Hershey's stock rallies after Q2 sales and earnings miss as consumers pull back on discretionary spending

By James Rogers

'Today's operating environment remains dynamic with consumers pulling back on discretionary spending,' said Hershey CEO

Hershey Co.'s stock rallied Thursday after the chocolate and salty-snacks company reported a second-quarter top- and bottom-line miss and lowered its 2024 guidance.

The stock fell premarket but rose 1.1% in afternoon trades.

Hershey (HSY) reported net income of $180.9 million, or 89 cents a share, down from $407 million, or $1.98 a share, in the same period last year. On an adjusted basis, Hershey posted earnings of $1.27 a share. Analysts surveyed by FactSet were looking for earnings of $1.44 a share.

The company reported $2.075 billion in sales, a decrease of 16.7% from the prior year's quarter and below the FactSet consensus of $2.304 billion. The company said that organic, constant currency net sales decreased 16.8%, driven by retailer inventory reductions within North America Confectionery and International - related to the implementation of a new enterprise-resource-planning system, as well as the timing of seasonal shipments. ERP normally refers to software used to manage business processes.

Related: Cocoa futures turn bitter as prices drop 30% from record highs

Hershey also lowered its 2024 guidance. It now expects net sales to decline 2%, compared to its prior outlook of 2% to 3% growth. The company expects a reported earnings per share decline of 1% to 3%, compared to its prior outlook of flat earnings per share. On an adjusted basis, Hershey now expects earnings per share to be down slightly, compared to its previous flat outlook.

"Today's operating environment remains dynamic with consumers pulling back on discretionary spending," Hershey Chief Executive Michele Buck said in a statement. "Our business has been impacted by these trends, but we are pleased to see continued growth in the confection category and momentum building in our Salty Snacks portfolio."

Hershey's reported $289.9 million in salty-snack sales in the second quarter, a year-over-year increase of 6.4%, which Hershey said was driven by volume growth.

Related: Hershey's beats on earnings as Reese's Caramel, Dot's Pretzels boost sales

Seasonal shipment timing within North America Confectionery is expected to shift to the second half of 2024, according to Hershey.

In a note released Thursday D.A. Davidson wrote that Hershey's results lagged tempered expectations, missing the analyst firm's below-consensus forecasts on both the top & bottom line. "2Q24 may be the reset the stock needs," wrote D.A. Davidson analyst Brian Holland. "While broader snacking is challenged and figures to remain so through the near term (at least), HSY specific headwinds should begin to moderate from here with potential catalysts ahead (innovation calendar, cocoa update) to provide increased stability & visibility in the model looking out to FY25-FY26."

Hershey shares are up 7.1% in 2024, compared with the S&P 500 index's SPX gain of 13.6%.

-James Rogers

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08-01-24 1513ET

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