The previously announced price hikes, which affect a wide variety of merchandise, are expected to impact about 20% of Hershey HSY, +2.38% portfolio.
“The price increase we announced last summer remains on track, and the final portion is implementing now as we execute our Halloween program,” said Michelle Buck, Hershey chief executive, on the second-quarter earnings call, according to a FactSet transcript.
Last week, the price hikes began for Hershey bars and other “instant consumables” that are typically found at the front of a retail store. Higher prices are expected to go into effect during the second half of this year.
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Buck said there would be a “transition period” so that retailers can adjust to the new pricing, and Hershey doesn’t expect a material sales or earnings impact in 2019.
“These actions reinforce our commitment to a more agile approach to pricing strategy that protects our advantaged margin structure while enabling continued investments in our brands and capabilities to drive category growth,” Buck said.
The price hikes will be at the wholesale level and will amount to about 10%, according to a Hershey spokesperson. Retailers set their own prices for their customers. Steven Voskuil, Hershey’s chief financial officer, said on the call that “a few select customers” loaded up on inventory in anticipation of the price increases.
The hikes are the result of a new pricing point of view.
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“[W]e’ve evolved our pricing approach from one in the past that was very much more cost and commodity-driven to much more of a strategic pricing capability, where we think strategically across the portfolio at where we have opportunity on an ongoing basis more than versus that kind of episodic approach,” she said.
Hershey isn’t the only candy company to raise the price on their sweet treats, UBS analysts point out.
“In the last year, Hershey and Mars – the two U.S. confection leaders – have succeeded in executing price increases,” UBS wrote. “In reviewing historical Nielsen data, we can see that confection manufacturers within this consolidated industry consistently follow on price action – which is a catalyst for positive margin and EPS revisions.”
Hershey said it now expects full-year EPS in the $5.54 to $5.56 range, with adjusted EPS up 6% to 7% from the previous year. The FactSet consensus is for EPS of $5.75, up 7.3% from 2018.
UBS rates Hershey stock neutral with a $148 price target, up slightly from $145.
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Hershey shares are up more than 53% for the past year while the S&P 500 index SPX, +0.80% is up 6.6% for the period.
“Sales growth has been weaker of late and is unlikely to accelerate from here to support upside for shares,” wrote Stifel analysts, who note that Hershey is trading “near a 20% premium to the company’s large-cap domestic packaged food peers.”
“[W]e believe this premium is appropriate, given the potential for stronger top-line growth than its peers,” Stifel said.
Stifel rates Hershey stock hold and raised its price target to $145 from $132.