8-K: Hershey Q3 Sales Beat Expectations, Raises Full-Year Outlook

The Hershey Company reported third-quarter 2025 net sales and earnings that surpassed expectations, leading to an upward revision of its full-year financial outlook.

Summary

• Consolidated net sales increased 6.5% to $3,181.4 million in Q3 2025.
• Organic, constant currency net sales grew 6.2%, driven by 6 points of net price realization.
• Reported net income decreased 38.2% to $276.3 million, or $1.36 per diluted share.
• Adjusted diluted earnings per share decreased 44.4% to $1.30.
• The full-year 2025 net sales growth outlook was raised to approximately 3% from "at least 2%".
• The full-year 2025 reported EPS growth outlook was raised to "Down 48% to 50%" from "Down ~50%".
• The full-year 2025 adjusted EPS growth outlook was raised to the upper half of the previous range, now "Down 36% to 37%".
• Gross margin declined significantly due to higher commodity and tariff costs and unfavorable mix.
• Operating profit also decreased due to similar cost pressures.

Sentiment

Score: 6

Explanation: While net sales growth and the raised outlook are positive, the significant declines in reported and adjusted net income, EPS, and margins due to high commodity/tariff costs and unfavorable mix, along with increased corporate expenses, temper the overall sentiment. The strong performance in salty snacks and international is a positive, but the confectionery segment's income decline is a concern. The raised outlook, even if still negative for EPS growth, indicates management confidence in navigating challenges.

Positives

• Third-quarter 2025 results surpassed expectations.
• Consolidated net sales increased 6.5% to $3,181.4 million.
• Organic, constant currency net sales increased 6.2%.
• The full-year 2025 net sales growth outlook was raised to approximately 3%.
• The full-year 2025 reported and adjusted EPS growth outlooks were raised.
• North America Salty Snacks segment net sales increased 10.0%, with volume up 11 points.
• International segment net sales increased 12.1%, with volume up 6% driven by double-digit growth in Brazil and timing of shipments in Europe and Mexico.
• SkinnyPop ready-to-eat popcorn takeaway increased 7.7%, with share up nearly 70 basis points.
• Dots Homestyle Pretzels achieved the #1 share position in the period.
• Pirates Booty retail sales increased 10.9%, gaining approximately 40 basis points of cheese snacks and puffs category share.
• The Advancing Agility & Automation Initiative is expected to generate approximately $150 million in savings.

Negatives

• Reported net income decreased 38.2% to $276.3 million.
• Reported diluted earnings per share decreased 38.2% to $1.36.
• Adjusted diluted earnings per share decreased 44.4% to $1.30.
• Reported gross margin decreased 870 basis points to 32.6%.
• Adjusted gross margin decreased 850 basis points to 31.8%.
• Gross margin declines were driven by higher commodity and tariff costs and unfavorable mix.
• Reported operating profit decreased 29.1% to $434.6 million, with margin declining 680 basis points to 13.7%.
• Adjusted operating profit decreased 35.4% to $422.5 million, with margin declining 860 basis points to 13.3%.
• North America Confectionery segment income decreased 21.2%, with margin declining 750 basis points to 21.8%, due to higher commodity and tariff costs and unfavorable mix.
• International segment reported a $13.6 million loss, a decrease of $27.8 million versus the prior year period, with margin declining 1,210 basis points to (5.6)%, due to higher commodity and manufacturing costs.
• Unallocated corporate expense increased 38.9% to $193.1 million, driven by higher incentive compensation and consulting fees.
• The reported effective tax rate increased 1,170 basis points to 25.7%, and the adjusted effective tax rate increased 1,150 basis points to 26.7%, primarily due to a decrease in renewable energy tax credits.

Risks

• Disruptions or inefficiencies in the supply chain due to the loss or disruption of essential manufacturing or supply elements.
• Issues, concerns, or regulatory changes related to the quality and safety of products, ingredients, or packaging, human and workplace rights, and other environmental, social, or governance matters.
• Changes in raw material and other costs, along with the availability of adequate supplies of raw materials and the ability to successfully hedge against volatility in raw material pricing.
• Inability to successfully execute business continuity plans to address changes in consumer preferences and the broader economic and operating environment.
• Selling price increases, including volume declines associated with pricing elasticity.
• Increased marketplace competition.
• Failure to successfully execute and integrate acquisitions, divestitures, and joint ventures.
• Changes in governmental laws, regulations, and policies, including taxes and tariffs.
• Political, economic, and/or financial market conditions, including with respect to inflation, rising interest rates, slower growth or recession, changes in the U.S. administration, and impacts from the conflict between Russia and Ukraine.
• Risks and uncertainties related to international operations.
• Disruptions, failures, or security breaches of information technology infrastructure.
• Inability to hire, engage, and retain a talented global workforce.
• Inability to realize expected cost savings and operating efficiencies associated with strategic initiatives or restructuring programs.
• Complications with the design, implementation, or usage of the new enterprise resource planning (ERP) system.

