Core Viewpoint - Hershey faces significant challenges due to rising cocoa prices and supply shortages, leading to a stock decline of over 40% in the past two years, but there are reasons for optimism regarding its future performance [1][4][12] Group 1: Challenges Faced by Hershey - Cocoa prices have surged from below $2,000 per metric ton in fall 2022 to around $10,000 per metric ton currently, significantly impacting margins [4][5] - The majority of cocoa is produced in countries like Ivory Coast, where crop yields have been affected by disease and adverse weather, contributing to the price increase [5] - Hershey's candy sales in North America accounted for 82% of its revenue in Q1 2025, but net sales fell 14% to $2.8 billion during the same period [5][6] Group 2: Reasons for Optimism - Hershey projects a net sales gain of at least 2% for 2025, indicating customer loyalty despite high cocoa prices [8] - The top three cocoa producers reported a 20% increase in supply this season, providing some relief to Hershey [8] - Hershey has maintained a dividend of $5.48 per share, with a 3.4% yield, significantly higher than the S&P 500 average of 1.3%, and has increased its dividend for 15 consecutive years [9][10] Group 3: Financial Performance and Valuation - Despite challenges, Hershey generated over $1.9 billion in free cash flow in 2024, allowing it to sustain its dividend payments [10] - The stock trades at 20 times earnings, below its five-year average P/E ratio of 25, suggesting potential for recovery as cocoa shortages ease [11]

Core Insights - The Hershey Company is experiencing increased investor interest ahead of its Q1 2025 earnings release, despite a 14% decline in stock price over the past year [1][2][3] - Investors are potentially shifting focus from cost pressures to Hershey's strong brand portfolio and strategic evolution, which may provide defensive positioning and growth potential [2][3] Financial Performance - Hershey's management has guided for a significant drop in Adjusted EPS for fiscal year 2025, projected to decline in the mid-30% range due to rising cocoa prices [5] - Cocoa futures have recently retreated by as much as 30% from record highs, indicating a potential easing of cost pressures [6][7] Business Strategy - Hershey is diversifying its product offerings beyond confectionery, with successful salty snack brands and a pending acquisition of LesserEvil, which aligns with consumer trends towards healthier snacks [9][10] - The company is expected to achieve at least 2% net sales growth in fiscal 2025, reflecting strong brand loyalty and effective pricing strategies [8] Operational Efficiency - Hershey's "Advancing Agility & Automation Initiative" is projected to deliver approximately $125 million in savings during 2025, aiding in cost management and funding for innovation [12] - The company maintains a strong dividend yield of 3.28%, supported by a 15-year track record of annual dividend increases [11][13] Market Positioning - The stock price decline from its 2023 peak may present an entry point for investors seeking quality in a defensive sector [16] - The upcoming Q1 2025 earnings report is crucial, with investors looking for updates on volume performance, margin management, and cocoa cost outlook [15][16] Investment Consideration - Hershey offers a combination of defensive stability and growth potential, making it a compelling option for investors amid easing cost pressures and ongoing strategic initiatives [17][18]