Core Viewpoint - The Hershey Company reported disappointing third-quarter 2024 results, with both earnings and net sales declining year over year, missing consensus estimates. The company is facing challenges from a tough consumer environment and high cocoa prices, leading to a revised outlook for the year with lowered expectations for net sales growth and adjusted earnings per share [1][14]. Financial Performance - Adjusted earnings for the quarter were $2.34, a decline of 10% year over year, missing the Zacks Consensus Estimate of $2.50 [2]. - Consolidated net sales were $2,987.5 million, down 1.4% from the previous year and below the consensus estimate of $3,073.1 million. On a constant-currency basis, organic sales decreased by 1%, with a net price increase of nearly 2 points offset by lower volume across segments [3]. - The adjusted gross margin contracted to 40.3%, a decrease of 460 basis points, primarily due to increased commodity costs and unfavorable timing of input costs [4]. Cost Management - Selling, marketing, and administrative (SM&A) expenses decreased by 5.2%, attributed to lower advertising and consumer marketing expenses, reduced compensation, and fewer investments in technology [5]. - Excluding advertising and consumer marketing expenses, SM&A expenses dropped 7.5% due to lower compensation and benefit costs [6]. Segment Performance - The North America Confectionery segment reported net sales of $2,477.3 million, a slight increase of 0.8%, driven by price realization and inventory timing benefits, despite volume declines [8]. - The North America Salty Snacks segment saw net sales decline by 15.5% to $291.8 million, with volume decreases largely due to planned inventory increases and shipment delays [10]. - The International segment's net sales were $218.4 million, down 3.9%, with organic sales increasing slightly by 0.2% but facing volume declines due to competitive pressures [12]. Future Outlook - Management now expects net sales to be flat year over year, a revision from the previous expectation of approximately 2% growth. Adjusted EPS is anticipated to decline mid-single digits to a range of $9.00-$9.10, compared to an adjusted EPS of $9.59 in 2023 [14]. - The company plans capital expenditures of $575-$600 million for 2024, focusing on core confection capacity expansion and digital infrastructure investments [13].

Group 1 - Proactive provides fast, accessible, informative, and actionable business and finance news content to a global investment audience [2][3] - The news team covers medium and small-cap markets, as well as blue-chip companies, commodities, and broader investment stories [2][3] - Proactive focuses on various sectors including biotech and pharma, mining and natural resources, battery metals, oil and gas, crypto, and emerging digital and EV technologies [3] Group 2 - The company utilizes technology to enhance workflows and has a team with decades of expertise [3] - Proactive employs automation and software tools, including generative AI, while ensuring all content is edited and authored by humans [4]

Financial Data and Key Metrics Changes - The company expects top-line growth to align with its long-term algorithm of 2% to 4% for the upcoming year [9] - The realized pricing for next year is anticipated to be similar to this year, with high single-digit price increases expected for chocolate products [19][36] - Gross margin performance was below expectations due to sales flow-through and negative sales mix, particularly in convenience stores [22][24] Business Line Data and Key Metrics Changes - The chocolate market share is expected to stabilize, with the company seeing positive trends in sweets and innovation driving market share growth [12][14] - Instant consumable products are anticipated to remain under pressure, particularly in convenience stores, while other segments are expected to recover [14] Market Data and Key Metrics Changes - The company has observed increased competition in the international segment, particularly in Mexico and Brazil, primarily driven by pricing competition [33] - The chocolate category has shown resilience, growing at around 2%, outpacing other snack categories [12] Company Strategy and Development Direction - The company is focusing on enhancing its portfolio and execution in response to competitive pressures, particularly from private label and smaller players [76] - There is a strategic emphasis on investing in brand marketing and innovation to drive growth in core brands [40][84] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that 2025 will have fewer headwinds compared to 2024, with expectations of improved execution and a longer Easter holiday benefiting sales [71] - The company is closely monitoring cocoa prices, which are expected to be a significant inflationary factor in the upcoming year [20][62] Other Important Information - The company is implementing a productivity program aimed at achieving significant cost savings, with expectations of $130 million to $140 million benefiting COGS [52] - The impact of GLP-1 drugs on chocolate sales is currently mild, with financial pressures being a more significant factor affecting consumer behavior [29][57] Q&A Session Summary Question: Expectations for top-line growth and pricing - Management indicated that top-line growth is expected to align with the long-term algorithm, with pricing for next year looking similar to this year [9][19] Question: Core chocolate market share trends - Management expressed optimism about stabilizing market share trends, with positive momentum expected as the year progresses [12][14] Question: Impact of cocoa inflation on costs - Cocoa is anticipated to be the largest contributor to inflation, with significant year-over-year increases expected [20][62] Question: Marketing spending strategy - The company plans to maintain investment in brand marketing while seeking efficiencies to drive higher returns on investment [40] Question: Competitive activity in the international segment - Increased pricing competition from global competitors has been noted, particularly in smaller markets [33] Question: Future growth areas - Management highlighted salty snacks and seasonal products as key areas for growth, alongside chocolate [65] Question: Execution challenges and improvements - Management acknowledged past execution challenges and emphasized the need for better in-store execution and innovation [73] Question: Financial pressures affecting consumer behavior - The company noted that financial pressures are a significant factor impacting consumer spending, rather than the impact of GLP-1 drugs [57]

