Hershey Foods (HSY, Financial) reported another disappointing quarterly performance due to a challenging economic environment, high cocoa prices, and underwhelming marketing. The company missed adjusted earnings estimates for the second consecutive quarter in Q3, with revenue falling short of expectations. Consequently, HSY revised its FY24 guidance, reducing its earnings outlook by approximately $0.49 and forecasting stagnant year-over-year revenue growth, down from its previous +2% growth estimate.
Cocoa prices, although declining from earlier peaks, remain over 40% higher than the previous year. To maintain margins, HSY has transferred these costs to consumers, who are already facing budget constraints. Consumers are shifting towards club, dollar, and online stores, where HSY has less presence.
HSY's retail partners are also tightening inventory management. The company faces increased competition, losing market share to smaller brands and private labels, especially in the U.S. take-home chocolate sector. Additionally, HSY's promotional efforts did not meet expectations this quarter.
This led to a mere +0.1% increase in total snacking consumption, a decline from the +0.9% seen in Q2. Consequently, HSY's adjusted EPS fell by 10.0% year-over-year to $2.34, with revenue decreasing by 1.4% to $2.99 billion. These issues are expected to persist in the near term, affecting HSY's FY24 guidance.
HSY's Strategy to Tackle Economic Challenges
HSY is enhancing its seasonal planning, with promising growth strategies for the second half gaining traction. For example, sweets consumption rose from +5% in August to +23% in October, driven by Halloween demand.
Long-term, HSY aims to boost chocolate demand by reallocating trade and media investments to support its chocolate brands. New products, like freeze-dried Jolly Rancher candies, are being introduced to revive the confectionery segment. HSY is also focusing on maintaining growth in its salty snacks division, leveraging celebrity endorsements and media investments. Internationally, HSY targets growth in markets such as Latin America, the U.K., Australia, and India.
Despite a challenging quarter, HSY remains hopeful. While cocoa fundamentals are improving, recovery in West Africa and global production growth may take time. HSY anticipates positive sales growth in 2025, setting the stage for accelerated growth into 2026.