Future Outlook

The company is raising its full-year 2025 outlook for net sales growth to approximately 3% and its reported earnings per share growth to a range of down 48% to 50%. The adjusted earnings per share outlook is also raised to the upper half of the previous range, now expected to be down 36% to 37%. This guidance excludes the effects of the proposed acquisition of LesserEvil. The company anticipates tariff expenses of $160 million to $170 million, interest expense of approximately $195 million, and capital expenditures of approximately $425 million, while expecting $150 million in savings from its Advancing Agility & Automation Initiative.

Management Comments

• "Third quarter results surpassed expectations, as strong innovation, strategic brand investments, and market leading execution drove momentum across business segments."
• "Based on our results year-to-date, we are raising our full year outlook for net sales and earnings per share."
• "I am excited to steer the next generation of growth at the Company, working closely with our talented team members, valued customers, and the Board. Together, well focus on delighting consumers and delivering results as we unlock our full potential as a snacking industry leader."

Industry Context

The company's performance, particularly in North America Salty Snacks with strong growth in SkinnyPop, Dots Homestyle Pretzels, and Pirates Booty, indicates a successful strategy in the competitive snacking industry. The focus on innovation and strategic brand investments aligns with broader industry trends where consumer preferences are shifting towards diverse snack options. Despite significant cost pressures from commodities and tariffs, the company's ability to drive net price realization and achieve volume growth in key segments suggests resilience and effective market execution in a challenging economic environment.

Comparison to Industry Standards

• The company's ability to achieve 6.2% organic, constant currency net sales growth, despite significant cost headwinds, demonstrates strong market execution compared to peers who might struggle with similar inflationary pressures.
• The performance of Dots Homestyle Pretzels reaching the #1 share position indicates a successful revitalization strategy within the pretzel category, potentially outperforming traditional pretzel brands.
• SkinnyPop's 7.7% takeaway growth and 70 basis point share increase suggests it is gaining ground against competitors in the ready-to-eat popcorn market.
• Pirates Booty's 10.9% retail sales increase and 40 basis point share gain in cheese snacks and puffs indicates strong competitive performance in a segment with many established players.
• The significant decline in gross and operating margins due to commodity and tariff costs, while partially offset by pricing, suggests the company is facing more acute cost pressures or has less pricing power than some global benchmarks in less commodity-sensitive categories.

Stakeholder Impact

• Shareholders: Positive impact from raised full-year outlook and strong sales growth, but negative impact from significant declines in net income and EPS, and margin compression.
• Employees: Potential impact from "Advancing Agility & Automation Initiative" and "business realignment activities" which include severance and employee benefit costs, suggesting potential workforce optimization.
• Customers: Continued focus on innovation and market-leading execution aims to delight consumers, potentially leading to new product offerings and improved availability.
• Suppliers: Higher commodity costs indicate increased demand or pricing power for raw material suppliers, while the company's efforts to manage supply chain efficiency could impact supplier relationships.

Next Steps

• Continue to focus on delighting consumers and delivering results to unlock full potential as a snacking industry leader.
• Integrate the proposed acquisition of LesserEvil (though not included in current guidance).
• Continue to execute the Advancing Agility & Automation Initiative to achieve approximately $150 million in savings.

Key Dates

Recommendation

While the company demonstrated strong sales growth and raised its full-year outlook, indicating effective market execution and brand strength, the significant decline in reported and adjusted net income and EPS, coupled with substantial margin compression due to high commodity and tariff costs, presents a mixed picture. The positive momentum in salty snacks and international segments is encouraging, but the core confectionery segment's income decline and the overall cost pressures warrant caution. The stock may experience short-term volatility due to the mixed results. A "hold" recommendation is appropriate as investors should monitor how effectively the company mitigates cost headwinds and translates sales growth into improved profitability in subsequent quarters before making a more definitive move.

Keywords

Hershey, HSY, Q3 2025 Earnings, Financial Results, Snacking Industry, Confectionery, Salty Snacks, Net Sales, EPS, Outlook, Commodity Costs, Tariffs, Gross Margin, Operating Profit, Supply Chain, Innovation, Market Share