Hershey (HSY) stock fell Thursday after the chocolate maker reported better-than-expected third-quarter 2026 earnings and revenue but narrowed its organic sales growth outlook, citing cautious consumer spending amid inflation, higher gasoline prices and interest rates.

A Beat That Still Tasted a Little Bitter

Hershey reported adjusted earnings of $2.64 per share, beating analysts’ consensus estimate of $2.11. Earnings surged 103% year over year, including a 22-cent benefit from tariff refunds.

Revenue rose 3% year over year to $3.28 billion, topping Wall Street’s estimate of $3.25 billion.

Organic net sales increased 0.8% on a constant-currency basis, supported by approximately 11 percentage points of pricing gains.

However, consolidated organic sales volume and mix declined approximately 10 percentage points, reflecting price sensitivity, shipment timing and planned portfolio changes, partly offset by growth in North America Salty Snacks.

Chocolate Slows, Snacks Pick Up the Slack

North America Confectionery sales increased 1.6% to $2.66 billion, although volume fell approximately 11 percentage points.

North America Salty Snacks sales jumped 22.3% to $392.7 million, with the LesserEvil acquisition contributing approximately 20 percentage points to growth.

International sales declined 7.5% to $226.4 million, reflecting shipment timing, planned portfolio changes and the impact of price increases on demand.

Adjusted gross margin expanded 1,090 basis points to 42.7%, supported by pricing, lower commodity costs, tariff refunds and productivity savings.

Adjusted operating profit surged 78.5% to $754 million, while operating margin expanded 970 basis points to 23%.

Hershey paid $285 million in dividends during the quarter, up 5% year over year.

The company also declared quarterly dividends of $1.452 per common share and $1.320 per Class B share, payable Dec. 15 to shareholders of record Nov. 16.

The Consumer Is Watching Every Penny

CEO Kirk Tanner highlighted strong demand for new products, including Hershey Crème Filled Bars and Reese’s Oreo, which achieved 11% household penetration and a 44% repeat purchase rate.

However, management noted increased consumer caution in September and October. CFO Dave Hulays said higher gas prices, inflation and interest rates are forcing consumers to make more deliberate spending decisions.

The U.S. candy, mint and gum category declined nearly 5% in convenience stores in September, with consumer caution continuing into October.

Tanner expects sales volumes to improve in the fourth quarter, supported by innovation, marketing and seasonal demand.

The company expects previously announced seasonal price increases to continue into 2027, while lower cocoa costs should support profitability.

Guidance: Raised on Earnings, Trimmed on Sales

Hershey raised its 2026 adjusted earnings forecast to $8.58-$8.74 per share from $8.36-$8.52, above analysts’ estimate of $8.48.

The company also raised its GAAP earnings forecast to $8-$8.26 per share from $7.89-$8.17, compared with the $8.25 consensus estimate.

Hershey increased its revenue forecast to $12.28 billion, implying 5% annual growth, compared with analysts’ estimate of $12.291 billion.

However, it narrowed its organic sales growth forecast to approximately 3% from 3%-3.5%, reflecting consumer pressure and supply constraints in salty snacks.

Hulays expects low-single-digit organic sales growth in North America Salty Snacks for 2026.

Hershey plans additional automation and capacity expansion in 2027 to address supply shortages, particularly for Dot’s Pretzels and multipacks.

Hershey expects approximately $450 million in capital expenditures in 2026 and continues to forecast low-double-digit adjusted earnings growth in 2027, excluding the benefit of 2026 tariff refunds.

However, higher freight costs, inflation and weaker consumer demand could limit the recovery.

HSY Price Action: Hershey shares were trading down 1.38% at $161.51 at the time of publication on Thursday, according to market data.