The Hershey Company: Will it sweeten your portfolio?

The Hershey Company is one of the most recognizable names in global snacking, with a dominant position in U.S. chocolate and a growing presence in salty snacks and international markets. From iconic brands like Hershey’s and Reese’s to fast-growing names such as SkinnyPop and Dot’s Pretzels, the company combines heritage strength with category expansion and disciplined innovation. With a resilient confectionery core, increasing exposure to better for you and functional snacks, and a clear strategy to scale its brands globally, Hershey is working to balance stability with long term growth. The question remains: Does this snacking leader deserve a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Hershey at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Hershey, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

The Hershey Company was founded in 1894 in Pennsylvania and has grown into the largest producer of chocolate in North America and one of the leading confectionery companies in the world. Although best known for its chocolate, the company has evolved into a broader snacking business with products sold in roughly 80 countries under more than 85 brands. Hershey operates through three main segments: North America Confectionery, North America Salty Snacks, and International. The North America Confectionery segment is the core of the business and the largest contributor to revenue. It includes chocolate and non chocolate confectionery, gum and mints, protein bars, snack bites, spreads, baking ingredients, toppings, and other pantry items. Its portfolio contains some of the most recognizable brands in the United States, including Hershey’s, Reese’s, Kisses, Jolly Rancher, Twizzlers, Ice Breakers, and the U.S. licensed version of Kit Kat. Many of these brands have existed for decades and hold leading market positions in their categories. This segment also includes Hershey’s Chocolate World retail stores and licensing arrangements that allow third parties to use certain trademarks. Hershey controls roughly one third of the U.S. chocolate market, giving it a dominant position in its home market. This leadership translates into strong shelf placement at major retailers, consistent consumer demand, and significant bargaining power. Chocolate is a low cost indulgence purchased frequently, and consumer loyalty in this category tends to be high, which supports recurring revenue and resilient performance even during weaker economic periods. The North America Salty Snacks segment reflects Hershey’s strategic expansion beyond traditional confectionery. Through acquisitions and organic investment, the company has built a portfolio that includes brands such as SkinnyPop, Pirate’s Booty, Dot’s Homestyle Pretzels, and LesserEvil. These products include ready to eat popcorn, baked snacks, and pretzels. By participating in both sweet and salty categories, Hershey reduces reliance on chocolate alone and increases its presence across multiple snack aisles, capturing more consumption occasions and broadening its growth opportunities. The International segment includes operations across Latin America, Asia, the Middle East, Europe, and Africa. Hershey manufactures in countries such as Mexico, Brazil, India, and Malaysia, serving both local and export markets. In addition to global brands, the company markets regional brands such as Pelon Pelo Rico in Mexico, IO IO in Brazil, and Sofit beverages in India. Hershey sells primarily to wholesale distributors, grocery chains, mass merchandisers, convenience stores, dollar stores, drug stores, and wholesale clubs. A meaningful portion of revenue flows through large distributors such as McLane, which in turn supplies major retailers. The company operates an efficient distribution network supported by strategically located distribution centers and an in house sales force that works directly with retailers to manage shelf placement, promotions, and seasonal displays. Hershey’s competitive moat is built on brand strength, scale, distribution, and innovation. Its brands are deeply embedded in American culture and associated with holidays, traditions, and everyday indulgence. This emotional connection creates strong loyalty and habitual purchasing behavior. Consumers are generally unwilling to switch for small price differences, giving Hershey meaningful pricing power. Scale provides additional advantages. Large production volumes and procurement capabilities offer cost efficiencies in commodities such as cocoa, sugar, and dairy. In an industry sensitive to raw material volatility, these scale benefits help protect margins and provide flexibility during periods of rising input costs. Distribution is another key advantage. Hershey products are widely available across retail channels, and the company’s direct relationships with retailers ensure prominent shelf space and high visibility during important seasonal periods such as Halloween, Easter, and Christmas. Seasonal sales are especially important in confectionery and reinforce recurring demand year after year. Innovation also supports the moat. Hershey regularly introduces new flavors, limited editions, packaging formats, and product extensions within established brands. This keeps the portfolio fresh while leveraging existing brand equity. At the same time, expansion into salty snacks and better for you categories diversifies revenue streams and strengthens its position as a broader snacking company rather than a pure chocolate producer.

