The Hershey Company (HSY), a stock many people wish they had in their portfolio, has finally given new investors a chance to own it. More than just a dip, HSY stock is lower by about 23% over the past four months, and 43% over the last 20 months. With chocolate industry leaders Ferrero Rocher and Mars Wrigley inaccessible to retail investors (they’re both privately owned), Hershey is the only ticket in town, and I do believe it’s a worthwhile investment at this point. With that said, I wouldn’t go all-in on Hershey stock right now, for reasons I’ll explain.
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Hershey Stumbles
All varieties of food and drink industries have been taking it on the chin recently. That includes fast food restaurants, alcohol producers, and confectionary companies. Reasons for the struggles include input costs, price elasticity, weight loss drugs, and consumer trends towards healthier eating. Stocks of these companies have suffered not just from actual results, but from fears about the future impact of potential U.S. government policies should Robert F. Kennedy Jr. be appointed Director of Health And Human Services in the incoming Trump Administration. Although not yet officially in his role, Kennedy Jr. has used his platform to criticize various elements of the country’s food industry.
Hershey’s second-quarter 2024 financial results were a disaster, as sales fell 16.7% and earnings per share (EPS) dropped from $1.98 to $0.89. Interestingly, HSY stock didn’t get destroyed when they released the results on August 1 as the company had already guided to a very difficult quarter. Primarily impacting Q2 was planned inventory declines in the industry, and investors hoping that this would be a one-off quarter were most certainly relieved to see Q3 sales pullback to even with the year-ago period.
The ongoing issue facing Hershey is the cost of cocoa, which was already deemed high towards the end of 2023 above $4,000 per ton. From then, cocoa prices more than tripled to $12,000 per ton by the end of last year. To compensate, Hershey has been regularly increasing the prices of its products over the past year, leading to weak demand. That has resulted in margin pressures in addition to the stress on the top line. To date, Hershey’s pricing adjustments have kept gross margins above 40%.
Hershey’s Outlook
Cocoa prices have thankfully showed signs of cooling, with the March Futures down about 15% to start the year. One might have suspected that this would have provided HSY stock some relief, but it has not. The share price has been pressured during the tax-loss selling season, and this has continued into 2025 as the overall markets have faced weakness. Cocoa stockpiles have also remained low.
In the past few months, Hershey was approached by competitor Mondelez (MDLZ) about a possible takeover but the company rebuffed the offer. This appeared to be an attempt to acquire the company at a basement bargain price. The two ways to look at the declined takeover offer are:
- Hershey sees the industry’s struggles as temporary, and has full confidence in their business regaining its stride.
- Hershey management/insiders are preoccupied with keeping their jobs and staying in power.
Interestingly, just this week, Hershey CEO Michelle Buck announced her intention to retire, putting in doubt the likelihood that management was simply self-serving in making their decision. I think management was right to rebuff the acquisition offer. Hershey, with its impressive brands such as Kit Kat, Reese’s, and Kisses has unquestionable market appeal. The company seems certain to regain its footing in normal market conditions, and it has been working to secure better cocoa sourcing.
The Short-Term for Hershey
The immediate outlook for Hershey’s results (and its stock) remains up in the air. Commodity price surges like the one we’ve seen in cocoa are often self-correcting, but there’s no guarantee when a correction might happen. It’s not impossible that further cocoa price increases squeeze Hershey to losses in profitability. It shouldn’t be overlooked that Hershey has managed extremely well in the face of their soaring input costs, with earnings set to only decrease modestly for Fiscal year 2024. I think that speaks to the company’s management, although the potential for continued pressures can’t be disqualified.
One concern that investors should keep in mind is the possibility that Hershey decides to charge significant write-offs against their financials in quarters preceding CEO Michelle Buck’s retirement, offering the incoming CEO a clean slate. With Buck’s retirement currently set for mid-2026, that might not happen until next year. That said, this is an extremely long lame-duck period for an outgoing CEO, and I would not at all be surprised if Ms. Buck exits sooner rather than later.
Long-story short, it’s hard to eliminate the possibility of one more significant decline in HSY stock before new management takes the reigns.
Is HSY Stock a Buy?
On paper, Wall Street analysts have a doubtful view of Hershey’s future. Of the 18 analysts that cover HSY stock, none of them rate it a Buy. Meanwhile, there are 13 Hold ratings and five Sells. The average HSY price target is $173.23, which is about 10% higher than Hershey’s recent market price.
Conclusion
Hard times have hit the chocolate market, both in terms of immediate supply and pricing issues, and also concerns about potential policies for a healthier America. This latter concern seems easy to dismiss, relative to Hershey, as tobacco, alcohol, and food preservatives should be the main targets. The idea of governments targeting chocolate seems far-stretched.
The price of cocoa should be Hershey shareholders’ primary preoccupation, but at the same time investors shouldn’t ignore how well the company has been able to manage the input cost stresses. I caution that investors should be prepared for a potentially significant accounting write-off of some of Hershey’s goodwill and intangible assets, at least prior to outgoing CEO Michelle Buck’s exit. For these reasons, I’m cautiously bullish on HSY stock.