The Hershey Company — Margin Recovery & Dividend Analysis

Hershey reported a Q2 revenue surge of +26.00% to $2.615 billion even as adjusted gross margin contracted -5.10 percentage points to 38.10%, a startling revenue‑vs‑margin divergence that puts The Hershey Company dividend growth and margin recovery squarely at the center of investor focus.

That gap — strong pricing and sales but squeezed profitability — is the through‑line of the company’s most recent corporate updates. The company’s Q2 results and subsequent commentary show pricing lifted top‑line performance while record cocoa costs, tariff impacts and elevated marketing spend pressured margins; management and outside analysts have quantified the headwinds and the cost‑savings targets intended to close the gap (Hershey Q2 2025 Financial Results; Monexa AI analysis.

Key developments & recent results#

Hershey’s headline Q2 print combined strong revenue growth with material margin pressure. Management reported Q2 revenue of $2.615B (+26.00%) and an adjusted gross margin down to 38.10% (-5.10 pp y/y), outcomes that the company and independent summaries attribute to pricing benefits offset by rising cocoa costs and tariffs (Hershey Q2 2025 Financial Results; Monexa AI.

Leadership changed in the quarter cycle: while legacy filings and some data feeds still list Michele Gross Buck as CEO in profile snapshots, Hershey announced the appointment of Kirk Tanner as CEO, effective August 18, 2025 — a material governance shift that the company positioned as part of execution acceleration on margin recovery (see the company press release announcing the appointment: Kirk Tanner appointed CEO. This creates a short‑term data inconsistency across feeds (profile vs. corporate release); the press release takes priority for governance timeline and strategic intent.

Analyst reaction has been mixed. Some shops increased targets after the top‑line beat — for example CFRA’s target move reported in the press — while others flagged FY2025 EPS risk tied to persistent cocoa inflation (Investing.com on CFRA target lift; MarketBeat coverage.

Source: Monexa AI (company filings aggregated).

Why did Hershey's gross margin fall sharply in Q2 2025?#

Short answer: simultaneous record cocoa inflation, a tariff headwind and higher marketing spend outpaced pricing actions, compressing gross margin even as revenue rose. Management’s plan pairs pricing with targeted cost savings and supply‑chain adjustments to claw back lost margin.

The Q2 margin compression is quantified by management and independent summaries: pricing contributed materially to revenue (management estimated pricing drove roughly five percentage points of sales growth), but the company also disclosed a tariff drag estimated at $170–$180 million for 2025 and pointed to elevated cocoa costs as the primary driver of the margin decline (Hershey Q2 2025 Financial Results; Monexa AI analysis.

Operational levers (pricing, mix and productivity) are management’s short‑to‑mid‑term remedy; their cadence will determine whether margin recovery outpaces any sustained volume erosion in price‑sensitive categories.

Operational response and strategic plan under new leadership#

Management has outlined a transformation program targeting ~$150M of automation savings and ~$300M of pretax inefficiencies by 2026 as central to margin restoration. Those targets are explicit in company commentary and third‑party summaries outlining the turnaround priorities (automation, sourcing, SKU rationalization and targeted marketing) (Monexa AI; company filings and calls summarized by press coverage).

Tanner’s stated playbook centers on supply‑chain optimization, tighter marketing ROI discipline and portfolio reallocation toward higher‑margin categories such as salty snacks. The tension to manage is timing: cost actions typically take quarters to materialize while commodity pressures can persist; the near‑term margin path will therefore be execution‑sensitive.

The strategic plan also reflects capital allocation choices: in 2024 Hershey paid $1.08B in dividends and repurchased $494.19MM in stock while making $361MM of net acquisitions — a mix that shows continued shareholder distributions alongside selective M&A and reinvestment (Monexa AI cash flow data.

Financial health, capital allocation and valuation context#

From a balance‑sheet and cash‑flow perspective, the company remains investment‑grade in profile but with leverage that investors should watch. Key TTM metrics: price $176.45, market cap $35.77B, EPS (TTM) $7.54, P/E 23.40x, net debt $4.72B, net debt / EBITDA 2.13x, free cash flow (2024) $1.93B, dividend per share $5.48, and payout ratio ~70.84% (Monexa AI fundamentals & cash flow.

Source: Monexa AI.

Capital allocation in 2024 remained active: dividends paid -$1.08B, share repurchases -$494.19MM, capex -$605.94MM, and acquisitions -$361MM (cash flow statement, 2024) — a pattern that balances return of cash with investment and M&A, but also leaves less cushion if margins deteriorate further (Monexa AI cash flow.

Competitive landscape and sector dynamics#

Hershey benefits from a strong U.S. chocolate franchise (company commentary and market coverage commonly cite ~36% U.S. chocolate share), giving it pricing leverage in core categories; competitors such as Mondelez and Mars face comparable commodity pressures and are pursuing similar mixes of pricing, mix management and productivity programs (Ainvest coverage; BakingBusiness tariff analysis.

Industry context matters: cocoa price cycles are volatile and disproportionately affect chocolate producers versus less cocoa‑intensive snack categories; that structural exposure is why management is accelerating productivity levers and portfolio tilts away from the highest cocoa intensity where prudent.

Liquidity and leverage comparisons show Hershey with moderate leverage (net debt / EBITDA ~2.13x) and consistent free cash flow generation, which supports ongoing dividends and selective buybacks while management executes margin remediation (Monexa AI ratios.

What this means for investors#

Investors should track three execution milestones: the pace of realized cost savings vs. targets ($150M automation + $300M pretax by 2026), sequential margin improvement starting in H2 2025, and any change in capital allocation if earnings underperform. These are performance filters rather than valuation calls.

Key takeaways:

• Revenue vs. margin split: Q2 revenue +26.00% while adjusted gross margin fell -5.10 pp — pricing aided sales but did not offset input inflation (Hershey Q2 release; Monexa AI.
• Cost‑savings focus: Management targets ~$450M of pretax productivity/automation savings by 2026 as the primary margin remedy (Monexa AI analysis.
• Dividend & cash flow: Dividend per share $5.48, payout ratio ~70.84%, and 2024 free cash flow $1.93B support distributions but leave limited buffer if margins deteriorate further (Monexa AI cash flow & dividends.

These points frame an operational watchlist: sequential margin recovery, realized cost savings, and whether pricing‑driven volume changes become durable.

Conclusion — strategic implications#

Hershey’s recent prints show that pricing can buoy revenue but not immediately neutralize commodity and tariff shocks. The company’s stated transformation targets and leadership change (Kirk Tanner’s appointment) raise the probability of a disciplined margin push, but the timetable and execution risk matter for near‑term earnings and the sustainability of the current dividend profile.

For investors and analysts, the story is one of execution: monitor quarter‑over‑quarter margin improvement, the realization cadence of the $150M + $300M savings program, and whether capital allocation shifts if earnings remain under pressure. The company’s structural strengths (brand, U.S. market share, free cash flow generation) provide optionality — provided execution matches the plan.HSY