Management

Kirk Tanner serves as the CEO of Hershey, a role he assumed in 2025. He brings more than three decades of experience in the consumer packaged goods industry, with deep expertise in brand building, category management, and scaling global businesses. Kirk Tanner is leading Hershey at a time when the company is expanding beyond its traditional confectionery roots into a broader snacking platform, while also navigating commodity volatility and shifting consumer preferences. Prior to joining The Hershey Company, Kirk Tanner spent over 30 years at PepsiCo, where he held a wide range of senior leadership roles across beverages and convenient foods. Most recently, Kirk Tanner served as CEO of PepsiCo Beverages North America, one of the largest beverage businesses in the world. In that role, he oversaw a multibillion dollar portfolio that included carbonated soft drinks, sports drinks, energy beverages, and ready to drink teas and coffees. He was responsible for end to end operations, including manufacturing, distribution, sales execution, and innovation across a highly complex retail landscape. Earlier in his career at PepsiCo, Kirk Tanner held leadership positions in both beverages and snacks, including senior roles within Frito-Lay North America. His experience spans direct store delivery systems, large scale supply chains, revenue management, and frontline commercial execution. This operational background is particularly relevant for The Hershey Company, where distribution strength and in store execution are critical competitive advantages. Kirk Tanner is widely recognized for his focus on disciplined execution, portfolio management, and building high performing teams. At PepsiCo, he played a central role in strengthening brand positions, improving productivity, and driving consistent growth in competitive categories. His leadership style is often described as pragmatic and performance oriented, with an emphasis on accountability and collaboration across functions. Kirk Tanner holds a Bachelor of Science degree from Indiana University. Throughout his career, he has built a reputation for developing talent and leading organizations through periods of change while maintaining operational excellence. As CEO of The Hershey Company, Kirk Tanner is expected to continue reinforcing the company’s core confectionery leadership while accelerating growth in salty snacks and international markets. His extensive experience managing large scale consumer brands and complex distribution networks positions him well to guide Hershey through its next phase as a diversified global snacking leader. Given his depth of industry knowledge and proven ability to execute in mature yet competitive categories, I believe Kirk Tanner is well suited to steward Hershey’s iconic brand portfolio and long term value creation.

