Hershey Declines 10% From 52-Week High: Will the Stock Rebound?
The Hershey Company HSY has faced challenges over the last six months, experiencing a stock price decline of 0.7%. This stands in contrast with the broader industry which experienced a slight decline of 1%, while the S&P 500 index showed a notable gain of 8.2%.
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Closing at $190.52 yesterday, the stock declined 10.1% from its 52-week high of $211.92. Also, the stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum.
The recent decline in Hershey's stems from the challenging macroeconomic environment where consumers are cutting back on discretionary spending and shopping less frequently. Elevated prices and strained household budgets are impacting the U.S. snack category. Hershey faces added pressure from escalating cocoa prices, driven by global supply issues.
Reflecting the negative sentiment around Hershey, the Zacks Consensus Estimate for fiscal 2024 and 2025 has seen downward revisions. In the past 60 days, analysts have lowered estimates for fiscal 2024 by 0.7% to $9.49 and for fiscal 2025 by 1.1% to $9.32 per share. This suggests a projected year-over-year earnings decline of 1.04% for fiscal 2024 and 1.83% for fiscal 2025, indicating ongoing challenges for the company in a tough economic landscape
What Derailed Hershey Stock?
Hershey’s performance has notably weakened in key channels such as convenience stores. The sharp pullback in consumer demand led to a 20.7% decline in North American confectionery net sales for the second quarter of 2024, underscoring the significant headwinds in the current consumer environment.
The company has witnessed signs of weakness in the popcorn segment, which raises questions about its value proposition. Hershey’s growth in the popcorn space has been slower than anticipated, partly due to changing consumer preferences and increased competition in the salty snacks market. This weak performance in popcorn may pose a "salty headwind" to Hershey's overall growth strategy.
Hershey’s has been struggling with weak margins due to rising input costs, particularly cocoa and sugar prices, which remain elevated compared to historical levels. The adjusted gross margin contracted 200 basis points year over year in the second quarter. The downtick was due to higher commodity costs and fixed cost deleverage, which outweighed the benefits of price increases, productivity improvements and favorable input cost timing.
Despite a well-executed hedging program, these cost pressures are expected to persist in the second half of 2024, compounding ongoing margin challenges. Hershey anticipates a 200-basis point decline in the full-year gross margin due to inflation, outpacing pricing actions and productivity improvements.
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Potential Catalysts That Could Boost HSY Stock
Despite all the setbacks, Hershey's confectionery segment has shown resilience, with retail sales in the Candy, Mint & Gum category up 2% year to date. This growth reflects the long-term strength of its core market. The company has strong expectations for continued growth in the second half of 2024 with higher levels of innovation and merchandising.
The North America Salty Snacks segment performed well in the second quarter of 2024, delivering above expectations with 8% retail sales growth. This led to a 22-basis point market share gain, demonstrating strong demand for products like Dot’s Pretzels and Pirate’s Booty. While the broader Ready-to-Eat popcorn category has faced challenges, SkinnyPop’s sales trends have stabilized as anticipated, with expectations of returning to growth by year-end, signaling successful brand recovery efforts. The company expects mid-single-digit sales growth for the North America Salty Snacks segment in the full year 2024, driven by innovation, including new Dot’s flavors and a return to growth for SkinnyPop.
Looking ahead, Hershey's innovation pipeline for the second half of 2024, featuring new products like Reese’s Medals, Patriotic Kisses and Shaq-a-licious gummies, is expected to boost sales and drive momentum across key categories. The company anticipates these innovations to be highly incremental to the portfolio, particularly in the growing gummy and sweets segment.
Investment Guidance on HSY Stock
Shares of Hershey have come under pressure due to rising input costs, shrinking margins and increasing price sensitivity in its chocolate segment. As a result, future earnings estimates indicate a decline, making the stock less attractive for new investors. However, Hershey's core confectionery business remains strong. Its innovation pipeline, along with growth in the salty snacks segment, provides potential upside. Potential shareholders may wait for a more favorable entry point, while current stakeholders might consider holding the stock, given its strong fundamentals and long-term prospects. At present, HSY carries a Zacks Rank #3 (Hold).
Three Stocks to Consider
Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Flowers Foods FLO.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average.
The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43%, respectively, from the prior-year reported level.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings calls for growth of around 0.9% and 5%, respectively, from the year-ago reported numbers.
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Hershey Company (The) (HSY) : Free Stock Analysis Report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
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The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report