Fresh perspective might just be what the doctor ordered – in this case the board of Hershey bringing in a new CEO almost a year before incumbent Michele Buck was due to retire from the confectionery and salty snacks maker.
Buck’s hands have largely been tied over the last 18 months or so by historically high cocoa prices, with limited options but to keep increasing prices and suffer the impact on confectionery volumes, which dropped a whopping 18% in the first quarter based on a positive three percentage points in price.
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Hershey can arguably ill-afford to keep suffering such pain when its confectionery brands such as Reese’s and Rolo generated more than 80% of the $11.2bn in total group revenue last year, especially when salty snacks demand remains subdued in the US as consumers trim discretionary spending amid still-high living costs.
Cocoa futures prices have at least come off the record highs reached in December but are currently still more than double what they were in July 2023. And until prices come down to more conservative levels, incoming Hershey CEO Kirk Tanner will have his work cut out to avoid raising prices in confectionery further. If he does, he may just have to stomach the loss of volumes.
And early indications for the 2025/26 cocoa harvest season suggest a significant correction in prices is not on the cards anytime soon.
Tanner’s food industry credentials largely lie in snacks and beverages, fostered during a 30-year stint at PepsiCo, another US giant in the salty snacks category that has also been feeling the pinch from stretched consumers.
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By GlobalDataHe spent the last 18 months as CEO of the fast-food chain Wendy’s and was obviously tempted by a new challenge at Hershey given such a short shift. And a challenge it looks set to be with many of the hurdles to be circumnavigated beyond his immediate control.
A case that held true for Buck too, who Tanner will replace as Hershey’s president, chairman and CEO on 18 August, with the retiring chief acting in a senior advisory role to guide the new man at the top through the ropes.
News of new Hershey CEO brings “clarity”
Cocoa prices and the consumer-induced pressure on salty snacks sales have already been mentioned, but then add to the equation the rising popularity of the GLP-1 weight-loss drugs, the Make American Healthy Again campaign being waged by the Trump entourage and his reductions in SNAP benefits.
John Baumgartner, a managing director at Japanese investment bank Mizuho Securities, said the appointment of Tanner at least brings “clarity” on the executive front and removes an uncertainty that threatened to linger until Buck’s planned retirement next June.
Tanner’s appointment as Hershey CEO, his experience in snacks and beverages, as well as his record on innovation, “provides an encouraging foundation for new perspectives”, Baumgartner wrote in a research note.
However, Alexia Howard, a food analyst at AllianceBernstein, warned the US investment bank has concerns that “similar pressures will continue to pressure performance in the indulgent snacking space”.
She added: “In particular, increases in GLP-1 use as pill versions emerge in 2026, as well as the elimination of candy from SNAP spending in some states, could be negatives.”
Hershey’s first-quarter results for fiscal 2025, announced in May, were emblematic of the pressures, despite this year’s timing of the Easter celebrations, which in some countries often involve chocolate consumption.
Net sales dropped by 13.8% year-on-year on a reported basis to $2.8bn and were down 13.2% in organic terms. Volume/mix fell 15% as prices were increased by two percentage points during the quarter.
Volume pressures
Organic confectionery sales in North America declined 15.2% to $2.3bn as volume/mix fell 18% on the back of a three percentage-point increase in price.
The much smaller salty snacks division – brands such as SkinnyPop popcorn and Pirates Booty – for the same region saw organic sales rise 1% to $277.8m, with volume/mix growth of 4% and negative price of three percentage points.
Hershey’s international sales were comparative with snacks but with a very different performance outcome – sales down 7.9% at $227.5m, volume/mix retreating by 8% and price a positive one point.
The telling story is in Hershey’s share price, which has fallen 12% on the New York Stock Exchange in the past year, while adjusted diluted EPS in the opening quarter slid almost 32% to $2.09. However, more than halfway into 2025, the stock is down only 3% and last traded at $164.64.
For 2025 as whole, Hershey expects net sales growth of “at least 2%” but with adjusted EPS likely to be down in the “mid” 30% range.
Tweaks to outlook
Whether Hershey chooses to amend that outlook when the second-quarter results are issued at the end of July remains to be seen but Howard suggests Tanner may tweak the longer-term guidance.
“As an outsider coming into a company that has been troubled by sharp increases in cocoa input costs and weak volume trends in recent years, it seems plausible that Mr Tanner will take the opportunity to rebase earnings expectations downwards for next year,” she wrote.
“If this were to happen, it would be a markedly different trajectory from the hypothetical 6%-8% EPS growth (consistent with the company’s long-term earnings growth algorithm) that the company presented at the CAGNY conference in February if cocoa input costs were to remain at 2025 levels.”
Marley Robinson, an analyst at Just Food’s parent company GlobalData, suggests cocoa prices could bounce back up to last year’s unprecedented levels if there’s another poor cocoa harvest, a scenario that if materialises is likely to test Tanner’s mettle soon after he takes the CEO hotseat at Hershey.
“Pod counters in the Ivory Coast have suggested that the upcoming 2025/26 season will see a 10% decline in output. These forecasts are based on elevated mortality rates of flowers and cherelles (young pods), which have occurred despite supportive weather conditions,” Marley says.
“With low cocoa stocks, prices could go back to the highs seen in December 2024 or even higher if we get another poor cocoa harvest.”
Marketing initiatives
Meanwhile, Baumgartner at Mizuho wrote that the slope of Hershey’s volume declines is likely to moderate but emphasised how “stubborn cocoa inflation and tariff/health & wellness uncertainties remain limiting factors for visibility into sales and EPS”.
Baumgartner added: “We expect strategic emphasis to remain on consumer segmentation and customer partnerships and, although we believe the long-term growth algorithm is secure in theory (net sales growth of 2-4% and EPS growth of 6-8%), we would be unsurprised to see larger brand-building investments at the outset of Mr Tanner’s tenure.”
The food-sector analyst explains his theory to Just Food on consumer segmentation by suggesting Tanner might want to “drill down” on different consumer segments in terms of demographics – how and where they shop, how and where you market to them, what marketing is most effective and how much individuals buy on promotion.
“Not just making one Reese’s for the entire country,” he says.
“Hershey’s innovation of the last couple of years hasn’t been incremental to the category or to the brand. It’s probably been more cannibalistic, which is part of the reason it has lost market share consistently,” Baumgartner argues.
“Anybody coming in as an outsider is going to have some fresh perspectives and different experiences that they may be able to apply, whether it’s innovation, marketing, supply chain, or whatever.”
While the Mizuho MD infers the Bubble Yum and Jolly Rancher’s gum brand owner’s investment in marketing has not kept up with inflation in the past couple of years, he also says pricing taken by food manufacturers in general, including Hershey, has gone a stretch too far. That, in itself, presents a challenge for volume recovery.
Baumgartner suggests prices in a large proportion of food categories have gone up by around 30% since 2021, including confectionery and salty snacks, while food-at-home inflation has climbed about 17% when US household incomes have only gone up by circa 13%.
“You raise the price at double the rate of household income growth. Chocolate in the US has always been a low price point and an impulse purchase but given where prices have gone, it’s not really a low-price category anymore,” Baumgartner says.
“We’ve seen a number of instances where we’ve had companies reduce prices and volumes have responded fairly quickly.”
