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Hershey's Cocoa Challenge: Will Demand Shaping Offset Costs?
ZACKSยท 2025-06-20 15:45
Core Insights - The Hershey Company is facing significant cost pressures due to rising cocoa prices and tariff impacts, potentially incurring up to $100 million in unmitigated costs per quarter in the latter half of 2025, with two-thirds of this risk linked to cocoa and Canadian tariffs [1][7] - Hershey is adopting a consumer-centric approach called demand shaping, focusing on lower-cocoa segments and utilizing pricing strategies to maintain consumer demand without overt price increases [2][4] - The company is also innovating to reduce reliance on cocoa-heavy inputs, with new product developments expected to support growth while managing cost pressures [3][4] Cost Management Strategies - Hershey is shifting its focus towards lower-cocoa products, such as sweets and salty snacks, which have shown strong growth [2] - The company is implementing price pack architecture to enhance value perception among consumers, particularly in value-sensitive retail channels [2][4] - Management is exploring sourcing strategies and tariff engagement as additional measures to mitigate costs [4] Financial Performance and Market Sentiment - Hershey's shares have increased by 12.2% over the past month, outperforming the industry growth of 9.7% and the broader Consumer Staples sector, which declined by 0.9% [5] - The stock is currently trading at a forward P/E ratio of 27.68, higher than the industry average of 22.55, indicating market expectations of stability and resilience in navigating cost challenges [12] - Recent downward revisions in EPS estimates reflect cautious sentiment, with the consensus estimates for the current and next fiscal year declining slightly [15]