[HSY] Hershey: Q3 Earnings Test for Candy Volume as Price Hikes Lap

Hershey, the US food company behind the Hershey's, Reese's and Kisses chocolate and candy brands that also sells salty snacks such as SkinnyPop and Dot's Homestyle Pretzels, will report results for the Third quarter 2026 (fiscal quarter ending September 2026) on 2026-10-29 [1]. In the latest disclosed quarter, the second quarter of 2026, net sales rose 6.6% to $2,787.3 million and organic, constant-currency sales grew 3.6%, with roughly 12 points of net price realization offset by an approximately 8-point volume decline; adjusted gross margin was 41.6%, up 350 basis points, and adjusted earnings per share rose 57.0% to $1.90 [2]. On July 30 the company narrowed its fiscal 2026 adjusted EPS growth outlook from 30%-35% to 32.5%-35% (on a 2025 base of $6.31), narrowed net sales growth to 4.5%-5% and organic growth to 3%-3.5%, and said the outlook does not include potential future tariff rebates [3]. Drillr's compilation shows 12 analysts averaging $2.112 for third-quarter EPS (range $2.033-$2.222), 10 analysts averaging $3,249.9 million for revenue, and 13 analysts averaging $8.482 for full-year EPS [4].

Three things matter most in this Hershey third-quarter earnings report. The first is North America Confectionery volume: the price increase announced in July 2025 starts to lap in the third quarter, and in the second quarter the segment had about 14 points of price and roughly 10 points of volume decline [2], so revenue growth now depends on whether the volume decline narrows as the price contribution shrinks. The second is whether gross margin keeps recovering: on the July call management said the third quarter should deliver the year's strongest year-over-year earnings growth because it laps the peak of 2025 cocoa costs and full tariff impacts [5], and third-quarter adjusted gross margin and EPS will test that claim. The third is the salty snacks margin: segment sales grew 22.9% in the second quarter, but the margin fell 500 basis points to 16.1% [2], and management said most of the Dot's supply problems are behind it [5], so this report will show whether demand is starting to turn into profit.

Company Background and Business Structure

Hershey has more than 85 brands sold in about 65 countries and reports three segments aligned with its management structure: North America Confectionery, North America Salty Snacks and International [6]. On September 2, 2026, Dave Hulays, a Hershey finance veteran, became chief financial officer, succeeding Steve Voskuil, who intends to retire in early 2027 [7]. This report is therefore the first quarterly release under the new CFO.

North America Confectionery is the clear core of Hershey's sales and profit, with 2025 net sales of $9,479.7 million and segment income of $2,493.8 million, about 81% of consolidated net sales [6]. North America Salty Snacks had 2025 net sales of $1,271.3 million and segment income of $241.8 million, while International had net sales of $941.6 million and segment income of only $3.3 million, down 97.0% from $111.5 million in 2024 [6]. On November 18, 2025, Hershey completed the acquisition of LesserEvil, an organic popcorn and puffed snack maker, for initial cash consideration of $769.1 million, with up to $200 million of additional contingent consideration if multi-year earnings targets are met [6].

Hershey depends heavily on a few customers and on one raw material. Its customers are mainly wholesale distributors, grocery chains, mass merchandisers, drug stores, convenience stores and dollar stores, and its largest customer, McLane, a major wholesale distributor that supplies channels including Walmart, accounted for about 27% of 2025 consolidated net sales [6]. Cocoa liquor, cocoa butter and cocoa powder are the most important raw materials for its chocolate, West Africa supplies about 70% of the world's cocoa beans, and the company generally uses derivatives and forward purchases to cover manufacturing needs for 3 to 24 months [6].

Financial History and Current Position

Cocoa and tariff costs drove a sharp profit decline in 2025. Cost of sales rose 31.7% to $7,769.9 million, including $736.6 million of higher commodity costs, $287.2 million of higher supply chain costs including tariffs, and $491.0 million of unfavorable mark-to-market activity on commodity derivatives, and gross margin fell from 47.3% in 2024 to 33.5%, a decline of about 1,380 basis points [6]. Net income fell from $2,221 million in 2024 to $883 million, North America Confectionery segment income fell 15.3% [6], and 2025 adjusted EPS was $6.31 [3].

Cash flow in 2025 still covered the dividend and the acquisition. Operating cash flow was $2,277 million (versus $2,532 million in 2024), capital spending was $455 million, dividends paid were $1,085 million, and business acquisitions net of cash acquired were $756 million [6]. In other words, Hershey maintained its dividend and closed the LesserEvil deal in a year when costs squeezed profit.

