Should Hershey And Other Candy Makers Be Frightened This Halloween?
In theory, Halloween is a sweet season for candy makers. In practice, for Hershey Co (NYSE: HSY) last quarter, not so much.
The company reported an almost 4 percent drop in Q3 net income Wednesday.
According to Hershey, the high cost of dairy was a prime reason for the Q3 income slide. The company said dairy prices remained elevated throughout the third quarter.
In addition, other supply chain costs, including cocoa, offset efforts to cut overhead.
Ad and marketing costs were also up about 1 percent.
It Wasn't Supposed To Be
Hershey had said seasonal (Halloween) candy orders were "slightly better than our estimates." The company indicated it would gain market share over the period that encompassed Halloween.
North American Q3 net sales increased 4.2 percent, thanks to demand for Halloween candy, putting Hershey ahead of its peers including Mondelez International Inc (NASDAQ: MDLZ) and Nestle SA (OTC: NSRGY).
RBC Capital upgraded Mondelez Monday from Sector Perform to Outperform with a $40 price target.
As for Nestle, Societe Generale downgraded that stock on September 17 from Buy to Hold while upgrading Mondelez to Buy.
On The Other Hand
Seery added, "Dairy prices also look weak 6-12 months down the road if you look at the back month futures contract."
Ebola As A Factor
"The big unknown particularly in Africa," Hewson added, "is if Ebola spreads to the cocoa producing regions which could prices to head back up again."
Despite some uncertainty in commodities, the candy business is historically considered one of most iron-clad bets in retail.
Last year consumers spent $6.9 billion on Halloween. This year the number was expected to jump to $7.4 billion according to the NRF.
With almost 95 percent of that total attributed to candy sales, chocolate makers in general should have little to fear.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
Latest Ratings for HSY
|Sep 2016||JP Morgan||Assumes||Neutral|
|Aug 2016||Bank of America||Assumes||Underperform|
|Aug 2016||Bank of America||Initiates Coverage on||Underperform|
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