Hershey's Q3 Profit Plunges 38% Amid Soaring Costs

Ticker: HSY · Form: 10-Q · Filed: 2025-10-30T00:00:00.000Z

Sentiment: bearish

Topics: Earnings, Profit Warning, Cost of Goods Sold, Consumer Staples, Snack Industry, Acquisitions, Inflation Impact

Related Tickers: HSY, MDLZ, KHC, PEP

TL;DR

**Hershey's margins are getting crushed, making this quarter a bitter pill despite higher sales.**

AI Summary

Hershey Co. reported a significant decline in net income for the three and nine months ended September 28, 2025, despite an increase in net sales. For the three-month period, net income dropped to $276,320 thousand from $446,301 thousand in the prior year, a 38.1% decrease. Nine-month net income fell even more sharply, from $1,424,648 thousand in 2024 to $563,242 thousand in 2025, a 60.4% reduction. This decline occurred despite net sales increasing by 6.5% to $3,181,418 thousand for the quarter and by 3.4% to $8,601,555 thousand for the nine-month period. The gross profit margin was significantly impacted, decreasing from 41.3% to 32.6% for the quarter and from 45.0% to 32.3% for the nine months, primarily due to a substantial rise in cost of sales. Operating profit also saw a steep decline, falling 29.1% for the quarter to $434,583 thousand and 49.2% for the nine months to $996,615 thousand. The company's cash and cash equivalents increased to $1,163,017 thousand as of September 28, 2025, from $730,746 thousand at December 31, 2024. Hershey is also expanding its snack portfolio with the planned acquisition of LesserEvil, LLC by the end of 2025, following the acquisition of Sour Strips in November 2024.

Why It Matters

Hershey's substantial profit decline, despite rising sales, signals significant margin pressure that could impact investor confidence and future dividend growth. The dramatic increase in cost of sales, outpacing revenue growth, suggests challenges in managing input costs or pricing power in a competitive snack market. For employees, this could mean increased scrutiny on operational efficiency. Customers might see price increases or changes in product offerings as Hershey attempts to restore profitability. In the broader market, this performance highlights the inflationary pressures facing consumer packaged goods companies, potentially affecting competitors like Mondelez International or Nestlé.

Risk Assessment

Risk Level: high — The risk level is high due to the significant decline in net income (38.1% for the quarter, 60.4% for nine months) and operating profit (29.1% for the quarter, 49.2% for nine months), primarily driven by a substantial increase in cost of sales. Gross profit margin dropped from 41.3% to 32.6% for the quarter, indicating severe pressure on profitability despite rising net sales.

Analyst Insight

Investors should scrutinize Hershey's upcoming earnings calls for detailed explanations on cost management strategies and future margin outlook. Consider holding HSY shares if you believe the cost pressures are temporary and the company's brand strength will allow for future price increases, but be prepared for continued volatility. New investors might wait for clearer signs of margin stabilization before initiating a position.

Financial Highlights

revenue
$8,601,555K
operating Margin
11.6%
net Income
$563,242K
eps
$2.77
gross Margin
32.3%
cash Position
$1,163,017K
revenue Growth
+3.4%

Revenue Breakdown

SegmentRevenueGrowth
Total Net Sales$8,601,555K+3.4%

Key Numbers

Key Players & Entities

FAQ

Why did Hershey's net income decrease so significantly in Q3 2025?

Hershey's net income decreased significantly due to a substantial increase in cost of sales, which rose from $1,754,775 thousand in Q3 2024 to $2,144,084 thousand in Q3 2025. This outpaced the growth in net sales, leading to a sharp decline in gross profit and operating profit.

What were Hershey's net sales for the nine months ended September 28, 2025?

For the nine months ended September 28, 2025, Hershey's net sales were $8,601,555 thousand, an increase from $8,314,723 thousand for the same period in 2024.

How did Hershey's gross profit margin change in Q3 2025?

Hershey's gross profit margin decreased from 41.3% in the three months ended September 29, 2024, to 32.6% in the three months ended September 28, 2025, reflecting the disproportionate increase in cost of sales.

