Hershey's stock has been more trick than treat
But concerns about the Ozempic impact and rising sugar and cocoa prices may be overdone
Boo! Want to get dressed up in a creepy Halloween costume this year? Try going as a year-to-date stock chart of Hershey. The candy king’s shares are down about 20% so far in 2023. Inflation has been one problem, with prices for sugar, cocoa and other agricultural commodities surging. The company has raised prices to offset these costs. But there are concerns that consumers may eventually feel the pinch and decide that they don’t need as many Kisses, Krackels, Mr. Goodbars, or my personal favorite, Special Darks.
There’s another issue plaguing Hershey though. Worries about the rising popularity of injectable weight loss/diabetes medications like Novo Nordiskl’s Ozempic and Wegovy and Eli Lilly’s Mounjaro are weighing on sentiment. But are those concerns overdone. Will people magically (or medically I guess) decide to stop consuming chocolate en masse because of these new drugs?
The jury is still out. For one, Hershey recently reported solid third quarter results. The company said last week that sales were up 11% from a year ago and earnings per share rose a tasty 20%. That topped Wall Street’s forecasts. And Hershey CEO Michele Buck said during the company’s earnings call that the company did not think the new class of weight loss drugs “are having a material impact on our business at this point in time.” She added that there are “still so many unknowns regarding the rate of adoption the impact on food choices.” Those comments echo those made by Pepsi CEO Ramon Laguarta during the soda and snack giant’s earnings call earlier this month about the impact of Ozempic on food and beverage demand.
Of course, inflation is still a concern for Hershey too. But the company has taken steps to mitigate some of the worries about higher commodity prices for raw ingredients that go into chocolate and other candy by stepping up its presence in the salty snacks market. Hershey, though a series of acquisitions over the past couple of years, has added the SkinnyPop, Pirate’s Booty, Smart Puffs and Dot’s Homestyle Pretzels brands to its portfolio. (The company had a brief foray into dried meat, buying Krave, a jerky maker, a few years ago before selling it back to its founder.)
The salty snacks business of Hershey is growing faster than the core confectionery unit. Sales were up more than 25% in the third quarter and the division’s profit rose nearly 30%. So the recent pullback in Hershey’s may be an overreaction. The stock trades for just 17.5 earnings estimates for 2024 as well and Hershey also pays a dividend that yields more than 2.5%. So the stock could be a sweet addition to your portfolio.