Hershey Foods (HSY, Financial) faces ongoing challenges from rising cocoa prices, which have significantly impacted its earnings. The company anticipates these high prices will continue to affect its bottom line through 2025.

Despite these challenges, Hershey is focusing on boosting revenue and enhancing efficiency, providing some relief for investors.

• Hershey concluded FY24 on a positive note, reporting double-digit earnings growth and surpassing estimates after two quarters of misses. Revenue increased by 8.7% year-over-year to $2.89 billion, reversing previous declines. This growth was driven by strategic initiatives, including media investments and new product launches like Reese's Lava Big Cup and Jolly Rancher Ropes.
  • North American Salty Snacks sales grew by 7.1% year-over-year, fueled by strong demand for SkinnyPop and Dot's Pretzels. A new celebrity spokesperson for SkinnyPop is expected to be announced soon.
  • U.S. Candy, Mint, and Gum sales rose by 2% year-over-year, supported by seasonal demand, with Halloween and holiday sales increasing by 2.5% and 1.1%, respectively. Pricing increased by 4%, slightly above expectations, and is expected to continue with a planned 3-4% price realization in the U.S. Confection segment.
  • International sales showed strong performance, with double-digit growth in Mexico and the EMEA region, led by Reese's, which achieved significant revenue growth globally.
• Regarding cocoa, Hershey has good visibility into costs and supply. Although cocoa prices have surged, Hershey believes these are not reflective of market fundamentals and expects demand to decrease due to high prices. The company is observing cocoa end users adapting through reformulation and hedging.
• In the short term, earnings will remain under pressure, with an FY25 adjusted EPS forecast of $6.00-6.18, a 35% drop from FY24. However, Hershey's FY25 revenue growth outlook of at least +2% is promising, reflecting strong brand loyalty and momentum from Q4. The company is also working on cost improvements, targeting $900 million in savings from 2023 to 2026.

While cocoa prices continue to challenge Hershey, the company remains resilient and strategically positions itself for long-term growth.