HSY Stock Down 11% in 3 Months: What Should Investors Do Next?

Core Insights - The Hershey Company (HSY) has experienced an 11% decline in stock over the past three months, underperforming the broader industry and the Zacks Consumer Staples sector, while the S&P 500 increased by 6.2% during the same period [1][3]. Group 1: Consumer Trends and Market Challenges - Hershey is facing a challenging environment due to historically high cocoa prices and a budget-conscious consumer base, leading to a decline in total snacking consumption as consumers prioritize value [3][4]. - Shifts in shopping behavior towards club, dollar, and online channels, where Hershey's products are less developed, are complicating the company's market position [4]. - The company's third-quarter net sales fell by 1.4%, driven by soft consumption trends, reduced retailer inventories, and seasonal shipment delays [5]. Group 2: Financial Performance and Margin Pressure - Hershey's adjusted gross margin contracted to 40.3%, a decrease of 460 basis points, due to increased commodity costs and unfavorable timing of input costs [6]. - The adjusted operating profit fell by 13.2% to $654 million, with the operating profit margin contracting by 300 basis points to 21.9% [6]. - Management anticipates a decline in the 2024 adjusted gross margin by nearly 250 basis points, influenced by reduced volume outlook and persistent inflation on key ingredients [7]. Group 3: Revised Guidance and Future Outlook - Hershey has lowered its 2024 sales guidance to nearly flat year-over-year, down from a previous forecast of around 2% growth, due to competitive pressures and lower-than-expected retailer inventory levels [8]. - The company now projects a mid-single-digit decline in full-year adjusted EPS, a revision from an earlier outlook that anticipated only a slight decline [9].