In the first half of 2026, pricing and lower costs began to rebuild profit. First-quarter net sales rose 10.6% to $3,104.2 million, organic growth was 7.9%, and adjusted EPS rose 12.4% to $2.35 [8], while reported gross margin was 39.4% versus 33.7% a year earlier [9]. Second-quarter adjusted operating profit rose 37.3% to $563.5 million at a 20.2% adjusted operating margin; first-half net sales rose 8.7% to $5,891.5 million and adjusted EPS rose 28.4% to $4.25 [2]. First-half operating cash flow was $888 million, buybacks were $439 million and dividends were $574 million; at June 28 Hershey held $791.2 million of cash and $5.6 billion of short- and long-term debt, including $500 million of notes due August 15, 2026 [10]. According to Drillr financial data, the third-quarter 2025 comparison base is net sales of $3,181.4 million, adjusted EPS of $1.30 and a reported gross margin of 32.6%.

Operating Model

Hershey's revenue is set by each segment's net price realization and volume, plus acquisitions and currency. North America Confectionery had about 6% price and about 2% lower volume in 2025, mainly reflecting the July 2025 price increase and elasticity in everyday core US confection [6]; in 2026 it had about +12 points of price and about −4 points of volume in the first quarter, and about +14 points of price and about −10 points of volume in the second [8][2]. Salty Snacks grows mainly through volume, which rose about 8% in 2025 [6], and LesserEvil added about 22 percentage points of acquired growth in the second quarter of 2026 [2]. Shipments can also diverge from retail takeaway because of seasonal orders and retailer restocking, and the second-quarter confectionery volume decline included normal quarter-to-quarter shipment variability [2].

Operating profit equals segment income minus unallocated corporate costs, and mark-to-market results on commodity derivatives sit in unallocated items until the related inventory is sold, when they move into segment income. As of June 28, 2026, cumulative mark-to-market gains on commodity derivatives recognized in cost of sales but not yet allocated to segments were $483.0 million, and the company forecasts reclassifying $283.9 million of net pre-tax derivative gains into segment results over the next twelve months [10]. Segment income equals net sales minus cocoa and other raw materials, packaging, manufacturing, logistics and tariffs, minus selling and administrative costs including advertising; because hedges cover 3 to 24 months, changes in cocoa futures reach segment income with a lag [6].

Cash flow reflects seasonal working capital, capital spending and shareholder returns. Hershey plans 2026 capital expenditures of about $425 million to $475 million, interest expense of about $200 million to $210 million and an effective tax rate of about 25% to 27% [2], and management said in July there are no additional planned share buybacks in the second half of 2026 [5]. As a result, second-half operating cash flow will mainly go to dividends, capital spending and repaying maturing debt.

Industry and Competitive Position

Hershey operates in a global confectionery and packaged snacks industry that is intensely competitive and still consolidating [6]. Its 10-K says rising in-store activity for other snacks has pressured confectionery category growth, and that health and wellness concerns such as weight-management medications and dieting can affect demand [6]. That means Hershey's pricing power depends not only on costs but also on whether consumers switch to other snacks.

Hershey is still losing share in candy, mint and gum (CMG) in 2026 while gaining share in salty snacks. In the 12 weeks ended July 19, 2026, its US CMG retail takeaway rose 3.7%, but share declined because of competitive innovation [2]; on the 10-Q basis, second-quarter CMG consumer takeaway fell 8.6%, also with a share decline [10]. Over the same quarter, salty snacks takeaway excluding LesserEvil rose 6.5% with a share gain [10]. Management said scanner data understated actual consumption by about 2 percentage points because of growth in unmeasured channels and Easter shipment timing [5], so comparisons between retail takeaway and shipments call for caution.

Core Debates

As last year's price increase laps, can Hershey's North America Confectionery volume decline narrow enough to keep organic growth positive in the third quarter?

This question matters because North America Confectionery is about four-fifths of Hershey's revenue, and nearly all of its growth now comes from price. The price increase announced in July 2025 gave the segment about 6% price in 2025 [6], and in the first and second quarters of 2026 price contributed about 12 and 14 points while volume fell about 4 and 10 points [8][2]. From the third quarter the increase laps, the price contribution will naturally shrink, and continued revenue growth depends on volume stabilizing.

