Q4 2024 Segment Income ($MM)Q1 2025 Segment Income ($MM)
North America Confectionery$2,477.3 $2,354.2 $2,300.1 $724.8 $808.2 $696.4
North America Salty Snacks$291.8 $278.9 $277.8 $54.0 $54.5 $41.9
International$218.4 $254.5 $227.5 $14.2 $29.6 $28.7

KPIs

KPIQ1 2025
U.S. CMG retail takeaway (12 weeks ended Mar 23, 2025, MULO+ w/ Convenience)-4.2%; CMG share -44 bps YoY (later Easter effect)
U.S. salty snack retail takeaway (12 weeks ended Mar 30, 2025, MULO+ w/ Convenience)+9.6%
SkinnyPop ready-to-eat popcorn takeaway+6.4%; share +190 bps
Dot’s Homestyle Pretzels retail sales+20.7%; pretzel category share +337 bps
Segment margins Q1 2025NAC 30.3%; Salty 15.1%; International 12.6%

Non-GAAP adjustments (Q1 2025)

Adjustment (EPS impact)Q1 2025
Derivative mark-to-market losses (gains)+$1.04
Business realignment activities+$0.12
Acquisition/integration-related activities+$0.01
Tax effect of adjustments-$0.18
Net non-GAAP uplift+$0.99

Guidance Changes

MetricPeriodPrevious Guidance (Feb 6, 2025)Current Guidance (May 1, 2025)Change
Net Sales GrowthFY 2025At least 2% At least 2% (Sour Strips ~+30 bps; FX headwind ~50 bps) Maintained (FX headwind increased)
Reported EPS GrowthFY 2025Down high-40% range Down high-40% range Maintained
Adjusted EPS GrowthFY 2025Down mid-30% range Down mid-30% range Maintained
Effective Tax RateFY 2025~14%–15% ~16% reported and adjusted Raised
Other ExpenseFY 2025~$170–$180M ~$170–$180M Maintained
Interest ExpenseFY 2025~$190–$195M ~$185–$190M Lowered
Capital ExpendituresFY 2025~$425–$450M ~$425–$450M Maintained
Agility & Automation SavingsFY 2025~$125M ~$125M Maintained
Tariff Expense (U.S. import/retaliatory)Q2 2025Not previously quantified~$15–$20M New inclusion (Q2 only)
Dividend (per share)Q2 2025N/ACommon $1.370; Class B $1.245; payable Jun 16, 2025 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2024; Q-1: Q4 2024)Current Period (Q1 2025)Trend
Tariffs/macroNo full-year tariff inclusion in prior guides ; commodity cost pressures persist Q2 tariff expense $15–$20M; unmitigated H2 impact up to ~$100M/quarter; mitigation levers (pricing, productivity, sourcing) in progress Deteriorating risk; mitigation planned
ERP & inventory timingERP-related inventory dynamics impacted Q3 (Salty) ; lap of ERP effects benefitted Q4 Volume headwinds from lapping ERP-related inventory build; fewer shipping days; later Easter Normalizing through mid-year
Pricing & Price Pack Architecture (PPA)Net price realization aided Q4 (approx +3 pts) PPA and seasonal pricing to lift Q2–Q3; further plans forthcoming (cannot pre-announce) Improving execution H1→H2
Seasonal chocolate vs everydaySeasonal strength in Q4 Expect low-single-digit growth in everyday CMG in H2; sizeable Reese’s innovation in fall Improving into H2
Sweets categoryBuilding momentum Management sees long-term growth; innovation in new forms (e.g., JR Ropes, freeze-dried) Structural tailwind
International competitionQ3: higher competitive activity Brazil/Mexico Competitive environment normalized; share gains in India, Brazil; Mexico spicy strength Improving
Regulatory (SNAP, additives)Not highlighted previouslySNAP changes expected immaterial; proactive on additives; chocolate less impacted; sweets portfolio reformulating Manageable risk
Capacity & supply chainOngoing investments Reese’s chocolate processing facility increases agility, vertical integration; supports seasonal/execution Strategic capability uptrend

