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    HSY
    Earnings call· Mar 2025(Q1 FY25)

    HERSHEY Q1 FY25 earnings call HSY

    May 1, 2025 Source

    Executive summary

    The Hershey Company Q1 FY25 — Strong Consumption & Strategic Acquisitions Amidst Cocoa & Tariff Headwinds

    The Hershey Company delivered Q1 FY25 results in line with expectations, driven by strong consumption in U.S. confection and salty snacks, and strategic acquisitions like LesserEvil and Fulfil. However, the quarter was significantly impacted by cocoa price volatility, tariff exposures, and the timing effects of a late Easter and ERP system implementation, leading to gross margin compression and an EPS decline. Management is actively pursuing mitigation strategies for cocoa and tariffs, while maintaining full-year financial outlooks, excluding future incremental tariff impacts.

    Highlights

    5

    • Consumption across U.S. confection and salty snacks businesses came in ahead of expectations, driven by momentum across seasons, sweets, Dot's and SkinnyPop.

    • Hershey's Valentine's consumption increased mid-single digits and gained more than 60 basis points of share.

    • Preliminary results indicate a strong Easter season for Hershey, with retail takeaway growing at least 16% and an anticipated seasonal share gain of over 120 basis points.

    • Dot's strong momentum continued with 20.6% increase in retail takeaway growth and a 335 basis point share gain in the pretzel category.

    • The Advancing Agility & Automation initiative remains on track to deliver an incremental $125 million of cost savings this year.

    Concerns

    5

    • Hershey candy, mint and gum retail sales decreased 4.2% versus overall category declines of 2.7% in the first 12 weeks of the quarter, resulting in a share loss of approximately 45 basis points.

    • Adjusted gross margin decreased 370 basis points in the first quarter due to expected commodity inflation and negative sales mix.

    • Cocoa financial markets continue to be disconnected from fundamentals, with persistently high prices and anticipated inflation next year.

    • The current U.S. levy on cocoa is an exposure, with an expected incremental tariff expense of approximately $15 million to $20 million in Q2.

    • Adjusted earnings per share declined 32% in the quarter.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year net sales growth
    at least 2%
    high materiality
    High
    International segment constant currency net sales growth
    low single digits
    medium materiality
    Medium
    Full-year advertising spend growth
    mid-single digits
    medium materiality
    Medium
    Q2 Adjusted gross margin compression
    greater than Q1
    high materiality
    High
    Full-year underlying gross margin outlook
    down 650 to 700 basis points
    high materiality
    High
    Full-year other expense
    $170 million to $180 million
    medium materiality
    High
    Full-year tax rate
    approximately 16%
    medium materiality
    High
    Full-year interest expense
    $185 million to $190 million
    medium materiality
    High
    Q2 Adjusted EPS decline
    less than Q1
    high materiality
    High
    Full-year adjusted EPS outlook (pre-incremental tariffs H2)
    down mid-30%
    high materiality
    High
    Full-year capital investments
    $425 million to $450 million
    medium materiality
    High
    Q2 incremental tariff expenses
    approximately $15 million to $20 million
    high materiality
    High
    Q3 incremental tariff expenses
    increase
    high materiality
    High
    Q2 total company net sales growth
    more than 20%
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    North America Confectionery
    Net sales decline was in line with expectations, significantly impacted by the lap of planned inventory increases ahead of ERP system implementation and a later Easter season.
    Volume: declined nearly 18%Net price realization: around 3% benefitSour Strips acquisition: 40 bps benefitForeign currency exchange: 20 bps headwind
    		—-15%——
    International
    Performance was ahead of expectations in all key markets, but planned declines across other regions due to ERP cutover inventory build lap offset growth in Brazil and Mexico.
    Organic constant currency net sales: declined 7.9%Volume: declined approximately 8%Net price realization: around 1% benefitForeign currency translation: approximate 8-point headwindBrazil constant currency net sales: mid-teens increaseMexico constant currency net sales: mid-single digits increase
    		—-7.9%——
    North America Salty Snacks
    Volume growth driven by Dot's, SkinnyPop, Pirate's Booty, and multi-branded multipacks, which more than offset a 5-6 point volume headwind from fewer shipping days and planned private label production reduction.
    Net sales: increased 1%Volume growth: nearly 4%Net price realization: declined nearly 3%
    		—1%——

    Operational metrics

    15
    Net price realization
    2 points
    Q1 FY25

    Approximate benefit to total company net sales.