The current evidence cuts both ways. Second-quarter segment net sales were $2,173.6 million with 4.2% organic growth, and the company attributed part of the volume decline to quarter-to-quarter shipment variability, partly offset by retailer inventory replenishment [2]; management said price elasticities were tracking slightly better than full-year assumptions and that the segment should deliver organic growth in both the third and fourth quarters despite tough comparisons from a large 2025 innovation [5]. The alternative reading is that elasticity has not bottomed, that retailer restocking and early Halloween shipments inflated second-quarter shipments, and that weak volume will show up directly in revenue once the price effect fades. On the 10-Q basis, second-quarter CMG consumer takeaway fell 8.6% [10], and the gap with the 3.7% gain in the 12-week data is itself unresolved.

The debate reaches profit through revenue and unit costs. Net pricing offset by elasticity-driven volume losses sets the segment's organic net sales, and volume also drives plant utilization and fixed cost per unit, which feed segment income; second-quarter segment income was $705.8 million at a 32.5% margin [2]. According to Drillr financial data, third-quarter 2025 segment net sales were $2,615.6 million, with about 7% price and about −1% volume, which is the comparison base for this quarter.

Three points matter in this report: whether third-quarter organic net sales in North America Confectionery are positive; how far the price contribution falls from about 14 points and whether the volume decline narrows to within about 5 points; and whether CMG takeaway and share stop falling, along with Halloween seasonal sales, where management said in July that production was aligned with demand and shipping had begun [5]. If the volume decline fails to narrow while the price contribution drops and organic segment revenue turns negative, or if competitor launches and promotions force heavier trade spending that lowers net price realization, the current view that elasticity is manageable would weaken.

With cocoa costs falling from their peak, can Hershey's gross margin keep recovering in the third quarter and deliver what management calls the year's fastest earnings growth?

This question matters because the 2025 profit decline came almost entirely from costs. Gross margin fell from 47.3% to 33.5% in 2025, and net income fell from $2,221 million to $883 million [6]. ICE cocoa futures averaged $1.80 per pound in the first half of 2026, with a range of $1.48 to $2.30, about 51% below the 2025 average of $3.65, but the company states that because it hedges for 3 to 24 months, average market prices are not necessarily indicative of its costs [10].

The evidence shows the recovery has started, but its quality still needs testing. First-quarter adjusted gross margin was 40.4%, down 80 basis points [8]; second-quarter adjusted gross margin was 41.6%, up 350 basis points, adjusted EPS rose 57.0% to $1.90, and the North America Confectionery segment margin was 32.5%, up 830 basis points [2], with tariff refunds among the drivers of segment income growth [10]. Management trimmed the full-year gross margin expansion target from about 400 basis points to just below 400, mainly because of salty snack supply chain costs, and said cocoa costs should deflate in 2027 even if futures stay at current levels [5]. The alternative reading is that part of the second-quarter improvement came from tariff refunds and delayed advertising, since advertising and consumer marketing fell 3.3% in the quarter partly because of media timing [2], so profit could recover more slowly than gross margin once brand spending rises in the second half.

Lower costs pass through several layers before reaching EPS. Falling cocoa futures enter cost of sales with a lag through hedges, combine with net pricing and productivity savings, and net of logistics and mix headwinds produce adjusted gross margin; margin gains then flow into the North America Confectionery segment margin and finally into adjusted operating profit and adjusted EPS. According to Drillr financial data, the third-quarter 2025 segment margin was 21.8% and adjusted EPS was $1.30, which is the comparison base for this quarter.

Three points matter in this report: whether third-quarter adjusted gross margin is at least 41.6% and improves by more than 500 basis points year over year; whether adjusted EPS is clearly above the $1.30 of the third quarter of 2025, at a growth rate above the full-year 32.5%; and management's latest comments on 2027 cocoa cost deflation and whether tariff refunds are included in the quarter. If logistics, freight and heavier second-half brand spending absorb the cost decline and push third-quarter adjusted EPS growth below the low end of full-year guidance, or if cocoa futures rebound sharply and the 2027 deflation case fails, the current view that lower costs are turning into profit would weaken.

With the Dot's pretzel supply bottleneck easing, can Hershey's salty snacks margin recover in the third quarter?

