Let's show appreciation and gratitude towards each other's contributions on the board.
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 19
Hershey Company shares closed at $184.11.
A well respected company that falls into that category of "never seems to get cheap".
The business is doing well lately, as usual.
The stock price has tanked recently, down by more than half since May, and it is now as cheap as its cheapest in ages, a hair under 20 times trailing earnings.
I think the last time it was cheaper on that metric was in 1999 due to a one-time gain of some sort, haven't looked into it.
I think the general dumping of junk food companies because of fears of falling sales from appetite control drugs is hilarious.
So, do I buy some stock, or just let T&T do it?
Jim
No. of Recommendations: 3
No. of Recommendations: 5
Nice stats:
From 1993-02-01, data from Yahoo:
HSY SPY
Annualized Return 0.1170000 0.0955000
Annualized Std Dev 0.2312000 0.1880000
Annualized Sharpe (Rf=0%) 0.5060000 0.5077000
maxDrawdown 0.4915423 0.5518945
From 1993-02-01, data from Yahoo, but now just up to May 2023 so leaving out the recent period of steep HSY decline
HSY SPY
Annualized Return 0.1302000 0.0998000
Annualized Std Dev 0.2329000 0.1877000
Annualized Sharpe (Rf=0%) 0.5587000 0.5318000
maxDrawdown 0.4915423 0.5518945
No. of Recommendations: 0
A well respected company that falls into that category of "never seems to get cheap".
Nestlé: From 1.5 and 2 years ago CHF 130 to 97 = -25%.
No. of Recommendations: 1
I will have a look; along with Nestle this one has been on my watch list forever but always too expensive
Another source of fear has been the idea that newer advertising / marketing models may disrupts stalwarts like HSY.
In particular, influencers like Mr Beast, selling their own branded chocolatess, and just about anything else.
https://thebearcave.substack.com/p/problems-at-her...Im not sure how durable Mr Beast is as a threat, but I do see how influencers are able to go straight to their followers in ways that legacy companies never could or ?will.
See Welcome to Wrexam on Hulu as another example...
No. of Recommendations: 1
NSRGY has to be a low risk buy
Never cheap
Now sector hated
No. of Recommendations: 3
No. of Recommendations: 1
No. of Recommendations: 6
After watching what happened with Kraft/Heinz and seeing the mass adoption of store brands (Whole Foods, Costco) - I put this in the "too hard" bucket.
tecmo
...
No. of Recommendations: 3
Barron's, '' Halloween might be a little spookier this year, largely because of rising prices for candy amid a global rise in the price of commodities used to make the treats and shrinking portion sizes by confectionery makers in an age of shrinkflation.
Candy prices are up 13% from October 2022, more than double the increase in overall grocery prices, according to market intelligence firm Datasembly. Prices have climbed even higher in Northeastern states such as Pennsylvania and Maryland.
Hot and dry weather in Mexico, where America gets much of its sugar, cut production by more than 15% this year, according to the Agriculture Department. Raw sugar futures on global markets have gained 50% from last year, and are trading at their highest level since 2011.
Heavy rains and a rot-causing disease have wreaked havoc on cocoa crops in West Africa, which grows two-thirds of the world's harvest. Cocoa futures have jumped 67% from last year, and recently hit $3,880 a metric ton, the most expensive since the 1970s.
The price of a king-size pack of Reese's Peanut Butter Cups went up 14% in 2022, a Kinder Joy Chocolate Egg Treat costs 16% more, and a 1.55-ounce Hershey's milk chocolate bar went up 15%, the Washington Post reported, citing commerce data platform Klover.
What's Next: Spending on candy is expected to reach $3.6 billion for Halloween, up 16% from last year, the National Retail Federation said. Snack companies including Nestlé, Chocoladefabriken Lindt & Spruengli, and Hershey have recently said they won't rule out the possibility of further price hikes.
'Evie Liu and Janet H. Cho''
No. of Recommendations: 6
Is the price of cocoa, or tea in China, relevant to HSY share price?
