Topline
Shares of Hershey wavered Thursday as investors digested the chocolatier’s quarterly earnings report, as soaring cocoa prices cut significantly into the food company’s profits.
Profits at chocolatier Hershey are struggling.
Key Facts
Hershey stock fell 3.5% shortly at market open, which would have been its worst day of the year, before bouncing back to a milder 1% loss.
The decline came after the company unwrapped its second-quarter financial results, which were poor across the board.
Hershey’s $1.27 earnings per share came well short of consensus analyst estimates of $1.44, with profits falling 37% year-over-year, and its $2.1 billion of Q2 revenues came shy of forecasts of $2.3 billion, marking a 17% year-over-year decrease.
The company’s $181 billion net income makes Q2 its least profitable period since 2017’s first quarter.
Hershey cut its full-year profit guidance from flat to a 1% to 3% decline, projecting its first annual profit decline since 2018 to 2019.
Why Are Hershey’s Profits Down?
In a statement accompanying the release, Hershey CEO Michele Buck attributed the sales slowdown to “consumers pulling back on discretionary spending,” nodding to the tight consumer environment, while the company attributed the bottom line deterioration to a uniquely challenging macroeconomic situation for a chocolate-first company: Surging cocoa prices. Hershey CFO Steven Voskuil said in a prerecorded call discussing results the company expects the effects of high cocoa prices to “more than offset net price realization and supply chain productivity,” leading to lower profit margins. Futures contracts tied to cocoa, the commodity which is the key ingredient for chocolate, skyrocketed earlier this year to an all-time high, and cocoa is more than three times as expensive than it was three years ago, due largely to poor weather and crop conditions in western and central Africa, which produce a majority of the world’s cocoa.
Key Background
Hershey sells candy like Hershey Kisses, Reese’s Peanut Butter Cups and Kit Kats, as well as some non-chocolate products like SkinnyPop popcorn and Ice Breakers mints. The Pennsylvania-based Hershey is the third-largest American food maker by market value, trailing only Mondelez and Kraft Heinz. Food stocks are stuck in an extended rut, with Hershey down 15% over the past 12 months, Mondelez 8%, Kraft Heinz 1% and Europe’s Nestlé down 17%, excluding dividends.
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