Investors eye Hershey and Mondelez strategies amid cocoa and sugar price surges

Investors are closely watching how major chocolate manufacturers Hershey and Mondelez International will address the recent sharp increases in cocoa and sugar prices as they release their first-quarter results this week.

Both companies have faced elevated costs over the past several quarters, partly mitigating these through consumer price hikes.

Challenges posed by cocoa price surge and crop issues

The significant rise in cocoa prices, exacerbated by supply shortages due to droughts, irregular rainfall, and crop diseases in leading cocoa-producing areas, poses additional challenges.

This comes alongside a notable increase in sugar prices, further complicating cost management for these confectionery behemoths.

Market dynamics and pricing strategies

According to Jefferies, cocoa prices, which have nearly tripled this year, account for about 20% and 10% of the cost-of-goods-sold (COGS) for Hershey and Mondelez, respectively.

Potential for future price increases

With already weakened demand, there is a possibility of more significant price adjustments in the second half of the year to counterbalance falling sales volumes. Data from Circana indicates a 1.8% drop in U.S. chocolate unit sales over 13 weeks ending March 24, even as prices rose by 6.3%.

Upcoming financial disclosures

Mondelez is set to report its results on April 30, with expectations of a slight profit drop—its first in 14 quarters—to 89 cents.

Its quarterly sales are projected to remain flat, with organic volume growth at 1.3 percentage points in 2023, against a price increase of 13.4 percentage points.

Hershey will release its results on May 3, expecting its first profit decline in 25 quarters to $2.76, although quarterly revenue is anticipated to rise by about 4.2%.

Wall Street’s take

The stock performance reflects the market sentiment, with Mondelez shares down 4.3% over the past year and Hershey’s plummeting nearly 32%.

Wall Street analysts maintain a “buy” rating on Mondelez with a median price target of $82, while Hershey holds an average “hold” rating with a target of $208.