Hershey Charts 2026 Recovery With Margin Rebound

The Hershey Company ((HSY)) has held its Q4 earnings call. Read on for the main highlights of the call.

The Hershey Company’s latest earnings call struck a cautiously optimistic tone, as management openly acknowledged persistent cost and policy headwinds but paired them with concrete signs of operational momentum. Executives emphasized strong performance in salty snacks, disciplined cocoa hedging that provides 2026 visibility, and a clear pathway to margin and earnings recovery. While commodity volatility, international elasticity, and U.S. policy changes (such as SNAP waivers) remain watch points, management’s tone suggested that execution wins and upside drivers currently outweigh these risks.

Top-Line Trajectory Anchored by 4%–5% Growth Target

Hershey’s leadership set the stage with a 2026 net sales growth target of 4%–5%, signaling confidence in the portfolio’s ability to grow despite macro uncertainty. This guidance reflects balanced contributions from both core confection and the faster-growing salty snacks business, with management highlighting that the majority of Hershey’s products still sit below a $4 price point — a key lever for maintaining consumer relevance. The company’s messaging suggested that this growth target is underpinned by both pricing and volume, rather than price alone, reinforcing a view that category demand remains resilient.

Salty Snacks Continue to Outperform

One of the brightest spots on the call was Hershey’s salty snacks segment, which delivered about 18% growth in the fourth quarter, driven by double-digit volume gains. For 2026, management expects salty snacks to post mid-single-digit organic sales growth, indicating that the recent surge is transitioning into a more sustainable growth phase. Brands like SkinnyPop and other snacking platforms are benefiting from strong consumer demand and improved execution, positioning salty snacks as an important growth engine that diversifies Hershey beyond traditional chocolate.

Gross Margin and Earnings Recovery in Focus

A core theme was margin rehabilitation. Management outlined expectations for a meaningful profit recovery in 2026, targeting roughly a 400-basis-point improvement in full-year gross margin versus the prior year, implying a gross margin near 41%. The company expects an inflection in profitability beginning in the second quarter, with momentum building through the back half. This margin recovery is a critical pillar behind Hershey’s outlook for a “meaningful earnings recovery,” including double-digit EPS growth later in the year, suggesting that much of the heavy lifting on pricing and cost management is already in motion.

Q4 Margin Beat Driven by Volume and Tariff Savings

Hershey’s fourth quarter offered an early glimpse of the margin trajectory, with gross margin beating expectations by more than 150 basis points. Management credited stronger-than-anticipated volume and related operating leverage, as well as lower supplier tariffs, for the upside. These benefits were partially offset by inventory-related headwinds, including LIFO and revaluation effects, but the net result was a better-than-modeled profitability performance that validates the company’s cost and pricing playbook heading into 2026.

Pricing Strategy and Elasticity Assumptions

The company plans roughly 10% pricing across the portfolio in 2026 and is building its plan around an elasticity assumption of about 0.8. Importantly, current elasticities have been more favorable than this, but management is intentionally using a conservative framework to avoid overestimating volume resilience. Hershey acknowledged that if elasticity worsens above 0.8, it could significantly constrain volume recovery, especially later in the year. For investors, this underscores a key sensitivity: pricing is necessary to offset input costs, but the volume response will be a major determinant of how much of that pricing flows through to the bottom line.

Cocoa Hedging Provides Visibility, but Limits Upside

Cocoa remains the central cost wildcard, but Hershey reiterated that its 2026 hedging program is largely in place and set above current spot prices. This structure gives the company solid cost visibility for the year and some limited participation if cocoa prices decline further, but it also means Hershey will not fully benefit from any sharp downside moves in the near term. Management noted that cocoa costs for 2026 are expected to be only modestly higher than in 2025, yet the hedging profile and prior cost run-up mean cocoa will remain a headwind that is not fully neutralized by pricing.

Brand Investment and Innovation Strength

Hershey is leaning into brand building and innovation as a core growth lever, with advertising and consumer spending set to increase at a double-digit rate. Management spotlighted major campaigns behind flagship brands like Hershey and Reese’s, along with innovation wins such as Reese’s Oreo and ongoing momentum from platforms like DOTS, SkinnyPop, and Jolly Rancher. These efforts are supporting household penetration gains and share growth in key categories, reinforcing Hershey’s strategy of using innovation and marketing scale to defend and grow its leading positions.

Segment and International Performance

Across segments, Hershey reported roughly 3% organic sales growth in confection, mid-single-digit growth in salty snacks, and low-single-digit declines internationally. While international sales are under pressure from tougher elasticities and premium positioning, the company still highlighted share gains in markets such as Canada, Mexico, Brazil, and the UK. Management framed international as an area of ongoing profit-recovery focus, with the current drag tied more to pricing-induced volume softness than to structural brand weakness.

