Hershey Stock Pops Despite Rising Cocoa Costs Expected to Bite Into 2024 Earnings


On Thursday, shares of Hershey (HSY 4.14%) gained 4.1%, following the confectionary and snack-food giant’s release of its fourth-quarter 2023 report.

The company behind such brand favorites as its namesake brand, Reese’s, and Twizzlers posted quarterly results that Wall Street characterizes as “mixed.” Revenue slightly missed the analyst consensus estimate, while earnings exceeded it. But there was nothing even semisweet about management’s full-year 2024 guidance: Both the top and bottom lines were below the Street’s expectations, with the profit outlook particularly disappointing, due in large part to sharply rising cocoa costs.

So why did the stock pop 4.1% on Thursday? That gain is likely attributable to several factors, including that management raised its dividend by a robust 15% and is implementing a multiyear plan to increase operating efficiency. A key part of this plan involves exploring the use of additional automation.

Below is an overview of Hershey’s Q4 results and annual guidance centered around five key metrics.

1. Revenue was essentially flat year over year

Hershey’s net quarterly sales edged up 0.2% year over year to $2.66 billion, missing the 2% growth Wall Street had projected. “Core revenue” (organic revenue in constant currency) inched down 0.1%.

The tiny decline in core revenue came from 6.5% higher product prices slightly more than offset by 6.6% lower volume/unfavorable product mix.

Segment Q4 2023 Revenue Change YOY
North America confectionary $2.22 billion 2.1%
North America salty snacks $205.2 million (25%)
International $231.7 million 13%
Total $2.66 billion 0.2%

Data source: Hershey. YOY = year over year.

What happened in the North America salty snacks segment? The culprit was a 26% decrease in volume, with about 16 percentage points of this drop due to a planned inventory decline related to Hershey’s enterprise resource planning (ERP) software system implementation in October 2023. The other factor was the high-single-digit percentage-point volume decline in SkinnyPop sales, primarily due to weakness in the ready-to-eat popcorn category.

2. Adjusted operating income edged down 2%

Operating profit according to generally accepted accounting principles (GAAP) fell 12% year over year to $464.3 million. Adjusted operating profit landed at $544.2 million, down 2%. The decline in both of these metrics was “driven by increased brand and capability investment and higher wages, which more than offset price realization and productivity,” the company said in the earnings release.

Segment Q4 2023 Operating Income Change YOY Operating Margin*
North America confectionary $724.6 million 3% 32.6%
North America salty snacks $10.4 million (82%) 5.1%
International $20.4 million N/A. Year-ago result was very slightly negative. 8.8%
Total segment operating income $755.4 million (0.6%) 28.4%

Data source: Hershey. *Segment operating margin = segment operating income divided by revenue.

The salty snack segment’s big drop in operating profit was driven largely by the deleveraging from its big drop in sales volume, along with increased commodity costs and higher brand investments.

The other two segments benefited from their sales gains and gross margin expansions.

3. Adjusted earnings per share (EPS) was flat

GAAP net income was $349 million, or $1.70 per share, down 12% year over year. Adjusted for one-time items, net income came in at $414.7 million, or $2.02 per share, flat with the year-ago period. This result surpassed the adjusted EPS of $1.95 Wall Street had expected.

4. Dividend raised 15%

Hershey increased its quarterly dividend on its common stock and Class B common stock by 15% to $1.37 and $1.245 per share, respectively. The dividends are payable March 15 to stockholders of record as of Feb. 20.

Shares of Hershey were yielding about 2.4% at the market close on Thursday.

Cocoa prices have been surging due to unfavorable weather conditions in the commodity’s main growing regions. The metric in this chart is a benchmark that tracks the performance of the global cocoa commodity market. Data by YCharts.

5. In 2024, adjusted EPS expected to be flat with 2023

For full-year 2024, management guided for the following annual growth:

  • Revenue: 2% to 3%
  • GAAP earnings per share: flat
  • Adjusted EPS: flat

Going into the release, Wall Street had been modeling for 2024 revenue and adjusted EPS growth of 3.4% and 12%, respectively. So, the company’s outlook was lower on both counts, with the profit guidance the bigger miss.

In the earnings release, CEO Michele Buck commented on the main driver behind the lower-than-expected bottom-line guidance:

While historic cocoa prices are expected to limit earnings growth this year, we believe our strong marketing plans, innovation and brand investments will drive top-line growth and meet consumers’ evolving needs. We are elevating our focus on productivity and transformation to strengthen our business and deliver peer-leading performance over the long term.

In short, Hershey delivered a solid quarter, and while its 2024 outlook is disappointing, that’s due largely to a factor beyond its control. Overall, the company has been performing well and its multiyear focus on boosting its operating efficiency beginning in 2024 should help increase its growth potential over the long term.



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