Hershey's Sales Trajectory Has Been Sweet, but Investors Shouldn't Indulge in Share

Consumers’ penchant for indulgent fare is in overdrive, as evidenced by the 14% organic growth marks wide-moat Hershey chalked up in the second quarter (due to 9.5% higher prices and a 4.6% bump in volumes). However, the firm isn’t immune to current challenges, particularly widespread inflationary headwinds and unrelenting supply chain disruptions. These contributed to its 250- and 90-basis-point degradation in the adjusted gross and operating margin lines, respectively, to 43.9% and 22.2% in the quarter. It is unlikely these pressures are to abate, as management qualitatively suggested ingredient scarcity and higher dairy supply chain costs could lead to stepped up costs the next several quarters.