Do Chocolate Trends Help Hershey?

While competition stiffens, the US chocolate category may be melting, both of which impact Hershey Co (NYSE: HSY) prospects. UBS’ Steven Strycula maintained a Neutral rating for the company, with a price target of $94.

Competition Stiffens

Hershey’s US chocolate business faces increased competition. This is particularly in the mainstream segment, which constitutes 90 percent of the US mix. Here, the company competes with Mars, which has accelerated production and increased ad support and trade spend, analyst Steven Strycula said.

In the premium category, which comprises 10 percent of Hershey’s mix, the company’s sales growth lags that of Godiva, Lindt and Ferrero. Strycula added that Hershey’s also faces a growing number of emerging premium brands.

US Chocolate Trends

“Our analyiss shows slowing category growth dynamics for mainstream chocolate, HSY’s most profitable biz – leaving us cautious on HSY top-line trends,” the UBS report stated.

Strycula mentioned 5 takeaways for US chosolate:

1. Price/mix has contributed more than 100 percent of industry growth since 2005, with per capita consumpton declining at a CAGR of -3 percent
2. Cocoa inflation may enable modest pricing
3. US sales are growing faster for premium and seasonal chocolates
4. Price gaps remain stablet between premium, mainstream and private label chocolates, although trade spend has been rising due to there being limited shelf space
5. The volume demand trends of alternate snaking category, including bars, chips and popcorn, appear to be stronger than chocolate