Hershey (HSY) Q4 2025 earnings review
Salty Snacks Surge, Margins Crumble
Hershey's Q4 was a study in contrasts. Top-line revenue grew 7.0% driven by a massive 28% surge in Salty Snacks and strong pricing (+9%). However, the cocoa crisis hammered profitability: adjusted gross margin compressed 650 basis points to 38.3%, and Net Income collapsed nearly 60%. While 2025 was the 'reset' year, management's FY26 guidance projects a sharp V-shaped recovery in earnings (+30-35%), suggesting the worst of the commodity inflation impact is now in the rearview mirror.
🐂 Bull Case
The diversification strategy is working. North America Salty Snacks revenue jumped 28% (18.2% organic), with segment operating income up 38.1%. Dot's Pretzels and SkinnyPop are effectively offsetting weakness in traditional confectionery volumes.
Management signaled the end of the earnings recession, guiding for 30-35% Adjusted EPS growth in FY26. This implies confidence that pricing actions and productivity savings will finally overtake cocoa inflation headwinds.
🐻 Bear Case
Adjusted gross margin fell 650bps to 38.3%, while International segment margins collapsed from +11.6% to -12.4%. Pricing power (+9%) was insufficient to cover soaring commodity and tariff costs, leading to a 24% drop in Adjusted Operating Profit.
The International segment swung to a $31.6M loss from a $29.5M profit a year ago. A 24-point margin contraction signals severe structural issues with elasticity and input costs outside North America.
⚖️ Verdict: ⚪
Neutral. The operational damage from cocoa costs in Q4 was severe, particularly in International. However, the aggressive 2026 guidance and the explosive growth in Salty Snacks suggest the company has turned the corner. Execution on the promised margin recovery is the 'show me' story for 2026.
Key Themes
International Profitability Collapse
The International segment imploded in Q4. Despite flat sales (+0.4%), the segment posted a loss of $31.6M compared to a profit of $29.6M last year. Margins swung from positive 11.6% to negative 12.4%. Management cited commodity costs and volume declines due to elasticity, raising concerns about the segment's viability in a high-inflation environment.
Salty Snacks as the New Engine
North America Salty Snacks is booming, with sales up 28% YoY. Even excluding the LesserEvil acquisition (~10pp impact), organic growth was a robust 18.2%. Importantly, this growth is profitable: segment margin expanded 160bps to 21.1%, proving this is not just 'empty calories' growth but a high-quality earnings driver.
Gross Margin Compression
The 'cocoa hangover' remains acute. Adjusted gross margin compressed 650 basis points to 38.3%. While improved sequentially from Q3 (31.8%), it remains far below historical norms (44.8% in 24Q4). The combination of higher commodity costs and incremental tariffs outweighed a significant 9% pricing action.
Pricing Power Holding Firm
Organic Net Price realization was +9% for the total company in Q4. Despite this steep hike, organic volume decline was contained to -3%, implying elasticity is manageable. In NA Confectionery, a 10% price hike resulted in only a 5% volume drop, demonstrating the durability of the brand portfolio even in a strained consumer environment.
Tax Rate Headwind
The adjusted effective tax rate spiked to 23.4% in Q4 2025, compared to a benefit of (13.7)% in the prior year. This massive swing was driven by fewer renewable energy tax credits. This non-operational headwind significantly exacerbated the EPS decline.
Other KPIs
Decelerating. Down 24.0% YoY. While revenue grew 7%, the cost structure (COGS + SG&A) rose faster. Marketing spend specifically rose 4.2% to support the Salty Snacks and International divisions.
Stable/Negative. Volume declines persist due to price elasticity (-10% pricing) and calendar shifts. While improved vs Q3, the core business is shrinking in unit terms, relying entirely on price for growth.
Accelerating. A standout metric. Organic volume surged 14% (total volume +18%), showing real demand growth independent of pricing or acquisitions. Driven by strong retail demand and variety pack expansion.
Guidance
Stable. Consistent with FY25's 4.4% growth. Includes a 1.5% benefit from acquisitions (LesserEvil). Organic growth implied at ~2.5-3.5%, primarily driven by price realization.
Reversing/Accelerating. Represents a 30% to 35% increase over FY25 ($6.31). This confirms management's view that margins will trough in FY25 and recover significantly in FY26 driven by gross margin recovery and savings.
Reversing. A massive 79% to 89% jump from FY25's $4.34. The gap vs Adjusted EPS narrows, primarily reflecting mark-to-market impacts and realignment costs.
Key Questions
International Profitability Path
The International segment swung to a -12.4% margin. Is this purely a cocoa timing issue, or are there structural problems? What is the specific timeline to breakeven for this segment?
Salty Snacks Sustainability
Salty Snacks posted incredible 28% growth. How much of this was channel fill vs. true consumption, and can margins hold at 21% as you integrate LesserEvil?
Cocoa Cost Visibility
FY26 guidance implies significant margin recovery. What assumptions for cocoa costs are embedded in the $8.20-$8.52 EPS guide, and what coverage do you have for the year?