Hershey's Cocoa Tariff Battle: A Sweet Deal or Sour Prospect?
22min read The chocolate giant hershey (HSY) finds itself at a crossroads. With tariffs on cocoa imports threatening to erode margins and complicate global supply chains, the company’s ability to secure an exemption could determine its financial trajectory in 2025 and beyond.
The Tariff Situation: A Global Ingredient, Local Headache
Hershey relies on cocoa beans sourced from countries like Côte d’Ivoire (21% tariff), Ecuador (10%), and Ghana (21%), all critical to its supply chain. The U.S. imposed a 10% baseline tariff on all imports in April 2025, with higher rates for nations deemed non-compliant with trade policies. For Hershey, this means up to $100 million in tariff costs annually if the exemption is denied.
The company has engaged U.S. policymakers aggressively, arguing that cocoa cannot be grown domestically. Yet as of May 2025, the exemption remains unresolved, leaving Hershey exposed to escalating costs.
The Financial Toll: Margins in the Frying Pan
The tariff battle is already biting into profits. In Q2 2025, tariffs are projected to cost $15–$20 million, rising sharply as cocoa inventories dwindle. CFO Steve Bockel warned that unresolved tariffs could slash gross margins by 700 basis points in Q2 alone.
Full-year earnings are expected to drop by the mid-30s percentage range, with EPS declining by less than the 30% Q1 plunge. But the real risk lies in Q3 and Q4, when tariff costs could spike to $100 million, compounding existing pressures from high cocoa prices and Canadian retaliatory tariffs (25% on certain goods).
Mitigation Moves: Pricing, Politics, and Pragmatism
Hershey isn’t waiting for a resolution. It’s deploying a “toolbox” of strategies:
- Price hikes: Already implemented on premium products, with more adjustments planned.
- Supply chain reconfigurations: Shifting sourcing routes and optimizing logistics to avoid tariffs.
- Lobbying: CEO Michele Buck is pushing policymakers to recognize cocoa’s unique status as an irreplaceable, non-domestic ingredient.
Yet these steps have limits. Even with adjustments, Bockel admits tariffs could still “drain” margins unless exemptions are granted.
Regulatory Crosswinds: Trade Wars and Cocoa’s Fate
The tariff saga is intertwined with broader geopolitical trends. The U.S. government’s reciprocal trade policy, which imposed the baseline 10% rate, is part of a strategy to pressure trading partners. Meanwhile, Canada’s retaliatory tariffs—targeting U.S. goods—add another layer of complexity, particularly for Hershey’s cross-border sales.
The 90-day pause on new tariffs, set to expire in July 2025, looms large. If the pause ends without exemptions, the financial pain could deepen.
Investment Implications: Bitter or Sweet?
For investors, the calculus hinges on two factors:
1. Exemption Approval: A positive outcome could alleviate the $100M tariff burden, stabilizing margins and restoring confidence.
2. Consumer Demand: Despite price hikes, U.S. consumers are cutting back on discretionary purchases like candy. If demand weakens further, even a tariff win might not offset losses.
Hershey’s stock (HSY) has underperformed the S&P 500 in 2025, reflecting this uncertainty. Yet the company’s long-term growth drivers—new product launches (e.g., Reese’s innovations) and expanded chocolate capacity—remain intact, contingent on tariff relief.
Conclusion: The Cocoa Clock is Ticking
Hershey’s fate in 2025 is a high-stakes game of regulatory roulette. With $100 million in tariff costs hanging in the balance, the company’s ability to secure an exemption will determine whether 2025 is a year of survival or strategic retreat.
If the exemption is granted, Hershey’s margins could stabilize, and its 2026 earnings growth outlook—currently dependent on tariff mitigation—might materialize. However, failure to secure relief would likely force deeper pricing cuts, supply chain overhauls, and prolonged margin pressure.
Investors should monitor two key metrics:
1. HSY’s gross margin trends (projected to drop by 700 basis points in Q2).
2. U.S. trade policy updates, particularly post-July 2025.
For now, the chocolate maker’s story remains bittersweet—a reminder that even the sweetest treats can sour when global trade winds shift.
