Hershey (Hershey (HSY)) just served up a quarter that, on paper, looks delicious. The confectionery giant beat analyst expectations on both earnings and revenue, powered by strong brand momentum and steady snack demand. But investors aren't celebrating—the stock slipped nearly 2% on Thursday. Why? Because the rising cost of ingredients and tariffs is taking a bite out of margins, and that bitter taste is hard to wash down.

The Sweet Stuff

For the first quarter of 2026, Hershey reported adjusted earnings per share of $2.35, easily topping the $2.04 analysts were looking for. Revenue came in at $3.104 billion, up 10.6% from a year ago and above the $3.028 billion consensus. Organic net sales, adjusted for currency, rose 7.9%.

The North America Confectionery segment, the company's bread and butter, posted net sales of $2.489 billion, an 8.3% increase. But volume dipped about 4%, which the company attributed to price elasticity, one fewer shipping day, and some timing shifts. The Salty Snacks segment, which includes brands like SkinnyPop, saw net sales jump 26% to $350.1 million.

CEO Kirk Tanner highlighted the strength of Hershey's core brands: "Hershey's and Reese's are key drivers, delivering first quarter non-seasonal retail sales lifts of 11% and 10%, respectively."

The Bitter Aftertaste

Here's where the story gets less sweet. Hershey's adjusted gross margin fell to 40.4%, down 80 basis points from the first quarter of 2025. The culprit? Higher commodity costs and tariff-related expenses. In other words, the ingredients Hershey needs to make its chocolate and snacks are getting more expensive, and tariffs are adding to the pain.

Adjusted operating profit rose 12.9% to $686.5 million, and the operating margin improved 40 basis points to 22.1%. But the margin compression at the gross level is what caught investors' attention.

Dividend and Outlook

Hershey also declared quarterly dividends of $1.452 on Common Stock and $1.320 on Class B Common Stock, payable on June 15.

Looking ahead, the company narrowed its full-year 2026 GAAP EPS guidance to $7.77–$8.19 from $7.77–$8.20, compared to the $8.08 consensus. It reaffirmed adjusted EPS guidance of $8.20–$8.52 (versus the $8.44 estimate) and maintained its sales outlook of $12.159 billion–$12.277 billion (versus the $12.247 billion estimate). So the business is still on track, but the margin pressure is real.

At the time of publication, Hershey shares were trading at $185.47, down 1.95% on the day.