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The Hershey Company (NYSE:HSY) has faced notable challenges in recent times due to soaring cocoa prices. Since 2022, cocoa prices have nearly tripled, significantly increasing the cost of production for the confectionery giant. This sharp rise has impacted Hershey’s profitability, leading to an expectation of flat earnings for the full year. Consequently, Hershey's stock has dropped 28% from its previous highs, reflecting investor concerns over the company's ability to manage rising costs.
Dividend Yield and Profitability
Despite these challenges, Hershey remains a profitable entity. The company continues to pay out dividends, and the lower share price has resulted in a dividend yield that is notably higher than its historical average of 2.15% and more than double the S&P 500 average of 1.32%. Hershey’s commitment to maintaining dividend payments underscores its stable financial health and enduring business model.
In the second quarter, Hershey reported a 16% year-over-year decrease in sales. However, this figure was impacted by one-time items. Excluding these, the base business experienced a low-single-digit decline in sales, while international sales saw a mid-single-digit increase. Hershey anticipates full-year sales to grow by approximately 2%, with adjusted earnings slightly below 2023 levels. The company is leveraging underdeveloped sales channels like e-commerce and introducing new products for upcoming holidays to bolster top-line growth.
Long-Term Market Prospects
Looking forward, the confectionery market presents a promising growth trajectory. Valued at $133 billion, it is expected to grow at a compound annual growth rate (CAGR) of nearly 5% through 2029, according to Statista. Hershey is well-positioned to benefit from this market expansion, thanks to its diverse portfolio of top brands including Cadbury, Reese’s, Twizzlers, KitKat, and Jolly Rancher, as well as popular snacks like Skinny Pop. This extensive brand portfolio enhances Hershey's market presence and strengthens relationships with retailers, supporting potential sales growth.
Dividend History and Financial Resilience
Hershey's dividend record remains exemplary. Over the past four quarters, the company generated $1.8 billion in net profit from $11 billion in revenue. With adjusted earnings per share of $8.96, Hershey pays a quarterly dividend of $1.37, resulting in a forward dividend yield of 2.75%, the highest in five years. The company has consistently increased its quarterly dividend by 77% over the past five years and boasts a long history of 378 consecutive dividends.
Future Outlook
The spike in cocoa prices is expected to continue affecting Hershey’s earnings into 2025. Analysts forecast adjusted earnings of $9.53 for this year, with a slight decline to $9.46 in 2025.