What acquisitions did Hershey make or plan in late 2024 and 2025?

Hershey completed the acquisition of the Sour Strips brand from Actual Candy, LLC on November 8, 2024. Additionally, the company entered into a Merger Agreement to acquire LesserEvil, LLC on March 31, 2025, with the acquisition expected to close by the end of 2025.

What is the impact of rising costs on Hershey's profitability?

Rising costs, specifically the cost of sales, have severely impacted Hershey's profitability. For the nine months ended September 28, 2025, cost of sales increased to $5,823,681 thousand from $4,572,178 thousand in the prior year, leading to a 60.4% drop in net income.

What is Hershey's cash position as of September 28, 2025?

As of September 28, 2025, Hershey's cash and cash equivalents stood at $1,163,017 thousand, an increase from $730,746 thousand at December 31, 2024.

How much did Hershey pay in dividends per common stock share in Q3 2025?

Hershey paid $1.370 per share in dividends for common stock during the three months ended September 28, 2025, which was consistent with the $1.370 per share paid in the prior year's quarter.

What new accounting pronouncements is Hershey evaluating?

Hershey is evaluating ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, effective for annual periods beginning after December 15, 2024, and ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, effective for annual periods beginning after December 15, 2026.

What is the primary reason for the decline in Hershey's operating profit?

The primary reason for the decline in Hershey's operating profit is the significant increase in cost of sales, which led to a reduced gross profit, despite an increase in net sales. Operating profit fell by 29.1% for the quarter to $434,583 thousand.

What does the planned acquisition of LesserEvil, LLC mean for Hershey?

The planned acquisition of LesserEvil, LLC, a producer of organic popcorn and puffed snack products, means Hershey is expanding its existing product portfolio into the healthier snack category, complementing its traditional confectionery offerings and potentially diversifying revenue streams.

Risk Factors

Industry Context

The confectionery and snack industry is highly competitive, with established players and emerging brands vying for market share. Trends include a growing demand for healthier snack options, premiumization, and direct-to-consumer channels. Hershey is actively navigating this landscape by expanding its snack portfolio through acquisitions, aiming to diversify beyond traditional confectionery.

Regulatory Implications

Hershey operates under various regulations related to food safety, labeling, and advertising. Changes in food safety standards or increased scrutiny on ingredient sourcing could lead to compliance costs. Additionally, evolving tax laws and international trade policies can impact profitability and operational strategies.

What Investors Should Do

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Key Dates

Glossary

Cost of sales
The direct costs attributable to the production of the goods sold by a company. This includes materials and direct labor. (A significant increase in cost of sales is the primary driver for the sharp decline in Hershey's gross profit margin.)
Gross profit margin
A profitability ratio that shows the percentage of revenue that exceeds the cost of goods sold. (Hershey's gross profit margin has significantly decreased, indicating reduced profitability from its core operations.)
Operating profit
A company's profit before interest and taxes, reflecting the profitability of its core business operations. (Hershey's operating profit has seen a substantial decline, signaling challenges in managing operational expenses relative to sales.)
Net income
The company's total earnings or profit after all expenses, taxes, and interest have been deducted from revenue. (The dramatic decrease in net income is a key concern for investors, despite an increase in net sales.)
Diluted EPS (Earnings Per Share)
A measure of a company's profit allocated to each outstanding share of common stock, assuming all convertible securities were exercised. (The sharp decline in diluted EPS reflects the reduced net income available to shareholders.)
Cash and cash equivalents
The most liquid assets held by a company, including currency, bank deposits, and short-term, highly liquid investments. (An increase in cash and cash equivalents provides financial flexibility, though it doesn't offset the profitability concerns.)
Business realignment costs
Costs incurred due to restructuring or reorganizing business operations, which can include severance, asset impairments, or facility closure costs. (These costs, though reduced year-over-year, still represent an expense impacting operating profit.)