    Volume growth
    -15 points
    Q1 FY25

    Decline in total company volume, reflecting ERP lap, late Easter, and fewer shipping days.

    Adjusted gross margin
    -370YoY
    Q1 FY25

    Decrease in adjusted gross margin, as expected.

    Advertising and related consumer marketing spend
    -14.2%YoY
    Q1 FY25

    Decrease in advertising and related consumer marketing spend.

    Advancing Agility & Automation (AAA) cost savings
    $125M
    FY25

    Incremental cost savings expected to be delivered this year, on track.

    Adjusted tax rate
    24.4%+4 percentage points YoY
    Q1 FY25

    Increase in adjusted tax rate versus the year-ago period.

    Interest expense
    $45M
    Q1 FY25

    Interest expense for the first quarter.

    Adjusted EPS growth
    -32%YoY
    Q1 FY25

    Decline in adjusted earnings per share for the quarter.

    Capital expenditures (including software)
    $146M$68M lower YoY
    Q1 FY25

    Capital expenditures were lower than the prior-year period as several projects concluded.

    Dividends paid
    $272M
    Q1 FY25

    Dividends paid to shareholders in Q1.

    Share repurchase authorization remaining
    $470M
    Q1 FY25

    No shares repurchased in Q1; prioritizing capital for announced acquisitions.

    Foreign currency translation impact on net sales
    -90
    Q1 FY25

    Headwind from foreign currency translation on reported net sales.

    Volume impact from ERP lap, Easter timing, shipping days
    -15 points
    Q1 FY25

    Factors contributing to the total company volume decline.

    Global cocoa grind (demand)
    -3.4%YoY
    Q1 FY25

    Measure of global cocoa demand, indicating a response to persistently high prices.

    Global cocoa supply growth (top 3 markets)
    20%
    2024-2025 season

    Expected increase in supply for the current cocoa season.

    Industry KPIs

    7
    MetricValueDetails
    Gross margin-370bps
    Brand platform growthmid-single digits%
    Organic net revenue growth-7.9%%
    Adjusted EPS operating income-32%%
    Volume mix vs pricing decompositionVolume: -15 points, Price: +2 points%
    Elasticity consumer response commentarysoftening consumer sentiment, weaker trips, value-seeking behaviors
    Category growth benchmark channel shift dataNonseasonal candy, mint, gum category growth outpaced broader snacking trends; everyday chocolate growth nearly 2%; candy, mint, gum category declined 2.7%%

    Product announcements

    10
    ProductTypeDetails
    Reese's Peanut Butter and Jellylaunch
    Hershey's with Caramellaunch
    Kit Kat "Break Brothers" media campaignupdate
    Twizzler & JOLLY RANCHER "Chews Your Vibe" summer sweets campaignlaunch
    Sour Strips and JOLLY RANCHER Freeze Driedmilestone
    Hershey's and Kisses products with Pokemon characterslaunch
    Shaq-a-licious gummy shapelaunch
    Biggest Reese's innovationlaunch
    Pirate's Booty in Pokemon partnershipexpansion
    Dot's flavor innovationlaunch

    Deals & partnerships

    2
    LesserEvilIntent to acquire a mindful snacking brand with a differentiated ingredient and taste profile, strong growth and margin profile.

    Acquisition of LesserEvil, a mindful snacking brand, subject to regulatory approval. Expected to extend salty snacking portfolio and reach incremental consumers.

    Fulfil (North America operations)Acquisition of the Fulfil brand in North America, previously operated as a JV since 2020. Fulfil is a leading protein and energy bar brand in Europe.

    Hershey acquired the Fulfil brand in North America in April, which it had operated as a joint venture since 2020.

    Capital programs

    1
    State-of-the-art chocolate processing facilitycompleted

    Benefit: strengthening our supply chain and creating local jobs

    A new state-of-the-art chocolate processing facility in Hershey, PA, was opened last month.

    Risks & headwinds

    5
    Cocoa price volatility & inflationFY25-FY26

    Cocoa financial markets continue to be disconnected from fundamentals due to lack of market liquidity, speculation, and government policy changes; anticipate inflation next year.

    Mitigation: Robust planning underway, including pricing, price pack architecture, demand shaping, and sourcing strategies to mitigate inflation and protect margins. Flexible hedging strategies in place.

    Tariff exposureQ2 FY25, Q3 FY25

    Current U.S. levy on cocoa and Canadian retaliatory tariffs. Expected incremental tariff expenses of approximately $15 million to $20 million in Q2, increasing in Q3.

