What Hershey (HSY) Said on Its Q3 Earnings Call

Key Points

• Q3 results improved significantly: Net sales rose 3%, while adjusted EPS more than doubled to $2.64, helped partly by $0.22 per share in tariff refunds. Adjusted gross margin expanded 10.9 percentage points.
• Consumer and supply pressures remain: Consumers became more cautious, especially in convenience stores, while Dot’s Pretzels demand continues to exceed supply. International sales also declined 7.5%.
• Hershey raised its outlook: The company now expects roughly 5% reported sales growth and about 3% organic growth for 2026, with adjusted EPS growth projected at 36% to 38.5%. Management also anticipates cocoa-cost deflation in 2027.

Hershey NYSE: HSY reported third-quarter results that included higher sales, a sharp increase in adjusted earnings and an improved full-year sales outlook, while management cited a more cautious consumer environment, pressure in convenience stores and continuing supply constraints in its salty-snacks business.

Net sales increased 3% from the prior year in the third quarter. The LesserEvil acquisition contributed 2.1 percentage points of growth, while organic net sales rose 0.8%, President and Chief Executive Officer Kirk Tanner said. Adjusted earnings per share more than doubled, rising 103% to $2.64, including a $0.22-per-share benefit from tariff refunds.

Tanner said the company is progressing on its margin and earnings recovery plans through pricing, cocoa-cost recovery, productivity measures and brand investment. However, consumers became more deliberate in spending during September and October amid higher gas prices, inflation and interest rates, he said.

“As September progressed, we saw consumers become more deliberate about spending, particularly in channels most exposed to higher gas prices like convenience stores,” Tanner said. The U.S. candy, gum and mint category declined nearly 5% in convenience stores during September, he added.

Sales trends and segment performance

North America Confectionery net sales increased 1.6% in the quarter. Net price realization was about 13%, while volume declined about 11%, reflecting elasticity and shipment-timing effects that offset strong seasonal shipments, according to Chief Financial Officer Dave Hulays.

Hershey’s U.S. retail sales of non-seasonal confectionery, mint and gum rose 2% during the quarter, while two-year growth accelerated to nearly 4% from 2.5% in the first half, Tanner said. Outside convenience stores, retail sales in those categories increased 3.7% from a year earlier.

Management said unit declines moderated across nearly half of its chocolate brands compared with the first half, including Hershey’s, Kit Kat, Cadbury and Hershey’s Kisses. The company expects retail unit and volume trends to improve in the fourth quarter as it laps non-seasonal pricing actions and benefits from media, innovation and merchandising programs.

North America Salty Snacks net sales rose 22.3%, including an approximately 20-percentage-point contribution from LesserEvil. Organic constant-currency sales rose 2.3%, with about 1% price realization and 1% volume growth. Excluding LesserEvil, retail consumption increased 4%, led by multipacks, Reese’s Filled Pretzels, Dot’s Snack Mix and Dot’s Pretzels.

Demand for Dot’s Pretzels remains ahead of supply, though service levels improved from the second quarter, Tanner said. The company is pursuing automation and capacity expansion, with additional support expected in 2027. Third-quarter retail sales for the Dot’s brand rose 9%.

International net sales declined 7.5%, despite an approximately two-percentage-point foreign-exchange tailwind. Hulays said volume fell about 14% due to seasonal shipment timing compared with the year-earlier period, portfolio optimization programs in select markets and elasticity effects.

Innovation, seasonal programs and marketing

Tanner said Hershey’s crème-filled bars were the top innovation in the category over the last four weeks, with velocities in the top quartile across target channels. Reese’s Oreo, now in its second year, reached 11% household penetration and had a 44% repeat rate, he said.

The company also cited accelerating sales, unit trends and market share for Cadbury in the four weeks ended Oct. 11. Reese’s Halloween item velocities were up 13% for the season to date, helping drive an 80-basis-point gain in seasonal sales.

Advertising and related consumer marketing spending increased about 17% during the quarter. Working-media investment rose by the mid-single digits as Hershey expanded national campaigns for Cadbury, Payday, SkinnyPop and Fulfil and supported the crème bar launch.

For the full year, the company expects brand investment to increase by the high-single digits, including a “meaningful” fourth-quarter increase supporting both 2026 and 2027 initiatives.

Margins, earnings and outlook

Adjusted gross margin expanded 10.9 percentage points in the third quarter, supported by pricing, productivity savings, tariff refunds and net input-cost deflation. Hulays said the result exceeded expectations because of cocoa hedge timing and about $57 million in tariff refunds. Those factors more than offset higher freight and logistics expense across the company’s three segments.

Hershey now expects reported net sales to grow about 5% for 2026, at the high end of its prior range, aided by stronger-than-expected LesserEvil performance and a modest foreign-currency benefit. The company narrowed its organic net sales outlook to approximately 3%, citing consumer pressure, softer convenience-store trends and ongoing salty-snacks supply constraints.

• Full-year adjusted gross-margin expansion is expected to be about 370 basis points including tariff refunds.
• Excluding tariff refunds, adjusted gross-margin expansion is projected at about 330 basis points.
• Full-year adjusted EPS growth is forecast at 36% to 38.5%, including tariff refunds received year to date.
• The company expects its full-year adjusted tax rate to be approximately 25% and interest expense to total about $200 million.

Looking ahead to 2027, Hulays said Hershey continues to expect top-line growth in line with its long-term algorithm and a low-double-digit earnings recovery, excluding the $66 million, or $0.25 per share, benefit from 2026 tariff refunds. He said higher freight and logistics costs, broader inflation and consumer pressure could restrain growth relative to the company’s expectations outlined in March.

Management also said it has strong visibility into cocoa-cost deflation in 2027. Hulays cited an estimated 500,000 to 600,000 metric-ton record cocoa surplus from the 2025-2026 crop that is expected to carry into the next season.

About Hershey (NYSE:HSY)

The Hershey Company NYSE: HSY is a global confectionery and snack food manufacturer headquartered in Hershey, Pennsylvania. Founded by Milton S. Hershey in 1894, the company began as a chocolate producer and has grown into one of the largest branded snack businesses in North America.

Hershey's portfolio includes chocolate, non-chocolate confectionery, gum and mints, and salty snacks. Its brands include Hershey's, Reese's, Hershey's Kisses, Kit Kat in the United States under license from Nestlé, Jolly Rancher, Twizzlers, Ice Breakers, SkinnyPop and Dot's Pretzels.

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