European food giant Nestle (NSRGY) says it plans to raise prices for some chocolate products in the U.S. as cocoa costs remain elevated.
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The American division of Swiss-based Nestle, which is the world’s biggest food company, will raise prices for its Toll House morsels, baking cocoa, and fudge kits beginning on June 23. The increased prices at the consumer level come as Nestle haggles with its cocoa suppliers to try and lower its input costs. Nestle’s chocolate products include Kit Kat, Smarties, and Coffee Crisp, among others.
Prices for chocolate continue to rise even as overall grocery inflation moderates. This is because the price of cocoa, the active ingredient in chocolate, remains elevated. Cocoa traded in New York hit a record high of nearly $13,000 a ton last year as poor weather and disease damaged crops in Africa. While prices have come down about 30% from their peak, cocoa remains far above its historic price level.
Cost Savings
Nestle has struggled with surging cocoa costs over the past year, prompting it to pass the price increase onto consumers. Management at Nestle is also seeking to deliver nearly $850 million in cost savings this year. Nestle has struggled in North America, which has been one of the company’s weakest-performing regions in recent quarters.
Average prices of U.S. chocolates have risen about 18% over the past two years, according to market data. Higher chocolate prices have hurt sales for some food companies as cost-conscious consumers seek out cheaper alternatives. Hershey Co. (HSY) said recently that prices of its chocolates are up an average of 8% this year while sales are down 4.5%.
NSRGY stock has risen 27% this year as investors move into European securities.
Is NSRGY Stock a Buy?
Nestle’s stock trades on the over-the-counter (OTC) market in New York and not many analysts follow it. So instead, we’ll look at the three-month performance of its share price. As one can see in the chart below, Nestle’s stock has rise 13% in the last 12 weeks.