The Numbers

The first number we will investigate is the return on invested capital, also known as ROIC. We require a 10-year history with all figures exceeding 10% for each year. Hershey’s ROIC has historically been very strong, and that is not a coincidence. A company like The Hershey Company is structurally built to generate high returns on invested capital. From 2016 through 2024, ROIC was mostly between roughly 22% and 34%. That is an exceptionally high level for a consumer staples company and usually signals a durable competitive advantage. There are several simple reasons for this. First, brand strength gives Hershey pricing power. Products like Hershey’s and Reese’s are deeply embedded in U.S. culture. Chocolate is a small, affordable indulgence, so consumers are usually not very sensitive to small price increases. That allows the company to raise prices over time when input costs increase, which helps protect margins and returns. Second, the business is relatively asset light compared to many industrial companies. Once factories and distribution systems are in place, Hershey can produce large volumes without massive additional investment. That means a lot of profit can be generated from a relatively stable capital base, which boosts ROIC. Third, candy and snacks sell quickly and turn over fast in stores, especially around holidays like Halloween and Easter. Fast inventory turnover and strong cash generation improve capital efficiency. Fourth, scale plays a major role. Hershey controls roughly one third of the U.S. chocolate market. That scale gives it better purchasing power for cocoa, sugar, and packaging, and strong negotiating power with retailers. All of this supports consistently high margins and therefore high ROIC. The sharp decline to about 11,9% in 2025 stands out because it is far below the historical range. The most important explanation is the extreme rise in cocoa prices in 2024 and 2025. When raw material costs rise very quickly, costs increase immediately, but price increases to customers often happen with a delay. That temporarily squeezes margins. Lower operating profit combined with a similar or higher capital base naturally leads to lower ROIC. Another factor is investment and acquisitions. Hershey has expanded further into salty snacks and completed acquisitions such as LesserEvil. When a company increases its invested capital through acquisitions or capacity expansion, but earnings from those investments have not yet fully ramped up, ROIC can temporarily decline. In addition, growth in some snack categories has normalized after very strong years. If revenue growth slows while invested capital rises, returns look weaker in the short term. The key question is whether this decline is structural or temporary. There is little evidence that Hershey’s brands have lost their strength or that its market position has deteriorated. If cocoa prices stabilize or if Hershey successfully passes higher costs on to consumers, margins should gradually recover. As margins recover, ROIC should improve. It is possible that ROIC does not return to the very peak levels above 30% seen in earlier years. If cocoa prices remain structurally higher or competition intensifies, a more normalized level might be in the high teens or low 20s. Even that would still represent a strong return for a large consumer staples company.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Hershey has delivered strong equity growth over the past decade. Equity has increased in most years, often at double digit rates. That indicates consistent value creation for shareholders over time. The main driver behind this growth has been solid and stable profitability. When a company earns more than it distributes through dividends and share repurchases, retained earnings accumulate and equity rises. Even though Hershey pays a meaningful dividend and regularly repurchases shares, its earnings have historically been strong enough to both reward shareholders and grow equity. High ROIC has also played a key role. When a company consistently earns 20% or more on invested capital, retained profits compound at attractive rates. This internal compounding effect has been one of the primary reasons equity has grown steadily for many years. Acquisitions have also played a role. As Hershey expanded into salty snacks and bought brands such as Dot’s and LesserEvil, the overall size of the company increased. When Hershey uses the profits it generates from its core business to fund these purchases, the company becomes larger and more valuable over time, which supports long term growth in equity. The small decline of around negative 1% in 2025 stands out compared to prior years. The most likely explanation is lower profitability due to margin pressure, particularly from higher cocoa costs. When net income falls meaningfully and the company continues to pay dividends, equity can temporarily decline. Whether equity growth resumes depends largely on profitability. As margins recover and earnings normalize, retained earnings should once again exceed shareholder distributions. If Hershey restores stronger earnings power and maintains disciplined capital allocation, equity is likely to return to a growth trajectory. The long term pattern still reflects a business that has compounded value effectively. The modest dip in 2025 appears more cyclical than structural, driven primarily by temporary earnings pressure rather than a fundamental weakening of the company’s underlying economics.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Hershey has historically been a very strong free cash flow generator. Over the past decade, free cash flow has generally trended upward, and margins have often been in the mid teens or higher. That is a sign of a high quality consumer staples business with strong pricing power, disciplined cost control, and relatively predictable demand. There are a few structural reasons for this strength. First, Hershey operates in categories with steady, recurring demand. Chocolate and snacks are purchased frequently and tend to hold up well even in weaker economic environments. Second, the company benefits from strong gross margins driven by brand power. When consumers are loyal to brands like Hershey’s and Reese’s, the company can protect pricing and maintain solid profitability. Third, capital spending requirements are manageable relative to sales, which means a significant portion of operating profit converts into free cash flow. Free cash flow and margins did decline somewhat in 2025. The main reason is margin pressure, especially from historically high cocoa prices. When input costs rise sharply, profitability comes under pressure before pricing actions fully offset the increase. Lower operating profit naturally leads to lower free cash flow and slightly weaker margins. Another factor is investment. In 2025, Hershey continued to reinvest heavily in the business. Full year capital expenditures were around 455 million dollars, including investments in technology and supply chain capabilities. The company also completed the acquisition of LesserEvil, strengthening its better for you snacking platform. While these investments support long term growth, they temporarily reduce free cash flow in the year they are made. Despite the short term decline, free cash flow remains strong in absolute terms. Management has indicated confidence in future cash generation and expects capital spending to normalize in the 425 to 475 million dollar range. If commodity pressures ease and margins recover, free cash flow should improve again. The underlying demand profile of the business has not fundamentally changed, so a return to higher free cash flow margins is reasonable if cost pressures stabilize. Hershey uses its free cash flow in a fairly disciplined way. The first priority is reinvestment in the business, including manufacturing capacity, technology, supply chain improvements, and selective acquisitions. The company has emphasized that funding organic growth and integrating acquisitions like LesserEvil come first. The second priority is dividends. In 2025, Hershey paid about 1.1 billion dollars in dividends and even raised the dividend by 6%, signaling confidence in long term cash generation. Share repurchases are used more opportunistically. Management has stated that if excess cash cannot be invested at attractive returns, it will be returned to shareholders through buybacks. In 2025, repurchases were limited, but authorization remains in place and could be used as cash flow strengthens and macro uncertainty fades. The free cash flow yield suggests that the shares are currently trading at a premium valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. I evaluate whether a company’s long term debt is manageable by assessing how many years of earnings would be required to repay it. This is calculated by dividing total long term debt by annual earnings. Based on this calculation, Hershey currently has 5.24 years of earnings in debt. It is important to note that earnings declined meaningfully in 2025 due to margin pressure, which temporarily increases this ratio. Prior to 2025, the company’s debt level had not exceeded four years of earnings since 2015, reflecting a historically stronger earnings base. If earnings recover toward more normalized levels, the ratio would improve accordingly.