Core Insights - Hershey reported $2.99 billion in revenue for Q3 2024, a year-over-year decline of 1.4% and below the Zacks Consensus Estimate of $3.07 billion, resulting in a surprise of -2.79% [1] - The company's EPS for the quarter was $2.34, down from $2.60 a year ago, with an EPS surprise of -6.40% compared to the consensus estimate of $2.50 [1] Revenue Performance - North America Net Sales were $2.77 billion, missing the average estimate of $2.84 billion, reflecting a year-over-year change of -1.2% [3] - International Net Sales were $218.36 million, below the average estimate of $243.88 million, representing a year-over-year decline of -3.9% [3] - North America Confectionery Net Sales reached $2.48 billion, slightly below the average estimate of $2.52 billion, with a year-over-year increase of +0.8% [3] - North America Salty Snacks Net Sales were $291.84 million, falling short of the average estimate of $316.01 million, showing a significant year-over-year decline of -15.5% [3] Segment Income Analysis - North America Confectionery Segment Income was $724.82 million, compared to the estimated $772.65 million [3] - Unallocated Corporate Expense Segment showed a loss of $139.02 million, contrasting with the estimated loss of -$186.74 million [3] - North America Salty Snacks Segment Income was $53.98 million, slightly above the average estimate of $49.98 million [3] Stock Performance - Hershey's shares have returned -5.4% over the past month, while the Zacks S&P 500 composite increased by +3.2% [4] - The stock currently holds a Zacks Rank 5 (Strong Sell), indicating potential underperformance relative to the broader market in the near term [4]

Company Performance - Hershey reported quarterly earnings of $2.34 per share, missing the Zacks Consensus Estimate of $2.50 per share, and down from $2.60 per share a year ago, representing an earnings surprise of -6.40% [1] - The company posted revenues of $2.99 billion for the quarter ended September 2024, missing the Zacks Consensus Estimate by 2.79%, and down from $3.03 billion year-over-year [2] - Over the last four quarters, Hershey has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [2] Stock Performance - Hershey shares have lost about 5.2% since the beginning of the year, while the S&P 500 has gained 24.3% [3] - The current Zacks Rank for Hershey is 5 (Strong Sell), indicating expected underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the coming quarter is $2.48 on revenues of $2.9 billion, and for the current fiscal year, it is $9.39 on revenues of $11.3 billion [7] - The estimate revisions trend for Hershey is currently unfavorable, which could change following the recent earnings report [6] Industry Context - The Food - Confectionery industry, to which Hershey belongs, is currently in the bottom 6% of the Zacks industry rankings, suggesting potential challenges ahead [8]