This question matters because salty snacks is Hershey's main growth business for reducing its dependence on cocoa. In 2025 the segment grew sales 11.9% and segment income 21.3%, with volume up about 8% mainly from Dot's Homestyle Pretzels and SkinnyPop, and in November 2025 Hershey bought LesserEvil for $769.1 million of initial consideration [6]. Demand remains strong in 2026, but the margin has fallen and dragged down the full-year gross margin target [5], so whether this business turns demand into profit bears on the success of diversification.

The evidence shows demand and profit moving apart. First-quarter salty snacks segment income fell 18.1% to $34.3 million because of supply chain costs tied partly to a voluntary temporary product withdrawal and higher marketing spending [8], for a segment margin of 9.8% [9]. Second-quarter segment net sales rose 22.9% to $387.8 million, but organic growth was only 0.6%: volume rose about 4 points, below expectations, and higher trade spending behind new launches made net price an approximately 3-point headwind; segment income was $62.6 million and the margin was 16.1%, down 500 basis points [2]. Management said most of the Dot's supply problems are behind it, that margins should improve modestly in the second half, and that optimization will be complete when automation and capacity come online in 2027 [5]. The alternative reading is that the margin decline is not just a temporary freight issue, that LesserEvil and new items carry structurally lower margins, and that promotional spending could become permanent.

The segment's transmission chain starts with retail takeaway. Takeaway excluding LesserEvil rose 6.5% in the 12 weeks ended June 28, 2026, but organic net sales trailed takeaway because of supply limitations and a planned reduction in private label sales [2]; whether capacity and transport keep up determines organic volume and post-promotion net price, which then set the segment margin through logistics costs and mix. According to Drillr financial data, the third-quarter 2025 segment margin was about 18.0%.

Three points matter in this report: whether the salty snacks margin recovers from 16.1% to about 18% or higher; whether the split between organic volume and net price shows a smaller promotional drag; and whether takeaway excluding LesserEvil holds above 5% with shipments catching up. If supply limits and freight costs drag into the fourth quarter and the margin stays below last year's level, or if promotional spending becomes routine and organic growth relies on price cuts, the current view that the supply bottleneck is temporary would weaken.

Risks and Falsifiers

Tariff policy volatility is the first risk. US import tariffs and retaliatory tariffs had a material negative impact in 2025, when supply chain costs including tariffs rose $287.2 million [6]; tariff refunds were one driver of second-quarter 2026 North America Confectionery segment income growth, but the amount was not disclosed separately [10], and the full-year outlook excludes potential future tariff rebates [2]. This risk would ease if tariff policy stays stable, refunds are recognized as planned and third-quarter margin recovery does not depend on refunds.

Management turnover combined with shifting demand is the second risk. The CFO changed in September 2026 [7], while weight-management medications and health concerns could depress candy consumption over the long term [6], and management noted in July that some states' restrictions on buying candy with SNAP benefits had an impact broadly in line with plans [5]. North America Confectionery was about 81% of 2025 net sales and McLane about 27% [6], so demand shifts would concentrate in the core segment. This risk would ease if the new team holds full-year guidance and confectionery volume gradually improves in the second half of 2026.

Elasticity that is stronger and longer-lasting than management assumes is the third risk. North America Confectionery had 2025 net sales of $9,479.7 million and segment income of $2,493.8 million [6], second-quarter volume fell about 10 points [2], and revenue growth could stall once pricing laps. This risk would be falsified if third-quarter organic growth in the segment is positive and the volume decline narrows to within about 5 points.

Renewed cocoa price volatility is the fourth risk. West Africa supplies about 70% of global cocoa beans, and in 2025 commodity costs rose $736.6 million and gross margin fell about 1,380 basis points [6]; the company forecasts $283.9 million of pre-tax derivative gains moving into segment income over the next twelve months [10]. Weather, disease or political events could lift futures and undo the 2027 cost deflation case; the risk would ease if cocoa futures stay within the first-half 2026 range of $1.48 to $2.30 per pound and management reaffirms 2027 cost deflation.

Persistent supply chain problems and promotional spending in salty snacks are the fifth risk. LesserEvil cost $769.1 million initially with up to $200 million of contingent consideration, the segment earned $241.8 million in 2025 [6], and its second-quarter margin fell 500 basis points [2], which means the return on the acquisition could fall short. This risk would ease if the third-quarter segment margin returns to about 18% or higher while organic volume keeps growing.