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Risks

Competition is a risk for Hershey because it operates in intensely competitive categories where consumers have many alternatives and switching costs are low. Hershey may be the leader in U.S. chocolate, but it competes directly with global giants such as Mars, Incorporated, Mondelez International, Ferrero, and Lindt & Sprüngli, as well as national brands, regional players, private label products, and large retailers with their own store brands. In confectionery, market share is influenced by innovation, pricing, brand strength, marketing effectiveness, shelf placement, and the ability to anticipate changing consumer tastes. Even though Hershey owns iconic brands, competitors are constantly investing in new flavors, formats, and premium offerings. If a rival launches a highly successful product or executes a particularly strong promotional campaign, consumer demand can shift quickly. In categories like chocolate and candy, purchases are frequent and impulse driven, which makes strong in store execution and brand visibility critical. Private label is another meaningful threat, especially in weaker economic environments. When consumers feel financial pressure, some trade down to cheaper alternatives. Large retailers have become increasingly sophisticated in developing and promoting their own confectionery and snack products. If private label penetration rises, it can pressure Hershey’s volumes, pricing power, and margins. The broader snack industry has also become more crowded. Consumers today can choose from protein bars, salty snacks, baked goods, organic snacks, and other alternatives that compete for the same consumption occasions as chocolate. This has put pressure on overall confectionery category growth. To address this, Hershey has expanded into salty snacks and better for you offerings. However, this expansion brings new competitive challenges, as the company now faces established players such as PepsiCo through its Frito Lay business and The Campbell's Company through Snyder’s Lance. Competing in salty snacks requires strong distribution, scale, marketing investment, and innovation. There is no guarantee that acquired brands will continue gaining share in these highly competitive segments. Innovation itself carries risk. To defend or expand market share, Hershey must continually launch new products and limited editions. These launches require spending on marketing, trade promotions, and shelf space. If new products fail to gain consumer or retailer acceptance, the return on those investments can be disappointing and weigh on profitability.

