Things are starting to look sweeter for chocolate titan Hershey (NYSE: HSY), as cocoa price inflation eases, but the company still faces formidable hurdles.
After hitting record highs in 2024 amid bad weather in African growing regions, cocoa prices have fallen back 49% in the last year. But prices remain 70% higher than in 2023, so they’re still an issue for Hershey, CEO Kirk Tanner noted in the company’s Oct. 30 conference call.
In reaction, the 132-year-old American icon implemented double-digit price increases last year for candy such as Hershey bars and Reese’s Peanut Butter cups. But “while we are pleased to see the convergence of our pricing approach with improvement in the commodity markets, … we still have work to do,” he said. The company expects a resumption of cocoa inflation in 2026.
Still, there is an upside to that, says Hershey CFO Steve Voskuil. Higher prices can lead to more growing, which can ultimately push prices down. “We are optimistic that the recently announced farmer price increases in Ivory Coast and Ghana will further encourage farm investments,” he said. “This is an important step … to assuring the long-term supply of cocoa.”
Supply & demand
At the same time, cocoa supply from other regions continues to grow. Hershey projects a bigger surplus for the 2025 and 2026 crop than the prior season, as global supply returns to its long-term trend, and end users continue to adapt to higher prices.
Meanwhile, a measure of global demand fell 13% in the third quarter from a year earlier, the 10th straight quarter of mid-single-digit or greater declines, the company explained.
One more negative on the cost side is tariffs. Hershey estimates its expense there will be $160 million to $170 million for all of 2025. One silver lining to that cloud: the estimate is $10 million lower than Hershey’s previous projection.
The outlook for tariffs “changes week to week,” Voskuil said. “The first prize we were hoping for — a blanket exemption — is probably not in the near-term cards, but we’ve seen significant acceleration on trade deals.” And he’s optimistic about further progress there. But the company still predicts $200 million of tariff payments this year.
On the plus side, Hershey reported a 6.5% increase in revenue during the third quarter from a year earlier to $3.18 billion, helped by price increases.
Revenue strength
North American confectionary sales rose 5.6%, thanks to combined price hikes of 7% for 2024 and 2025. North American salty snack sales climbed 10%, with an 11% increase in volume. Dot’s pretzels, SkinnyPop popcorn, and Pirate’s Booty cheese puffs led the way.
While Hershey’s gross profit margin tumbled to 32.6% in the third quarter from 41.3% a year earlier, that’s far above the industry average of 21%, notes Morningstar analyst Erin Lash. Moreover, “Hershey is employing prudent tactics to blunt the hit to margins, including the pursuit of cost savings, [reducing package size], and surgically raising prices across its mix,” she said.
The company’s return on invested capital has averaged 23% over the past five years, and Lash predicts it will score in the low 20s over the next 10 years.
The cocoa price increase has hammered the stock, which has returned a negative annualized 5.2% over the past three years. But it rebounded 10.7% over the last year, and better times may be ahead.
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