Not quite that simple...
First, chocolate competes with other confectionaries, including those that are not cocoa based. (Of course you could argue that Hershey's chocolate isn't exactly cocoa based either -- just 10% cocoa if I'm not mistaken.)
Second, even when prices ARE going up across the industry, actually implementing those price increases can take a year or longer. If you rise them sharply you lose customers. The usual practice is to increase the base price, then engage in heavy discounting for a few months that eventually tapers off. You want to convince your customers that despite paying more, they are still getting a bargain, and that can be a hard sell!
Third, there are sometimes contracts that interfere with the ability to increase pricing.
Looking at the quarterly report (I usually don't bother), there was a sharp decrease in Q2 from inventory reduction. Earnings are booked when the product is manufactured. If sales are weak (or weaker than expected), then the inventory builds up. It appears that both the company and retailers were "right sizing" their inventory in Q2, however this is not expected to be a factor going forward.
Sales are weak, but still estimated for ~2% growth on the year. Earnings are down on margin compression, largely from increased cocoa costs.
Despite this massive hit to earnings, their $1.27 non-GAAP earnings basically covers the dividend. They aren't in any real danger, either operationally or financially, and ought to be able to soldier through these issues. |
