Hershey’s Margin Pressure Deepens Amid Cocoa Costs, But Recovery Looms

Date of Call: Feb 5, 2026

Financials Results

• Revenue: Q4: $3.1B, up 7% YOY; Full Year: ~$11.7B, up 4.4% YOY
• Gross Margin: Q4: 38.3%, down 650 basis points YOY

Guidance:

• Full-year 2026 net sales growth expected between 4% and 5%.
• Organic net sales projected to grow 2.5%-3.5%.
• Adjusted gross margin recovery of around 400 basis points expected.
• Advertising and consumer marketing spending to increase double digits.
• Adjusted EPS outlook for a range of 30%-35% growth for the full year.
• Q1 adjusted EPS anticipated to decline low single digits, then grow double digits each subsequent quarter.

Business Commentary:

Revenue and Sales Growth:

• The Hershey Company reported total net sales of approximately $11.7 billion for 2025, an increase of 4.4% versus the prior year, with organic constant currency growth of 4.2%.
• The growth was driven by strategic pricing, innovation, and disciplined cost management despite challenges such as cocoa inflation and tariff volatility.

Segment Performance and Market Share:

• The North America Salty Snacks segment net sales increased 28% in the fourth quarter, with organic constant currency growth of 18.2%.
• This growth was attributed to core distribution and velocity, innovation, and the expansion of variety packs, with significant contributions from brands like SkinnyPop and Dot’s Pretzels.

Gross Margin and Cost Management:

• Fourth quarter adjusted gross margin was 38.3%, a decrease of 650 basis points versus the prior year.
• The decline was due to commodity inflation and tariff expenses, partially offset by productivity and transformation program savings, with plans to recover approximately 400 basis points in 2026.

Innovation and Brand Investment:

• The company plans to deliver between 4% and 5% net sales growth in 2026, supported by new product launches and increased brand investments.
• This strategy includes new media campaigns for leading brands like Reese’s and Hershey, as well as new product launches such as Shaq-A-Licious SLAMS and Jolly Rancher Heat Wave.

Sentiment Analysis:

Overall Tone: Positive

• "I want to start by expressing my confidence and enthusiasm as we enter 2026, a true inflection point on our journey towards a stronger, more ambitious future." "We’re carrying meaningful momentum into the year." "We have clear visibility into our strategic brand and capability investments, solid operating plans, and an improving cost outlook. We are confident in our ability to sustain our positive top-line momentum, achieve significant profit recovery in 2026."

Q&A:

• Question from Analyst (Firm): Concerns about the impact of cocoa inflation and tariff volatility on 2026 margins.
  Response: Management cites strong cost management and savings programs, expecting ~400 bps gross margin recovery and a low single-digit decline in COGS, with significant recovery beginning in Q2.

• Question from Analyst (Firm): Expectations for international segment performance in 2026.
  Response: International segment expected to see a low single-digit decline due to elasticity and strategic portfolio decisions, but the company gained share in key markets like Mexico and the U.K. in 2025.

• Question from Analyst (Firm): Details on innovation pipeline and brand investments for 2026.
  Response: Management highlighted a strong innovation pipeline, including new Reese’s Oreo, Shaq-A-Licious SLAMS, and Jolly Rancher Heat Wave, with double-digit increased media investment and new campaigns for leading brands.

Contradiction Point 1

Gross Margin Recovery Timeline

Timing for significant gross margin recovery differs between quarters.

Can you detail the timing of the 400 bps gross margin recovery projected for 2026? - In-Person Participant

2025Q4: Significant gross margin recovery is projected to begin in the second quarter. - Steve Voskuil(CFO)

Has the potential for double-digit EPS growth in 2026 changed due to cocoa and tariffs? - Megan Christine Alexander (Morgan Stanley)

2025Q3: Above-algorithm performance is still on the table... The company has modeled $200 million incremental tariff impact and cocoa inflation for 2026. - Steven Voskuil(CFO)

Contradiction Point 2

International Segment Profitability Outlook

Contradiction on near-term profitability recovery for the international segment.

Discuss the international segment's performance and future plans, considering the 2025 decline in organic constant currency net sales? - In-Person Participant

2025Q4: The international segment is a focus area for 2026. Full-year 2026 organic net sales are projected to decline low single digits due to elasticity and strategic portfolio decisions aimed at supporting profit recovery. - Steve Voskuil(CFO)

What's the outlook for the international segment's profitability after this quarter's losses? - Peter Galbo (BofA Securities)

2025Q3: International is challenging due to high cocoa costs... the company is optimistic about growth and share gains in core markets and expects profitability to return eventually. - Steven Voskuil(CFO)

Contradiction Point 3

Cocoa Price Expectations for 2026

The outlook for cocoa inflation in 2026 is presented as resolved in Q4 vs. still inflationary in Q2.

What are the key drivers behind the expected 2026 gross margin recovery? - In-Person Participant

2025Q4: The recovery is driven by... stable rates across the commodity and packaging basket... - Steve Voskuil(CFO)

What are the assumptions underlying cocoa's 2026 gross margin recovery, and what portion is already accounted for? - Michael Scott Lavery (Piper Sandler & Co.)

2025Q2: Cocoa is still expected to be inflationary in 2026, though hedging benefits from 2025 roll over. - Steven E. Voskuil(CFO)

Contradiction Point 4

Financial Impact of GLP-1 Trends

The materiality of GLP-1 as a sales headwind is downgraded from "not material" to being explicitly incorporated into the 2026 outlook.

How significant are the demand headwinds from health and wellness trends, including GLP-1 adoption, on your outlook? - In-Person Participant

2025Q4: The 2026 financial outlook incorporates prudent assumptions for these potential headwinds. - Steve Voskuil(CFO)

How might GLP-1 pills and 2026 SNAP changes impact consumer headwinds? - Alexia Jane Burland Howard (Sanford C. Bernstein & Co., LLC.)

2025Q2: GLP-1 impact is not material in 2025 or expected in 2026. - Michele Gross Buck(CEO)