Price Power and Cocoa Cost Reduction to Gain Signal Margin

After a great run in its stock back in February, Hershey NYSE: HSY it now trades 3.8% below its year-to-date price.

But while the stock price has continued, the image of the company has changed. Having overcome rising cocoa costs with incredible pricing power, reduced inventory pressures, and the proven strength of its products, the company is positioning itself to regain a potential edge.

Many analysts estimate that Hold, with a profit of 20%, as the balance of prices and demand continues. However with proven loyalty from customers and the alignment of new products, the company seems to be well positioned if the market follows the current trends.

Hershey's Pricing Power Pays Off

What has hurt the company recently is a well-known event. Cocoa prices rose to record highs in late 2024 and 2025, squeezing the margins of every chocolate maker in the world. Hershey saw its net profit drop from $797 million in the fourth quarter of 2024 to $224 million in the next three months of 2025 and to $63 million in the following quarter.

For Hershey, which generated annual sales of $11.7 billion last year and has a market capitalization of about $36 billion, the shock also came at a difficult time. The company was already pursuing a comprehensive portfolio restructuring. It was a big push for salty foods, including Dot's Homestyle Pretzels. LesserEvil, and SkinnyPop, and protein products, such as Fulfill bar in North America.

Sales and Profits Return Despite Higher Costs

When cocoa prices rose, Hershey's story shifted from long-term growth to short-term damage control. As a result, the company relied on its pricing power. At the end of last year, organic price recovery, or the profit margin, increased by 6% in the fourth quarter of 2025, and then increased to 10% in the first quarter of 2026. Consumers may complain, but they continue to buy.

The results for the first quarter of 2026 told a broader story. Consolidated sales reached $3.1 billion, up 10.6% from $2.8 billion last year. Adjusted earnings per share came in at $2.35, up 12.4%, and well above analyst estimates, compared to $2.09 in the year-ago period. Net income reported was $435 million, or $2.13 per share, up from $1.10 a year earlier.

The performance results were also very high. Reported operating profit for the first quarter increased 73.5% to $640.7 million, and profit margin reached 20.6%, up 7.4 points from last year. The company said the increase in prices and rates helped to reduce the cost of goods and related tax costs.

Looking ahead, management reaffirmed its full-year guidance of 4% to 5% net sales growth and 30% to 35% adjusted earnings per share (EPS). Full-year adjusted EPS is expected to reach $8.20 to $8.52 versus $6.31 in 2025.

Lower Cocoa prices could increase margins

The success of its salty foods was evident in North America, which reported total sales of 2.5 billion dollars. That segment recorded a 26% year-on-year increase in sales, while North American confectionery products recorded an 8.3% increase.

The cost picture is improving, but not resolved. In the last quarter, gross margin fell 17 percent to 37 percent as cocoa prices remained high. Even in the first three months of 2026, adjusted gross margin rose to 40.4%, but it was still down 80 points year-on-year due to higher material costs and tax-related costs.

An encouraging development is that cocoa prices have fallen significantly since the end of 2024 and the beginning of 2025, which were more than $10,000 per metric ton. Having dropped below $4,000 earlier this year, the stock is currently trading around $5,000.

Hershey ONE Aims to Drive Long-Term Growth

Besides cocoa, the company is making other structural moves.

In March, the company announced the consolidation of its sweet, salty, and protein product portfolios under an integrated operating model called ONE Hershey. The company hopes that by having its brands under one umbrella, it can effectively align strategy, cross-selling, brand messaging, store operations, and innovation.

The move also comes at a time of top management changes. A new president and CEO took over last August, and recently, a new president of US operations was appointed to oversee the combined businesses.

Analysts See More But Be Cautious

The financial picture surrounding the stock shows the tension between the quality of the business and the cost environment.

Over the past 52 weeks, Hershey has traded between $160 to about $240 per share. At current levels around $175 per share, its price/earnings ratio of over 33 is not cheap, and the consensus among 23 analysts is that the stock is currently a Hold. Sixteen analysts recommend Hold, and seven recommend Buy.

With a 12-month price average of $217.50, the current upside in the stock is more than 20%. The highest price target is $260 and the lowest is $185, suggesting real uncertainty about the speed of margin recovery.

The Hershey company paid a dividend of $1.45 per share last time and an annual yield of 3%. The company has increased its profits for 15 consecutive years,

The Next Few Quarters Could Be Critical

Whether the momentum Hershey has created continues will soon be seen in second quarter earnings.

The question is whether its pricing power is stuck and whether lower cocoa costs will help. The new administration will also help set the direction.

For investors, Hershey offers a choice between patience and precision. Hershey is a leading category company with a storied brand in the consumer staples sector. It has proven pricing power, 15 years of earnings growth, and an asset wind that appears to be declining. The next quarter or two should show if the trajectory continues.

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