Hershey's Strategic Shifts: Navigating Leadership Changes and Snacking Growth Amidst Headwinds

The Hershey Company (HSY) stands at a pivotal juncture, as CEO Kirk Tanner transitions into his new role, inheriting a legacy of iconic brands while steering the company through evolving consumer preferences, supply chain pressures, and a bold acquisition. This article evaluates whether HSY's strategic moves—led by Tanner's turnaround expertise and the LesserEvil acquisition—position it as a buy despite near-term challenges.

Kirk Tanner's Track Record: A Turnaround Specialist in Consumer Goods

Tanner's 32-year tenure at PepsiCo, where he revitalized the $26 billion PepsiCo Beverages North America division, highlights his ability to drive operational efficiency and innovation. At Wendy's, he spearheaded initiatives like the AI-driven FreshAI drive-thru system, boosting customer satisfaction and sales. This experience is critical as HSY faces margin pressures from rising cocoa costs and tariffs.

While HSY's stock has underperformed peers recently (down 11% over three months vs. 9% for the industry), Tanner's track record suggests he can apply his turnaround expertise to HSY's core chocolate business and salty snacks division, which now accounts for 10% of revenue.

The LesserEvil Acquisition: Fueling the "Leading Snacking Powerhouse" Vision

HSY's $750 million acquisition of LesserEvil—a brand known for organic popcorn, Paleo Puffs, and better-for-you snacks—is a masterstroke in the $750 billion global snacking market. The deal expands HSY's reach into high-growth categories like organic snacks (projected to grow 13.6% globally by 2026) and positions it to capture 68% of consumers seeking healthier options.

LesserEvil's 2023 gross sales of $103 million underscore its market traction, while its “speed-to-market” innovation (e.g., upcycled-fruit snacks) aligns with HSY's goal to double the salty snacks division's revenue contribution to 20% by 2030.

Near-Term Risks: Tariffs, Cocoa Costs, and Execution

HSY faces headwinds:
1. Input Costs: Cocoa prices have surged 30% since early 2023, squeezing margins in its core chocolate business.
2. Trade Barriers: U.S.-Mexico-Canada Agreement (USMCA) tariffs on imported chocolates could add $100 million in annual costs.
3. Integration Risks: Merging LesserEvil's agile culture with HSY's legacy systems requires meticulous execution to avoid disruptions.

Despite these challenges, HSY's dividend (yielding 1.8%) remains resilient, supported by $11 billion in annual revenue and a 47% U.S. market share in snack-sized confections.

Investment Thesis: Long-Term Growth Outweighs Near-Term Pain

HSY's strategic pivot to better-for-you snacks is timely. The LesserEvil acquisition addresses the $7 billion multi-pack salty snacks market and caters to consumers snacking 3+ times daily (48.8% of Americans). Additionally:
- Innovation Pipeline: New products like Reese's Jumbo Cup and ONE Hershey's Protein Bar merge indulgence with nutrition.
- Operational Synergies: LesserEvil's manufacturing capacity and HSY's global supply chain (ranked #1 in customer service) create cost efficiencies.
- Dividend Stability: A 95% payout ratio and 10-year dividend growth streak provide a safety net during margin pressures.

Conclusion: Buy the Dip, but Monitor Margins

HSY is a compelling long-term play for investors seeking exposure to the snacking boom. Tanner's expertise in turnaround strategies and the LesserEvil acquisition's growth potential justify a buy rating, even as tariffs and cocoa costs test short-term profitability.

At a P/E ratio of 21x (slightly above the confectionery sector average), HSY is fairly priced. Investors should focus on margin recovery (post-2026 tariff adjustments) and LesserEvil's performance milestones. For income investors, the dividend's resilience adds further appeal.

Final Take: Hold HSY through 2025's turbulence, but prioritize dollar-cost averaging. The path to becoming a “Leading Snacking Powerhouse” is clear—execution will determine the payoff.