:max_bytes(150000):strip_icc()/GettyImages-1822771714-95ac142f09d14c9fa37b9561dcc6ca5b.jpg?w=696&resize=696,0&ssl=1 "Hershey Shares Climb as Price Increases Counteract Surging Cocoa Expenses")
:max_bytes(150000):strip_icc()/GettyImages-1822771714-95ac142f09d14c9fa37b9561dcc6ca5b.jpg?w=1200&resize=1200,0&ssl=1&description=Hershey+Shares+Climb+as+Price+Increases+Counteract+Surging+Cocoa+Expenses){kind=link}
Photo credit: www.investopedia.com
The Hershey Company Reports Strong Earnings Despite Rising Cocoa Costs
Key Takeaways
Hershey exceeded expectations for both profit and sales, thanks to price increases that offset the escalating cost of cocoa. The company has also managed to lower its selling, marketing, and administrative costs. However, it cautioned that the rising price of cocoa could negatively impact its earnings for the full year.
Shares of The Hershey Co. (HSY) rose by 5% on Thursday following the announcement of better-than-expected financial results, driven by effective price adjustments that helped mitigate the effects of increasing cocoa prices.
For the fourth quarter, Hershey reported adjusted earnings per share (EPS) of $2.69, alongside revenues that climbed nearly 9% from the previous year, reaching $2.89 billion. Both figures surpassed estimates from Visible Alpha.
The company attributed its success to “net price realization, higher sales volume, supply chain efficiency, and timing benefits related to inventory valuation,” which collectively outweighed the impact of rising commodity costs and an adverse sales mix.
Additionally, Hershey implemented a 5.5% reduction in selling, marketing, and administrative expenses, primarily due to decreased compensation and benefits costs, as well as reduced spending on capability and technology initiatives.
Higher Commodity Costs Seen Impacting Full-Year Profit
Despite these positive quarterly results, Hershey warned that it expects earnings per share for the full year to decline by approximately 40% due to “increased commodity costs, adjusted incentive compensation, and a higher economic tax rate.” In contrast, it predicts that adjusted EPS will drop by around 30%, while net sales are projected to grow by at least 2%.
The chocolate industry, including Hershey, has been facing significant challenges due to soaring cocoa prices, which reached a record high in December and have doubled over the last year. Even with a rise in share prices, Hershey’s stock has decreased over 20% in value over the past year.
In summary, while Hershey’s latest financial performance highlights its ability to adapt to challenging market conditions, the persistent rise in cocoa prices poses a considerable threat to its future profitability.
Source
www.investopedia.com