Key Takeaways
- Hershey has historically used its pricing power to manage rising input costs, but recent quarters reveal significant pressure on profit margins and sales volumes.
- Unprecedented surges in cocoa prices, up 178% in 2024, are forcing the company to implement further price increases, testing the limits of consumer demand.
- Second-quarter 2025 results highlighted these challenges, with a 16.7% year-over-year decline in net sales driven by a steep 19.5% drop in volume, which price hikes could not offset.
- The company’s strategy now leans on diversification into salty snacks, which saw modest growth, and a significant cost-saving programme aiming for $300 million in annual savings by 2026.
The Hershey Company has demonstrated resilient pricing power in the confectionery sector, enabling it to navigate escalating input costs while sustaining revenue growth, though recent quarters reveal pressures on profit margins from volatile commodity prices.
Historical Pricing Strategies and Revenue Impact
Over the past several years, Hershey has implemented consistent price adjustments to offset rising costs in key ingredients such as cocoa and sugar. Data from company filings indicate that net sales prices increased by approximately 4.8% on average annually from 2019 to 2024, contributing to a compound annual growth rate in net sales of 7.2% over the same period. This approach has been particularly evident in response to supply chain disruptions and commodity inflation, allowing the firm to maintain gross margins above 44% until recent shifts.
In the first quarter of 2025, ended 30 March 2025, Hershey reported net sales of USD 3.25 billion, marking an 8.9% increase year-over-year, driven partly by a 5.2% rise in pricing. However, the second quarter, ended 29 June 2025, showed a more mixed picture with net sales reaching USD 2.07 billion, down 16.7% from the prior year, as volume declines offset pricing gains. These figures underscore the limits of pricing power when consumer demand softens amid broader economic pressures.
Commodity Cost Pressures
Cocoa prices have surged dramatically, with futures climbing 178% in 2024 alone due to poor harvests in major producing regions like Ghana and Ivory Coast. Hershey announced in July 2025 plans to raise prices on certain chocolate products by a low double-digit percentage to counter these costs, expected to take effect later in the year. This move follows a pattern observed since 2019, where cumulative price hikes have exceeded 25% across core product lines.
Comparative analysis with peers such as Mars and Mondelez reveals Hershey’s pricing elasticity. Mondelez, for instance, achieved a 7.1% pricing increase in its latest quarter, while Hershey’s adjustments have averaged slightly lower but with stronger volume retention in non-chocolate snacks. Sector-wide, the consumer staples industry has seen average annual price increases of 3.5% since 2019, per S&P Global data, positioning Hershey ahead of the curve.
Financial Performance and Market Position
Hershey’s market capitalisation stood at USD 39.2 billion as of 30 July 2025, with shares trading at USD 193.50, reflecting a 3.97% daily gain amid positive sentiment on earnings resilience. The firm’s trailing twelve-month revenue as of Q2 2025 totalled USD 11.4 billion, up 2.1% from the previous year, though net income fell 36.5% to USD 1.1 billion due to a higher cost of goods sold.
Gross profit margins compressed to 40.2% in Q2 2025 from 45.6% a year earlier, highlighting the challenge of passing on full cost increases without eroding volumes. Operating income for the quarter was USD 0.35 billion, a 36.4% decline, yet the company maintained a robust free cash flow of USD 1.2 billion over the trailing twelve months, supporting dividend payouts and share repurchases.
| Metric | Q2 2025 (ended 29 Jun) | Q2 2024 (ended 30 Jun) | Change (%) |
|---|---|---|---|
| Net Sales (USD bn) | 2.07 | 2.49 | -16.7 |
| Gross Margin (%) | 40.2 | 45.6 | -11.8 |
| EPS (USD) | 0.86 | 1.98 | -56.6 |
| Volume Growth (%) | -19.5 | 2.3 | -948.0 |
The table illustrates the quarter’s challenges, with volume declines in North America confectionery offsetting pricing and mix benefits. Hershey’s salty snacks segment, however, grew 3.1% in net sales, demonstrating diversification benefits.
Peer Benchmarking
Against competitors, Hershey’s return on equity of 45.8% as of Q2 2025 outperforms Mondelez’s 16.2% but trails Nestle’s 22.4%. Debt-to-equity ratios remain stable at 1.3, supported by consistent cash flows. Recent commentary on social platforms, such as from fiscal_ai, underscores market perceptions of Hershey’s pricing agility, aligning with analyst views on its brand strength.
Outlook and Strategic Considerations
Hershey updated its full-year 2025 guidance on 30 July 2025, projecting net sales growth of 2% to 3%, with adjusted earnings per share expected to decline by a low single-digit percentage. This outlook incorporates anticipated pricing actions and cost-saving initiatives targeting USD 300 million in annual savings by 2026 through supply chain optimisations.
Analysts from Bloomberg forecast a median price target of USD 205.00, implying a 5.9% upside from current levels, based on expected recovery in volumes as cocoa prices stabilise. Risks include sustained high input costs and potential consumer shifts to lower-priced alternatives, though Hershey’s innovation in non-chocolate categories, such as its Reese’s and SkinnyPop brands, provides a buffer.
Longer-term, the confectionery market is projected to grow at 4.1% annually through 2030, per FactSet estimates, driven by emerging market demand. Hershey’s ability to sustain pricing power will hinge on balancing cost pass-throughs with volume preservation, a dynamic evident since 2019.
References
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