Hershey (NYSE: $HSY) Misses Q4 Revenue Targets And Guidance – Stock Drops 3%

The Hershey Company (NYSE: $HSY)

The Hershey Company (NYSE: $HSY) is an American confectionery giant known for its chocolate products and portfolio of iconic candy brands. Founded in 1894, the company is headquartered in Hershey, Pennsylvania.

Hershey’s fourth-quarter results fell short of analysts’ expectations. While earnings per share narrowly beat estimates, revenue missed forecasts, and 2024 guidance signals a growth slowdown ahead.  

Q4 Financial Results Disappoint 

For Q4, fiscal year 2023, Hershey posted revenue of $2.66 billion, 2.4% below the $2.72 billion analysts predicted. On an organic basis, excluding effects from acquisitions, divestitures, and foreign currency, revenue declined by 0.1%. 

On an adjusted non-GAAP basis, EPS rose to $2.02, surpassing analyst estimates of $1.96.Hershey’s GAAP gross margin fell 90 basis points to a 42.3% gain on higher supply chain expenses, while its operating profit margin declined by 240 basis points year-over-year to 17.5%. 

Volumes fell 6.6%, while net sales grew 0.2% in the quarter to $2.66 billion, offset by higher average selling prices. In FY23, net sales rose 7.2% to $11.17 billion, while volumes declined 1.3%.

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2024 Outlook Disappoints Investors

Hershey expects full-year 2024 earnings of $9.60 per share non-GAAP. This outlook implies no growth compared to 2023 and falls short of the $9.81 analysts’ prediction. Net sales are expected to grow 2% to 3%.

Hershey President and CEO Michele Buck stated, “We continue to operate in a dynamic environment, but we are encouraged by the resilience of seasonal traditions and the consumer response to innovation within our categories.”

Buck alluded that macroeconomic conditions are still challenging as consumers deal with current inflation and economic uncertainty. Recently, Buck stated that Hershey would likely need to raise prices due to cost pressure.

Volume Deceleration Impacts Revenue  

Over the past three fiscal years from 2021-2023, Hershey delivered 11.1% average annual revenue growth. However, sales volumes remained essentially flat over this period. Pricing actions accounted for nearly all the gains, with Hershey raising prices to combat high input cost inflation.

Recently,  pricing contributed to Hershey’s revenue increase. But these massive price hikes could not be sustained indefinitely before consumers balked. In the fourth quarter, organic volume/mix turned negative, even with the benefit of seasonal Halloween and holiday confectionery sales.

This indicates Hershey exhausted much of its pricing power. Having pushed through fast and frequent price increases to maintain profit margins in the face of double-digit cost inflation last year, the company faces decelerating top-line growth and margin compression in 2024 as it laps those price hikes. The guidance signals minimal pricing contribution going forward.

Strong Brands and Operating Efficiency Were Bright Spots

While disappointing, the latest results are a testament to Hershey’s resilience. It has experienced volume growth over the years before the recent volume slump. 

Despite a drop in volume, Hershey grew revenue through superior new product introductions. Consumers always preferred established brands such as Hershey’s, Reese’s, and Kit Kat to cheaper private label products because of the high customer satisfaction achieved via effective marketing strategies.

Operationally, Hershey was a tight ship, consistently having continually expanding margins during the past two years. Its average operating margin was 22.2% in that period, which was a high level for a consumer packaged goods company. 

But with volume growth fading and pricing power weakening, Hershey’s earnings growth outlook now relies more on operational improvements. For 2024, according to the predictions, it may be hard to do margin expansion while expecting flat earnings with high single-digit revenue growth.

Hershey Stock Performance: $HSY

Hershey ($HSY) shares stumbled on its revenue miss in the last trading session. The stock suffered a 3.39% hit on February 9th, 2024, closing at $195.45. The disappointing outlook put additional pressure on the stock. 

The Hershey Company (NYSE: $HSY)

Thoughts Moving Forward

Looking ahead, Hershey faces some near-term headwinds. The decelerating organic growth, contracting margins, and uninspiring guidance cast doubt on its future performance. Pricing power and volume growth, which have fueled Hershey’s strong runs in the past, seem to be on the decline now.

Nevertheless, the business maintains some long-term positives. The brand equity of Hershey’s is resilient, and the confectionery category generally holds up quite well in economic downturns. If cost inflation improves in 2024, pricing power will start improving again. Investors are in a wait-and-see mode without a catalyst to spur growth. 

Margins could be stabilized, and volumes might bounce back, yet market expectations appear muted. Without base acceleration coming through, returns may be disappointing. Nevertheless, patient investors can be handsomely rewarded for staying the course as Hershey’s promising fundamentals re-surface over time.

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