Despite Sweeter Outlook, Strained Capacity and Soaring Inflation May Temper Hershey's Trajectory

Wide-moat Hershey has been firing on all cylinders. Organic sales shot up 11.5% in the quarter, reflecting a 7% increase in price and almost 5% volume growth—particularly impressive when viewed against the 13% gains in last year’s first quarter. We attribute this performance to investments to ensure Hershey's mix evolves with consumer trends, combined with a commitment to market behind its fare over a longer horizon. Advertising spending was down nearly 1% in the period, but we believe this course was undertaken to avoid touting brands where supply was insufficient; we see this as prudent, to avoid frustrating consumers and retailers, but not representative of a strategy shift. As such, we continue to forecast Hershey will expend a high-single-digit percentage of sales on average annually ($800 million) on research, development, and marketing.