10:39 AM EDT, 07/28/2025 (MT Newswires) -- Hershey (HSY) is expected to report second-quarter results above market expectations amid strong consumption trends, but tariff-related pressures could force the chocolate manufacturer to adjust its earnings outlook downward for the ongoing three-month period, RBC Capital Markets said in a Monday client note.

The brokerage's scanner data for the second quarter suggests that Hershey saw an inflection in sales growth to the mid-to-high-teens, compared with mid-single-digit gains in the previous quarter. The company had guided for sales growth of more than 20% in the second quarter, while overall confection consumption rose in the high teens, with salty snacks steady in the high-single-digit range on a sequential basis, according to RBC.

Hershey appears to be "performing very well" in terms of market share, while the company's decision to keep prices on instant consumables low versus competitors is bearing fruit from a volume standpoint, the brokerage said. The company is receiving more traction in non-tracked and non-traditional retailers, while the confection category has benefited from being a low-cost indulgence, RBC added.

"We believe that (Hershey) can overdeliver (versus) expectations this quarter based on our channel checks, innovation flow/performance, and scanner data trends," RBC's co-head of global consumer and retail research, Nik Modi, wrote in the note.

The company is scheduled to release its latest quarterly results later this week. The current consensus on FactSet is for the company to post non-GAAP EPS of $0.99 and sales of $2.52 billion for the June quarter.

Looking ahead, RBC expects Hershey to adjust its EPS outlook downward for the third quarter to reflect additional costs related to tariffs. The Trump administration was recently reported to be considering exceptions on duties for goods that could not be easily grown within the US, such as cocoa beans, but no tariff reprieve has materialized yet, according to the brokerage.

Hershey previously estimated $100 million of unmitigated tariff impact per quarter in the second half, assuming levies were at 10%, with cocoa and retaliatory tariffs from Canada making up two-thirds of the amount, RBC said. The brokerage projects that a $100 million impact to gross margin would result in an extra five-percentage-point headwind on EPS per quarter.

"Without cocoa tariff exemptions, (Herhsey) will likely need to adjust guidance downward for (the third quarter)," according to Modi.

Hershey has informed its retailers and wholesalers about its plan to increase prices in the middle of September, including a 19% hike on its entire confection portfolio and a 26% rise on instant consumables, RBC said. The brokerage believes the company's new pricing strategy may be a partial offset to the tariff-related costs.

RBC has a sector perform rating on Hershey's stock with a price target of $175.

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