$Hershey (HSY.US)$ Hershey may rise to resistance around 228...

Hershey may rise to resistance around 228.

Cocoa prices have surged to nearly USD10,000 per metric ton in Mar 2024, driven by a global shortage caused by climate change-induced droughts in West Africa, structural issues like underinvestment in cocoa farms, and increased investor speculation. This has led to higher costs for chocolate brands, many of which are passing these costs onto consumers, resulting in reduced demand and a shift towards other snacks. Some manufacturers are reducing product sizes or using less cocoa to cope. Cocoa prices dropped significantly to around US$7,277 per metric ton from record high of US$11,722 per metric ton earlier in the year, driven by a shortage of cocoa beans due to heavy rains and disease. This price decline was due to favourable climate changes which is expected to improve cocoa supply. Even though Hershey's is largely covered on cocoa for the year, the decline in cocoa prices is beneficial for the company as will result in increased profit margins.

Hershey recently showcased new products and retail strategies at the 2024 Sweets & Snacks Expo in Indianapolis, held from 14 May to 16 May, highlighting its expanding sweet and salty portfolio. New offerings include Reese's Caramel Big Cup, Kit Kat Pink Lemonade, and Hershey's Crunchy Waffle Cone Bars, among others. The company is also introducing Reese's Medals for the Olympic Games. Hershey utilized augmented reality and image recognition to optimize merchandise placement and sales. With increasing foodservice demand, Hershey advises retailers to implement mobile ordering and foodservice features to enhance customer engagement. Effective merchandising at both assisted and self-checkout terminals is emphasized to maximize unplanned purchases and improve the shopping experience. Its new offerings cater to customer preferences, and the new flavours are likely to attract more customers to purchase these snacks.

Hershey exceeded Wall Street expectations for first-quarter sales and profit, driven by higher prices and steady consumer demand for its chocolates and candy. Despite raising prices to offset commodity costs, Hershey faced minimal resistance from customers, especially during holidays like Easter and Thanksgiving. Net sales rose 8.9% YoY to US$3.25bn, surpassing the expected US$3.11bn. Confectionary sales in North America, which makes up 80% of revenue, increased to US$2.70bn. Excluding items, earnings were US$3.07 per share, above the US$2.76 estimate. The company's gross margin fell by 170 basis points to 44.9%.

1Q24 earnings review. Revenue rose by 8.7% YoY to US$3.25bn, beatings estimates by US$140mn. EPS was US$3.07, beating estimates by US$0.31. For 2Q24, it expects to deliver revenue between US$36.5bn to US$39.0bn. For FY24, Hershey expects net sales to increase by 2% to 3% versus estimated growth of 3.43% and adjusted earnings per share are expected to remain unchanged.