Year-Over-Year Comparison

Compared to the prior year, Hershey Co. reported a 6.5% increase in net sales for Q3 2025 and a 3.4% increase for the nine months ended September 28, 2025. However, profitability has been severely impacted, with net income dropping 38.1% for the quarter and 60.4% for the nine months. This is primarily due to a substantial rise in the cost of sales, which compressed the gross profit margin from 41.3% to 32.6% for the quarter and from 45.0% to 32.3% for the nine months. Operating profit also saw significant declines of 29.1% and 49.2% respectively, reflecting these margin pressures.

Filing Stats: 4,595 words · 18 min read · ~15 pages · Grade level 17.2 · Accepted 2025-10-30 14:29:08

Filing Documents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION 2

Financial Statements

Item 1. Financial Statements 2 Consolidated Statements of Income for the Three and Nine Months Ended September 28, 2025 and September 29, 2024 2 Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 2 8 , 2025 and September 29 , 2024 3 Consolidated Balance Sheets as of September 2 8 , 2025 and December 31, 2024 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 2 8 , 2025 and September 29 , 2024 5 Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 2 8 , 2025 and September 29 , 2024 6 Notes to Unaudited Consolidated Financial Statements 8 Note 1 - Summary of Significant Accounting Policies 8 Note 2 - Business Acquisitions 9 Note 3 - Goodwill and Intangible Assets 10 Note 4 - Short and Long-Term Debt 10 Note 5 - Derivative Instruments 12 Note 6 - Fair Value Measurements 14 Note 7 - Leases 16 Note 8 - Investments in Unconsolidated Affiliates 19 Note 9 - Business Realignment Activities 19 Note 10 - Income Taxes 20 Note 11 - Pension and Other Post-Retirement Benefit Plans 21 Note 12 - Stock Compensation Plans 22 Note 13 - Segment Information 24 Note 14 - Treasury Stock Activity 29 Note 15 - Contingencies 29 Note 16 - Earnings Per Share 30 Note 17 - Other (Income) Expense, Net 32 Note 18 - Supplemental Balance Sheet Information 33

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 35

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 46

Controls and Procedures

Item 4. Controls and Procedures 48

OTHER INFORMATION

PART II. OTHER INFORMATION 49

Legal Proceedings

Item 1. Legal Proceedings 49

Risk Factors

Item 1A. Risk Factors 49

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 49

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 49

Other Information

Item 5. Other Information 49

Exhibits

Item 6. Exhibits 51

Signatures

Signatures 52 Table of Contents The Hershey Company | Q3 2025 Form 10-Q | Page 1

— FINANCIAL INFORMATION

PART I — FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024 Net sales $ 3,181,418 $ 2,987,494 $ 8,601,555 $ 8,314,723 Cost of sales 2,144,084 1,754,775 5,823,681 4,572,178 Gross profit 1,037,334 1,232,719 2,777,874 3,742,545 Selling, marketing and administrative expense 600,540 591,920 1,762,419 1,750,888 Business realignment costs 2,211 27,635 18,840 32,572 Operating profit 434,583 613,164 996,615 1,959,085 Interest expense, net 51,474 44,316 142,131 125,511 Other (income) expense, net 11,199 50,101 9,808 82,695 Income before income taxes 371,910 518,747 844,676 1,750,879 Provision for income taxes 95,590 72,446 281,434 326,231 Net income $ 276,320 $ 446,301 $ 563,242 $ 1,424,648 Net income per share—basic: Common stock $ 1.40 $ 2.26 $ 2.85 $ 7.19 Class B common stock $ 1.27 $ 2.05 $ 2.58 $ 6.53 Net income per share—diluted: Common stock $ 1.36 $ 2.20 $ 2.77 $ 7.00 Class B common stock $ 1.27 $ 2.05 $ 2.59 $ 6.53 Dividends paid per share: Common stock $ 1.370 $ 1.370 $ 4.110 $ 4.110 Class B common stock $ 1.245 $ 1.245 $ 3.735 $ 3.735 See Notes to Unaudited Consolidated Financial Statements. Table of Contents The Hershey Company | Q3 2025 Form 10-Q | Page 2 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) For the Three Months Ended For the Nine Months Ended September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024 Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Net income $ 276,320 $ 446,301 $ 563,242 $ 1,424,648 Other comprehensive income, net of tax: Foreign currency translation adjustments: F

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