HC
HERSHEY CO (HSY)·Q2 2025 Earnings Summary
Executive Summary
- Q2 2025 delivered strong top-line growth but compressed margins: net sales rose to $2.615B (+26% YoY) on inventory lap, later Easter, and early Halloween shipments; adjusted EPS was $1.21 (-4.7% YoY), while reported EPS fell to $0.31 due to sizable derivative mark-to-market losses and higher commodity costs .
- Results beat Wall Street consensus on revenue and adjusted EPS; revenue $2.615B vs $2.523B*, adjusted EPS $1.21 vs $1.00*, while gross margin came in below consensus (reported 30.5% vs 36.3%*) as cocoa inflation and mix drove pressure .
- Guidance updated: net sales growth maintained “up at least 2%,” but reported EPS growth lowered to down ~50% and adjusted EPS growth to down 36–38%; tariff expense now $170–$180M for full year, tax rates raised, and transformation savings increased to $150M .
- Management emphasized pricing actions (not tariff-related), productivity, and technology-enabled efficiencies to drive margin recovery into 2026; management sees “on-algorithm” earnings growth in 2026 with potential upside on tariff relief and easing cocoa costs .
- Additional catalysts: OREO/REESE’S collaboration launching in September 2025 and dividend declaration ($1.370 common, $1.245 Class B) reinforce brand momentum and capital return .
What Went Well and What Went Wrong
What Went Well
- Strong revenue and share gains: net sales rose 26%; CMG retail takeaway +21.8% and share +90bps on later Easter and everyday momentum; salty snacks takeaway +6.3% with Dot’s sales +13% and SkinnyPop share +49bps .
- Resilient execution and pricing: organic constant currency net sales +26.3% driven by ~21 points volume and ~5 points price; NAC price realization ~6 pts; NAS price realization ~5 pts .
- Strategic initiatives bolstered savings: “Advancing Agility & Automation” savings raised to ~$150M (from $125M), underscoring mix of productivity and tech-enabled efficiency .
Management quote: “Investments in our brands and impactful innovation… are driving solid sales and share gains… [and] mitigating cocoa inflation through strategic pricing, enhanced productivity, and technology enabled efficiency and speed.” — Michele Buck (CEO) .
Management quote: “Pricing has nothing to do with tariffs. This is strictly a touch-up on cocoa component.” — Steve Voskuil (CFO) .
What Went Wrong
- Margin compression continued: reported gross margin 30.5% (-970bps YoY) and adjusted gross margin 38.1% (-510bps YoY) due to derivative mark-to-market losses, higher commodity/manufacturing costs, unfavorable mix .
- Reported earnings dilution: reported operating margin fell to 7.4% (-650bps YoY) and reported EPS declined to $0.31 as mark-to-market losses and higher advertising and consumer marketing weighed on GAAP results .
- International softness: International profit fell $5.2M YoY with margin down 290bps, citing commodity/manufacturing inflation, FX headwinds, and incremental category/regulatory challenges in Mexico; price realization ~1 pt below expectations .
Financial Results
Consensus vs Actual (Q2 2025)
Values retrieved from S&P Global.*
Segment Breakdown
KPIs
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- Strategic positioning: “We remain committed to delivering balanced growth and have taken pivotal steps toward mitigating cocoa inflation through strategic pricing, enhanced productivity, and technology enabled efficiency and speed.” — Michele Buck .
- 2026 outlook: “Based on what we can see today… we see on-algorithm earnings growth and top-line growth for next year.” — Steve Voskuil .
- Pricing clarification: “The pricing has nothing to do with tariffs. This is strictly a touch-up on cocoa component.” — Steve Voskuil .
- Supply/demand for cocoa: “Grinds have come down… butter ratios… current crop modest surplus… next year’s main crop looking quite strong… other origins growing double digits.” — Steve Voskuil .
- Execution levers: Tech-enabled capabilities and ERP underpin efficiency; agility and automation savings increased to $150M .
Q&A Highlights
- Pricing magnitude and elasticity: Management modeled elasticities exhaustively; mid-teens price flow-through expected in 2026 with ~80% profit benefit realized next year; pricing focused on cocoa inflation, not tariffs .
- Tariff relief prospects: Increased optimism for cocoa tariff exemption; administration engaged; potential upside to 2026 algorithm if relief materializes .
- Seasonal dynamics: Some Halloween shipments pulled into Q2; retailers targeting strong Halloween; “Summer Ween” trend noted .
- Salty snack strength: Dot’s and SkinnyPop momentum; permissible indulgence positioning; innovation (e.g., Reese’s Peanut Butter-Filled Pretzels) and multi-packs expanding distribution .
- Tax rate modeling: Economic tax rate headwind (~250bps) likely carries into 2026; tax credit strategy less accretive near term .
Estimates Context
- Q2 2025 beat: Adjusted EPS $1.21 vs consensus $1.00*; revenue $2.615B vs consensus $2.523B* .
- Operating metrics: Reported gross margin 30.5% vs consensus 36.3%; EBIT $192.8M vs consensus $315.8M — reflecting derivative mark-to-market losses and higher commodity/manufacturing costs .
- Outlook implication: Consensus may need to revise near-term margin/EBIT trajectories lower given full-year tariff inclusion, higher effective tax rates, and continued cocoa cost inflation; price realization and productivity are partial offsets .
Values retrieved from S&P Global.*
Key Takeaways for Investors
- Quality of revenue beat: Strong top-line driven by inventory lap, seasons, and early Halloween shipments; everyday CMG improving, salty snacks sustaining gains — constructive for H2 sell-through and shelf space .
- Margin recovery is a 2026 story: Near-term margins pressured by commodity/tariffs; pricing and $150M savings program set groundwork for 500bps+ gross margin recovery in 2026, contingent on cocoa/tariff path .
- Estimates likely recalibration: Expect upward adjustments to revenue and adjusted EPS for Q2 prints, but cautious margin/EBIT tracks given GAAP pressures and tax rate elevation .
- Watch policy developments: Any cocoa tariff exemption would be a material earnings catalyst; management’s commentary grew more optimistic this quarter .
- Brand/inno pipeline supports share: OREO/REESE’S collaboration and salty innovations (multi-packs, flavor extensions) provide volume resiliency against pricing actions .
- Capital returns maintained: Dividend declaration sustained cadence; balance sheet supports investment and selective M&A (e.g., Sour Strips) to expand BFY portfolio .
- Trading setup: Near-term narrative hinges on margin optics vs strong revenue momentum; catalysts include tariff updates, cocoa pricing trends, Halloween execution, and elasticity tracking from pricing implementation .