It was another sweet quarter for Hershey. The US maker of Reese’s peanut butter cups continued its strong run, with sales and earnings topping Wall Street estimates for the third quarter. The company also raised its forecasts for 2021 given robust pent-up demand ahead of Halloween, after the pandemic curtailed trick-or-treating last year.
The better than expected showing underscores the ability of packaged foodmakers to raise prices to offset higher costs for everything from raw material to packaging and freight. At Hershey, price increases contributed 3.1 percentage points of the 6.3 per cent year-on-year sales growth during the quarter.
It echoes similar gains at Kraft Heinz, Coca-Cola and General Mills, which all reported third-quarter earnings in recent weeks.
Hershey’s share price has gained nearly a fifth this year, touching a new high earlier this month. Even so, the stock trades at just 26 times forward earnings. Swiss chocolate maker Lindt and British chocolatier Hotel Chocolat carry earning multiples of 51 times and 41 times, respectively.
That discount seems unfair. Investors value Hershey more as a typical packaged food company and less like a chocolate company.
Compared to other US packaged food companies, Hershey may have an edge when it comes to input costs. Cocoa prices — up 2 per cent this year — have held relatively stable compared to other commodities.
Unlike Lindt or Hotel Chocolat, Hershey caters to the mass market end of the market. But that is not necessarily a bad place to be. Sales of premium chocolate suffered during the pandemic, as the collapse in air travel resulted in less gift giving. Instead, consumers stocked up on comfort sweets as they sheltered at home.
Kicking the sugary habit could take time. In any case, Hershey has diversified into healthier offerings. It owns Amplify Brands, which makes SkinnyPop popcorn. Earlier this year, it acquired Lily’s Sweets, maker of low-sugar confectionery. These clever moves should keep the stock from suffering a meltdown.