Hershey Struggles Amid Changing Consumer Trends and Rising Costs
Despite boasting a market capitalization of $31.4 billion, The Hershey Company (HSY) has faced challenges in the confectionery market. Headquartered in Hershey, Pennsylvania, the company operates in three main segments: North America Confectionery, North America Salty Snacks, and International.
A Tough Year for Hershey’s Stock
Over the past 52 weeks, Hershey’s shares have significantly underperformed the broader market. HSY has declined by 20.3%, while the S&P 500 Index ($SPX) has enjoyed a rally, increasing 20.6%. Year-to-date, the stock is down 8.5%, contrasting sharply with SPX’s 2.5% gain during the same period.
Comparative Performance Shows Disparity
Further illustrating this trend, HSY’s performance lags behind the Consumer Staples Select Sector SPDR Fund’s (XLP) 7.5% return over the past year and a nearly 1% increase year-to-date.
Challenges Impacting Hershey’s Results
The significant decline in earnings can be attributed to rising cocoa prices, which have squeezed profit margins, coupled with a shift in consumer preferences towards healthier options and budget-friendly meals. This shift has slowed down consumer demand for traditional confectionery products.
Positive Q4 Results Provide Encouragement
On a brighter note, Hershey’s shares saw a 4.4% increase on February 6, following the release of better-than-expected fourth quarter results. The company reported adjusted earnings of $2.69 per share, which is a 33.2% increase compared to the previous year and well above analysts’ expectations of $2.37 by 13.5%. Furthermore, revenue climbed 8.7% to $2.9 billion, surpassing consensus estimates by 1.7%. A remarkable 35.9% growth in the North America Salty Snacks segment, alongside a notable expansion in adjusted operating margins, contributed to this positive outcome.
Future Earnings Projections
For the current fiscal year ending December 2025, analysts are projecting a 32.4% decline in HSY’s earnings per share, expected to drop to $6.33. The company has had a mixed record regarding earnings surprises, having exceeded Wall Street estimates in two of the last four quarters while falling short on the other two occasions.
Analysts Remain Cautious
Among the 22 analysts monitoring HSY, the consensus rating stands at “Hold.” This assessment is based on one “Strong Buy,” 16 “Hold” ratings, one “Moderate Sell,” and four “Strong Sell” ratings.
Price Targets Indicate Moderate Optimism
On February 3, Bernstein SocGen Group adjusted its stance on HSY to a “Market Perform” rating, lowering the price target to $146. Currently, the stock trades at 6.1% above this target. The average price target stands at $160.57, suggesting a modest upside of 3.6% from current levels. Meanwhile, the highest target from analysts indicates a potential upside of 43.3%, setting a price target of $222.
On the date of publication, Neharika Jain did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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