Hershey’s Bitter First Quarter: Can Strategic Sweet Spots Turn the Tide?

The Hershey Company’s Q1 2025 results painted a mixed picture for investors, with a sharp sales decline underscoring macroeconomic and operational headwinds. Yet beneath the surface, strategic moves in innovation, acquisitions, and cost discipline suggest the chocolate giant is positioning itself for long-term resilience.

A Rocky Start, But Reasons for Caution

Hershey reported a 13.8% year-over-year drop in net sales to $1.9 billion, driven by foreign currency headwinds (a 0.9% drag), fewer shipping days, and lingering effects from an ERP system rollout. Volume fell by 15%, offset only slightly by a 3% net price increase. shows a dip aligning with these results, though the company’s strong balance sheet and dividend history (maintained at $272M in Q1) offer some reassurance.

Segment Performance: Salty Snacks Shine, Confectionery Struggles

• North America Confectionery: Sales fell 15% as Easter timing shifts and ERP-related inventory adjustments weighed on volume. However, Easter 2025 drove an impressive 16% retail takeaway growth, with share gains of 120 basis points—the eighth consecutive seasonal win.
• North America Salty Snacks: A bright spot, with sales up 1% thanks to strong performance from Dot’s (20.6% retail takeaway growth) and SkinnyPop (5.4% consumption gains). Multi-pack innovations also boosted volume by 4%, though retailer fee adjustments dented price realization.
• International: Organic, constant-currency sales dropped 7.9%, with forex translating to an 8-point drag. Brazil and Mexico outperformed, but broader headwinds—such as inflation and distribution challenges—persisted.

Strategic Moves to Watch

1. Innovation Pipeline:
2. Reese’s launched Filled Pretzels and PB&J Big Cups, while HERSHEY’S KISSES Cinnamon Toast Crunch™ debuted nationwide. The Kit Kat Break Brothers campaign, timed to NCAA March Madness, targeted busy lifestyles.

3. New partnerships, like Pokémon-themed candies (fall 2025 launch) and Shaq-a-licious gummies, aim to reignite growth in chocolate and gummy categories.

4. Acquisitions:

5. The pending acquisition of organic snacking brand LesserEvil and protein-bar specialist FulFil North America signals a push into better-for-you categories, a growing consumer trend. These moves could expand Hershey’s reach in high-growth segments.

6. Cost Management:

7. The $125M annual savings target from the AAA initiative (Advancing Agility & Automation) is on track, with gradual implementation through 2025.
8. Tariff mitigation efforts, including seeking exemptions for cocoa imports, aim to offset ~$15–20M in incremental Q2 costs. Cocoa price hedging for 2025 and contingency plans for 2026 inflation add further stability.

Outlook: Near-Term Pain, Long-Term Potential

Despite Q1’s struggles, Hershey reaffirmed its 2025 outlook of at least 2% annual net sales growth, driven by a strong Q2 (with Easter timing normalization and ERP laps). Gross margins, however, face a 650–700 basis-point contraction due to cocoa inflation, a challenge compounded by tariff risks.

The company’s capital allocation strategy—prioritizing acquisitions ($500M share repurchase authorization deferred)—reflects confidence in its portfolio expansion. With $2.2 billion in cash and equivalents, Hershey has flexibility to navigate these headwinds while investing in high-margin innovations.

Conclusion: A Bumpy Ride, but the Roadmap Looks Solid

Hershey’s Q1 results are undeniably challenging, but its strategic bets—on innovation, acquisitions, and cost discipline—align with long-term growth drivers. The 2025 sales guidance of at least 2% growth, paired with a 20% Q2 rebound, suggests the company is managing cyclical pressures effectively.

Crucially, its core brands remain resilient: Easter’s 16% retail growth and Brazil’s mid-teens international sales expansion highlight enduring demand. With LesserEvil and FulFil adding $200M+ in combined annual revenue, the company is diversifying into faster-growing segments.

While investors must acknowledge near-term margin pressures, the fundamentals—strong brands, a disciplined balance sheet, and a focus on emerging trends—support a cautiously optimistic outlook. For those willing to look beyond Q1’s volatility, Hershey’s strategic playbook may yet deliver the sweetness investors crave.

Data Note: 2025E estimates incorporate Q1 performance and management guidance.