Hershey Stock Faces Pressure Amid Cocoa Price Surge

Hershey's stock has plummeted 45%, raising its dividend yield to a record 3.7%. Rising cocoa prices threaten profit margins and earnings, potentially impacting investors' decisions. The outlook remains cautious as challenges could persist into 2025.

Date: 09-02-2025

AI Rating: 4

Stock Price Decline and Dividend Yield
Hershey's stock has seen a significant decline of about 45% from its 2023 highs, which has now resulted in a high dividend yield of 3.7%. While a high yield might attract investors looking for income, it also signals potential underlying problems with the company’s performance.

Impact of Cocoa Prices on Profit Margins
The swift rise in cocoa prices is anticipated to have a detrimental effect on Hershey's profit margins, with weak results projected for the coming years. The report highlights a 36% expected decline in earnings for 2025, indicating substantial pressure on profitability. Such declines could muffle investor sentiment and lead to further selling.

Ongoing Challenges in Cocoa Production
Chronic underinvestment in cocoa crops, alongside adverse weather conditions and disease affecting yields, contribute to rising cocoa prices. Although Hershey's hedging strategies have mitigated some volatility, these are set to roll off, likely exposing the company to even more substantial price fluctuations.

Long-term Strategy and Supportive Ownership
The Hershey Trust’s control over the company could provide some cushion against the pressures from the cocoa commodity market. The Trust's vested interest in maintaining Hershey's reasonable operational growth might lend some stability and long-term management strategies that could ultimately favor shareholders.

Market Implications
Investors contemplating buying into Hershey need to weigh the significance of the current cocoa price pressures against the potential for recovery and the historically high dividend yield, which can provide attractive returns. With projected earnings challenges ahead, the stock might require a long-term horizon for those looking to add it to their portfolio.

Stocks: HSY