Commodity prices are a meaningful risk for Hershey because its products depend heavily on agricultural raw materials whose prices can fluctuate sharply and unpredictably. Cocoa is the most critical input for a chocolate manufacturer, but sugar, dairy, peanuts, corn, wheat, and packaging materials are also important cost components. When these inputs rise significantly in price, Hershey’s cost of goods increases, which directly pressures gross margins and earnings. Cocoa has been the most significant pressure point in recent years. Prices surged to historically high levels due to supply shortages in key producing countries such as Ivory Coast and Ghana. Extreme weather conditions, including drought linked to El Niño, damaged crops and reduced yields. At the same time, structural issues such as aging cocoa trees, disease, and underinvestment in farming have constrained supply. When supply tightens in a market as concentrated as cocoa, prices can spike dramatically. For Hershey, this creates a timing challenge. Commodity costs increase immediately, but price increases to retailers and consumers typically occur with a lag. Management has emphasized that it does not take pricing lightly and aims to keep products affordable, with much of the portfolio priced below four dollars. As a result, pricing actions may not fully offset cost inflation in the short term. In fact, management has acknowledged that pricing taken in 2025 does not fully cover cocoa inflation expected in 2026, meaning margin recovery will take time. Although Hershey uses hedging and forward contracts to manage volatility, hedging does not eliminate risk. It mainly smooths costs over time. When cocoa prices remain elevated for an extended period, even well structured hedges eventually roll off and higher market prices flow through the income statement. Management has noted that 2026 is hedged above current market levels, which provides some visibility, but if the long term “new normal” for cocoa prices is structurally higher than historical averages, profitability could settle at a lower level than in the past. Sugar and dairy have also experienced weather related and geopolitical disruptions in recent years. In addition, packaging and freight costs rose during periods of supply chain strain. While some of these pressures have eased, the broader point remains that Hershey operates in categories heavily exposed to agricultural and commodity cycles.

Reduced demand for Hershey’s core products is a risk because the company still relies heavily on traditional confectionery, particularly chocolate and other sweet snacks. While these categories have historically been resilient, long term shifts in consumer behavior could gradually pressure volumes and growth. Health and wellness trends are one of the most important factors. Consumers are increasingly focused on sugar intake, calorie control, and ingredient transparency. Public awareness around obesity, diabetes, and ultra processed foods has grown over the past decade. Even if consumers do not fully eliminate indulgent snacks, they may reduce portion sizes, snack less frequently, or switch to alternatives perceived as healthier. Over time, even small changes in consumption habits can affect category growth. Younger generations in particular are showing stronger interest in functional foods, high protein snacks, plant based products, and items with simpler ingredient lists. Traditional chocolate and candy may not benefit from the same tailwinds as protein bars, low sugar snacks, or natural foods. If these preferences continue shifting, confectionery could see slower long term growth compared to other snack categories. The increasing adoption of GLP 1 weight loss drugs adds another layer of uncertainty. These medications are designed to reduce appetite and food intake. While current data, including external research such as the Cornell Enumerator studies, suggests that users do not disproportionately eliminate confectionery, the long term impact remains unclear. If adoption accelerates and appetite suppression becomes more widespread, overall snack consumption could decline. Even if chocolate is not specifically targeted, smaller portion sizes and fewer snacking occasions could weigh on demand across the category. Regulatory risk is also tied to reduced demand. Governments around the world have implemented taxes on sugary beverages, and public health debates around sugar consumption continue. Although there is no broad confectionery tax in the United States today, future policies could include sugar taxes, stricter labeling requirements, or marketing restrictions. Any measure that increases prices or discourages consumption could impact volumes and margins.

