Hershey Earnings: Upward Sales Trajectory Buoyed by Stepped-Up Brand Spending; Shares Not a Bargain

Wide-moat Hershey continues to ride the wave of consumers’ undying penchant for indulgent fare. Organic sales edged up 5% in the second quarter, reflecting a nearly 8% benefit from higher prices partially offset by a modest 2.7% downdraft in volumes (partly due to lapping pronounced retailer inventory stocking last year). And we’re encouraged it continues to funnel resources toward its brands, with advertising spending up nearly 15% in the period. This aligns with our forecast for Hershey to expend a high-single-digit percentage of sales (nearly $1 billion) toward research, development, and marketing annually. Further, we see prudence in efforts to build out its capacity, boost its digital prowess, and enhance its supply chain (with capital expenditures set to hit 7%-8% of sales this year, about 200-300 basis points north of its historic average) to ensure agility as it contends with macroeconomic and competitive headwinds.