What to Watch Next

• North America Confectionery price and volume: second-quarter organic growth was +4.2% with about +14 points of price and about −10 points of volume. Positive organic growth with the volume decline narrowing to within about 5 points would confirm the current view; negative organic revenue would falsify it.
• CMG takeaway, share and Halloween: 12-week takeaway was +3.7% with lower share, and the 10-Q basis showed −8.6%. A halt in share losses would confirm; continued share loss with heavier promotion would falsify.
• Adjusted gross margin: 41.6% in the second quarter, up 350 basis points. At least 41.6% with more than 500 basis points of year-over-year improvement would confirm; a clear shortfall would weaken the view.
• Adjusted EPS: $1.90 in the second quarter against a third-quarter 2025 base of $1.30. Growth below the low end of the full-year guidance range would falsify the margin-recovery view.
• 2027 cocoa costs and tariff refunds: first-half cocoa futures averaged $1.80 per pound. A sharp futures rebound or a retreat from the 2027 deflation comment would falsify it.
• Salty snacks margin: 16.1% in the second quarter, down 500 basis points. A recovery to about 18% or higher would confirm; a margin persistently below last year would falsify.
• Salty snacks volume, net price and takeaway: about +4 points of volume, about −3 points of net price and +6.5% takeaway. Takeaway above 5% with a smaller price drag would confirm; growth that relies on price cuts would falsify.

Conclusion

Hershey's results depend on North America Confectionery pricing and volume elasticity, the lagged pass-through of cocoa and tariff costs, and the ability of salty snacks to turn demand into profit. Gross margin fell from 47.3% to 33.5% in 2025 and net income dropped to $883 million [6], while first-half 2026 adjusted EPS recovered to $4.25, up 28.4% [2], showing that pricing and lower costs have started to rebuild profit. The central unresolved relationship is whether volume can stabilize enough to keep confectionery organic growth positive once pricing laps, and whether margin recovery comes from durable cost declines rather than tariff refunds and the timing of advertising spend.

Outside commentary has a clear coverage gap. Since the latest results on July 30, 2026, full-text independent assessments with a verifiable publisher, author and date have been unavailable, and the sell-side or media commentary that could be accessed either predates those results or could not be retrieved in full. As a result, it is not possible to synthesize how outside institutions view these three debates or whether they agree, and scattered opinions should not be treated as a market consensus; the only outside reference points are the company's own full-year guidance and the analyst figures compiled by Drillr [3][4].

Looking ahead, the current view that elasticity is manageable and lower costs are turning into profit would strengthen materially if third-quarter confectionery organic growth is positive with the volume decline narrowing to within about 5 points, adjusted gross margin is at least 41.6% with more than 500 basis points of improvement, the salty snacks margin returns to about 18% or higher, and management reaffirms 2027 cocoa cost deflation. Conversely, the view would weaken if confectionery organic revenue turns negative, adjusted EPS growth falls below the low end of full-year guidance, or the salty snacks profit recovery keeps relying on price cuts and deferred brand spending.

Sources

[1] HSY earnings calendar updated 2026-10-26 · 2026-10-26 · Drillr earnings calendar

[2] HSY Q2 2026 8-K filed 2026-07-30 · 2026-07-30 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=8-K&dateb=&owner=include&count=40

[3] HSY Q2 2026 results press release via PR Newswire 2026-07-30 · 2026-07-30 · The Hershey Company · https://www.prnewswire.com/news-releases/hershey-reports-second-quarter-2026-financial-results-302838129.html

[4] Drillr analyst estimates HSY Q3 2026 retrieved 2026-10-26 · 2026-10-26 · Drillr analyst estimates · https://gateway.drillr.ai/mcp/private

[5] HSY Q2 2026 earnings call 2026-07-30 · 2026-07-30 · earnings-call · https://gateway.drillr.ai/mcp/private

[6] HSY FY2025 10-K filed 2026-02-17 · 2026-02-17 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=10-K&dateb=&owner=include&count=40

[7] HSY 8-K filed 2026-09-02 · 2026-09-02 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=8-K&dateb=&owner=include&count=40

[8] HSY Q1 2026 8-K filed 2026-04-30 · 2026-04-30 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=8-K&dateb=&owner=include&count=40

[9] HSY Q1 2026 10-Q filed 2026-04-30 · 2026-04-30 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=10-Q&dateb=&owner=include&count=40

[10] HSY Q2 2026 10-Q filed 2026-07-30 · 2026-07-30 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=10-Q&dateb=&owner=include&count=40