Reasons to invest

A strong portfolio of brands is a reason to invest in Hershey because it provides durability, pricing power, and multiple avenues for long term growth. Hershey owns some of the most iconic names in U.S. snacking, including Hershey’s, Reese’s, Kisses, Kit Kat in the United States, Twizzlers, Jolly Rancher, and Ice Breakers. These brands have been built over generations and are deeply embedded in consumer habits, holidays, and everyday indulgence. Brand strength matters because consumers do not simply buy chocolate, they buy specific brands. That emotional connection creates loyalty and repeat purchases. In categories driven by impulse and routine, brand recognition heavily influences the decision at the shelf. This loyalty supports consistent demand and allows Hershey to maintain pricing power, even during periods of cost inflation. When consumers view a product as their “happy place,” they are less likely to switch over small price differences. Hershey’s leadership in U.S. chocolate also reinforces its competitive position. The company holds roughly one third of the domestic chocolate market. That scale translates into strong shelf placement, visibility during key seasonal events such as Halloween, Easter, Valentine’s Day, and the holidays, and preferred relationships with retailers. Seasonal demand adds a recurring revenue boost each year, making cash flows more predictable and resilient. Beyond sweets, the expansion into salty snacks strengthens the investment case. Through acquisitions such as SkinnyPop, Dot’s Pretzels, and LesserEvil, Hershey has built a meaningful presence in high growth areas of the snack market. The salty snack business has delivered strong retail sales growth and share gains, with SkinnyPop and Dot’s ranking among the fastest growing brands in their categories. Dot’s has even become the number one pretzel brand in the United States. This dual exposure to sweet and salty categories is important. It allows Hershey to capture a broader range of snacking occasions. Consumers today look for both emotional indulgence and functional or better for you options. Chocolate often satisfies the emotional side, while popcorn, pretzels, and portion controlled snacks address permissible and better for you trends. By participating in both, Hershey reduces reliance on a single category and positions itself where growth is occurring. Importantly, retailers reward brands that drive growth and traffic. Hershey’s salty portfolio has grown faster than the overall category in recent years, gaining share in a relatively flat market. When a supplier consistently delivers velocity and category growth, retailers allocate more shelf space and promotional support. That reinforces a virtuous cycle of visibility and performance.

International expansion is a reason to invest in Hershey because it represents one of the clearest long term growth levers for the business. The Hershey Company still generates the majority of its revenue in North America, which means its global footprint remains relatively underpenetrated compared to many other large food companies. That leaves meaningful runway for growth if the company can successfully scale its brands abroad. One of the most compelling elements of the international opportunity is the global expansion of Reese’s. Reese’s is already the number one confectionery brand in the United States, and management has been leveraging the U.S. playbook to expand it internationally. The brand has delivered double digit growth outside the U.S. and has surpassed 300 million dollars in international sales. In markets such as the United Kingdom and Germany, Reese’s has gained traction through targeted distribution, increased visibility, and portfolio expansion.  The strategy has been disciplined, often starting with limited advertising and focused retail placement before scaling once demand is validated. This measured, test and learn approach reduces risk. Hershey has shown a willingness to exit markets where profitability is difficult, such as China, and instead concentrate on regions where it believes it has a stronger right to win. Markets like Mexico, Brazil, Canada, and the United Kingdom have already delivered share gains, which supports the idea that the company can compete effectively outside its home market. International markets also offer structural tailwinds. In many countries, chocolate consumption per capita is still below U.S. levels, and rising incomes in emerging markets can support higher demand for branded snacks. As middle classes expand and modern retail channels grow, branded confectionery often benefits. For a company with established products and marketing expertise, this creates a long runway for incremental sales. There are differences in category dynamics that create both challenges and opportunity. In Europe, for example, the market skews more toward premium chocolate tablets and has stronger private label penetration. Hershey’s positioning in some of these markets is more premium and cocoa intensive, which can create higher price sensitivity. However, if managed carefully, this premium positioning can also support attractive margins over time. The company has emphasized thoughtful pricing and portfolio optimization to ensure long term profitability rather than chasing short term volume. Importantly, international expansion is not just about exporting U.S. products. Hershey manufactures in countries such as Mexico, Brazil, India, and Malaysia and adapts to local tastes. Combining global brands like Reese’s and Hershey’s with regional execution increases the probability of sustainable growth.

