Hershey's Q2 2025 Earnings Webcast: Navigating Near-Term Headwinds to Long-Term Growth

The Hershey Company (NYSE: HSY) faces a pivotal moment ahead of its July 30 Q2 2025 earnings webcast. While Q1 results highlighted significant near-term challenges—ranging from margin pressures to inventory-driven sales declines—the company's strategic roadmap positions it for a comeback. This analysis evaluates whether Hershey's stock, currently trading at $165, presents a compelling entry point as investors await updates on cost savings, market share recovery, and the execution of its innovation pipeline.

Financial Performance: Navigating Headwinds

Hershey's Q1 2025 net sales fell 13.8% to $2.8 billion, driven by reduced inventory levels ahead of its ERP system upgrade and Easter timing shifts. While this decline is stark, management emphasized that 65% of the year-over-year sales drop stems from these transitory factors. The bigger concern lies in adjusted EPS, which plummeted 31.9% to $2.09, reflecting soaring commodity costs and tariff impacts.

However, the North America Salty Snacks segment offers a silver lining. Brands like SkinnyPop (up 6.4% in retail takeaway) and Dot's Pretzels (up 20.7%) are outperforming, with margins expanding 100 basis points to 15.1%. This segment's success underscores the power of Hershey's “better-for-you” strategy, which now accounts for ~10% of total sales and growing.

Margin Pressures and Tariff Mitigation

Gross margins contracted 1,780 basis points to 33.7%, primarily due to higher input costs and tariff expenses. Management projects tariffs alone could reduce Q2 gross margins by 700 basis points. Yet, the $125 million savings from the Agility & Automation Initiative—focused on supply chain efficiency and cost reduction—are critical to offsetting these pressures.

While near-term margin recovery hinges on tariff resolution and ERP system stability, long-term leverage lies in productivity gains. CFO Steven Voskuil's emphasis on pricing discipline and sourcing alternatives suggests Hershey is prepared to defend profitability even amid uncertainty.

Market Share Dynamics: Resilience in Core Categories

Despite a 44-basis-point decline in U.S. CMG (candy, mint, gum) share, Hershey's sweets category (e.g., Reese's, Kit Kat) grew 10% in the quarter, with a 100-basis-point share gain. This resilience reflects the emotional appeal of chocolate—a category less prone to secular declines. Meanwhile, international markets like Brazil and India saw share gains via localized marketing and distribution expansions, signaling potential for sustained growth in high-margin emerging regions.

Strategic Catalysts for Long-Term Value

1. Innovation Pipeline: The “biggest ever” Reese's innovation slated for late 2025 could reignite momentum in the sweets category. Historically, Reese's has driven ~30% of Hershey's sales, making this launch critical.
2. Acquisition Synergies: The Sour Strips acquisition adds 30 basis points to annual sales growth while expanding the “better-for-you” portfolio. Future deals in this space could further diversify revenue streams.
3. Sustainability Push: The 2030 Sustainability Goals—including net-zero carbon emissions and 100% recyclable packaging—align with evolving consumer preferences. This could enhance brand loyalty and open new markets.

Valuation and Investment Thesis

Hershey's stock trades at a P/E ratio of 23x, slightly below its five-year average of 25x, suggesting modest undervaluation. However, risks remain: - Tariff impacts could drag 2025 adjusted EPS to $8.00–$8.50 (down 30–35% YoY), pressuring the stock further.- The ERP transition's lingering effects may delay sales recovery.

Bull Case Scenario: If Q2 results show stabilization in confectionery volumes and improved gross margins (via tariff mitigation), HSY could rebound toward $190–$200, a 15–20% upside. A positive earnings webcast—highlighting progress on the Reese's launch and cost savings—would catalyze this move.

Bear Case Scenario: Persistent tariff headwinds or a delayed recovery in CMG share could push HSY below $150, testing support levels.

Investment Recommendation

Hershey's stock presents a Hold rating ahead of the Q2 webcast, with a Buy recommendation contingent on two catalysts:1. Q2 sales growth exceeding management's 2% full-year target, indicating the ERP issue is resolved.2. Margin contraction slowing to below 500 basis points, signaling tariff mitigation success.

Investors should also monitor SkinnyPop's velocity trends and the Sour Strips integration timeline for clues on secular growth potential. For now, patience is warranted—Hershey's long-term moat remains intact, but near-term execution is key.

Final Take: Hershey's Q2 results will be a litmus test for its ability to navigate short-term turbulence while capitalizing on long-term trends. A strong webcast could unlock value, but risks remain until cost pressures abate and innovation gains traction.