Hershey, the renowned chocolate manufacturer, has issued a cautionary note regarding its 2024 profit growth as it grapples with the repercussions of skyrocketing cocoa costs. The company's concerns come as cocoa futures prices have doubled over the past year, reaching an unprecedented all-time high of $5,874 per metric ton on Friday.
Attributed largely to adverse weather conditions in West Africa, which have significantly damaged cocoa crop yields, the surge in cocoa prices has sent shockwaves throughout the chocolate industry. Thomas Palmer, an analyst at Citi, remarked, "The magnitude and pace of recent price increases seem to be unprecedented," underscoring the severity of the situation.
As Valentine’s Day approaches, traditionally a peak season for chocolate consumption, consumers are facing the dilemma of higher chocolate prices amidst broader inflation concerns. This hesitancy in spending has been noticeable, with many shoppers exercising caution in light of rising food prices.
Attempting to assuage consumer concerns, Hershey CEO Michele Buck emphasized the company's proactive measures. "Given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business," Buck stated during the company’s quarterly earnings conference call.
Despite Hershey's efforts, the company anticipates its full-year earnings per share to remain relatively flat, citing the impact of surging cocoa and sugar costs. Chief Financial Officer Steven Voskuil indicated that margins may also face pressure, particularly within the confection business, which is expected to bear the brunt of the margin impact due to cocoa.
The market's response to Hershey's cautionary statement was evident, with the company's stock experiencing a 3.4% decline at the close of trading on Friday. This downturn reflects investor concerns over the challenges posed by escalating cocoa prices and their potential impact on Hershey's bottom line.