Innovation is a reason to invest in Hershey because it supports long term growth, keeps its brands relevant, and strengthens its competitive position in a constantly evolving snack market. Hershey operates in categories where consumer preferences change quickly, and sustained innovation is essential to maintain shelf space, pricing power, and cultural relevance. One of the core strengths of Hershey’s innovation strategy is that it builds on already powerful brands. Rather than relying solely on entirely new concepts, the company frequently extends established brands with new flavors, textures, and formats. Recent examples such as Reese’s OREO have outperformed expectations and required increased production capacity to meet demand. These types of launches leverage existing brand equity while creating renewed excitement in the category. In sweets, innovation has become a key growth lever. Consumer palates are evolving, and demand for bold flavors, unique textures, and novel experiences has increased. Products such as Shaq A Licious gummies and Jolly Rancher Heatwave illustrate how Hershey is tapping into adventurous flavor profiles and multi sensory experiences. This helps the company capture younger consumers and expand beyond traditional formats. Importantly, sweets are no longer primarily a children’s category. Adults are increasingly participating in indulgent snacking, which expands the addressable market. By introducing new concepts that resonate with adult consumers, Hershey can drive incremental volume without relying solely on population growth. Innovation also plays a critical role in the salty snack portfolio. Reformulations such as improvements to SkinnyPop White Cheddar and continued expansion of Dot’s demonstrate that the company is actively refining and strengthening its acquired brands. Strong innovation in salty snacks helps maintain share gains and supports retailer confidence, which can translate into additional shelf space. Beyond indulgence, Hershey is investing meaningfully in functional and better for you segments. Protein and fiber enriched snacks under brands such as ONE and Fulfil position the company within the growing functional snacking universe. As consumers increasingly look for snacks that offer nutritional benefits, participating in this space reduces reliance on purely indulgent products and aligns the portfolio with long term health trends. Management has emphasized increased investment in research and development to ensure a robust pipeline extending into 2027 and beyond. This forward looking approach is important. Innovation is not a one year event but a continuous process that fuels sustained top line growth. A strong pipeline also reduces the risk of stagnation and helps offset category slowdowns.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 4,34, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 24,2% in the next five years but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Hershey's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $130,20. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy The Hershey Company at a price of $65,10 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 2.277, and capital expenditures were 455. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 319 in our calculations. The tax provision was 331. We have 202,8 outstanding shares. Hence, the calculation will be as follows: (2.277 – 319 + 331) / 202,8 x 10 = $112,87 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With The Hershey Company's Free Cash Flow Per Share at $8,99 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $141,91.

Conclusion

I believe that The Hershey Company is an intriguing company with strong management. The company has built its moat through brand strength, scale, distribution, and consistent innovation. It has historically delivered high ROIC, strong free cash flow, and attractive free cash flow margins, although results in 2025 were pressured by unusually high cocoa prices, which are expected to normalize over time. Competition remains a risk because Hershey operates in highly competitive snack categories where consumers have many alternatives and can easily switch brands, and strong global rivals, rising private label penetration, and constant product innovation require continued investment in marketing and new launches to defend market share. Commodity prices are another risk since the business depends heavily on inputs such as cocoa, sugar, and dairy, and sharp cost increases can compress margins, especially because pricing adjustments often lag and hedging only smooths rather than removes the impact. Reduced demand is also a consideration, as the company is still largely tied to traditional confectionery and evolving consumer preferences toward healthier or functional snacks, along with the growing adoption of GLP 1 weight loss drugs and potential future sugar regulation, could weigh on long term consumption. At the same time, Hershey’s strong portfolio of iconic sweet brands and fast growing salty snack brands creates durable demand, pricing power, and reliable shelf space, supporting both resilience and long term growth. International expansion provides additional upside, as the company remains underpenetrated outside North America and has meaningful runway to scale brands such as Reese’s globally through disciplined market entry and share gains in key regions. Innovation further strengthens the case, as continuous product development across sweets, salty snacks, and better for you offerings helps keep the portfolio relevant and supports sustained top line growth. Overall, there are many attractive qualities in Hershey, and purchasing shares around the Payback Time price of $141 could represent a compelling long term investment opportunity.

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