Hershey (HSY)

Chocolate company Hershey (NYSE:HSY) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 6.5% year on year to $3.18 billion. Its non-GAAP profit of $1.30 per share was 22.2% above analysts’ consensus estimates.

Company Overview

Best known for its milk chocolate bar and Hershey's Kisses, Hershey (NYSE:HSY) is an iconic company known for its chocolate products.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors that offer chocolate products and treats include Crunch from Nestle (SWX:NESN), Cadbury and Toblerone from Mondelez (NASDAQ:MDLZ), and M&M's and Snickers from private company Mars.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $11.49 billion in revenue over the past 12 months, Hershey is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of major retail partners, placing a ceiling on its growth. To accelerate sales, Hershey likely needs to optimize its pricing or lean into new products and international expansion.

As you can see below, Hershey’s 4.4% annualized revenue growth over the last three years was tepid as consumers bought less of its products. We’ll explore what this means in the "Volume Growth" section.

This quarter, Hershey reported year-on-year revenue growth of 6.5%, and its $3.18 billion of revenue exceeded Wall Street’s estimates by 2.2%.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months, similar to its three-year rate. This projection doesn't excite us and implies its products will face some demand challenges.

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

The demand for Hershey’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 2.4%.

In the latest quarter, Hershey’s organic sales rose by 6.2% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Hershey has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 41% gross margin over the last two years. That means for every $100 in revenue, $58.98 went towards paying for raw materials, production of goods, transportation, and distribution.

In Q3, Hershey produced a 32.6% gross profit margin, down 8.7 percentage points year on year. Hershey’s full-year margin has also been trending down over the past 12 months, decreasing by 6.7 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs (such as raw materials and manufacturing expenses).

Hershey has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 19.4%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Hershey’s operating margin decreased by 5.2 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Hershey generated an operating margin profit margin of 13.7%, down 6.9 percentage points year on year. Since Hershey’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, and administrative overhead expenses.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, Hershey reported adjusted EPS of $1.30, down from $2.34 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Hershey’s full-year EPS of $7.29 to shrink by 13.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Hershey has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 14.2% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Hershey hasn’t been the highest-quality company lately because of its poor bottom-line (EPS) performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 25.3%, impressive for a consumer staples business.

Hershey reported $1.16 billion of cash and $5.39 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.62 billion of EBITDA over the last 12 months, we view Hershey’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $79.33 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Hershey beat analysts’ organic revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, gross margin continues to slip due to input costs. Overall, we think this quarter featured some key areas of upside versus expectations. The stock remained flat at $175 immediately after reporting.

Updated: December 4, 2025 at 9:48 PM EST

When considering an investment in Hershey, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Hershey’s business quality ultimately falls short of our standards. First off, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its projected EPS for the next year is lacking. On top of that, its declining operating margin shows the business has become less efficient.

Hershey’s P/E ratio based on the next 12 months is 28.8x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $189.26 on the company (compared to the current share price of $182.13).