Hershey (HSY) Navigates Cocoa Price Volatility While Rebuilding Growth Momentum

Hershey Foods entered 2025 on stronger footing after a turbulent year marked by extreme cocoa price volatility. The company’s latest earnings report provided some relief for investors, as Hershey delivered a return to earnings outperformance following consecutive quarters of underwhelming results.

While the company continues to face significant cost headwinds, particularly from record-high cocoa prices, its strategic investments in brand strength, new product launches, and cost-saving initiatives are helping offset some of the pressure.

Despite these improvements, Hershey remains in a challenging position. Management has acknowledged that cocoa prices will remain a major obstacle for the foreseeable future, with the company projecting a sharp decline in profitability for 2025. However, Hershey’s ability to maintain revenue growth and improve operational efficiency suggests that the long-term outlook remains intact, even as near-term earnings face continued pressure.

Revenue Recovery Driven by Strong Demand and Pricing Power

Hershey’s fourth-quarter revenue increased by 8.7 percent year-over-year to 2.89 billion dollars, marking a reversal from two consecutive quarters of year-over-year revenue declines. This strong finish to 2024 was driven by a combination of new product launches, media investments, and stable consumer demand for Hershey’s key brands.

The company’s North American salty snacks division was a standout performer, with retail sales growing 7.1 percent year-over-year. SkinnyPop and Dot’s Pretzels led the segment’s growth, with Hershey planning to further capitalize on demand by rolling out a new celebrity-backed marketing campaign for SkinnyPop in 2025.

Meanwhile, U.S. candy, mint, and gum sales increased by 2 percent year-over-year, benefiting from seasonal strength. Halloween sales grew by 2.5 percent, while holiday sales rose by 1.1 percent. Hershey’s pricing strategy also played a role, with price increases averaging around 4 percent—slightly above company expectations. For 2025, Hershey expects additional price realization in the range of 3 to 4 percent in its U.S. confectionery segment, helping to partially offset rising input costs.

Internationally, Hershey delivered strong results, with Mexico and the EMEA region posting double-digit organic sales growth. The Reese’s brand was a key driver, seeing robust international demand that contributed to the company’s top-line recovery.

Cocoa Price Surge: A Major Headwind for 2025 Earnings

While revenue growth is encouraging, Hershey remains under significant cost pressure due to record-high cocoa prices. Cocoa prices tripled in the first four months of 2024 before moderating slightly, creating a major earnings headwind for chocolate manufacturers.

Hershey’s management has indicated that current cocoa price levels are not sustainable in the long run, as extreme cost increases are likely to erode demand. The company has already observed signs of end users adapting to high prices through reformulation and hedging mechanisms, which could accelerate in the coming quarters. However, these adjustments will take time to impact market dynamics, meaning Hershey will likely continue to face elevated costs in the near term.

This reality is reflected in the company’s guidance for 2025. Hershey expects full-year adjusted earnings per share to range between 6.00 and 6.18 dollars, representing a 35 percent decline from 2024 at the midpoint. Despite this steep earnings drop, the company is forecasting at least 2 percent revenue growth in 2025, signaling continued brand resilience despite cost challenges.

Cost-Saving Initiatives and Long-Term Strategy

In response to rising costs, Hershey has been aggressively working to improve its cost structure. The company has set a goal of achieving approximately 900 million dollars in savings between 2023 and 2026, which should help offset some of the margin compression caused by higher input costs.

Beyond cost management, Hershey is focused on sustaining consumer demand through product innovation and targeted marketing investments. The company launched several new products in late 2024, including Reese’s Lava Big Cup, Shaq-a-licious XL Gummies, and Jolly Rancher Ropes, which have been well received by consumers. These product innovations, combined with continued brand marketing, should help Hershey maintain strong customer engagement even in a challenging operating environment.

Market Outlook: Navigating a Difficult but Manageable Path

Hershey’s stock has faced significant downward pressure over the past year due to concerns about cocoa prices and margin compression. However, the company’s strong fourth-quarter results and commitment to strategic investments have provided some much-needed optimism.

While 2025 earnings are expected to decline sharply, Hershey is taking proactive steps to manage costs, sustain revenue growth, and position itself for long-term recovery. If cocoa prices begin to stabilize or demand adjustments materialize as expected, Hershey could see margin improvement in the latter half of 2025 or into 2026.

For investors, the key factors to watch in the coming quarters include:

- The trajectory of cocoa prices and whether demand erosion leads to price stabilization

- The impact of additional pricing actions on consumer demand and overall sales volume

- Progress on cost-saving initiatives and their effect on margin recovery

- The performance of new product launches and marketing investments in driving incremental growth

Despite near-term earnings pressure, Hershey remains a strong brand with deep customer loyalty. If the company can successfully navigate current cost challenges while maintaining sales momentum, it could emerge in a stronger position once commodity price pressures ease. For long-term investors, the recent pullback in Hershey’s stock may represent an opportunity to build a position in a company that has demonstrated resilience and strategic discipline.