Falling Cocoa Prices Prompt a Sweet Bullpen Addition
Paired with recent price increases, margin expectations could be understated.
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As you can see in the chart below, the price of cocoa continues to retreat from lofty levels that have plagued profits at companies whose products claim that as a key ingredient. Those include Hershey (HSY) with its named bars and my personal favorite, the Kit Kat, and Mondelez (MDLZ) , which owns Cadbury, Milka, and Toblerone and is the company behind another personal fave, Oreos.
We are also headed into the time of year when chocolate consumption, as Emeril Lagasse would say, kicks up a notch. Between Halloween and the year-end holidays through Valentine’s Day, we have several months that are chocolate consumption friendly.
However, with consumers expected to be more restrained in their spending this year, spending on chocolate and other treats may not be as robust as the past year. But it’s the decline in cocoa prices following recent price increases that should help deliver some margin improvement and potentially some EPS upside.
At Hershey, which announced a low-double-digit price increase across its candy portfolio in July, cocoa accounted for around 20% of its COGS in 2024, according to reports. At Mondelez, that figure is estimated to be around 10%, which reflects the wider product array at the company compared to Hershey.
Another key ingredient in these treats is sugar, and that’s estimated to account for 10%-15% of Hershey’s cost of goods sold. Although the spot price for sugar has rebounded in recent weeks, it remains well below year-ago levels for the September quarter and the start of the current one.
That combination is going to lead us to add Hershey shares to the Bullpen as we do more work on them. Consensus EPS for 2026 is expected to climb around 14% to $6.77 – still down from $9.37 posted in 2024, but a nice rebound from the expected $5.94 for this year. As we work through those figures and potential upside, we’ll do the same for the $189 consensus price target and the underlying range of $167-$222 across Wall Street firms.
Should we see those Trump “massive layoffs” occur, it could be a demand headwind that restrains the potential positive margin impact from those falling key input prices.
At the the time of publication, TheStreet Pro Portfolio had no positions in any securities mentioned.
