Hershey's Q4 2024 Earnings: Navigating Cocoa Volatility and Driving Growth

The Hershey Company (HSY) recently reported its Q4 2024 earnings, providing insights into its strategies for navigating volatile cocoa markets and driving growth. As a leading confectionery manufacturer, Hershey's ability to manage cocoa price fluctuations and maintain profitability is crucial for its success. This article will delve into Hershey's hedging strategy, pricing approach, and innovation efforts, as discussed during the Q4 2024 earnings call.



Hedging Strategy and Risk Management

Hershey's dedicated hedging and commodity team plays a significant role in managing cocoa price volatility. The company is not paying the market price for cocoa, which provides a catch-up factor relative to commodity prices. This approach, combined with a full suite of levers to manage cocoa price, including pricing, productivity and CI savings, efficiency and SG&A, and driving more return for the same dollars in marketing spend, enables Hershey to balance the impact of cocoa price volatility on its profitability.

Pricing Strategy: Balancing Top-Line Growth and Consumer Elasticity

Hershey's pricing strategy takes into account cocoa prices and hedging positions, consumer elasticity, competitive activity, market fundamentals, and pricing and pack architecture. The company has assumed a historic elasticity of -1 in its guidance but is prepared to adjust this assumption if it sees better results. Hershey is mindful of consumer price sensitivity and takes a strategic approach to pricing, selectively pricing certain parts of its portfolio while leaving others untouched. This approach allows Hershey to maintain a rational and competitive position in the market while considering the potential for upside in elasticities.

Innovation and New Product Launches

Hershey's approach to innovation and new product launches, such as SHAQ-A-LICIOUS Gummies and Jolly Rancher, drives growth in the sweets portfolio and contributes to overall company performance. The company's new product launches provide a strong carryover benefit for 2025, as consumers become familiar with and adopt these new products. Additionally, the acquisition of Sour Strips in Q4 2024 presents additional distribution and velocity opportunities for Hershey in the sweets category. By expanding its sweets portfolio, Hershey can capture a larger share of the market and increase overall sales.

In conclusion, Hershey's Q4 2024 earnings call provided valuable insights into the company's strategies for navigating volatile cocoa markets and driving growth. The company's hedging strategy, pricing approach, and innovation efforts demonstrate Hershey's commitment to maintaining profitability and capturing market share in the confectionery industry. As Hershey continues to monitor cocoa price fluctuations, consumer demand, and competitive activity, investors can expect the company to remain a strong performer in the sweets category.