Should Mondelez And Other Hershey Peers Be Frightened This Halloween?

In theory, Halloween is a sweet season for candy makers. In practice, for The Hershey Company HSY last quarter, not so much.

The company reported an almost four percent drop in Q3 net income Wednesday.

Related: UPDATE: Hershey Posts Downbeat Q3 Earnings, Lowers Full-Year Forecast

Blame The Cows

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 one 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 MDLZ and Nestle SA NSRGY.

What About Those Peers?

With Hershey profits dropping, should Mondelez and Nestle be worried?

Analyst opinions appeared mixed.

RBC Capital upgraded Mondelez Monday from Sector Perform to Outperform with a price target of $40.

As for Nestle, Societe Generale downgraded that stock Sept. 17 from Buy to Hold while upgrading Mondelez to Buy.

On The Other Hand

According to the National Retail Federation, overall spending on Halloween candy alone in 2014 would reach $2.2 billion representing more than $23 per shopper.

Seery Futures President Mike Seery told Benzinga, “Prices in cocoa are headed lower due to a large harvest which currently is underway.”

Seery added, “Dairy prices also look weak 6-12 months down the road if you look at the back month futures contract.”

Related: UPDATE: Nestlé Posts Lower H1 Earnings, Announces Share Buyback

Ebola As A Factor

Michael Hewson, Chief Market Analyst at CMC Markets noted that with cocoa prices appearing to be tracking lower for now, the hit to margins could well be a one off effect.

“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.”

Candy Sells

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.