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Investing.com -- Moody’s Ratings has affirmed The Hershey Company (NYSE:HSY)’s A1 senior unsecured rating but changed the outlook to negative from stable, citing expected earnings weakness due to high cocoa prices and tariffs.
Cocoa prices more than doubled in 2024 and remain elevated and volatile. While Hershey’s hedging strategy has delayed the full impact, hedges locked in at higher costs are expected to significantly reduce profitability in 2025.
The company also faces earnings pressure from tariffs, primarily related to cocoa imports and retaliatory tariffs from Canada on chocolate. Hershey estimates the unmitigated tariff impact could reach up to $100 million per quarter in both the third and fourth quarters.
Moody’s projects Hershey’s gross debt-to-EBITDA leverage will increase from 2.4x as of March 30, 2025, to nearly 3x by year-end, before easing slightly to the mid-2x range in 2026. The rating agency expects EBITDA to decline by 25-30% in 2025, with only modest recovery in 2026.
Despite these challenges, Moody’s affirmed the A1 senior unsecured ratings, reflecting Hershey’s strong market position, pricing power, and the resilience of the confection category.
Hershey plans to mitigate cocoa pressure through pricing, price-pack architecture, and operational efficiencies, while pursuing an exemption for cocoa tariffs. The company has $1.5 billion in cash as of March 30, 2025, and access to a fully undrawn $1.35 billion revolving credit facility.
About $750 million of this cash will fund the LesserEvil acquisition, expected to close in 2025 pending regulatory approval. Free cash flow after dividends is projected to be $50-$100 million in 2025, rising to $125-$175 million in 2026, well below recent years due to lower earnings.
The company does not plan to repurchase shares this year and is expected to remain disciplined with share repurchases until credit metrics improve.
Approximately 92% of Hershey’s sales are generated in North America, highlighting geographic concentration. This concentration and Hershey’s confectionery focus make it among the most exposed companies in the packaged food sector to GLP-1 weight loss drug adoption and broader health and wellness trends.
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