Investors in Hershey and Mondelez International will be eager to see how the chocolatiers plan to deal with the recent surge in cocoa and sugar prices when they report first-quarter results this week.
These companies have already faced rising costs in recent quarters, which they have partly passed on to consumers by raising prices.
The recent surge in cocoa prices, which comes against the backdrop of dwindling stocks due to drought and erratic rainfall, as well as crop diseases in the world’s major cocoa-producing regions, could cause them more problems.
In addition, sugar prices have also risen in recent months.
“Many investors are waiting to know how the consumer responds to the current market price of chocolate and how that influences companies’ decisions to price more in the future,” said Sean King, an analyst at Columbia Threadneedle Investments, which owns shares of Hershey and Mondelez.
THE CONTEXT
According to Jefferies, cocoa prices – which have nearly tripled in value this year – currently represent about 20% and 10% of the cost of goods sold (COGS) of Hershey and Mondelez, respectively.
“Typically, these companies experience higher cocoa costs first, then they go to their retail customers and try to raise prices,” said Arun Sundaram of CFRA Research, adding that there could be higher prices during the second half of the year.
The possibility of further price increases arises when demand has already started to flag and companies try to compensate for the fall by raising prices.
Data from market research firm Circana shows unit sales of chocolate in the United States fell 1.8% in the 13 weeks ending March 24, while prices rose 6.3%. %.
“The big question is whether price-related growth is enough to offset the volume declines we’re likely to see this year,” Mr. Sundaram noted.
THE FUNDAMENTALS
** Mondelez, which reports results on April 30, is expected to report a slight decline in profit for the first time in 14 quarters, to 89 cents.
** Its quarterly sales should remain stable
**Mondelez organic volume growth was 1.3 percentage points (pp) in 2023, while prices increased 13.4 pp.
** Hershey, which will report results on May 3, will see its profit fall for the first time in 25 quarters, to $2.76.
**Quarterly revenue is expected to increase approximately 4.2%.
**Hershey’s organic volume declined 1.3% in 2023, while prices increased 8.3%.
WALL STREET FEELING
**Mondelez shares are down 4.3% over the past year, while Hershey’s shares are down nearly 32%.
**26 analysts rate Mondelez a “buy” on average, with a median price target of $82 – LSEG
** 24 analysts on average rate Hershey as a “hold,” with a median price target of $208.
