Morgan Stanley analyst Pamela Kaufman downgraded The Hershey Co
The analyst is bearish on the stock following mixed fourth-quarter fiscal 2023 earnings.
Last week, Hershey reported sales of $2.66 billion, a slight increase of 0.2% year-over-year, missing the consensus of $2.70 billion, and adjusted EPS was $2.02 (flat YoY), above the consensus of $1.95.
The company expects net sales growth of 2%-3% and adjusted EPS to be flat YoY at $9.59 versus the $9.82 consensus. The company sees capital expenditures of ~$600 million to $650 million.
The analyst is cautious about the company's midterm outlook, given excessive cocoa inflation, a tougher pricing environment & weaker consumer demand for confectionery & popcorn.
The analyst estimates 9% input cost inflation in 2025, following high-single-digits inflation in 2024, leading to a gross margin contraction of another 170 bps in 2025.
Kaufman lowered 2025 EPS to $9.90 (from $10.11, vs. consensus of $10.16), after stable EPS in 2024, reflecting organic sales growth of 3.9% in 2025.
The 2025 estimate also reflects core SG&A declining by 280 bps from 2023 to 12% of sales, which is in line with the peer average.
Nevertheless, the analyst notes that the company is well covered on ingredient costs for 2024, boosted productivity initiatives, and plans to invest in innovation/promotions.
Price Action: HSY shares are down 1.26% at $192.98 on the last check Monday.
