The Hershey Company (HSY 0.93%), a renowned leader in the chocolate industry, released its third-quarter 2024 earnings on Nov. 7, reporting results that fell below market expectations. The company's adjusted earnings per share (EPS) was $2.34, missing the anticipated $2.56, while total revenue stood at $2.99 billion, less than the $3.08 billion expected by analysts. This quarter highlighted challenges for Hershey, with a noteworthy decrease in gross margin from 44.9% to 41.3% compared to the same period last year.
| Metric | Current Quarter Result | Analyst Estimate | Prior Year Result | Year-over-Year % Change |
|---|---|---|---|---|
| Non-GAAP Diluted EPS | $2.34 | $2.56 | $2.60 | -10.0% |
| Total Revenue (millions) | $2,987.5 | $3,075.9 | $3,029.9 | -1.4% |
| Gross Margin | 41.3% | – | 44.9% | -360 bps |
| North America Salty Snacks Sales (millions) | $291.8 | – | $345.2 | -15.5% |
Source: Analyst estimates for the quarter provided by FactSet.
Understanding Hershey
Hershey, known for its iconic chocolate brands, is expanding its footprint beyond traditional confectionery. It engages in product and market diversification, emphasizing acquisitions like Weaver Popcorn and Pretzels Inc. This strategy aims to capture a broader snack market.
Recently, Hershey has focused on leveraging its brand strength and operational efficiencies. It continues to optimize supply chain management to navigate challenges in raw materials and operational costs. Key success factors include maintaining a robust product portfolio and adapting to consumer trends.
Quarterly Highlights
The third quarter of 2024 presented several challenges for Hershey. A notable decrease in the North America Salty Snacks segment, with a 15.5% sales decline, was attributed to inventory management issues from the 2023 ERP software system installation. Also, segment income fell by 5.9% as consumer preferences shifted.
Within its core confectionery segment, Hershey faced a decline in retail takeaway for candy, mint, and gum by 2.6%. This demonstrates growing competition and a shift in consumer preferences. The company continues to innovate across its product lines but struggles to maintain prior-year market share levels.
Operationally, Hershey's Advancing Agility & Automation Initiative aimed at reducing costs made progress. Despite these efforts, higher cocoa prices and other unfavorable costs squeezed margins, leading to a 360 basis point drop in gross margin from 44.9% to 41.3%.
One-time events, such as business realignment and acquisition-related activities, influenced earnings variability. Blending these adjustments, Hershey's gross margin and operating profits were notably pressured.
Looking Ahead
Hershey's management remains cautious, adjusting its full-year guidance to anticipate flat sales growth and a 6%-9% decline in reported EPS. High commodity costs, particularly for cocoa, are anticipated to persist, impacting future operations.
Moving forward, investors should monitor Hershey’s strategic adaptability in pricing and its efficiency measures aimed at offsetting input cost pressures. Expansion and brand diversification will also be critical areas of focus as Hershey aims to maintain its market position amid shifting consumer landscapes and cost challenges.
