HSY Q2 2025: Pricing actions to deliver mid-teens mix gains in 2026
- Strong Pricing Strategy and Margin Recovery: The management highlighted that their pricing actions are significant, begetting mid‐teens price mix benefits in 2026 and positioning the company to achieve algorithm earnings growth, even as they address cocoa inflation and tariffs.
- Robust Investment in Brand Innovation and Technology: The company continues to invest in its brands, technology (e.g., new ERP and AI capabilities), and consumer insights, which supports sustainable growth and a resilient market position.
- Product Innovation Driving Category Leadership: Innovations across categories—such as new multipacks, premium salty snack offerings, and strategic launches like Reese’s peanut butter filled pretzels—highlight strong consumer appeal and expanding distribution opportunities.
- Persistent cocoa cost inflation and tariff uncertainty: Management acknowledged that the recent pricing actions do not fully recover the cumulative inflation from cocoa costs, and tariff risks remain unresolved, which could continue to pressure margins.
- Uncertainty in price elasticity: While the company is confident in its pricing strategy, there is inherent uncertainty around how consumers will respond to the higher prices, potentially leading to weaker volume growth and a negative impact on overall revenues.
- Challenging tax environment: The discussion highlighted a potential 250 basis point headwind on the economic tax rate, which could persist and further erode profitability.
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Leadership Reset
Q: Business needs reset; why Kirk?
A: Management sees no need for a reset as steady, long‐term investments have built sturdy momentum, and Kirk’s three decades at Pepsi with deep CPG experience make him the natural choice to lead the company forward. -
Pricing & Margin
Q: Will pricing elasticity and margins hold?
A: They expect roughly one‐to‐one elasticity with current pricing, projecting about a 2-point top‐line impact this year and a mid-teens benefit in 2026, carefully balancing cocoa cost pressures with revenue management. -
Tariff Exemption
Q: Any update on COCO tariff relief?
A: Management is increasingly optimistic that government signals will lead to tariff exemptions on cocoa, though negotiations remain ongoing and supply chain adjustments continue in parallel. -
Cocoa & EPS Impact
Q: Can pricing offset cocoa inflation on EPS?
A: While pricing actions are a big step toward margin recovery, they only partly cover the prior cocoa inflation, so additional cost savings and potential tariff relief are needed to drive EPS into double digits. -
Category Performance
Q: How are instant consumables performing?
A: The non-seasonal consumables segment is posting mid-single digit growth and gaining share through expanded distribution and innovation, even though tougher seasonal comparisons may slow future gains. -
Salty Snacks Growth
Q: What drives salty snack strength?
A: Salty snacks like Dots and Skinny Pop are outperforming the category, thanks to improved packaging, exclusive flavors, and innovative multipack combinations that boost household penetration. -
Cocoa Supply Dynamics
Q: How will cocoa supply evolve regionally?
A: Management expects a modest surplus from West Africa while new cocoa origins, backed by increased investment and better agricultural practices, play a growing role in a healthier overall market. -
Convenience Store Initiatives
Q: How are c-stores responding to innovations?
A: Despite softer traffic, convenience retailers are embracing new gold standard planograms and promotional initiatives, delivering high single-digit growth in the relevant categories. -
Tax Impact
Q: How durable are current tax pressures?
A: Current measures, including creative sourcing and evolving tax credits, yield about a 250 basis point headwind that management expects to carry into 2026 as tax conditions remain fluid. -
Health Policy Impact
Q: Will GLP-1 or SNAP changes affect demand?
A: Management sees no material impact from GLP-1 trends or SNAP policy shifts in 2025–26, as the core consumer demand for confectionery remains strong.
Research analysts covering HERSHEY.