Management Commentary

  • “Consumption in the quarter exceeded our expectations in both U.S. Candy, Mint, and Gum and Salty Snacks… Despite heightened cost pressure, our strong balance sheet gives us flexibility to invest… and participate in recent strategic acquisitions…” — Michele Buck, President & CEO .
  • On tariffs: “The unmitigated impact could be up to $100 million per quarter for Q3 and Q4… we’re going to use every lever… productivity, pricing, sourcing, manufacturing changes.” — Steven Voskuil (CFO) and Michele Buck .
  • On innovation: “We are expecting low single-digit growth in everyday CMG [in H2]… very strong innovation in the back half… biggest Reese’s innovation ever.” — Michele Buck .
  • On category resilience: “Everyday chocolate pricing is up 8%, volume down 4.5%… another good indicator of the category holding up incredibly well.” — Michele Buck .

Q&A Highlights

  • Tariff magnitude and mitigation: CFO quantified Q2 tariff ($15–$20M) and unmitigated H2 risk (~$100M/quarter), with mitigation levers (pricing, productivity, sourcing, lobbying) in-flight; more specifics by mid-year .
  • Gross margin/SG&A phasing: Q2 gross margin expected down ~700 bps YoY; SG&A dollars up high-teens due to lapping low spend post-ERP; H1 EPS down ~30%, implying H2 down ~40% vs guide .
  • Everyday chocolate trajectory: Expect low single-digit growth in H2, supported by innovation and improved instant consumable placement .
  • Capital allocation: No buybacks planned in 2025 near-term given M&A focus; long-term philosophy unchanged .
  • Regulatory (SNAP/additives): SNAP exposure minimal; proactive on reformulations; chocolate less impacted; sweets more exposed but manageable .

Estimates Context

MetricQ3 2024 ConsensusQ3 2024 ActualQ4 2024 ConsensusQ4 2024 ActualQ1 2025 ConsensusQ1 2025 Actual
Primary EPS - Diluted ($)2.55147*2.34 2.37515*2.69 1.93465*2.09
Revenue ($USD Millions)3,072.107*2,987.5 2,842.543*2,887.5 2,793.469*2,805.4
EBITDA ($USD Millions)N/AN/AN/AN/A668.123*509.9*
  • Q1 2025: EPS and revenue were modest beats vs consensus; EBITDA was a significant miss, reflecting margin pressure and mark-to-market/commodity cost dynamics.
  • Q4 2024: Broad-based beat on EPS and revenue, aided by derivative gains and transformation savings.
  • Q3 2024: EPS and revenue misses amid higher commodity costs and volume/mix headwinds.

Values marked with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term risk skewed to tariffs: Unmitigated H2 exposure up to ~$100M/quarter; watch for mid-year mitigation specifics and potential legislative relief—stock likely sensitive to headline risk and mitigation clarity .
  • Margin pressure persists: Q2 GM guidance (-~700 bps) and continued commodity/mix headwinds suggest cautious positioning into H1; transformation savings partially offset .
  • H2 setup constructive: Seasonal strength, everyday chocolate low single-digit growth target, and major Reese’s innovation should underpin top-line stabilization in back half .
  • Salty Snacks diversification working: SkinnyPop/Dot’s share gains support portfolio resilience when cocoa is volatile; continued capacity focus (Dot’s/pretzel) and potential LesserEvil acquisition broaden better-for-you platform .
  • Guidance stability but parameters tightened: Tax rate raised to ~16% and interest expense lowered; FX headwind increased—model fine-tuning required .
  • Capital allocation balanced: Dividends maintained; buybacks sidelined short term in favor of M&A (LesserEvil) .
  • Trading setup: Expect volatility around tariff developments and H2 mitigation disclosures; potential catalysts include tariff exemptions/relief, H2 innovation performance, and signs of margin stabilization .