Hershey 2025-26: Cocoa Bites NI -60%, FY26 Earnings Recovery
FY25 revenue $11.69B (+4%); Op income $1.42B (-51%); NI $883M (-60%); EPS $4.34 (-60%). Cocoa cost inflation hit gross margin 33.3% (-1,800bp). Snack business +18% Q4 (DD volume growth). Confection +3% organic; Salty +mid-single-digit organic; International -low single-digit organic. Mgmt FY26 guide: net sales +4-5% growth + meaningful earnings recovery.
Key takeaways
- Cocoa cycle compressed gross margin -1,800bp. GM fell from 47.3% FY24 to 33.3% FY25. Same dynamic as Mondelez. Op income -51% / NI -60%. Cocoa coverage cost the dominant negative.
- Snack business +18% Q4 with DD volume growth. Hershey's strategic diversification beyond chocolate paying off. Salty snack acquisitions (Dot's, Sour Patch Kids — wait that's confection — Pirate's Booty, Skinny Pop) growing materially.
- Branding investment increasing. Reese's true campaign for first time in 8 years; Hershey's main campaign. Double-digit advertising increase planned for FY26 — balancing current growth + long-term foundation.
- FY26 guide: +4-5% net sales growth + meaningful earnings recovery. Cocoa price deflation expected; future pricing pressure dissipating. Margin recovery thesis.
- EPS guidance dispersion. Mgmt: +4-5% net sales growth + earnings recovery, but no specific EPS guide range given the cocoa volatility uncertainty.
Business
The Hershey Company is an iconic American confection + snack company with three reporting segments:
- Confection (North America) (~70% of revenue): Hershey's chocolate + Reese's + Kit Kat + Twizzlers + Jolly Rancher + Ice Breakers + others. The flagship category, hit hardest by cocoa cycle.
- Salty Snacks (North America) (~20% of revenue, growing fastest): Skinny Pop + Pirate's Booty + Dot's Pretzels + Pop Secret + others. Q4 +18% volume; the structural growth diversification.
- International (~10% of revenue): Latin America + Asia + Europe. Modest organic decline.
Strategic positioning: dominant US confection franchise + growing salty snacks platform + brand investment cycle. Cocoa cycle exposure is the dominant variable; salty snack diversification reduces dependency over time.
FY25 financial performance
| Metric (FY) | 2023 | 2024 | 2025 |
|---|---|---|---|
| Revenue ($B) | 11.16 | 11.20 | 11.69 |
| Gross profit ($B) | 5.00 | 5.30 | 3.89 |
| Gross margin | 44.8% | 47.3% | 33.3% |
| Op income ($B) | 2.56 | 2.90 | 1.42 |
| Op margin | 22.9% | 25.9% | 12.1% |
| EBITDA ($B) | 2.75 | 3.10 | 1.45 |
| Net income ($B) | 1.86 | 2.22 | 0.88 |
| Diluted EPS ($) | 9.06 | 10.94 | 4.34 |
| FCF ($B) | 1.55 | 1.93 | 1.75 |
| Capex ($M) | -771 | -606 | -528 |
| Total debt ($B) | 5.13 | 5.45 | 5.40 |
| Dividends ($B) | -0.89 | -1.08 | -1.09 |
| Buyback ($M) | -265 | -494 | 0 |
The earnings print: Revenue +4% on snack growth offsetting cocoa-driven price elasticity; GM -1,400bp YoY to 33.3%; op income -51%; EPS -60% to $4.34.
FCF $1.75B held strong. Buyback paused at $0 (vs $-494M FY24) — capital priority on deleveraging + brand investment.
Capital allocation
- Capex: $-528M FY25 (4.5% of revenue).
- Dividends: $-1.09B FY25 (held flat). Maintained through cycle.
- Buybacks: $0 FY25 (paused).
- M&A: Bolt-ons in salty snacks; recent additions to Sour Patch Kids etc.
- Debt: $5.40B held similar.
FY26 outlook (per Q4 2025 call, 2026-02-05)
| FY26 framework | Direction |
|---|---|
| Net sales growth | +4% to +5% |
| Earnings | Meaningful recovery |
| Cocoa coverage cost | Improving (deflation expected) |
| Brand investment | Double-digit advertising increase |
| Pricing | Future pricing pressure deflating |
The +4-5% net sales + meaningful earnings recovery is the bridge: cocoa coverage cost improvement + brand investment driving volume + salty snacks compounding. EPS could recover toward $7-8 range vs FY25 $4.34 if cocoa moderates.
Key risks
- Cocoa cycle persistence: If futures stay elevated through FY26-27, GM recovery delayed.
- Sugar + commodity inputs: Multi-input cost basket.
- Consumer confidence: Premium confection elasticity in recession.
- Salty snack competition: Frito-Lay (PEP) + private label compete in salty.
- Brand investment ROI: Double-digit advertising increase must deliver volume.
- Tariff regime: Cocoa + sugar imports.
Bottom line
HSY FY25 is the cocoa-cycle compression year. GM -1,400bp, op income -51%, EPS -60% to $4.34. Snack business +18% Q4 the diversification offset. FY26 +4-5% net sales + meaningful earnings recovery on cocoa deflation + brand investment + salty snack scaling. Risks are cocoa persistence + commodity + consumer confidence.
Citations
- The Hershey Company FY25 Form 10-K (filed February 2026, SEC EDGAR).
- HSY Q4 2025 earnings call, 2026-02-05 — strong execution despite cocoa inflation + macro volatility; Snack business +18% Q4 with DD volume; Reese's true campaign first in 8 years; FY26 guide (+4-5% net sales, meaningful earnings recovery, cocoa price deflation, double-digit advertising increase).
- Internal financial_statements view (consolidated annual + cash flow + capital structure).