Hershey braces for elasticity moderation even as it predicts ongoing strong sales through Q4

By Elizabeth Crawford contact

- Last updated on GMT

Source: Getty/bakerjim
Source: Getty/bakerjim

Related tags: Hershey company, Chocolate, Halloween, Inflation

While consumer spending on groceries has yet to dramatically slow in the face of rising prices to offset inflation, some CPG companies – including Hershey – are bracing for an eventual pushback, even as they continue to pass additional costs through to shoppers.

During Hershey’s third quarter earnings call with investors last Friday, executives touted strong gains in chocolate retail sales during the three months ending Oct. 2 and a strong start to Q4 thanks to Halloween, which saw participation and spend finally bounce back to pre-pandemic levels after subdued celebrations the past few years.

“In the North American confectionary segment, net sales growth of 10.4% was led by strong gains in our chocolate brands,”​ which saw retail sales grow 12.6% in the third quarter, resulting in segment share gains of more than 100 basis points and bringing the company’s chocolate market share to 47% in the quarter, CEO Michele Buck told investment analysts Friday.

Halloween offers Hershey reason to celebrate

Preliminary Halloween results suggest category retail sales are up double-digits this year and Hershey’s Halloween retail sales are up high single-digits, she added.

The company’s iconic Reese’s brand was one of several Hershey lines to share in this success – with retail sales growing more than 16% in the third quarter.

Buck attributed this success in part to “teams across the organization who have worked tirelessly to install new lines, reconfigure existing lines and optimize our offerings and investments to maximize output and get more Reese’s on the shelves for our consumers to enjoy.”

She added that innovations, including a new Reese’s Big Cup stuffed with Reese’s Puffs Cereal, which will be in stores nationwide this month, will help further drive demand and sales through the end of the year.

“We anticipate this category momentum to continue into the Holiday season, and product is already out in stores and selling well,”​ Buck said. “We have a great line-up of products this year and our retail teams are already busy building amazing displays across stores in America to generate excitement and capture incremental purchases.”

As such, Buck said, Hershey’s performance during the holiday season should “be comparable to what we saw during Halloween.”

This success comes even as the company is pushing through price increase to offset higher inflation. During the third quarter, overall average selling prices increased by 7.7%.

When will consumer spending slow?

While price increases haven’t yet slowed consumer spending and the company expects everyday spend to remain healthy through the rest of the year, Buck cautioned that growth levels may moderate as consumers respond to ongoing high inflation.

“We expect price elasticities to moderate in the fourth quarter as consumer demand is expected to slow but remain favorable to historic levels,”​ added CFO Steve Voskuil.

Even with this caution, the company is optimistic about the strong consumer demand in the third quarter and what it has seen so far in the fourth quarter – prompting it to raise its full-year net sales guidance approximately 14% to 15% from 12% to 14%, Voskuil said.

Looking further into the future, Voskuil added that in 2023, Hershey expects pricing to be a “large contributor to net sales growth and help offset high single-digit cost inflation across commodities, packaging, logistics, wages and other general operating expenses.”

Despite an anticipated “dynamic” environment in 2023, Voskuil added that Hershey expects “to enter next year with strong momentum and believe we are positioned to deliver a strong year of top and bottom-line growth.”

Hershey joins other CPG companies in raising guidance

Hershey’s sales and forward-looking response is line with other CPG companies that have reported earnings in recent weeks, including Kellogg, which also raised its sales forecast for the full year even as it raises its prices.

Still, most CPG companies, including Hershey and Kellogg, say they are watching consumers’ closely for shifts in shopping behavior as they weigh additional potential additional price increases.

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