Group 1: Hershey Company - The Hershey Company operates in recession-resistant industries, showcasing stability with a five-year beta of 0.37, indicating lower volatility compared to the broader market [2] - The company's current drawdown of 33% from its all-time high is its third-largest in three decades, following significant drops during past market crashes [2] - Despite recent challenges, Hershey's enterprise value to EBITDA ratio has improved from an all-time high of 24 to 15, indicating a more reasonable valuation [3] - Hershey is facing short-term headwinds, including a new enterprise resource planning system and fluctuating cocoa prices, but its market-leading brands are expected to endure [4] - The company has increased its dividend payments by 32% over the past three quarters, with the current payout using only 55% of net income, allowing for future increases [5] - Hershey's leadership position and recent acquisitions, such as Skinny Pop Popcorn and Dot's Homestyle Pretzels, have contributed to sales growth of 13% and 65% annually since 2019 [4][6] Group 2: MTY Food Group - MTY Food Group's stability is attributed to its diversified portfolio of approximately 90 quick-service food brands, catering to various cuisines and seasonal demands [7] - The company's asset-light model, primarily through franchising, allows for stable free cash flow margins, maintaining a 20% margin during the pandemic [8] - MTY has made 27 acquisitions worth over $1.7 billion in the last decade, effectively redeploying free cash flow into new ventures [9] - The current dividend yield of 2.3% is at a decade-high outside of the 2020 crash, utilizing only 14% of free cash flow, indicating potential for significant future increases [9] - MTY's shares are trading at an EV/FCF ratio of 10, prompting management to buy back shares at discounted prices, with a 39% drop from all-time highs [9][10] - The company has reduced its share count by 1.2% annually since 2019, enhancing cash returns to shareholders through dividends [10]

Core Insights - Hershey has announced a five-year agreement with nine cocoa-producing cooperatives in Côte d'Ivoire as part of its "Cocoa For Good" strategy, which involves a total investment of $500 million over ten years to improve the well-being of cocoa farming communities [1][4]. Group 1: Agreement Details - The agreement includes a memorandum of understanding between Hershey, Sucden, and the nine cooperatives, focusing on professionalizing cocoa farming, improving profitability, investing in community resources, and preserving the environment [2][4]. - This initiative aims to build lasting relationships with farmers, providing stability and enabling direct engagement in addressing on-farm challenges [2][3]. Group 2: Investment and Programs - In addition to the $500 million investment, Hershey launched a $40 million Income Accelerator program in 2023 and is funding the construction of primary schools in farming communities [4]. - The agreement aligns with Côte d'Ivoire's National Strategy for Sustainable Cocoa, ensuring a coordinated approach to address key challenges in the cocoa sector [4]. Group 3: Company Commitment - Hershey emphasizes the importance of collaboration across public and private sectors to improve farmer incomes, highlighting that trust is built through strong, long-lasting relationships [3]. - The company has a long-standing commitment to ethical operations and community support, dating back over 130 years [6].

Core Viewpoint - The Hershey Company is set to announce its third-quarter sales and earnings results on November 7, 2024, followed by a conference call with analysts [1] Group 1 - The earnings results will be released on Thursday, November 7, 2024 [1] - A conference call with analysts is scheduled for 8:30 a.m. ET on the same date [1] - The conference call will be available via a live webcast on the Hershey corporate website [1]

