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>>> Hershey (HSY) Down More Than 20% in 6 Months: Here's Why


Zacks Equity Research

January 12, 2024


https://finance.yahoo.com/news/hershey-hsy-down-more-20-184700374.html


The Hershey Company HSY appears to be in a tight spot thanks to rising expenses. The leading snacks company’s international presence keeps it exposed to risks of unfavorable currency rates. A soft macroeconomic environment is a threat to the company.

Shares of the Zacks Rank #4 (Sell) company have slumped 20.2% in the past six months compared with the industry’s 17.3% decline. The stock has underperformed the Zacks Consumer Staple sector’s 2.8% drop.

Let’s discuss this in detail.

Cost Concerns Stay

Hershey has been grappling with higher selling, marketing and administrative expenses for a while. In the third quarter of 2023, the company’s SG&A expenses rose 13.1% on increased levels of media and capability investments. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 9.9% due to wage and benefits inflation, capability and technology investments.

Management had highlighted that it expects advertising spending to grow to double-digits in the fourth quarter as it continues to support the sell-through of seasonal items and starts to reactivate the Salty Snacks brands post-ERP transition. The company expects non-advertising SG&A spending to rise in low-single-digits, reflecting some increase in technology and capability investments.

Currency Headwinds

Owing to Hershey’s solid international presence, the company is exposed to unfavorable currency fluctuations. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the country. Indeed, the volatility in exchange rates is a concern for the company.

Soft Macroeconomic Environment

Hershey is dependent on the consumer discretionary spending environment, which is affected by general macroeconomic conditions like consumer confidence and employment levels. Hershey recently highlighted that it is seeing customers cutting back on discretionary purchases, looking for deals, shopping at discount channels and buying more petite sizes. The North American food industry is exposed to shifting consumer preferences, changes in consumer dynamics, demographic shifts and a spending shift toward lower-priced products.

Wrapping Up

The company continues to invest in its brands and capabilities to drive growth. Additionally, buyouts have been adding to its portfolio strength. Effective pricing actions have been working for Hershey. However, let’s see if these upsides can help HSY stay afloat amid such hurdles.

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