Fair warning: I'm no expert and am not pretending to be one, but FWIW, the price of cocoa is available from FRED to beginning of 2022
https://fred.stlouisfed.org/series/PCOCOUSDAAnd of course the share price of HSY is available.
Just from eyeballing, here are some significant moves:
1990-1992: cocoa 13% drop, HSY price 29% rise
1993-1998: cocoa 51% rise, HSY price 219% rise
1998-2000: cocoa 47% drop, HSY price 22% drop
2002-2004: cocoa 13% drop, HSY price 17% rise
2006-2010: cocoa 96% rise, HSY price 26% drop
2010-2012: cocoa 24% drop, HSY price 73% rise
2013-2015: cocoa 28% rise, HSY price 45% rise
2015-2017: cocoa 35% drop, HSY price 6% drop but roughly 17% drop 2015-2016
CONCLUSION:
Rises in cocoa price (or drops) don't seem particularly well correlated with HSY share price.
It seems reasonable (to me at least) to speculate that HSY, a large industrial user of cocoa, is a player in the cocoa futures market to try to hedge the effect of cocoa price on its product.
I didn't do extensive analysis, but my impression is that cocoa and sugar are indeed major components of Hershey's product line, in contrast to Nestle (NSRGY) which seems much more diversified. So if the price of these components goes up then that's an issue for HSY that needs addressing. Maybe some hedging, maybe some price rises in items that has some price elasticity e.g. "I really do like my occasional indulgence in a Hershey chocolate bar, and it won't break the bank for me to pay 20% more, so what the heck".
Nestle looks quite interesting too, I did a flutter on them some time back when the price got lower (it's never cheap) and that worked well.
No. of Recommendations: 2
Nice research Ted. IMHO- snack food stocks have been struggling this year as investors worry about higher interest rates and especially the possible negative impact of weight loss drugs.
GLTA,
Silverlinin
No. of Recommendations: 5
initiated my position in HSY, will add as/if it falls further. also watching Nestle closely
No. of Recommendations: 15
...initiated my position in HSY...
Meanwhile Berkshire has been doing pretty well.
In May one Berkshire share would buy you 1.2 Hershey shares.
It will now buy you 1.97 of them.
Based on move in the ratio, I'm thinking of moving some money from one to the other.
Though the future one of the harder things to predict, I sort of expect a better outcome from Hershey shares than from Berkshire shares in the next 8-16 months.
Very crude reasoning: Hershey appears to be a fair bit cheaper than Hershey usually is, and Berkshire is a modest amount more expensive than Berkshire usually is.
For anybody checking up on me next year, Berkshire is at $357.70 and Hershey is at $180.75.
Jim
No. of Recommendations: 8
Hershey is a good buy here. So simple. Brands embedded in American brains.
Cheaper than normal, due to market concerns that two million years of human evolution* could be reversed with recent advances in drugs. I seriously doubt that but haven’t studied the drugs but imagine there is the typical hype. I believe the drugs are expensive and I don’t see large percentages of humans maintaining the discipline to avoid the types of products Hershey sells, over long periods of time.
As an investment, the combination of very long term predictability in volumes and inflation protected earnings is attractive.
I might buy some with a little bit of research. It’s the sort of business I could see myself adding to, if there was a general market decline and it got even more attractive and critically holding until death do us part. Also might not fall as much as the general market in a crash**. Hershey certainly looks safer than the general market. Not much changes in this business over the decades.
Hershey v versus Berkshire is interesting…Berkshire generally not as predictable. Berkshire trying to reinvest all capital. Hershey paying dividends. Berkshire diversified.
Any observations on how shareholder friendly current management are? Any concerns around things like management compensation. Capital allocation. Restructuring. Operating execution?
* "Humans are evolutionarily wired to prefer fatty and sweet tastes because they are a very efficient source of energy, and our bodies are wired for survival," says Lisa Cimperman, dietitian at University Hospitals Case Medical Center.