Company Overview - Hershey's stock closed at $187.58, with a slight increase of +0.03% compared to the previous day, underperforming the S&P 500's gain of 0.97% [1] - Over the past month, Hershey's stock has decreased by 7.73%, which is worse than the Consumer Staples sector's loss of 3.52% and the S&P 500's gain of 5.41% [1] Upcoming Earnings - Hershey is expected to report an EPS of $2.71, reflecting a 4.23% increase from the same quarter last year [1] - Revenue is forecasted to be $3.1 billion, indicating a growth of 2.41% compared to the corresponding quarter of the prior year [1] Annual Estimates - For the annual period, the Zacks Consensus Estimates predict earnings of $9.47 per share and revenue of $11.32 billion, representing changes of -1.25% and +1.38% from the previous year, respectively [2] Analyst Revisions - Recent revisions to analyst forecasts for Hershey are important as they reflect near-term business trends, with positive revisions indicating optimism about the company's outlook [2] Zacks Rank and Valuation - Hershey currently holds a Zacks Rank of 4 (Sell), with a 0.36% decrease in the EPS estimate over the last 30 days [3] - The Forward P/E ratio for Hershey is 19.81, which is higher than the industry average of 18.64, indicating that Hershey is trading at a premium [3] - The PEG ratio for Hershey is 5.46, compared to the average PEG ratio of 3.8 for the Food - Confectionery industry [3] Industry Context - The Food - Confectionery industry is part of the Consumer Staples sector and has a Zacks Industry Rank of 103, placing it in the top 41% of over 250 industries [4] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [4]

Core Insights - Hershey Company (HSY) is facing challenges with a high forward price-to-sales (P/S) ratio of 3.35 compared to the industry average of 2.17, indicating high investor expectations for future earnings growth, which may not be sustainable [1] - The company's stock has declined by 1.4% over the past six months, underperforming the industry and broader market indices [1] - A significant decline in North American confectionery net sales by 20.7% in Q2 2024 highlights the impact of reduced consumer spending and changing purchasing habits [2] - Hershey's gross margin has contracted by 200 basis points year over year to 43.2%, primarily due to rising input costs, particularly for cocoa and sugar [4] - Management has revised net sales growth expectations for 2024 down to approximately 2%, with adjusted earnings per share (EPS) projected to decline slightly to a range of $9.49-$9.59 [5] Company Performance - Hershey's stock performance has raised concerns about its ability to meet elevated market expectations, as evidenced by its trailing performance compared to the Zacks Consumer Staples sector and S&P 500 [1] - The convenience channel, a key sales driver for Hershey, has shown notable weakness, impacting overall sales growth [2] - The Ready-to-Eat popcorn category, including Hershey's SkinnyPop brand, is under pressure, with slower growth attributed to changing consumer preferences and increased competition [3] Financial Outlook - The adjusted gross margin is expected to face ongoing challenges due to inflation outpacing pricing actions and productivity improvements [5] - The Zacks Consensus Estimate for HSY's EPS has declined for both the current and next fiscal years, reflecting market concerns [5] - Without a clear catalyst for improvement, Hershey's stock may continue to face downside risks [6]

Core Viewpoint - The Hershey Company has faced significant challenges in the past six months, with a stock price decline of 0.7%, contrasting with the broader industry and S&P 500 performance [1] Financial Performance - Hershey's stock closed at $190.52, down 10.1% from its 52-week high of $211.92, and has fallen below critical technical thresholds [2] - Analysts have revised down the Zacks Consensus Estimate for fiscal 2024 by 0.7% to $9.49 and for fiscal 2025 by 1.1% to $9.32 per share, indicating projected year-over-year earnings declines of 1.04% and 1.83% respectively [3] Market Challenges - The company experienced a 20.7% decline in North American confectionery net sales in Q2 2024, reflecting weakened consumer demand [4] - Rising input costs, particularly for cocoa and sugar, have led to a 200 basis point contraction in adjusted gross margin year-over-year in Q2 [5] Segment Performance - Despite challenges, the confectionery segment has shown resilience with a 2% increase in retail sales in the Candy, Mint & Gum category year-to-date [6] - The North America Salty Snacks segment performed well with 8% retail sales growth in Q2 2024, contributing to a 22-basis point market share gain [7] Innovation and Future Outlook - Hershey's innovation pipeline for the second half of 2024 includes new products expected to drive sales and momentum, particularly in the gummy and sweets segment [8] - The company anticipates mid-single-digit sales growth for the North America Salty Snacks segment in full-year 2024, driven by innovation [7] Investment Considerations - Current pressures from rising input costs and shrinking margins make Hershey's stock less attractive for new investors, although its core business remains strong [9]

