Hershey's Q3 2025 Earnings Call: Contradictions in Pricing Strategy, Tariff Mitigation, and Elasticity Assumptions

Date of Call: October 30, 2025

Financials Results

• Revenue: Reported net sales increased 6.5% year over year; organic constant-currency net sales growth +6.2% (Q3 2025)
• Gross Margin: Adjusted gross margin 31.8%, down 850 basis points year over year (Q3 2025)

Guidance:

• Raised full-year net sales outlook to approximately 3% (from at least 2%).
• Full-year adjusted EPS expected to decline 36%–37% (upper half of prior range).
• Net price realization for the year expected to be 5–6 points.
• Adjusted gross margin expected to decline ~675–700 basis points in 2025; Q4 margin decline expected to be larger than Q3.
• Tariff expense modeled at ~$160–170M; interest expense ~ $195M; full-year capex ~ $425M.

Business Commentary:

• Net Sales Growth and Strategic Brand Investments:
• Hershey reported a 6.5% increase in total net sales for Q3, with organic constant currency net sales growth of 6.2%, driven by strong innovation, strategic brand investments, and market execution.

• The growth was attributed to successful brand collaborations like Reese's Oreo, a top new item in the US confectionery category, and strong performance in everyday CMG retail sales, which increased by 12% in the past four weeks.

• Salty Snacks Expansion and Market Share Gains:

• Hershey's portfolio in salty snacks contributed to a 14% year-over-year increase in retail takeaway in Q3, resulting in a share gain of nearly 50 basis points.

• The growth was driven by strong performance from brands like Skinny Pop, Ready to Eat Popcorn, and Dots Pretzels, with retail sales growth of 713% versus the prior year, highlighting the increasing consumer demand for permissible and better-for-you snacking options.

• International Segment Performance and Market Share Gains:

• The international segment net sales and organic constant currency net sales both increased by 12.1%, with double-digit growth in Brazil and Europe.

• This growth was attributed to strategic pricing initiatives, net price realization, and strong brand equity investments in Reese's, which drove global Reese net sales to increase double digits in Q3.

• Cocoa Pricing and Strategic Pricing Initiatives:

• Hershey is managing through commodity cost inflation, with cocoa prices remaining up over 70% from 2023 levels, despite recent pricing actions.
• The company is mitigating these costs through strategic pricing initiatives, such as a North American confectionery pricing initiative that is on track to be fully implemented by the end of the year, with improved commodity markets contributing to cost mitigation.

Sentiment Analysis:

Overall Tone: Neutral

• Management raised net sales outlook to ~3% citing strong innovation and retail performance, but expects adjusted EPS to decline 36–37% and adjusted gross margin to compress ~675–700 bps due to cocoa inflation, higher supply chain costs and tariffs; cocoa prices remain ~70% above 2023 levels.

Contradiction Point 1

Pricing Strategy and Inflation Impact

It involves differing perspectives on the company's pricing strategy and its relationship to inflationary pressures, which directly affects financial performance and investor expectations.

N/A - N/A

2025Q3: Pricing initiatives are driving significant profit recovery. Year-to-date, North America pricing was up 9% across all segments, with North America gross margin up 230 basis points year-to-date. - Steve Foskel(CFO)

How will the announced pricing affect total COGS inflation and 2026 EPS? - Max Andrew Stephen Gumport (BNP Paribas Exane)

2025Q2: The announced pricing will significantly support margin recovery but is not enough to fully offset cocoa inflation. Cocoa futures hold optimistically, suggesting potential for positive impacts. - Steven E. Voskuil(CFO)

Contradiction Point 2

Tariff Mitigation Strategies

It involves the company's approach to managing tariffs, which has a direct impact on operational costs and financial performance.

N/A - N/A

2025Q3: We are effectively managing the current tariffs, and we expect any future tariffs will be effectively managed as well. - Steve Foskel(CFO)

How will 2026 cocoa coverage affect pricing strategy, and what are Hershey’s plans for tariffs? - David Sterling Palmer (Evercore ISI)

2025Q2: We are focused on supply chain optimizations for tariff mitigation, with agility and automation being key tools. - Steven E. Voskuil(CFO)

Contradiction Point 3

Pricing Strategy and Impact on Earnings

It involves differing perspectives on the company's pricing strategy and its expected impact on earnings, which are crucial for investor projections and strategic planning.

Can you discuss the third quarter results and strategic initiatives? - Kirk Tanner(CEO)

2025Q3: We're really pleased with how price is being received across the marketplace in North America. - Kirk Tanner(CEO)

Can you discuss how your thinking on mitigation tools and pricing has evolved? - Christopher Carey(Wells Fargo Securities)

2025Q1: We were very, very cautious on pricing. We are now ready to pull more levers. - Michele Buck(CEO)

Contradiction Point 4

Tariff Impact and Mitigation Efforts

It centers around the company's approach to mitigating tariff impacts, which directly affects operational decisions and financial forecasting.

What are the third quarter financial results and full-year outlook? - Steve Foskel(CFO)

2025Q3: The team continues to make significant progress on mitigation actions, impacting roughly half of the unmitigated financial impact. - Steve Foskel(CFO)

How should investors assess the risk if an immediate tariff exemption isn't granted? - Ken Goldman(JPMorgan)

2025Q1: We are taking significant mitigation actions and we've made very good progress thus far. - Steve Voskuil(CFO)

Contradiction Point 5

Pricing Strategy and Elasticity Assumptions

It involves changes in the company's approach to pricing and elasticity assumptions, which are critical for revenue projections and market strategy.

What was the mix of price and volume contributions to revenue in Q3? Did pricing actions due to inflation affect specific categories disproportionately? - Steve Strycula (UBS)

2025Q3: Our pricing actions on approximately 80% of our product portfolio have been largely completed, and our assumption for elasticity continues to be in the area of minus 1. - Steve Foskel(CFO)

What are the expectations for price elasticity and international performance? - Max Andrew Gumport (BNP)

2024Q4: We assume a minus 1 elasticity, though we consider upside if elasticities improve. - Michele Buck(CEO)