Grant Vanaik
(Reuters) – Hershey and Mondelez (NASDAQ:) International investors will be excited to see how the chocolate makers plan to cope with recent increases in cocoa and sugar prices when they report first-quarter results this week.
These companies have already faced increased costs in the past few quarters, which they have passed on in part to consumers by raising prices.
Recent increases in cocoa prices amid dwindling supplies due to droughts and erratic rainfall, as well as crop diseases in the world’s major cocoa-producing regions, could pose even more challenges.
In addition, sugar prices have risen sharply in recent months.
“Many investors are waiting to see how consumers are reacting to the current price of chocolate in the market and how that impacts companies’ decisions to raise prices in the future,” said Sean King, an analyst at Columbia Threadneedle. Investments, which owns shares of Hershey and Mondelez.
CONTEXT
Cocoa prices, which have nearly tripled in value this year, now account for about 20% and 10% of Hershey and Mondelez’s cost of sales, respectively, Jeffries said.
“Typically these companies incur higher cocoa costs first and then go to their retail customers and try to raise prices,” said Arun Sundaram of CFRA Research, adding that there could potentially be higher prices in the second half.
The possibility of further price increases arises when demand has already begun to fall, and companies are trying to compensate for the fall by raising prices.
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Data from research firm Circana showed U.S. chocolate sales fell 1.8% in the 13 weeks ended March 24, while prices rose 6.3%.
“The big question is whether price-related growth will be enough to offset the volume decline we are likely to see this year,” Sundaram said.
BASICS
** Mondelez, which will report results on April 30, is expected to report a slight drop in profit to 89 cents for the first time in 14 quarters.
** Quarterly sales are expected to remain flat.
**Mondelez organic sales growth in 2023 was 1.3 percentage points (pp) and prices were up 13.4 pp.
** Hershey, which will report results on May 3, will see earnings fall to $2.76 for the first time in 25 quarters.
**Quarterly revenue is expected to increase to approximately 4.2%.
**Hershey’s 2023 organic sales fell 1.3% while prices rose 8.3%.
WALL STREET MOOD
** Mondelez shares are down 4.3% over the past year, while Hershey shares are down nearly 32%.
** 26 analysts average Mondelez a Buy, with an average price target of $82 – LSEG
**The 24 analysts on average rate Hershey a Hold, with an average price target of $208.