Chocolate company Hershey (NYSE:HSY) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 13.8% year on year to $2.81 billion. Its non-GAAP profit of $2.09 per share was 8.2% above analysts’ consensus estimates.

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Hershey (HSY) Q1 CY2025 Highlights:

Revenue: $2.81 billion vs analyst estimates of $2.81 billion (13.8% year-on-year decline, in line) Adjusted EPS: $2.09 vs analyst estimates of $1.93 (8.2% beat) Adjusted EBITDA: $727.7 million vs analyst estimates of $668.1 million (25.9% margin, 8.9% beat) Adjusted EPS guidance for the full year is $6.09 at the midpoint, roughly in line with what analysts were expecting Operating Margin: 13.2%, down from 32.5% in the same quarter last year Free Cash Flow Margin: 9%, down from 10.9% in the same quarter last year Organic Revenue fell 13.2% year on year (8.6% in the same quarter last year) Sales Volumes fell 15% year on year (3.4% in the same quarter last year) Market Capitalization: $33.09 billion

StockStory’s Take

Hershey’s first quarter results, as discussed on the earnings call, were shaped by steep year-on-year declines in both sales volumes and revenue, which management attributed primarily to ongoing consumer value-seeking behavior and economic pressure. Pricing actions provided some offset, but CEO Michele Buck noted that elevated cocoa costs and consumer trade-downs continued to weigh on chocolate demand, particularly in the instant consumables segment. The company also pointed to solid momentum in its sweets and salty snacks portfolios, with innovation cited as a positive driver, especially in non-chocolate categories.

Looking ahead, management’s full-year guidance reflects the expectation of persistent cost inflation—particularly from cocoa and potential new tariffs—alongside incremental mitigation actions. CFO Steve Voskuil described the path to earnings growth in 2026 as “narrower, more challenging,” and highlighted the importance of ongoing productivity initiatives, pricing, and sourcing changes. The company expects new product launches, particularly in the Reese’s brand, and enhanced distribution to support share stability, but acknowledged the need for aggressive management of both external and internal headwinds.

Key Insights from Management’s Remarks

Hershey’s management emphasized the impact of macroeconomic challenges, commodity costs, and ongoing product innovation on recent performance. They also elaborated on their mitigation strategies for tariffs and input inflation, as well as shifts in consumer behavior.

Story Continues

Tariff and Cocoa Cost Pressures: Management explained that the combination of elevated cocoa prices and new tariffs could create an unmitigated headwind of up to $100 million per quarter in the second half of the year. The company is lobbying for exemptions and actively pursuing productivity, pricing, and sourcing changes to mitigate these impacts. Shifting Consumer Behavior: CEO Michele Buck highlighted continued value-seeking among consumers, with migration to value channels such as club and dollar stores. She noted that while chocolate remains an "emotional" purchase, these pressures resulted in lower volumes, especially in instant consumables. Sweets and Salty Snacks Momentum: Management reported double-digit share gains in the sweets category and steady performance in salty snacks, driven by innovation and targeted investments. The expansion into better-for-you brands, such as the recently acquired LesserEvil, is intended to reach younger and more diverse consumers. Capacity and Supply Chain Investments: Hershey completed a major billion-dollar expansion in chocolate processing, enhancing vertical integration and supply chain flexibility. This investment aims to provide agility and support innovation across both chocolate and non-chocolate categories. Product Reformulation and Price Pack Architecture: The company is deploying price pack architecture—adjusting product sizes and pricing—to offer better perceived value and manage input costs. R&D and supply chain investments support rapid reformulation in response to regulatory and consumer trends, such as natural ingredient requirements and evolving SNAP rules.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on navigating commodity inflation, tariffs, and evolving consumer preferences, while leveraging innovation and operational efficiency to stabilize margins and drive future growth.

Mitigation of Cost Inflation: The company is focused on mitigating cocoa and tariff-related cost increases through a combination of pricing actions, supply chain adjustments, and lobbying for policy relief. Innovation Pipeline: New product launches, particularly a major Reese’s innovation slated for the fall, are expected to support category share and potentially drive growth in the second half of the year. Channel and Portfolio Shifts: Management believes expanding the better-for-you and sweets lines, as well as prioritizing value-oriented retail channels, will help counter softness in core chocolate demand and address shifting consumer behavior.

Top Analyst Questions

Ken Goldman (JPMorgan): Sought quantification of potential tariff impacts and how mitigation efforts might reduce unmitigated costs for Q3 and Q4; management estimated up to $100 million per quarter unmitigated, with all mitigation levers in play. Andrew Lazar (Barclays): Asked about the outlook for nonseasonal chocolate growth in the second half and the early impact of pricing strategies in instant consumables; management reported early signs of improvement and expects share to be neutral to up as new programming rolls out. Max Gunport (BNP Paribas): Questioned whether snacking weakness reflects only consumer value-seeking or also a shift to healthier eating; management emphasized that chocolate and sweets have held up well, with minimal elasticity and stable category demand. Robert Moskow (TD Cowen): Queried the financial rationale for recent capacity expansions amid lower chocolate volume outlooks; management stressed enhanced agility, supply control, and support for innovation as key benefits. Christopher Carey (Wells Fargo Securities): Requested insight into price pack architecture and reformulation efforts; management explained that offering various sizes and recipes can enhance value perception and allow cost flexibility, supported by investments in R&D and the supply chain.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the effectiveness of Hershey’s tariff mitigation strategies and lobbying efforts, (2) the performance and consumer reception of major new product launches, especially in the Reese’s brand, and (3) the ability of the company’s price pack architecture and reformulation initiatives to maintain category share and offset volume declines. Developments in regulatory policy and consumer trends toward value and health will also be important to evaluate.

Hershey currently trades at a forward P/E ratio of 26.2×. Should you load up, cash out, or stay put? Find out in our free research report.

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