Hershey's Earnings Outlook Amid Margin Pressure and Market Optimism

The Hershey Company (HSY) stands at a crossroads, balancing its iconic brand equity with the headwinds of soaring cocoa costs and evolving consumer preferences. As investors weigh the stock's potential, the interplay between earnings resilience, margin compression, and macroeconomic pressures demands a nuanced analysis. This article examines whether Hershey's consistent earnings beats can offset weak guidance and cocoa-driven challenges, while evaluating its relative performance against broader market benchmarks.

Earnings Outlook: A Tale of Two Forecasts

Hershey's earnings trajectory for 2025 and 2026 reveals a mixed picture. For fiscal year 2025, the consensus EPS estimate stands at $6, a notable decline from the $9.37 reported in fiscal year 2024 (FY0). However, this figure masks a more dynamic story. Analysts project a rebound in 2026, with a consensus EPS of $6.70, reflecting an 11.6% year-over-year growth from the FY2025 trailing EPS of $6.12. This optimism hinges on Hershey's ability to maintain pricing power, particularly during peak seasons like Halloween and the holidays.

Yet, the path to this growth is fraught. A report by Food Business News notes that Hershey's adjusted earnings per share are expected to decline by mid-30% in 2025 compared to 2024, driven by cocoa cost pressures. This discrepancy between trailing performance and forward-looking estimates underscores the tension between short-term margin challenges and long-term brand-driven optimism.

Cocoa Cost Pressures: A Margin Squeeze

The root of Hershey's near-term struggles lies in cocoa prices, which have surged 70% since 2023. This has led to a dramatic contraction in gross margins. By Q3 2025, the company's adjusted gross margin had collapsed to 32.6%, a 870-basis-point decline year-over-year. The confectionery segment, accounting for 82% of sales, bore the brunt of this margin erosion, with a 760-basis-point drop in profitability. Analysts at BeyondSPX note that Hershey's gross margin pressures are expected to intensify in the second half of 2025 as higher-cost cocoa enters production.

Despite these headwinds, Hershey has leveraged pricing actions to offset some of the cost increases. In Q3 2025, net price realization accounted for all of the 6.2% organic sales growth. However, volume trends remain mixed, with some segments experiencing declines due to price elasticity and shifting consumer behavior. This highlights a critical trade-off: while pricing power sustains top-line growth, it risks long-term customer retention and market share.

Stock Performance: Lagging the S&P 500, Outperforming in 2025

Hershey's stock performance has been uneven. Over the past year through October 2025, the stock gained 2.6%, significantly lagging the S&P 500's 17.5% total return. However, year-to-date in 2025, Hershey outperformed the S&P 500, with returns ranging between 9.44% and 11.77%. This divergence reflects investor optimism about the company's long-term fundamentals, including its broad distribution network and iconic brand portfolio.

Analysts at Yahoo Finance caution that Hershey's current valuation appears elevated relative to near-term earnings expectations. Yet, the company's planned product innovations, such as a major Reese's line launch in fall 2025, position it to regain market share and drive growth. This duality-high valuation versus strong brand potential-creates a compelling but risky investment case.

Earnings Beats vs. Weak Guidance: Can Resilience Prevail?

The key question for investors is whether Hershey's consistent earnings beats can offset weak guidance and macroeconomic headwinds. While the company has historically outperformed estimates-such as its Q3 2025 results, where net sales growth met expectations-its forward-looking guidance remains cautious. For instance, the projected 650–700 basis-point gross margin contraction in 2025 suggests that even if Hershey continues to beat quarterly EPS targets, the long-term earnings trajectory may remain under pressure.

Moreover, macroeconomic factors, including inflation and consumer spending shifts, add uncertainty. A report by MarketBeat notes that Hershey's ability to navigate these challenges will depend on its capacity to balance pricing actions with volume preservation. If cocoa prices stabilize or decline, as some analysts anticipate, margin recovery could follow. However, this remains a speculative bet in the near term.

Conclusion: A Calculated Bet on Resilience

Hershey's investment case hinges on a delicate balance. The company's ability to consistently exceed quarterly earnings expectations offers a buffer against weak guidance, but this resilience may not be sufficient to offset the structural margin pressures from cocoa costs. While the stock's outperformance in 2025 relative to the S&P 500 signals confidence in its long-term brand strength, investors must weigh this against near-term risks.

For those with a long-term horizon, Hershey's iconic brand, innovation pipeline, and pricing power could justify the current valuation. However, in a macroeconomic environment marked by inflationary pressures and shifting consumer preferences, the margin of safety appears narrow. As the company navigates the cocoa crisis, the coming quarters will be critical in determining whether its earnings resilience can truly offset the headwinds.