Investors have some big questions heading into The Hershey Company's (NYSE:HSY) second-quarter earnings report. The candy and snack giant's last operating update in late April only contained hints about how the COVID-19 pandemic was impacting its business, with the biggest disruptions occurring in products like gums and mints, which dove 50% during the early lockdown days.

Hershey's July 23 quarterly announcement should confirm that this slump was just a temporary setback. But shareholders are still eager to see where demand has settled for chocolates and salty snacks over the last few weeks.

A woman eating chocolate.

Image source: Getty Images.

Organic sales trends

Hershey noted just a minor COVID-19 impact on overall sales last quarter. Organic sales fell 1% to mark a modest slowdown from the 2% uptick investors saw through fiscal 2019.

The second quarter covers the selling months of April, May, and June, and so it will capture the period of maximum social distancing in places like North America and Europe. Most investors who follow the stock are expecting that weak selling situation to keep sales trends in negative territory this quarter, but declines should again be modest at around 1%.

Within that growth figure, keep an eye on pricing and volume trends, which ideally will both hold roughly steady. Big declines in either area would imply struggles with market share or bloated inventory.

Sweet finances

A key pillar of the bullish investing thesis for Hershey is that the company can use its premium brand, coupled with a push into profitable snack products, to boost margins over time. Investors haven't seen that scenario play out yet, though. Instead, operating profit margin fell to 18.8% of sales last quarter from 21.8% a year ago.

Hershey will likely see even more pressure on earnings as COVID-19 costs spiked over the last few months. Sure, that will be a temporary hit, but it still challenges management's goal of boosting profits by between 6% and 8% annually over the long term. Investors are counting on that increase to help Hershey stock grow into its premium valuation.

Looking to 2021

Demand swings have calmed down since April when consumers were dramatically changing their shopping habits with every passing week. But CEO Michele Buck and her team still aren't likely to reinstate an outlook after they pulled their 2020 forecast after the COVID-19 pandemic began.

Assuming there are no big surprises on Thursday, Hershey will be entering the second half of the fiscal year with organic sales down slightly and earnings on an even weaker path. The good news will probably come from its consumer food staple niches, including newly acquired snack brands like SkinnyPop and Pirate's Booty. Market share wins here might combine with surging demand for at-home eating products to offset much of the losses in on-the-go candy sales at places like convenience stores and theaters.

But it's still hard to see the potential for Hershey getting anywhere close to its broader targets of growth of around 3% in the context of steadily rising profitability this year. The big question is whether the second half of the year puts the company on a path toward a rebound, or instead sets shareholders up for a third straight year of disappointing operating results.