The Hershey Company HSY, an industry-leading snacks firm, is facing mounting challenges, including historically high cocoa prices, weakening consumer demand and intensifying competition in key markets. Such challenges have led to a 6.1% drop in its share price in the past six months. The stock has underperformed its industry, the broader Zacks Consumer Staples sector and the S&P 500 in the said time frame. While the industry and the sector have declined 4.6% and 2.2%, respectively, the S&P 500 has gained 0.8%.
HSY Stock's Past Six Month Performance
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What is Dragging the HSY Stock Down?
Hershey is navigating a challenging environment caused by historically high cocoa prices and a financially stretched consumer base, which continues to pressure its results. Economic conditions have shifted consumer behavior toward value-seeking, with spending focused on essentials. This shift has reduced foot traffic to convenience and drug stores, where Hershey’s brands are heavily represented.
The company is losing market share in the core everyday chocolate category, which is particularly concerning given its reliance on this segment. On its last earnings call, management highlighted that while take-home chocolate sales are improving, there is continued weakness in the convenience store (C-store) channel, a crucial driver for impulse purchases. Increased competition from smaller, more innovative brands is also contributing to Hershey’s market-share decline.
Despite some improvement in its product variety portfolio, showing a three-point trend improvement from the third quarter to the fourth quarter of 2024, Hershey continues to struggle in the C-store segment. Sales remain soft due to macroeconomic pressures affecting consumer spending and impulse-driven buying patterns, keeping overall performance in this channel under pressure.
Hershey Expects Profit Decline and Rising Competition in 2025
Hershey's 2025 guidance reflects a growingly challenging environment. The company anticipates a mid-30% decline in adjusted earnings per share (EPS) compared to 2024 while reported EPS is projected to drop in the high-40% range.
Management acknowledged that gross margin pressure will intensify in the second half of 2025 as hedge positions expire and higher-priced cocoa enters production. As a result, gross margins could decline more than 500 basis points, posing a significant profitability headwind.
Additionally, competitive pressures are expected to escalate, particularly in Brazil and Mexico, where rivals are aggressively discounting and promoting products. Given these challenges, Hershey anticipates only low single-digit international growth in 2025.
How the Zacks Consensus Estimate Stacks Up for HSY
HSY is currently in a tough spot. The Zacks Consensus Estimate for EPS has seen downward revisions. In the past seven days, the consensus estimates for the current and the next fiscal year have decreased 21 cents to $6.11 and 4 cents to $6.50 per share, respectively.
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Unlocking HSY’s Valuation
Hershey’s forward 12-month price-to-earnings ratio is 30.12X, higher than the industry’s ratio of 24.32X. This indicates that investors may be paying a high price relative to the company's expected earnings growth.
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HSY’s Investment Analysis
The above discussion raises concerns about HSY’s investment potential. The company faces significant challenges, including historically high cocoa prices, weakening consumer demand and intensifying competition in key markets. Given these headwinds, HSY may carry heightened investment risk at this time. Existing investors should evaluate whether to maintain or adjust their positions based on Hershey’s ability to navigate these short-term difficulties. HSY currently carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Post Holdings, Inc. POST operates as a consumer-packaged goods holding company in the United States and internationally. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year sales and earnings indicates growth of 0.3% and 2.2%, respectively, from the prior-year reported levels. POST delivered a trailing four-quarter earnings surprise of 22.3%, on average.
BRF S.A. BRFS raises, produces and slaughters poultry and pork for the processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products. It presently has a Zacks Rank #2. BRFS delivered a trailing four-quarter average earnings surprise of 9.6%.
The Zacks Consensus Estimate for BRF's current financial-year sales and earnings indicates growth of 0.3% and 19.4%, respectively, from the year-ago reported figures.
Tyson Foods, Inc. TSN operates as a food company worldwide. It currently has a Zacks Rank #2. TSN delivered a trailing four-quarter earnings surprise of 52%, on average.
The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and earnings indicates growth of 0.9% and 23.6%, respectively, from the prior-year reported levels.
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Hershey Company (The) (HSY) : Free Stock Analysis Report
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