Is Hershey on the Road to Recovery? Early Signs of Optimism After a Tough Year

After an exceptionally challenging year, American confectionery giant Hershey Co. (1.55%) is showing the first signs of recovery, although a full comeback is still a long way off. The stock, which has lost nearly half its value since peaking in Spring 2023, may present an opportunity for patient investors.

The company's financial data highlight the severity of the challenges: Analysts expect Hershey's earnings to decline by 19% this year compared to 2023. The main culprit is the dramatic rise in raw material costs, particularly cocoa, whose price has tripled over the past year due to a severe shortage in Africa.

Hershey attempted to address rising costs by implementing a 2% price hike in Q4, but this measure was insufficient to offset the surging expenses. Operating margins are projected to drop to 19% this year—a decline of nearly five percentage points compared to last year.

Double Blow to Sales

Hershey's sales have taken a dual hit: Beyond higher costs, the company faces changing consumer preferences, with a growing shift toward healthier snacks. As a result, sales fell to $11.16 billion last year, and some retail shelf space previously allocated to Hershey’s chocolates is now occupied by other products.

Despite the bleak picture, there are reasons for cautious optimism. Cocoa prices, which had reached historic highs, have begun to stabilize and even decrease slightly. Analysts predict that raw material cost increases will moderate to less than 2% annually by 2026.

Hershey is also at a managerial turning point, as current CEO Michele Buck is set to step down at the end of June. The search for a new CEO has sparked expectations for a fresh strategic direction.

The stock price, which has fallen to $155, now reflects a price-to-earnings ratio of less than 20 based on expected earnings—lower than the market average and historically low for Hershey, a company that has traditionally enjoyed a premium valuation due to its pricing power and earnings stability.

Recent figures suggest an improvement: Revenue from chocolate products rose by 4.3% in December, following a stagnant November. Moreover, Hershey outperformed the industry average.

New Products on the Horizon

The company is investing in developing intriguing new products, such as Reese’s with caramel and pink lemonade-flavored KitKat. Morningstar analyst Erin Lash notes that consumers don’t consistently remain loyal to healthier alternatives, creating an opportunity for Hershey to reclaim significant market share.

In 2023, the company focused on enhancing its technological capabilities to better understand consumer preferences, prioritizing this over new product launches. While this strategy hurt revenues in 2024, the upcoming product launches are expected to garner significant attention from both retailers and consumers.

Outlook for 2026

Projections for 2026 show a 9% growth in earnings per share to $8.47, driven by a combination of moderate price increases, a recovery in sales volume, and a decline in cocoa prices. Improved operating margins are expected to restore profitability to around 20%.

Hershey is cautiously moving toward recovery. While challenges remain, a combination of strategic initiatives and stabilizing market conditions could help the company regain its footing and provide long-term value for investors.

HSY Stock Analysis

Total Score

 

 

score

2.52

 

Strong Sell

Hold

Strong Buy

 

 

Risk Level

 

LOW

HIGH

 

HSY has Low Risk Level. Click here to check what is your level of risk