    Mitigation: Engaging with the U.S. government to seek an exemption for cocoa. Developing robust mitigation plans for other raw material and finished goods exposures.

    Softening consumer sentimentQ1 FY25

    Broader snacking came under pressure in Q1 due to softening consumer sentiment, weaker trips across channels, and continued value-seeking behaviors.

    Mitigation: Investments in innovation, media, and merchandising. Strong lineup planned for the second half of the year to drive velocities.

    Q1 Retail Sales & Share Loss (Candy, Mint, Gum)Q1 FY25 (first 12 weeks)

    Hershey candy, mint and gum retail sales decreased 4.2% versus overall category declines of 2.7% in the first 12 weeks of Q1, resulting in a share loss of approximately 45 basis points.

    Mitigation: Expect retail sales and share performance to improve in Q2 as the full Easter season is reported.

    ERP system implementation lapQ1 FY25

    Total company volume declined about 15 points in Q1, and North America Confectionery net sales declined 15%, reflecting the lap of planned inventory increases ahead of ERP system implementation in the prior-year period.

    Mitigation: The ERP lapse is expected to reverse, contributing to total company net sales increasing more than 20% in Q2.

    What to watch in Q2 FY25

    5

    Total company net sales growth

    Q2 FY25
    Current-13.8% (Q1 FY25)
    Targetmore than 20%

    Why it matters

    Verifies the reversal of Q1 headwinds (ERP lap, late Easter) and overall business momentum.

    We, therefore, expect total company net sales to increase more than 20% in Q2.

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Acquisitions & Leadership Additions

    Hershey announced its intent to acquire LesserEvil, a mindful snacking brand with a strong growth and margin profile, expanding its salty snacking portfolio. The company also acquired the Fulfil brand in North America, previously a JV, which is a leading protein and energy bar brand in Europe. These acquisitions are part of Hershey's strategy to become a leading snacking powerhouse. Additionally, Stacy Taffet and Tiffany Menyhart joined the leadership team as Chief Growth Officer and Chief Customer Officer, respectively, to drive this vision.

    02

    North America Confectionery Performance & Innovation Pipeline

    The North America Confectionery segment's net sales declined 15% in Q1, impacted by the lap of prior-year inventory builds ahead of ERP implementation and a later Easter. Despite this, Valentine's consumption increased mid-single digits with a 60 bps share gain, and preliminary Easter results showed retail takeaway growth of at least 16% and over 120 bps share gain. The company is launching new innovations like Reese's Peanut Butter and Jelly, Hershey's with Caramel, and a major Reese's innovation in the fall, alongside new media campaigns and partnerships with Pokemon and Shaq-a-licious.

    03

    Salty Snacks Momentum & International Segment Trends

    The Salty Snacks segment saw net sales increase 1%, driven by volume growth of nearly 4% from Dot's (20.6% retail takeaway growth, 335 bps share gain) and SkinnyPop (5.4% consumption growth, 160 bps share gain). The International segment's organic constant currency net sales declined 7.9% due to lapping prior-year inventory builds, but Brazil and Mexico showed mid-teens and mid-single-digit growth, respectively. The company expects full-year constant currency net sales growth of low single digits for International.

    04

    Cost Savings & Cocoa Market Dynamics

    The Advancing Agility & Automation (AAA) initiative is on track to deliver an incremental $125 million in cost savings for the year, with a strong pipeline for 2026 and beyond. Regarding cocoa, prices have retreated but financial markets remain disconnected from fundamentals. Hershey's full-year cocoa cost outlook is unchanged, with robust planning underway to address anticipated inflation next year through pricing, price pack architecture, demand shaping, and sourcing strategies. Global cocoa grind declined 3.4% in Q1, marking the eighth straight quarter of declines, while the 2024-'25 crop is tracking to a 20% increase in supply in the top 3 markets.

    05

    Tariff Exposures & Mitigation Efforts

    Hershey faces exposure from the U.S. levy on cocoa imports and Canadian retaliatory tariffs. The company is engaging with the U.S. government to seek an exemption for cocoa, which cannot be sourced domestically. Robust mitigation plans are underway for other raw material and finished goods exposures. Incremental tariff expenses of approximately $15 million to $20 million are expected in Q2, with an anticipated increase in Q3 if tariff relief is not secured.

    AI-generated summary of the company’s earnings call. Not investment advice.