We recently published a list of 7 Best Confectionery, Cookie and Snack Stocks To Buy. In this article, we are going to take a look at where The Hershey Company’s (NYSE:HSY) stands against other confectionery, cookie and snack stocks to buy.
Snacks Market
Just like the rest of the global economy, the snacks market is also undergoing the effects of inflation. The average price of potato chips in June 2024 was $6.56, compared to $5.09 in June 2020, according to Federal Reserve data.
Thus, major players in this sector are reporting revenue drops in their snack segment, due to price increases following years of inflation. Tightened household budgets have made consumers more value-conscious, reducing demand for snacks. This shift has led major players to consider cost-cutting measures and increase promotions for brands like Lay’s and Doritos.
Although inflation has slowed, American customers have yet to recover from higher everyday prices, leading to trends like ‘shrinkflation’ (cutting down products’ sizes for cost-savings) and more consumers opting for private-label brands or buying fewer snacks. In recent months, several major retailers have announced price cuts, a trend that could continue as consumers become more cautious, according to CNN.
Moreover, bigger market players are focusing on offering a broader range of price options, promoting cheaper products through a variety of multipacks, and increasing in-store marketing. Thus, macro factors, such as inflation and consumer restraint, continue to shape the snack industry, pushing companies to offer better value to retain brand loyalty.
Confectionery Sector
In contrast, the confectionery sector saw a modest 2.66% year-to-date (YTD) increase compared to the broader market’s 17.22% rise. Rising input costs, particularly for cocoa, have driven up prices, with cocoa tripling in the past 12 months due to crop diseases in West Africa, according to a report by Food & Drink Digital.
Similar to the snack market, the confectionery sector, which includes chocolates, candied fruits and nuts, sugar candies, and chewing gum, has also experienced a shift toward private-label brands and smaller pack sizes, as price-sensitive consumers, especially in lower-income groups, adjust their buying habits. Broader economic challenges, including persistent inflation, high interest rates, and reduced consumer confidence continue to affect both the snack and confectionery markets.
Market Outlook
Nevertheless, the snack industry is experiencing significant growth, driven by consumer demand for convenience and healthier eating options. According to Information Resources, Inc. (IRI), snacking has increased by 27% over the past five years, contributing $6 billion to the overall food industry.
Moreover, the snack food market is seeing a growing demand for vegan and allergen-free snacks, driven by health-conscious consumers, especially millennials and Gen Z, who are snacking more than three times a day and replacing meals with snacks. Spicy and complex flavors like ghost pepper and sweet flavors are trending, along with global flavors from Latin America, Asia, and the Middle East. In the U.S., popular snack options include Rice Krispies, Doritos, and Fritos.
On the other hand, the U.S. confectionery sector, which remains a global trendsetter, saw its market value rise to $48 billion over the past year, largely due to inflationary pressures, according to a recent report by Confectionery Production.
Manufacturers are using unique ingredients like tropical fruits and organic herbs to stand out, while innovations like Barry Callebaut’s ruby chocolate are gaining traction. Millennials are driving demand for premium and organic confectionery, with products like YumEarth’s Organic Candy Corn. Pistachio-based treats are also gaining popularity, with brands like Lindt and Ritter Sport introducing new products.
Also, the global cookie market stood at $28.36 billion in 2023, and is projected to grow at a CAGR of 6.82% till 2028, according to technavio. Furthermore, the study highlighted that North America is going to account for 34% of this growth. Oreo, which is marketed in more than 100 countries, is the best-seller globally.
Thus, many investors today are looking to cash in on major companies operating within confectionery, cookie, and snack markets. In light of this, we have compiled a list of the best confectionary, cookie, and snack stock to buy today.
Methodology:
For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the snacking, confectionery, and cookies industry, focusing on areas relevant to snack and confectionery production and distribution. From that group, we picked 7 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of hands deftly moulding a bar of chocolate.
The Hershey Company (NYSE:HSY)
Number of Hedge Fund Holders: 39
The Hershey Company (NYSE:HSY) produces and markets chocolate, sweets, and snacks through three segments: North America Confectionery, North America Salty Snacks, and International. The company now employs 20,000 people in the U.S. and operates in 80 countries, with a wide range of products including chocolate, non-chocolate confectionery, gum, mints, protein bars, baking ingredients, snack items, and spreads. It is among the best food stocks on our list.
In Q2 2024, The Hershey Company’s (NYSE:HSY) consolidated net sales declined by 16.7% to $2.07 billion. This downturn was primarily driven by inventory reductions across North America Confectionery and International segments, largely due to the implementation of a new ERP system, along with unfavorable shipment timings.
Despite the overall decline in sales, The Hershey Company (NYSE:HSY)’s Salty Snacks portfolio showed positive momentum, with Dot’s Homestyle Pretzels retail sales increasing by 42.3% in the quarter. Gross margin was hit hard, falling to 40.2% from 45.5% due to higher costs and inefficiencies, with operating profit also declining.
Nevertheless, Hershey remains committed to strategic investments, with projected capital expenditures between $600 million and $625 million for 2024. The ongoing implementation of a new ERP system and product innovations in the second half of 2024 are expected to energize key categories and support long-term growth.
The Hershey Company (NYSE:HSY) is focusing on sustainability and social impact through its Cocoa For Good strategy. The company has already reduced emissions by 43% and aims for 50% by 2030, while eliminating 1.7 million pounds of packaging, and accelerating its deforestation commitment to 2025.
Hershey’s stock saw a 0.40% uptick in the past month and a 7.69% YTD increase. Despite revenue and earnings declines, investments in marketing and consumer engagements have bolstered market share. Moreover, strategic investments in digital infrastructure and commitment to innovation offer a promising foundation for future growth.
Additionally, 39 hedge funds have invested $506 million in the company at the end of Q2 2024, as per Insider Monkey’s database. Among these, Holocene Advisors was the company’s leading stakeholder in Q2.
Overall, HSY ranks 4th on our list of the best confectionery, cookie, and snack stocks to buy based on hedge fund sentiment. While we acknowledge the potential of HSY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HSY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