Group 1 - Jefferies analysts downgraded Hershey to underperform and reduced their price target from $184 to $163, representing a nearly 15% decrease from the company's closing price [1] - Chocolate is lagging behind other snack categories in volume growth, with consumers opting for more cost-effective snacks like potato chips, pretzels, and cookies [1][2] - The rising price of cocoa, which has reached all-time highs due to poor harvests, is significantly increasing input costs for chocolate producers [2] Group 2 - Hershey's shares have increased by approximately 2% this year but have declined over the past 12 months [2]

Core Viewpoint - Hershey's stock has dropped over 25% due to various challenges, but this presents a potential opportunity for long-term investors willing to look beyond short-term issues [1] Group 1: Cocoa Price Inflation - Rising cocoa prices, a key ingredient for Hershey's products, are a significant concern as they have not started to decline materially [2] - The cocoa production sector is facing issues such as lack of investment, aging trees, and crop illnesses, contributing to sustained high prices [2] Group 2: Distribution System Update - Hershey's recent update to its distribution system has temporarily affected earnings due to inventory buildup prior to the switch, which is now being worked down [3] - This transition is expected to normalize operations and order flow in the future [6] Group 3: Market Trends and Consumer Behavior - A shift in consumer preferences towards more filling snacks has led to a slowdown in popcorn sales, which was previously a growth driver for Hershey [3] - The emergence of new weight loss drugs poses a potential long-term risk to confectionery demand, although adherence to such medications may vary among consumers [4][6] Group 4: Dividend Growth and Investment Potential - Despite current challenges, Hershey's dividend yield is near its highest levels in the past decade at 2.7%, with a 10% annualized dividend growth over the last 10 years [7] - The recent dividend increase of nearly 15% indicates confidence in the company's financial health and future prospects [7] - Current price-to-sales and price-to-earnings ratios are below their five-year averages, suggesting Hershey may also be considered a value stock [8]

Core Viewpoint - The consumer staples sector presents potential investment opportunities in Kraft Heinz (KHC) and Hershey (HSY), both of which are currently trading significantly below their three-year highs, with Kraft Heinz down 20% and Hershey down 25% [1] Dividend Comparison - Kraft Heinz offers a higher dividend yield of 4.5%, compared to Hershey's 2.7%, which is still above the S&P 500 average of 1.2% and the average yield of 2.6% for consumer staples [2] - Hershey has a consistent dividend growth streak of 15 years, while Kraft Heinz's dividend has remained flat since a cut prior to 2020, indicating Hershey's stronger dividend backing [2] Investor Sentiment on Kraft Heinz - Investors are skeptical about Kraft Heinz due to its challenging history post-merger, where cost-cutting strategies did not yield the expected growth, leading to a focus on innovation and brand building [4][5] - Kraft Heinz's key brands in North America experienced a 2.4% drop in organic sales in Q2 2024, contributing to investor caution [4] Investor Sentiment on Hershey - Hershey's recent distribution system upgrade has temporarily affected earnings due to inventory adjustments, but this issue is not expected to persist [6] - Seasonal demand fluctuations and rising cocoa prices present challenges, but Hershey has a history of managing commodity price changes effectively [7][8] Investment Recommendation - While Kraft Heinz may attract income-focused investors due to its higher yield, its underlying issues may hinder long-term growth, making Hershey a more attractive investment option despite its current challenges [9][10]

Core Insights - The article discusses the expertise of Vladimir Dimitrov, CFA, in brand and intangible assets valuation, particularly within the technology, telecom, and banking sectors [1]. Group 1: Analyst Background - Vladimir Dimitrov has a background as a strategy consultant and has worked with major global brands [1]. - His experience is primarily in the City of London, focusing on high-profile sectors [1]. Group 2: Investment Considerations - The article emphasizes the importance of conducting thorough investment research and due diligence before making investment decisions [2]. - It highlights that past performance is not indicative of future results, urging investors to consider comprehensive analysis [3].