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Hershey's Struggles Amid Cocoa Shortages: A Buying Opportunity?

Hershey faces significant headwinds with cocoa shortages impacting margins and sales. Despite a decline over two years, analysts see potential gains for investors due to loyal customer base and rising dividends. Evaluating Hershey could uncover prospects amidst challenges.

Date: 
AI Rating:   6
Current Situation of Hershey Stock
Hershey is currently grappling with cocoa shortages, leading to soaring cocoa prices from below $2,000 to nearly $10,000 per metric ton. This has heavily impacted profit margins. The first quarter of 2025 saw a 14% decrease in net sales to $2.8 billion despite ongoing efforts to pass costs on to consumers.

Despite this downturn, Hershey reported a minimal annual revenue gain of 0.3% in 2024, suggesting some resilience amidst adversity. This situation is compounded by rising integration costs linked to acquisitions and general inflationary pressures causing cooling consumer growth.

Encouraging Signals
Optimistically, Hershey has guided for a revenue gain of at least 2% in 2025, which might indicate consumer loyalty despite the cost struggles. The company also noted a welcomed 20% increase in cocoa supply from top producers this season, which could alleviate some cost pressure.

On a positive note, Hershey's annual dividend of $5.48 per share continues to grow, reflecting a strong commitment to returning value to shareholders. This consistent dividend growth is particularly favorable, as it has risen for 15 years. The 3.4% dividend yield significantly exceeds the S&P 500 average of 1.3%, attracting income-focused investors.

Free cash flow is another highlight; Hershey earned over $1.9 billion in 2024, comfortably covering its dividend payouts. With the stock trading at 20 times earnings—below its five-year average of 25—there is potential for recovery if cocoa prices begin to stabilize.

Conclusion
While Hershey faces immediate revenue challenges and rising costs, the combination of healthy dividends, robust free cash flow, and optimistic sales guidance for 2025 presents a nuanced investment thesis. Investors should monitor the stock as potential recovery from cocoa shortages may signal a turnaround.
Stocks:  HSY