** not much sign of a crash in US equities over the next 12 to 18 months with inflation moderating, and an election coming. However, plenty of reasons for concerns about market prices over a longer term horizon (wage genie out of the bottle. Trillions in crypto vapour assets that could disappear at any moment. Trillions in commercial real estate debt that could become a problem. Trillions in corporate debt. All with the potential to create a dangerous cocktail of extreme leverage, higher rates for longer and at some point a return of fear. Geopolitical. Plus risks I’m not aware of. The general dangerous consensus that everything is rosy in the garden is always a worry.)
No. of Recommendations: 20
It’s the sort of business I could see myself adding to, if there was a general market decline and it got even more attractive and critically holding until death do us part. Also might not fall as much as the general market in a crash**.
...
** not much sign of a crash in US equities over the next 12 to 18 months with inflation moderating, and an election coming.
I think a big decline in the broad US market in that time frame is a fair bit more likely than you do. But nobody knows, yet. We'll see.
However, it's true that in the past Hershey has held up better than most things during tough times.
Hershey 2009 low versus average price in 2007: -33.9%
Same measure for average S&P 500 company (RSP): -58.2%
(For Berkshire: -42.2%)
Hershey 2020 pandemic low versus average price in second half of 2019: -25.8%
Same measure for average S&P 500 company (RSP): -34.4%
(For Berkshire: -24.6%)
The future may not rhyme at all, but hey, I'd rather have a good omen than a bad omen. In the past they dropped less than most things.
The "dumb guy" case is that it's ~25% cheaper than the average since 2001 based on earnings (which is pretty steady for these guys).
And that sales/share, cash flow/share, and EPS are all projected to grow at 9.5%/year in the next few years according to the optimists at Value Line. Much like the last 5 or 10.
The smarter guy case is more as you said: it is a very resilient business which has not experienced a lot of fundamental change, and is pretty unlikely to do so.
Note that they have very low net assets. It's a business so good they don't really need many.
Their business metrics to date certainly make a good prima facie case for a solid and lasting moat.
I doubled my position today. Presumably the price will keep falling for a while longer.
And like you, I hope to keep the position for a long time. I might lighten on a price spike if there is another opportunity, but most of it I hope to throw in a corner and forget about for a few years.
Jim
No. of Recommendations: 10
Brands embedded in American brains.
IMO - this is at risk. The food brand market is changing and not in Hershey's favor. The risk isn't (yet) existential but IMO will be a strong head-wind going forward.
I don’t see large percentages of humans maintaining the discipline to avoid the types of products Hershey sells, over long periods of time.
It won't take "large percentages" to have an impact; even a marginal change in consumption habits will have a material impact.
Hershey might work out fine; but the bear case is worth understanding.
tecmo
...
No. of Recommendations: 9
Hershey might work out fine; but the bear case is worth understanding.
I think one bear case might work like this:
The growing and supply chain for raw cacao is problematic. It is simply too labour intensive, the world has only so many poor people willing to do it, and that number seems to be falling. This may cap volumes and drive up prices over time.
That isn't a huge problem for a super premium business, but a volume business it could be an issue.
It's relatively easy to raise prices a bit at the top end of the market, and the cost of cacao is not a large fraction of the selling price in any case. But at the bottom end of the market it's all about volume, and the raw ingredients are a not-inconsequential cost of doing business. So...a bit of squeeze on volumes and/or margins might be foreseeable. I see that as far from fatal, but I could see it as a mild headwind over time. And to be fair, Hershey is extremely aware of the issue and is trying to improve their supply chain both to eliminate risks and to reduce the bad parts.
The good news is that maintaining brand recognition and perception is not nearly as big an issue at the bottom/volume end of the market. It's not the brand perception that is supporting the price, merely supporting which of several equivalently-priced things you reach for.
They're certainly not fading away yet. #1 in US confectionery and #2 in US snacks.
