Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Hershey Co (NYSE:HSY) is strategically positioned for balanced top and bottom line growth in 2026, leveraging pricing, productivity, and efficiency improvements.
• Elasticities are coming in on par or slightly better than expectations, indicating effective pricing strategies.
• The company has diversified its cocoa supply sources, enhancing resilience against market fluctuations.
• Strong performance in the sweets segment, with new innovations like SHAQ-A-LICIOUS Gummies and Jolly Rancher contributing to growth.
• The Hershey Co (NYSE:HSY) is seeing no material impact from GLP-1 drugs, with continued focus on evolving consumer preferences for healthier options.

Negative Points

• Cocoa prices remain elevated, posing challenges for cost management and pricing strategies.
• International markets, particularly Brazil and Mexico, are experiencing intense competitive activity, impacting growth.
• Gross margin pressure is expected to be more pronounced in the second half of the year due to higher cocoa costs.
• The everyday chocolate segment is facing market share declines, driven by increased competition and consumer shifts.
• Convenience store channels are experiencing pressure, impacting sales in the instant consumable segment.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Sign with HSY.

Q: Can you provide context on the potential for balanced growth in 2026, especially considering current cocoa prices? A: Steve Voskuil, CFO, explained that the company aims for balanced growth by leveraging pricing, productivity savings, and efficiency improvements. Despite high cocoa prices, Hershey is not paying market rates due to effective hedging. Pricing will be challenging, but 80% of the portfolio is priced under $4, which offers some flexibility.

Q: How is Hershey managing elasticity with recent price increases, and what are the strategic considerations? A: Michele Buck, CEO, noted that elasticities are meeting or exceeding expectations. The company is confident in its pricing strategy, carefully selecting where to implement increases while considering cocoa price normalization.

Q: What factors are influencing your decision to adjust pricing or formulations in response to commodity market changes? A: Michele Buck highlighted that Hershey considers both market fundamentals and actual price movements. The company is diversifying supply sources and monitoring cocoa market dynamics to inform pricing and formulation decisions.

Q: How are you addressing competitive pressures in international markets, particularly in Brazil and Mexico? A: Steve Voskuil mentioned that while Q4 was strong, competitive activity, especially in Brazil and Mexico, is expected to increase. Hershey plans to manage this through innovation and strategic market positioning.

Q: What is the outlook for gross margin pressure throughout the year, and how are hedges impacting this? A: Steve Voskuil stated that Hershey is nearly fully covered on cocoa for the year, with less margin pressure expected in the first half. The impact will be more pronounced in the second half as higher-priced hedges take effect.

Q: How is Hershey planning to innovate within the non-chocolate segment, and what are the advertising strategies? A: Michele Buck discussed recent innovations like SHAQ-A-LICIOUS Gummies and Jolly Rancher products, which will benefit from carryover effects and new launches. Advertising efforts will support these innovations to drive growth.

Q: What are the key factors driving chocolate volume declines, and how is Hershey addressing them? A: Michele Buck identified several factors, including the growth of the sweets segment, channel shifts, and health and wellness trends. Hershey is focusing on innovation and expanding its zero sugar and protein product lines to address these challenges.

Q: How is Hershey approaching the potential impact of GLP-1 drugs on consumer behavior? A: Michele Buck stated that there is no material impact from GLP-1 drugs on Hershey's categories. The company is monitoring consumer preferences for healthier options and evolving its portfolio accordingly.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.