Important points
Jefferies analysts downgraded Hershey’s earnings and lowered their price targets. The company said chocolate is lagging behind other snacks in volume growth and is being purchased less frequently, despite being the largest dollar-selling category. Cocoa price inflation means chocolate producers are facing significantly higher costs.
Analysts at Jefferies lowered shares of Hershey Co. (HSY), calling chocolate the “most concerning” segment of the U.S. snack sector in a note Thursday.
Analysts lowered their price target to $163 from $184, nearly 15% below the company’s Wednesday closing price. The stock fell a bit today, closing at around $190.
“Higher prices and tighter consumers are finally starting to impact the U.S. snack category, with chocolate in particular lagging behind other snacks,” analysts said. While the quantities of potato chips, pretzels and cookies are increasing, the quantity of chocolate has not kept pace as American consumers look for ways to stretch their budgets.
Rising cocoa prices are a drag
One of the problems for chocolate is the soaring price of cacao, which hit a record high this year after years of poor harvests. This plant typically grows only in hot, humid regions near the equator, so production is mainly limited to Africa.
This means “chocolate producers are facing significant increases in raw material costs due to the effects of a historic inflation supercycle,” the analysts said. “Consumers are choosing more cost-effective snacks.”
Hershey’s stock is up about 2% this year but has fallen over the past 12 months.