Their #1 customer is McLane Company (sound familiar?), at 28% of sales.
One potential risk factor is the overwhelming US concentration. Mr Buffett would love that, I guess. Only 12.5% of their revenue is ex-US, and to my surprise that number is on a falling trend. It seems to be the "See's brand doesn't travel" problem at a bigger scale. Their brands are things you seem to have to have grown up with to appreciate.
Jim
No. of Recommendations: 11
hershey :
2 reasons I wouldnt touch it for a LT holding ,
A) its the most godawful tasting chocolate on the planet
B) areas like India and Africa, as purchase power and dev mid class, are all tunes in to Cadbury / Rowntree chocolate taste.
Would lead me to Mondelez and Nestle....
just my "across the pond" 0.02 pennies
No. of Recommendations: 8
A) its the most godawful tasting chocolate on the planet
Many would concur. This may be one reason it doesn't fly outside the US.
But there is a silver lining. I think of Hershey's chocolate (and their cocoa and syrup for that matter) much as I think about Starbuck's coffee: it has an extremely distinctive taste. Many people think it is also a terrible taste, perhaps justifiably, but as with Starbucks' coffee it is definitely unique. Consequently, if you're habituated to it (or addicted to it), nothing else will do. There is a case to be made that this is a better market position than to be a commodity producer of something that's actually good.
The logical marketing strategy would be to get quantities into the hands of young consumers on a regular basis, so they get used to the oddness early on. Hallowe'en anyone?
As an aside, I tried some See's stuff once. Ghastly taste and presentation, and very badly done technically: the chocolate was not tempered correctly. But maybe if you grow up with it...
Jim
No. of Recommendations: 11
Have been looking into Hershey´s and other similar companies e.g. Nestle, Diageo and Pernod. These companies share some similarities: good historic performance as brand perception remained high, which enabled them to distribute there products widely. They pushed pricing as product desirability permited so and there was not a lot of pushback in terms of volumes. These companies built there models on years of investing in advertising. They benefited from the TV era as only the major companies were able to afford ads. This has obviously changed and we have seen the rise of smaller brands as they can reach consumers directly.
In the case of Hershey´s, they face some obvious headwinds. Volumes likely won´t grow (think in the past decade,organic volumes have increased by less than 1%/yr), and if they do, it will be minimal. Chocolate consumption in the US most likely won´t grow and it is reasonable to expect more competition from smaller brands. They have limited pricing power as there brands are not specialty or luxury. Also, they do not control the whole chain so they will receive pushback from customers (e.g. retailers or distributors). Brands like See´s have a completely different model as they sell directly to the consumer and their product is seen as a good gift or high quality. They should be able to push pricing for years to come.
In a world where there is no volume growth, end consumers are over time eating less of your product, distributors are pushing back with more strenght, competitors are able to reach customers with more ease and consumers willing to try other brands, how much is a traditional brand like Hershey´s worth. 20x earnings for 3% growth (at best)? Seems expensive. Probaly something like 12x might make it more interesting.
These companies also have some debt on them. In addition, over time they have done some big deals with little success. So reasonable to expect this might continue and not all fcf will end up in shareholder´s pockets.
No. of Recommendations: 1
Have been looking into Hershey´s and other similar companies e.g. Nestle, Diageo and Pernod...... Chocolate consumption in the US
That's why I am currently more interested in Nestlé. It's a giant, much more diversified. Water, pet food, you name it. Hershey's attractiveness right now is the abrupt steep fall in price, which might cause a short term bounce. Nestlé unfortunately did not fall that much (yet), probably because of it not being dependent on one product line. Both are less expensive right now than usually, but not cheap enough for me. I wait, especially for Nestlé where I wait since years for a price where I jump in without hesitation --- which probably will never come.
No. of Recommendations: 21
Volumes likely won´t grow (think in the past decade,organic volumes have increased by less than 1%/yr), and if they do, it will be minimal.
