Hershey's Sweet Comeback: Why Investors Are Taking Notice

Core Viewpoint - The Hershey Company recently reported strong Q4 2024 earnings, surpassing analyst expectations, but issued mixed guidance for 2025, leading to a stock rally despite concerns over future earnings and cocoa prices [1][4][5]. Financial Performance - Hershey's Q4 2024 EPS was $2.69, exceeding consensus estimates by$ 0.32, with revenues increasing 8.7% year-over-year to $2.89 billion, also above the expected$ 2.84 billion [4]. - Net income rose significantly by 130.6% year-over-year to $3.92 per diluted share, supported by a diverse product portfolio beyond chocolate [4]. Margin Expansion - Despite rising cocoa prices, Hershey managed to expand its gross margin by 1,170 basis points to 54% in Q4, aided by derivative gains, higher sales volume, and improved supply chain productivity [3]. - The adjusted gross margin increased by 60 basis points to 44.8%, while the operating profit margin rose by 1,500 basis points to 32.5% [3]. Cocoa Market Dynamics - Cocoa prices have reached all-time highs due to adverse weather conditions affecting production in West Africa, where two-thirds of the world's cocoa is sourced [2]. - China's investment in West Africa for cocoa processing is influencing global supply dynamics [2]. Future Guidance - For 2025, Hershey anticipates a significant EPS drop to between$ 6.00 and $6.18, compared to the consensus estimate of$ 7.33, while revenue is expected to grow at least 2% year-over-year to at least $11.43 billion [5]. - Adjusted EPS is projected to decline in the mid-30% range, indicating potential challenges ahead [5]. Stock Performance and Analyst Ratings - Hershey's stock has rebounded 12% from its recent lows, but analysts currently rate it as "Reduce," with a consensus price target of$ 164.15, which is 3.9% higher than current levels [8][10]. - The stock has a short interest of 3.39%, indicating some bearish sentiment among investors [8].