Yahoo Finance Hershey (NYSE:HSY) Misses Q2 Sales Targets, Stock Drops
Chocolate company Hershey (NYSE:HSY) fell short of analysts' expectations in Q2 CY2024, with revenue down 16.7% year on year to $2.07 billion. It made a non-GAAP profit of $1.27 per share, down from its profit of $2.01 per share in the same quarter last year.
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Hershey (HSY) Q2 CY2024 Highlights:
Revenue: $2.07 billion vs analyst estimates of $2.32 billion (10.6% miss)
EPS (non-GAAP): $1.27 vs analyst expectations of $1.45 (12.6% miss)
EPS (non-GAAP) Guidance for the full year is $9.54 at the midpoint, roughly in line with what analysts were expecting
Gross Margin (GAAP): 40.2%, down from 45.5% in the same quarter last year
Organic Revenue fell 16.8% year on year (5% in the same quarter last year)
Sales Volumes fell 18% year on year (-2.7% in the same quarter last year)
Market Capitalization: $39.94 billion
"Today's operating environment remains dynamic with consumers pulling back on discretionary spending," said Michele Buck, The Hershey Company President and Chief Executive Officer.
Best known for its milk chocolate bar and Hershey's Kisses, Hershey (NYSE:HSY) is an iconic company known for its chocolate products.
Shelf-Stable Food
As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales Growth
Hershey is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.
As you can see below, the company's annualized revenue growth rate of 8.2% over the last three years was decent despite consumers buying less of its products. We'll explore what this means in the "Volume Growth" section.
This quarter, Hershey missed Wall Street's estimates and reported a rather uninspiring 16.7% year-on-year revenue decline, generating $2.07 billion in revenue. Looking ahead, Wall Street expects sales to grow 4.9% over the next 12 months, an acceleration from this quarter.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Hershey generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Hershey's average quarterly sales volumes have shrunk by 2.5%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Hershey was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 4.5% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.
In Hershey's Q2 2024, sales volumes dropped 18% year on year. This result was a further deceleration from the 2.7% year-on-year decline it posted 12 months ago, showing the business is struggling to push its products.
Key Takeaways from Hershey's Q2 Results
We struggled to find many strong positives in these results. Its revenue unfortunately missed analysts' expectations and its organic revenue missed Wall Street's estimates. Overall, this was a bad quarter for Hershey. The stock traded down 7.2% to $183.06 immediately after reporting.
Hershey may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