Not an unreasonable observation. Volume growth is not their thing, partly because they are so large already in the US and more because they are seemingly not well suited to organic international expansion.
Volume growth is unlikely to pick up a lot other than with the potential of some acquisitions, historically a modest factor.
Two notes, though.
First, sometimes I wonder what constitutes a good number in the business of branded junk food : )
Coke is a darling of many, but their real top line revenue has fallen -3.2%/year in the last 9 years.
That makes Hershey's top line growth look not so bad at inflation + 1.8%/year in the same stretch.
And second, one can do very well financially with very modest volume increases. It depends mainly on the quality of the capital allocation.
Coke has managed real EPS growth of -0.2%/year in the last 9 year and +1.8% in the last 15.
Hershey has managed real EPS growth of inflation + 6.4%/year in the last 9 years, and inflation + 7.7%/year in the last 15.
At constant valuation multiples, that rate plus the dividend yield will be your real total return. So they've managed about the same or maybe better than Berkshire in the same stretch.
I'm a lot more optimistic than you, partly because I'm focused a bit more on the per-share financial side of things as well.
You're expecting growth of 3%/year, essentially zero in real terms. If that is also taken as the financial expectation for shares, the real total return would be just the dividend yield, around 2.65%. That's a real return as it is likely rising with inflation.
I'm expecting value generation of (say) 5-6%/year more than that. Value per share growth (real EPS growth) of maybe inflation plus 5-6%, plus the same real dividend yield. Plus a moderate one time bump from valuation levels.
Maybe EPS will grow a bit more slowly, but it still seems like a reasonably attractive return given the solidity of the company.
Financially, I find the omens good. ROA and ROE of ~25% and ~45% respectively sitting on top of book per share growth over 12.5%/year in the last decade. Net returns like that bespeak a moat. No moat lasts forever, but despite the worries on competition, the business they're in isn't really changing much. Sweets and snacks remain popular.
Jim
No. of Recommendations: 8
A bit surprised at the level of choc-o-snobbery on display at Shrewd'm. ;)
I like differing opinions, and chocolate distinctions are a light topic, fun to contemplate compared to the other boring ad nauseam subjects in today's world.
I gave up sugar for the most part about 10 years ago, but will indulge in chocolate from time to time. I have no problem with Hershey chocolate.
As to the Hershey business, if cheap enough I'll dive in with both feet; its a 100+ year old brand of chocolate for crying out loud! Its been around the block a couple times and still standing tall.
m
No. of Recommendations: 8
If the refined pallets of the shrewd kingdom don’t provoke a chuckle not much will. I’ve not encountered many a chocolate regardless of brand, origin, continent, or temperament that I haven’t profoundly enjoyed. I’ve had HSY on the watch list for over 20 years, so I’m pleased to finally initiate a position as of this morning. Hoping to add more in the event it continues fall. God(s) know I’ll certainly add more of the physical product directly into my pie hole over the next several days.
Happy New Year all! Enjoy the conversation immensely.
No. of Recommendations: 8
Hallowe'en anyone?
One data point. We weighed the candy my kids hauled home this Halloween and it was right at 20 pounds total. Mostly Hershey and Mars products.
My neighbor keeps a pretty accurate tally of the number of kids and had over 300 come to their door. At 10 pounds per kid that’s 1.5 tons of candy just in our little neighborhood.
Maybe more shocking is the fact that it is mostly gone already at our house.
Jeff
No. of Recommendations: 5
Just as a anecdote, after reading this thread today I bought some Hershey Chocolate at a Metro store in Germany, it was the first time I ever had Hershey Chocolate. I'm not a huge chocolate fan and mostly buy Valrhona or Callebout for patisserie - for chocolate ice cream, molten chcolate cakes etc. Well, all I can say is that Hershey chocolate tastes really bad, at least for my palate but that wouldn't stop me from buying the stock as long as enough of this gross stuff is consumed!
