Hershey Company (HSY) shares took a nosedive in pre-market trading on Thursday after the chocolate giant reported disappointing third-quarter earnings results and a gloomy outlook for the rest of the year. The company missed analysts’ expectations on both earnings and sales, sending a wave of pessimism through the market.
Hershey reported adjusted earnings per share of $2.34 for the quarter, falling short of the anticipated $2.56. Quarterly sales also came in below estimates, clocking in at $2.987 billion, a 1.4% decline from the previous year. Analysts had projected sales of $3.077 billion. The company attributed the sales slump to lower volume across all segments and reduced inventory in its North American Salty Snacks division, ahead of a planned ERP system rollout in the fourth quarter of 2023.
Despite the challenges, Michele Buck, Hershey’s President and Chief Executive Officer, emphasized the company’s commitment to delivering value to customers, consumers, and shareholders. She pointed to the impact of historically high cocoa prices and a challenging consumer environment on the company’s year-to-date performance.
Breaking down the segment performance, the North America Confectionery unit saw a modest gain of 0.8% in the third quarter, while North America Salty Snacks experienced a significant 15.5% decline. International sales also slipped by 3.9%.
The company’s adjusted gross margin for the quarter was 40.3%, a significant decrease of 460 basis points compared to the same period last year. This decline was attributed to a combination of factors, including higher commodity costs, timing issues, fixed cost increases, and unfavorable product mix, despite price hikes and productivity gains.
The company’s adjusted operating profit also took a hit, dropping by 13.2% year-over-year to $654.0 million. This resulted in an operating profit margin of 21.9%, representing a 300 basis point decrease.
Looking ahead, Hershey lowered its full-year adjusted earnings per share guidance to a range of $9.00 to $9.10, significantly below the previous estimate of $9.40. The company also anticipates flat net sales for fiscal year 2024, a sharp contrast to its prior expectation of 2% growth.
The disappointing news sent HSY shares tumbling in pre-market trading, with shares trading down 2.88% to $171.72 at last check Thursday.
Investors will be closely monitoring Hershey’s efforts to navigate these challenges, particularly as it faces continued inflationary pressures and a potentially slowing economy. The company’s ability to adapt its strategies and maintain its market share in a dynamic consumer landscape will be a key factor in determining its future success.
