HSY Consumer Staples · Branded snacks · Dividend payer · Food inflation · Thesis updated June 12, 2026

Hershey’s recovery still rests on chocolate pricing

The core story is a price-led margin recovery after cocoa costs crushed profit in 2025.
Q1 2026 gross margin rose to 39.4%, up 570 basis points from last year, helped by higher net pricing.
North America Confectionery is carrying the company, with segment income up 13.8% to $792.4 million in Q1 2026.
Salty Snacks sales grew fast, but profit fell 18.1% in Q1 because of costs management says are now done.
International remains the biggest weak spot, with Q1 segment income down 46.8% to $15.3 million.

01 Running thesis

Chocolate pricing must keep working

Hershey is in recovery mode. In 2025, full-year gross margin fell by 1,380 basis points as cocoa and other costs hit the business hard. The 2026 thesis is that Hershey can raise prices, cut costs, and rebuild margins without losing too many shoppers.

Q1 2026 gave the bull case real evidence. Gross margin improved to 39.4%, up 570 basis points from the prior year. North America Confectionery segment income rose 13.8% to $792.4 million, driven mainly by higher net sales, favorable mix, and savings from the AAA Initiative.

The salty snack issue looks less scary after the call. The filing showed North America Salty Snacks income fell 18.1% to $34.3 million. Management said the hit came from a voluntary temporary product withdrawal and extra logistics costs tied to a delayed distribution center opening, and said those costs are done. A return to double-digit profit growth would help prove that Q1 was a bump, not a broken growth engine.

The bear case is narrower, but still real. International segment income fell 46.8% to $15.3 million in Q1, after a 97.0% profit collapse for full-year 2025. The other risk is shoppers. Elasticity, which means how much demand falls after prices rise, has been better than management modeled so far. But new smaller packs and price points are still rolling out, so Q2 and Q3 scanner data matter.

Apr 2026▲The Q1 call supported the recovery view. Management said the Salty Snacks profit drop came from one-off costs that are now done, while Q1 gross margin rose 570 basis points.

Apr 2026▼The Q1 10-Q showed a split business. North America Confectionery income rose 13.8%, but Salty Snacks income fell 18.1% and International income fell 46.8%.

Feb 2026▼The 2025 10-K reset the base lower. Full-year gross margin fell 1,380 basis points, and International segment income fell 97.0%.

Feb 2026▲The Q4 call shifted the story toward 2026 earnings recovery. Management said 2026 cocoa needs were well hedged and early price elasticity was better than feared.

Oct 2025→The Q3 call made the recovery sound more gradual. Management framed margin rebuilding as a multi-year effort, but early consumer response to price increases was positive.

Oct 2025▼The Q3 10-Q showed gross margin down 870 basis points year over year. That weakened the idea that the second half of 2025 would bring a quick margin rebound.

Jul 2025▲The Q2 call gave more confidence that margins could start to recover in the second half of 2025 and into 2026. Management also said price elasticities were better than modeled.

Jul 2025▼The Q2 10-Q confirmed heavy pressure from cocoa costs. Gross margin fell 970 basis points to 30.5%, making margin recovery the central watch item.

02 Business model

Brands, shelves, and pricing power

Hershey makes money by manufacturing and selling branded candy and snacks through stores like mass retailers, convenience stores, club stores, grocery stores, and other channels. Its biggest asset is not a factory. It is shelf space and repeat demand for brands people already know.

The main profit lever right now is price. Management is aiming for 6% to 7% net price realization as it works through high cocoa costs. In Q1 2026, consolidated net sales rose 10.6% to $3.1042 billion, with favorable price realization of about 10% across the company.

This model works when the brands are strong enough that shoppers accept higher prices or smaller packs. It breaks when input costs rise faster than pricing, when consumers trade down, or when retailers give more shelf space to rivals. The 2026 test is simple: can Hershey recover margin while keeping volumes from falling too much?

03 Product portfolio

Candy pays, snacks add growth

Cash cow

Hershey’s chocolate

The Hershey brand sits inside North America Confectionery, the main profit pool. Management has called 2026 the year of Hershey, with more innovation and marketing behind the core brand.

