HERSHEY, PA. — GLP-1 weight-loss drugs are having a “mild” impact on The Hershey Co.’s business, president and chief executive officer Michele Buck told analysts in a conference call on fiscal 2024 third-quarter results.

Glucagon-like peptide-1 (GLP-1) drugs help people lose weight by making them feel fuller with smaller amounts of food and by signaling the brain that the stomach contains food, reducing their appetite and cravings. Their efficacy in reducing weight versus traditional weight-loss solutions has caught the eyes of many consumers. Among the most prescribed GLP-1 medications are Mounjaro, Ozempic, Wegovy, Cagrisema and Rybelsus.

Market research indicates that GLP-1 drugs may affect consumer spending on food and beverages – namely, on candy and sugary snacks and drinks – in shopping frequency, basket size and product choices as these medicines influence eating habits in areas such as frequency, portion size and taste preferences.  

In response to an analyst question on GLP-1 drugs during the Nov. 7 call, Buck said, “We would say we’re seeing a mild year-on-year impact. I’d say, consistent with what I think we’ve shared before, in line with what we would expect, which I would say is more of a gradual impact.

“We continue to see multiple sources of data validating that the consumers on those drugs aren’t eating disproportionately less of our category,” she explained. “I know there’s some mixed data, but we’ve seen a lot on that. So it’s in line with what we expect, and we are carefully monitoring that behavior, how it’s evolving and certainly understanding what the needs are of those consumers so that as we continue to evolve our portfolio … we are evolving it in a way to make sure that we have the right offerings for those consumers as well.”

Hershey experienced “increased pressure across all our segments” in the third quarter, according to Buck. The company posted double-digit declines in net income and earnings per share, falling short of Wall Street’s forecast, while both reported and organic net sales dipped.

When an analyst asked if a “meaningful portion of the snacking weakness right now” reflects category shifts related to GLP-1 drugs, Buck attributed current softness across the confection and snack sectors to consumers being more budget-conscious.

“All the analysis that we have done has continued to show that the year-on-year impact (of GLP-1 drugs) is not significant and that the pressure in the snacking categories are really driven by the consumers feeling pressured financially,” she said. “Every piece of data that we’ve seen has really indicated that – and then, of course, some elements of our business, some opportunities for us to be executing better. So that’s really what our data has shown.”

In a Nov. 8 research note, TD Cowen analyst Robert Moskow spotlighted Buck’s GLP-1 comments in the call and noted the burgeoning market for the drugs. A PwC report in October estimated that 8% to 10% of Americans are taking GLP-1 drugs, and another 30% to 35% are interested in doing so, with the GLP-1 market projected to hit $150 billion by 2030.

“From what we can tell, Hershey became the first snack company to acknowledge an impact to their sales from GLP-1 adoption,” Moskow said in his report on Hershey’s third quarter. “They tried to assure investors that they are not seeing disproportionate losses of ‘super-users.’ The bigger issue, in our view, is that this mild impact represents a big problem when Hershey is hovering at the low end of its 2%-4% (growth) algorithm. In addition, the adoption of the drug is still in the early stages and likely to accelerate.”

Decreases at bottom and top lines

For the quarter ended Sept. 29, Hershey’s net income fell 13.9% to $446.3 million, equal to $2.20 per diluted share on the common stock, from $518.6 million, or $2.52 per diluted share, a year earlier. Adjusted net earnings were down 11.2% to $474.2 million, or $2.34 per diluted share, from $534.1 million, or $2.60 per diluted share, a year ago. Analysts, on average, had projected adjusted EPS of $2.50.

“The operating environment year-to-date has been challenging, with historically high cocoa prices and a stretched consumer continuing to impact our results,” Buck said in remarks before the analyst call.

“Consumers across the income spectrum are making budgetary trade-offs and shopping differently this year,” she said, adding, “However, our data shows consumers continue to want to participate in snacking occasions.”

Third-quarter net sales declined 1.4% to $2.99 billion from $3.03 billion in the prior-year period. Hershey said organic net sales were down 1%, reflecting a 2% gain in pricing and a 3% decrease in volume/mix, as well as the impact of cycling inventory increases in North America Salty Snacks ahead of a late 2023 ERP system implementation.

