Why Hershey's Current Struggles Are Sweet

Core Viewpoint - The Hershey Company is experiencing a challenging year with a significant stock pullback, but management's communication has helped stabilize investor sentiment despite a disappointing Q2 earnings report [1][2][10]. Financial Performance - In Q2 2024, Hershey reported net sales of approximately $2.07 billion, a 16.7$180.9 million or $0.89 per share [8][14]. - North America Confectionery sales fell by 20.7$1.58 billion, while North America Salty Snacks increased by 6.4% to $290 million, and International sales decreased by 8.9$205 million [8][14]. - The gross margin for Q2 was reported at 40.2%, down from 45.5% a year ago, indicating pressure on profitability [8][14]. Growth Outlook - Hershey's long-term outlook anticipates net sales growth of 2% to 4% and EPS growth between 6% to 8%, reflecting a stable but slow growth trajectory [5][12]. - The company has been focusing on its Salty Snacks division, which has shown significant growth, with SkinnyPop and Dot's Pretzels contributing over $860 million in retail sales [5][7]. Market Dynamics - Cocoa prices have been a significant factor affecting Hershey's stock performance, with recent declines in cocoa prices positively impacting investor sentiment despite the Q2 earnings miss [2][10]. - The company is sensitive to seasonal sales patterns, particularly around major holidays, which affected Q2 results due to the timing of Easter [10][11]. Shareholder Returns - Hershey increased its dividend by 15$1.4 billion and has returned over $1 billion through dividends and share buybacks, indicating a commitment to returning value to shareholders [11][12]. Valuation Considerations - Hershey's stock is currently viewed as having a steep valuation with a PE ratio above 20, despite slow growth and existing headwinds [12][13]. - The company's ability to generate steady cash flows and its FCF yield of 4.7% provide some justification for its valuation, attracting long-term investors [12].