Hershey Co is cautioning on its profit growth this year as the company contends with rising cocoa costs that are leading to higher prices for chocolate.
Cocoa futures prices have doubled over the past year and hit an all-time high of US$5,874 per tonne on Friday on concern global supplies will be tight after drought and disease ravaged crops in top West African producers such as Ivory Coast and Ghana.
Bad weather in West Africa is being blamed for damaging crop yields, which is pushing cocoa prices higher.
Photo: AP
Even if conditions improve in the next season, supply is unlikely to make a quick recovery: New trees take years to bear beans and West African farmers still need higher incomes to invest in their fields.
“The magnitude and pace of recent price increases seem to be unprecedented,” Citi analyst Thomas Palmer wrote in a note on Friday.
With less than a week to go until Valentine’s Day, chocolate is on the minds of many consumers, but with inflation concerns still top of mind, many shoppers are pulling back on their spending and eyeing rising food prices cautiously.
Still, Hershey CEO Michele Buck is trying to ease consumers’ minds.
“Given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business,” Buck said on Thursday during the company’s quarterly earnings conference call.
Hershey anticipates its full-year earnings per share being relatively flat, partly due to higher cocoa and sugar costs.
Margins could also face some pressure, the company said.
“The confection business is going to bear the brunt of the margin impact due to cocoa,” Hershey chief financial officer Steven Voskuil said on the call.
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