Financial Performance - Consolidated net sales for Q3 2024 were $2,987.5 million, a decrease of 1.4% compared to the same period last year[9]. - Reported net income was $446.3 million, or $2.20 per diluted share, reflecting a decrease of 12.7%[3]. - Adjusted earnings per share-diluted were $2.34, down 10.0% year-over-year[3]. - The company reduced its full-year net sales growth outlook from approximately 2% to flat, and adjusted earnings per share growth outlook to down mid-single-digits[6]. - Total net sales for Q3 2024 were $2.9875 billion, a slight decrease from $3.0300 billion in Q3 2023[42]. - For Q3 2024, reported net income was $446.3 million, down from $518.6 million in Q3 2023, representing a decrease of 13.9%[42]. - Total segment income decreased by 15.3% to $793,006 in Q3 2024 from $936,546 in Q3 2023, with North America Confectionery segment income down 14.5% to $724,822[44]. - International segment income fell significantly by 55.2% to $14,207 in Q3 2024 compared to $31,688 in Q3 2023[44]. - Operating profit for Q3 2024 was $613,164, a decrease of 16.7% from $735,949 in Q3 2023[44]. - The company reported a 20.6% decline in income before income taxes, totaling $518,747 in Q3 2024 compared to $653,413 in Q3 2023[44]. Segment Performance - North America Confectionery segment net sales increased by 0.8% to $2,477.3 million, while North America Salty Snacks segment net sales decreased by 15.5% to $291.8 million[17][20]. - North America Confectionery net sales for Q3 2024 were $2,477,303, a 0.8% increase from $2,457,647 in Q3 2023, while Salty Snacks saw a decline of 15.5% to $291,835 from $345,182[44]. - International segment net sales decreased by 3.9% to $218.4 million, with a segment margin of 6.5%, down 740 basis points year-over-year[23][24]. Cost and Expenses - Reported gross margin was 41.3%, a decrease of 360 basis points from the prior year, driven by higher commodity costs[10]. - Selling, marketing, and administrative expenses decreased by 5.2% in Q3 2024 compared to Q3 2023[11]. - Unallocated corporate expenses decreased by 24.1% to $139.0 million, driven by lower compensation and benefit costs[25]. - Non-GAAP gross profit for Q3 2024 was $1.2048 billion, compared to $1.3615 billion in Q3 2023, reflecting a decline of 11.5%[30]. - The reported gross margin for Q3 2024 was 41.3%, down from 44.9% in Q3 2023[33]. - Non-GAAP operating profit margin decreased to 21.9% in Q3 2024 from 24.9% in Q3 2023[33]. - The company incurred $27.6 million in business realignment costs during Q3 2024, primarily related to restructuring efforts[36]. - Integration-related costs for acquisitions in Q3 2024 amounted to $22.8 million, including costs for two manufacturing plants from Weaver Popcorn Manufacturing[37]. Tax and Interest - The effective tax rate for Q3 2024 was 14.0%, a decrease of 660 basis points from the previous year[13]. - The effective tax rate for Q3 2024 was reported at 14.0%, down from 20.6% in Q3 2023[33]. - Interest expense increased by 11.5% to $44,316 in Q3 2024 from $39,755 in Q3 2023[44]. Balance Sheet - Total assets increased to $12,621,410 as of September 29, 2024, up from $11,902,941 at the end of 2023[46]. - Cash and cash equivalents rose to $614,951 in Q3 2024 from $401,902 at the end of 2023, indicating improved liquidity[46]. - Total liabilities increased to $8,416,441 as of September 29, 2024, compared to $7,803,855 at the end of 2023[46]. Future Outlook - The company expects continued challenges in supply chain efficiency and raw material costs impacting future performance[40].