Cash cow

Reese’s

Reese’s is one of the company’s most important chocolate franchises. It also stretches into snacks, including Reese’s Filled Pretzels, which helped drive Q1 volume growth in Salty Snacks.

Steady

Jolly Rancher and Twizzlers

These non-chocolate candy brands add breadth beyond cocoa-heavy chocolate. That matters when cocoa inflation squeezes margins.

Growth engine

Dot’s Pretzels

Dot’s is a key part of North America Salty Snacks. Management cited Dot’s as a driver of Q1 2026 salty snack volume growth.

Growth engine

SkinnyPop

SkinnyPop gives Hershey a popcorn position outside candy. It supports the company’s plan to build a larger salty snack platform.

Option

LesserEvil

Hershey bought LesserEvil in November 2025. The deal added organic popcorn and puffed snacks, and gave Salty Snacks about a 20% Q1 2026 sales benefit.

04 Business segments

Mostly North American candy

North America Confectionery80%modest

North America Salty Snacks11%growing fast

International9%declining

Segment mix is based on Q1 2026 net sales from Hershey’s Form 10-Q for the quarter ended March 29, 2026. North America Confectionery accounted for 80.2% of net sales, so the company is still highly tied to U.S. and Canada candy performance.

05 Risk factors

What could break the recovery

Cocoa and commodity costs stay too high

High impact · Medium odds

Cocoa was the main reason Hershey’s 2025 gross margin fell so sharply. Management says its hedging program is in great shape for 2026, and lower cocoa prices could help 2027. But if costs rise again or hedges roll off at worse prices, pricing may not be enough.

We watchQuarterly gross margin, cocoa cost commentary, and whether Q2 gross margin rises by nearly 300 basis points as guided.

Shoppers push back on price and smaller packs

High impact · Medium odds

Hershey is relying on shoppers to accept higher prices and new price pack architecture, which means changing pack sizes and price points. Elasticity has been better than planned so far, but volumes still declined in North America Confectionery and International in Q1. If demand weakens in the second half, sales growth could move toward the low end of guidance.

We watchQ2 and Q3 scanner data, volume trends, and management’s 0.8 elasticity assumption.

International profit does not recover

Medium impact · High odds

International is small by sales, but its profit problem is severe. Segment income fell 46.8% in Q1 2026 to $15.3 million, after falling 97.0% in full-year 2025. Management has not yet given enough detail on the fix or the timeline.

We watchInternational segment margin, local pricing actions, and any plan for cost cuts or market exits.

Salty Snacks profit rebound fails

Medium impact · Medium odds

North America Salty Snacks sales rose 26.0% in Q1 2026, helped by the LesserEvil acquisition. But segment income fell 18.1% as supply chain and marketing costs rose. Management says the withdrawal and distribution center costs are finished, so Q2 is an important proof point.

We watchQ2 North America Salty Snacks segment income growth and segment margin versus the Q1 margin of 9.8%.

Tariffs, systems, and supply chain costs linger

Medium impact · Medium odds

Hershey said tariffs and supply chain costs are still negative for results. The company is also managing global ERP system risk, and past supply chain issues already hit Salty Snacks. Even strong brands can struggle if products are late, costs stay high, or systems disrupt orders.

We watchTariff expense commentary, ERP updates, service levels, and any new product withdrawal or distribution center issue.

06 Quick answers

In one breath

Is Hershey mainly a chocolate company?

Yes. In Q1 2026, North America Confectionery was 80.2% of net sales. Salty Snacks is growing, but the company’s profit story still depends mostly on chocolate and candy.

Why did Hershey’s profits get hit in 2025?

The main problem was commodity inflation, especially cocoa. Hershey’s full-year gross margin fell from 47.3% in 2024 to 33.5% in 2025, a drop of 1,380 basis points.

What is the key thing to watch next?

Q2 gross margin is the cleanest test. Management guided for a nearly 300 basis point year-over-year increase, and a miss would weaken the recovery case.

Are weight-loss drugs a big threat to Hershey?

Management says the GLP-1 impact is already included in its outlook. The company argues confectionery is relatively insulated because users may still eat sweets, just in smaller portions.