Capital Allocation Returning to a More Normal Rhythm

With cash flow poised to improve alongside margin recovery, Hershey is signaling a normalization of capital allocation. The company intends to keep funding organic investment and growing its dividend while continuing integration work on recent acquisitions such as LessRevo. Management also indicated that share repurchase discussions are back on the table as the balance sheet and cash generation strengthen. This suggests a more balanced capital return profile, potentially adding another support for shareholder returns as earnings recover.

Cocoa Costs Still a Constraint Despite Hedging

Even with the hedging program in place, cocoa remains a structural headwind in the near term. Pricing actions taken in 2025 will not fully offset the cocoa cost inflation that carries into 2026, and management was candid that hedges set above current spot prices limit how much benefit Hershey can capture if cocoa trends lower. Cocoa for 2026 is expected to be “up just a little” versus 2025 on a hedged basis, but the accumulated cost pressure underscores why management continues to lean on pricing, productivity, and mix to defend margins.

Q1 Margin Pressure from Inventory and Tariffs

Investors were cautioned that the margin recovery will not be linear. In the first quarter, Hershey expects margin and earnings pressure due to higher-cost inventory still flowing through the system and tariffs embedded in mid-store inventory. These factors push the timing of margin improvement out to the second quarter and beyond. Management framed these as mostly timing-related headwinds rather than structural issues, but they nonetheless set expectations for a softer start to the year.

SNAP Waiver Uncertainty and Policy Risk

The evolving landscape for SNAP waivers related to candy products in the U.S. is another variable in Hershey’s outlook. Twelve states have waivers approved, but only two have implemented them so far, leaving the ultimate demand impact unclear. Management described the issue as a manageable headwind that is already incorporated into the forecast, while acknowledging that policy changes, along with broader consumer and healthcare trends, could affect category consumption at the margins.

International Elasticity and Volume Challenges

International markets are facing more acute volume pressure, as pricing actions and premium positioning create tougher elasticity dynamics. Hershey reported that international sales are down low single digits, with price increases weighing on volumes in several markets. The company is prioritizing profit recovery, suggesting a willingness to trade some volume for margin in the near term. Still, management underscored that international remains strategically important and highlighted pockets of share gain as evidence of brand health.

Volume Risks from Higher Pricing

Hershey’s 2026 plan explicitly embeds volume pressure from higher pricing, based on an assumed elasticity of about 0.8. While current trends are somewhat better than that assumption, management cautioned that any increase in elasticity above this level could materially limit volume recovery, particularly in the later quarters of the year. This makes consumer response to ongoing price increases a key variable for the story, with potential implications for both top-line growth and margin flow-through.

Macroeconomic and Competitive Backdrop

Beyond cocoa and policy factors, Hershey flagged broader macro and competitive risks, including changing consumer health behaviors, potential impacts from new therapies, and the possibility of more aggressive promotional activity from competitors. These factors introduce uncertainty around both category growth and market share dynamics. While not central to the base case, they were presented as plausible offsetting forces to the upside embedded in the current plan.

Inventory Accounting and LIFO Effects

The fourth quarter’s performance also reflected some accounting-related noise. Inventory revaluation and LIFO-related charges partially offset the otherwise strong margin expansion driven by volume leverage and tariff savings. Management indicated that inventory dynamics and associated accounting impacts will remain a near-term swing factor for earnings, particularly as higher-cost inventory continues to work its way through the system early in 2026.

Challenging Second-Half Comparisons

Looking beyond the early-year margin inflection, Hershey also called out tougher year-over-year comparisons in the back half of 2026. The company has baked these more challenging comps into its guidance, suggesting that growth rates may moderate later in the year even as underlying fundamentals remain healthy. Investors should therefore expect a front-loaded improvement in margin and EPS growth, followed by more normalized trends as the company laps stronger prior-year performance.

Forward-Looking Guidance and Outlook

Hershey’s 2026 guidance centers on 4%–5% net sales growth and a meaningful recovery in profitability, including a roughly 400-basis-point improvement in gross margin and double-digit EPS growth in the second half. The plan assumes around 10% pricing across the business, with elasticity of about 0.8 and increased investment in advertising, consumer activation, R&D, and brand support. Management expects Q1 to be pressured by higher-cost inventory and tariffs, with a margin inflection beginning in Q2 as costs normalize and pricing, mix, and volume leverage start to flow through more fully. Hedging above current cocoa prices provides cost visibility but limits upside from potential commodity relief, keeping execution on pricing, innovation, and cost discipline at the center of the investment case.

In sum, Hershey’s earnings call painted a picture of a company navigating well-known cost and policy challenges with a clear, multi-pronged recovery plan. Strong salty-snacks growth, disciplined hedging, and a renewed push behind brand investment and innovation support the company’s confidence in mid-single-digit sales growth and improving margins. While cocoa, international elasticity, policy shifts, and macro changes remain key risks to monitor, the overall message was one of solid underlying demand and a credible path to earnings re-acceleration in 2026.