Core Insights - The Hershey Company reported a consolidated net sales of $2,987.5 million for Q3 2024, reflecting a decrease of 1.4% compared to the previous year [2][8] - The company has adjusted its full-year 2024 outlook, now expecting flat net sales growth and a reported earnings per share decline of 9% to 6% [3][4] - The CEO emphasized the company's focus on driving growth in key categories despite challenges from high cocoa prices and a tough consumer environment [2] Financial Performance - Reported net income for Q3 2024 was $446.3 million, or $2.20 per diluted share, down 12.7% year-over-year [2][11] - Adjusted earnings per share for Q3 2024 were $2.34, a decrease of 10.0% compared to the same period last year [2][4] - The gross margin for Q3 2024 was reported at 41.3%, down from 44.9% in Q3 2023, primarily due to higher commodity costs [9][27] Segment Performance - North America Confectionery segment net sales increased by 0.8% to $2,477.3 million, while the North America Salty Snacks segment saw a significant decline of 15.5% to $291.8 million [14][17] - The International segment reported a net sales decrease of 3.9% to $218.4 million, with a slight organic growth of 0.2% on a constant currency basis [20][21] - Segment income for North America Confectionery fell by 14.5% to $724.8 million, while the International segment income decreased by 55.2% to $14.2 million [16][21] Cost Management - Selling, marketing, and administrative expenses decreased by 5.2% in Q3 2024, attributed to lower advertising and compensation costs [10] - Unallocated corporate expenses were reduced by 24.1% to $139.0 million, reflecting cost-saving measures [22] - The company anticipates capital expenditures of approximately $575 million to $600 million, focusing on capacity expansion and digital infrastructure investments [3][4] Tax and Interest Expenses - The reported effective tax rate for Q3 2024 was 14.0%, a decrease of 660 basis points from the previous year, driven by increased renewable energy tax credits [12][27] - Interest expense for the quarter was approximately $170 million, reflecting a higher interest rate environment [3][4]

Core Insights - The Hershey Company (HSY) is expected to report revenue growth of 1.4% year-over-year, with a consensus estimate of $3.1 billion for Q3 2024 [1] - However, the earnings consensus has decreased by 1.6% to $2.50 per share, indicating a decline of 3.9% from the previous year [1] Revenue and Earnings Expectations - The revenue estimate for Hershey reflects a modest growth trajectory despite challenges in consumer spending [1] - The earnings estimate suggests a potential decline, contrasting with the revenue growth expectations [1][3] Factors Impacting Performance - Hershey's sales have been negatively affected by a slowdown in discretionary spending, particularly in convenience stores, which traditionally contributed to strong sales [3] - The company faces pressure on its gross margin due to rising input costs, which are outpacing the benefits from price increases and productivity improvements [4] - An adjusted gross margin contraction of 230 basis points to 42.6% is anticipated for the upcoming quarter [4] Segment Performance - Despite the overall challenges, the confectionery segment is expected to show resilience, with projected sales growth of 4.6% in North America for Q3 2024 [5] - Innovations and effective pricing strategies are contributing positively to Hershey's portfolio strength [5] Earnings Prediction - Current models do not predict an earnings beat for Hershey, with a Zacks Rank of 4 (Sell) and an Earnings ESP of -1.89% [6]

Core Viewpoint - The article discusses the contrasting investment opportunities presented by Costco and Hershey, suggesting that while Costco has performed well due to crowd enthusiasm, Hershey may present a contrarian buying opportunity due to its current undervaluation and strong brand power [2][3][10]. Costco Overview - Costco has a strong reputation as a leading retail company, known for its wide selection and low prices, supported by a membership fee model that drives profits [4]. - The stock has delivered a 222% return over the past five years, significantly outperforming the S&P 500's 102% return [2]. - Costco's average price-to-earnings (P/E) ratio over the past decade is 35, indicating a premium valuation, but earnings growth is expected to slow to about 9% annually, raising concerns about sustaining such high valuations [5]. Hershey Overview - Hershey is a major player in the confectionery industry, with well-known brands and a recent expansion into snacks, maintaining a high return on invested capital (ROIC) averaging over 17% [6][7]. - The company has historically provided substantial returns, with nearly 44,000% growth over the past five decades, making it a strong long-term investment [8]. - Currently, Hershey faces challenges due to adverse conditions affecting cocoa supply, leading to increased commodity prices and negatively impacting sales [9]. Investment Considerations for Hershey - Hershey's stock is currently trading at a P/E ratio of about 20, below its historical average of 25, and its dividend yield has reached 3%, indicating potential undervaluation [10][11]. - Despite short-term challenges, Hershey is viewed as a resilient company with a strong reputation, suggesting that it may recover once cocoa prices stabilize [11]. - Long-term investors may find Hershey to be a more attractive option compared to Costco, which may not sustain its current valuation levels [12].

Group 1 - The focus is on long-term growth and dividend growth investing, emphasizing the importance of profitability over low valuation [1] - Key metrics for evaluating stocks include margins, free cash flow stability and growth, and returns on invested capital [1] - The approach involves researching high-quality companies and continuously seeking to deepen understanding of them [1]