The Hershey Company Third Quarter 2026 Earnings Q&A Session - HERSHEY CO

Explicit Guidance:

• Revenue/Sales Growth (FY2027): Maintaining a long-term algorithm of 2% to 4% sales growth for 2027. Management notes that if consumer pressures (driven by higher gas prices and inflation) persist, the company is likely to land on the lower end of this range; improvement in the macro environment is required to reach the higher end.
• EPS Growth (FY2027): Maintaining the previous framework of double-digit EPS growth for 2027. However, current conditions (higher freight logistics and non-cocoa input costs) mean actual results could be shy of the original framework if the environment does not improve. The outlook excludes the impact of the $0.25 tariff refund from the 2026 base.
• Margins: Long-term goal of returning to a mid-40% margin (mid-40% operating margin recovery). Expect meaningful margin improvement specifically in 2027, with the full trajectory aiming to reach the mid-40s ambition by 2028.
• Q4 2026 Margins: Exit rate for Q4 2026 implied gross margin is approximately 39%, impacted by cocoa hedge timing and volume deleveraging, with expectations for a substantial step-up in 2027 as hedge cycles roll.

Business-Segment Outlook:

• Salty Business: Expects the salty segment to contribute more to the top and bottom line in 2027. Service levels are currently below target but improving; new manufacturing lines and automation investments are coming online in the first half of 2027 to meet single-serve and multi-pack demand.
• Innovation Pipeline: The 2027 innovation pipeline is 50% larger than the 2026 pipeline, expected to contribute three times more to growth. Key launches in Q4 2026 include Hershey Rolls, a new Ice Breakers price point, Hershey Truffles, KitKat seasonal shaves, and Dots Buffalo Snack Mix. Major 2027 launches (including core business innovations in premium, suites, functional, and salty) are scheduled for Q1 2027.
• Brand Performance: Hershey brand growing 7% over the last 13 weeks. Expecting unit volume and unit growth improvement trends to continue through Q4 2026 and into Q1/Q2 2027, driven by programming on brands like Hershey, KitKat, Cadbury, and Kisses.
• Away-from-Home: Doubling down on "away from home" and specialty retail distribution as a growth tailwind for both confection and salty portfolios into 2027.
• Agentic Commerce: Actively engaging with major retailers (Target, Amazon, Walmart) to audit and optimize brand visibility in agentic commerce platforms.

Market and Competitive Outlook:

• Consumer Demand Trends: Category is described as "healthy" and "resilient" outside of specific channels. However, consumers are becoming more cautious due to inflation, gas prices, and interest rates, leading to more deliberate shopping choices (shift toward mass, e-com, and club channels).
• Channel Dynamics: C-Store channel faces significant headwinds with a 5% category decline in September persisting into October due to gas prices. Conversely, everyday candy, mints, and gum channels are up 3.7%.
• Market Share: Acknowledges recent market share losses driven by competitor short-term innovation activity and "re-storeo" comparisons. Confident that a robust 2027/2028 innovation pipeline in "premium, suites, functional, and better for you" segments will restore competitiveness and drive share progress exiting 2026 into 2027.
• Pricing Strategy: Pricing remains "rational." Strategy involves "low single-digit carryover pricing" in 2027 combined with RGM (Revenue Growth Management), pack-size adjustments, and targeted promotions rather than broad price cuts.

Macro / Industry Outlook:

• Cocoa Market: Believes the market is pricing in a global decline larger than seen in the last cycle, but sees no current evidence to support this. Notes historical surplus (500–600k metric tons), healthier inventories, and rising acreage in new origins (e.g., Ecuador). Maintaining a disciplined hedging approach using flexible instruments; too early to comment on 2028 specifics beyond leveraging sourcing flexibility.
• Salty Supply Chain: Snack supply recovery is slower than anticipated. Confidence remains that supply constraints and out-of-stock issues will be resolved in 2027.
• Cost Environment: Headwinds from freight, logistics, and non-cocoa input costs remain. Efficiency gains from logistics optimization (lane/customer order management) and freight fill-rate improvements are expected to partially offset these inflationary pressures in the coming months.
• Halloween Season: Expected to be flat year-over-year due to a compressed season (late Labor Day, Saturday Halloween) and high competition. 35% of seasonal sales occurred during the holiday week; participation intent is in line with last year.

Strategic Initiatives:

• Productivity & Technology: Investing in digitization, factory automation, decision intelligence (for working capital/waste reduction), and logistics optimization. These initiatives are underway to drive manufacturing efficiencies and operational levers through 2028.
• Marketing Investment: Full-year brand investment remains around 10% of sales. Carrying forward Q3 investments and ramping new campaigns for Cadbury, Fudge, and Payday. Expecting an 8% improvement in ROI from marketing spend via dynamic market mix modeling.
• Capacity Additions: New manufacturing lines for salty business coming online in H1 2027; investments in automation to handle complexity of single-serve/multi-packs.
• Merchandising: Leveraging the Hershey movie release (pre-Thanksgiving) to drive in-store inventory, displays, and brand uplift in Q4 2026, creating a tailwind into 2027.

Risks and Headwinds to Outlook:

• Consumer Pressure: Worsening consumer spending due to inflation, gas prices, or interest rates could push top-line results to the lower end of the 2–4% growth range or below.
• Cost Environment: Deterioration in freight, logistics, or commodity costs (non-cocoa) could push EPS below the double-digit framework.
• Channel Volatility: Continued weakness in the C-Store channel (5% decline trend) poses a risk.
• Supply Constraints: Ongoing issues in the salty supply chain impacting service levels and growth potential in 2026.
• Category Dynamics: Tough year-over-year comparisons (e.g., Reese's Oreo, C-store softness) in Q4 2026 and early 2027 could mask underlying volume trends.

Management Tone on the Future:

• Confidence Level: Confident in "actions we control" (innovation, media, programming) and the "robust" innovation pipeline for 2027/2028.
• Caveats: Acknowledges the "tougher macro backdrop" and "out of control" consumer spending factors as variables that will determine the landing spot within the guidance range.
• Strategic Stance: Committed to long-term investment despite near-term headwinds; emphasizing "profitable share" and efficiency. Tone suggests a defensive but proactive stance, betting on structural recovery in 2027 as hedges roll and capacity expands.

Miscellaneous:

• Share Count/Dividends/Buybacks: No specific forward-looking numbers provided in this transcript regarding share count, dividends, or buybacks.
• Earnings Release Timing: Full-year outlook and more detailed volume cadence color expected in February.