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According to research by Goldman Sachs, it appears that candy giant Hershey is taking steps to protect its profits amid sky-high inflation in commodities such as sugar and transportation by dramatically raising prices.
In a recent note to clients, Goldman analyst Jason English said Hershey has enacted “large-scale” price increases across its candy portfolio that “collectively amount to an average increase weighted 14%”. The English cited price increases of 17% on standard Hershey bars, 13% on “King” bars and increases on various bagged products.
“Management says incremental pricing is a response to incremental cost pressure as certain coverages approach expiration,” English explained. “While higher prices on higher costs are not unique to the company, we believe Hershey is making the increases to preserve its growth algorithm, which contrasts significantly with mid-market food companies. base that increase prices to minimize profit declines.”
A Hershey spokesperson did not respond to Yahoo Finance’s request for comment.
Hershey has been one of the best-performing stocks in the market over the past year as investors seek safe havens and fundamentals benefit from a burst of innovation and an increased snack of consumers.
The stock is up 24.5% over the past 12 months, compared to a 10.9% drop for the S&P 500 over that period.
The company’s first-quarter sales and adjusted earnings increased 16.1% and 31.8%, respectively.
English reiterated a buy rating on Hershey shares and raised its price target to $245 from $239.
“Following the announced price increases, and given the likely increasing pressure on costs, we are making various changes to our model,” added English. “We are increasing our fiscal year 22/23/24 revenue guidance by 1%/4%/5% as we increase our price growth guidance while reducing our volume guidance to account for a likely impact on elasticity.”
Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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