Hershey (HSY) Down More Than 20% in 6 Months: Here's Why
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.
Top 3 Picks
Sysco Corporation SYY, a food and related product company, currently has a Zacks Rank #2 (Buy). SYY delivered a positive earnings surprise in the last two quarters. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for Sysco’s current fiscal year sales and earnings suggests growth of 5.2% and almost 8%, respectively, from the corresponding year-ago reported figure.
Nomad Foods NOMD, carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales suggests growth of 6.6% from the prior-year reported number. However, earnings estimates suggest a year-over-year decline of 2.3%.
Ingredion Incorporated INGR, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
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