Buck cited an industrywide headwind as total market snack consumption inched up just 0.1% in the third quarter after a 0.9% uptick in the second quarter, as consumers continue to “seek value, budget for meals and prioritize satiety.”

“This has pressured trips to convenience and drug stores, where we over-index,” she said. “Those trips dipped further year over year in Q3. The broader evolution of shopping preferences is shifting trips into channels like club, dollar and online, where our categories are less developed. Lastly, we saw a continuation of customers managing inventory more tightly, impacting our outlook for both North America Confectionery and North America Salty Snacks.”

In the North America Confectionery segment, net sales rose 0.8% year over year to $2.48 billion in the third quarter. Organic net sales grew 0.9% on an approximately 2% gain in price realization and a 2% decrease in volume/mix. North American Salty Snacks net sales came in at $291.8 million, down 15.5% on a reported and an organic basis as volume/mix dropped 17% against a 2% uptick on the pricing side. International net sales fell 3.9% to $218.4 million but edged up 0.2% organically.

“Similar to other categories, we continue to see increased competition in confection,” Buck said. “In the US, we have lost share to smaller players and private label, particularly in take-home chocolate, where we had gained significant share of shelf through the pandemic. In our key international markets, we’ve seen an increase in activity from large global manufacturers.”

Hershey also had executional issues in its North American Confectionery and Salty Snacks units.

“For example, Olympics’ promotional programming fell short of our expectations, as it competed for attention and resources with back-to-school,” Buck said. “In North America Salty Snacks, we experienced replenishment delays as we executed planned route-to-market changes. As a result of these pressures, we are sharpening our seasonal planning and occasions strategies to respond.”

Bright spots during the quarter, Buck said, included a return to growth for the everyday candy, mint and gum business, excluding the convenience store channel; “more impactful innovation” such as strong uptake of Reese’s Caramel and an above-expectations start by Reese’s Lava; and robust growth in Sweets portfolio consumption, led by novel items like Shaq-a-licious Gummies and Jolly Rancher Ropes. The company also cited improvement by its SkinnyPop and Dot’s salty snack brands and a “solid” Halloween seasonal performance.

“Our shipments and seasonal sell-through are in line with our low-single-digit growth outlook, and we gained share for the fifth consecutive season,” she said.

Looking ahead, Hershey’s lowered its full-year 2024 guidance. The company now projects flat net sales (versus 2% growth previously), a reported EPS decline of 6% to 9% (versus a decrease of 1% to 3% previously) and a mid-single-digit decline in adjusted EPS (versus a prior forecast of “down slightly”).

“We know it will continue to be a challenging environment, but we are focused on controlling what we can in Q4 and 2025 to drive category growth and improve our market shares across our business in Confectionery, Salty Snacks and International,” Buck said. “We are taking near-term and longer-term actions to position ourselves competitively for today and into the future.”

More cost pressure on cocoa looms

One of Hershey’s challenges going forward will be cocoa pricing, which chief financial officer Steve Voskuil said will escalate going into 2025.

“We are pleased to see cocoa fundamentals improving, with multiple data sources indicating a global supply surplus in 2025,” he said. “The crop outlook in West Africa is positive, and cocoa arrivals in Ivory Coast ports are up 27% compared to this time last year. Moreover, production outside of Ivory Coast and Ghana now accounts for nearly half of global supply and is growing, driven by record high prices.”

Though Hershey was “well covered” with cocoa for 2024 when it gave its outlook in February and has “robust processes in place to ensure continuity of supply and good visibility into our costs,” cocoa prices remain “significantly above those and prior-year levels,” Voskuil noted.

“Historically high cocoa costs, other commodity and supply chain inflation, unfavorable mix and elasticity more in line with historical rates will more than offset our pricing, productivity and cost savings initiatives,” he said. “While we have flexible hedging structures that would allow us to participate in downside cocoa cost normalization, based on what we know today, we expect higher levels of cost of goods sold inflation throughout 2025 than we experienced in 2024.”