No. of Recommendations: 2
Only 12.5% of their revenue is ex-US, and to my surprise that number is on a falling trend. It seems to be the "See's brand doesn't travel" problem at a bigger scale. Their brands are things you seem to have to have grown up with to appreciate.
Having grown up on American mass-market chocolate, travelling to Europe for the first time resulted in a great loss of appreciation for the likes of Hershey bars.
No. of Recommendations: 1
When we were in Europe 30 years ago we tried Godiva chocolate. If you were born and raised in New York, Hersey was gourmet top of line chocolate and Godiva was uneatable, seriously, it was terrible, I couldn't eat it. After becoming a west coast kid, See's is great as well !!
No. of Recommendations: 5
Comments from Morningstar Analyst, Erin Lash , 10-Nov-2023. She has a fair value estimate of $197, so stock is trading at about a 10% discount to their FVE. Stock has been trading at above their FVE from mid-2018 till very recently, at times as high as 37%.
Consumers' penchant for confectionery and snacking fare has yet to fulfilled, as evidenced by the outsize organic sales growth Hershey has chalked up the past few quarters. But from our vantage point, this isn't merely a byproduct of a favorable demand environment. Rather, we applaud the strategic focus CEO Michele Buck has brought to bear over the past six years--ramping up investments in its core domestic brands while pulling back in its international arm (high-single-digit percentage of total sales,where we surmise it lacks a competitive edge).
However, competitive and macro concerns abound, ranging from potential volume degradation as a byproduct of increased usage of weight-loss drugs to whether penny-pinching consumers could leave confectionery fare on the shelf in favor of more essential, daily products. Further, cocoa, sugar, and labor costs remain elevated (with management calling for high-single-digit cost increases this year) and could dent profits. Despite these looming headwinds, we surmise Hershey is playing from a position of strength, given its dominant standing (controlling around 45% of the U.S. chocolate space, versus just low-single-digit marks for lower-priced private-label offerings) combined with the robust resources it maintains to ensure its lineup continues to evolve with consumer trends.
In this context, we’re encouraged that Hershey is firm in its commitment to funnel resources toward its brands, with advertising spending up around 20% in the third quarter; we think Hershey will expend a high-single-digit percentage of sales (nearly $1 billion) toward research, development, and marketing annually over the next 10 years. And even though management has been forthright that its innovation pipeline was a bit scant in fiscal 2023, this coincided with stepped-up spending to build out its capabilities and capacity (with capital expenditures set to approximate 7%-8% of sales, outpacing the less than 5% average that has historically characterized the business), which we see as prudent. And with these investments in the rear view, we think Hershey intends to flavor its mix over the coming quarters. Interestingly Hershey's "ramping up investments in its core domestic brands while pulling back in its international arm". So investors should not be looking into emerging and other foreign markets for higher growth.
Also Morningstar analysts estimate that Nestle is trading at 83% of FVE, Mondelez 95% and HSY 91%.
Another point to note that Hershey charitable trust has veto power over any acquisition of Hershey. They blocked Mondelez from acquiring it in 2016. I believe Pennsylvania AG was also has the power to block acquisition of Hershey.
https://www.reuters.com/article/us-hershey-settlem...
No. of Recommendations: 2
Jim once said about options that usually they are executed if you you put in a bid 2/3 on the way from bid to ask.
My mini analysis of Hershey and - what I am interested in since years much more - Nestlé, and both are still not cheap enough for my taste (Nestlé, please, 10% lower - and I go full on!). Nevertheless with BCC all bullish I'd like to opportunistically bet on a Hershey bounce. With my "casino money" = options.
Contrary to what Jim said I found that I don't have to be that generous, that my orders which are usually only 1/3 on the way from bid to ask will indeed remain open most of the day - but that a good part of them will be executed shortly before the market closes, in the last moment.
Me thinking about the psychology behind that: People waiting and waiting for their greedy ask to be fulfilled - but in the end accepting a slightly lower price before being completely frustrated.
Will be interesting what happens with my Hershey orders today at 4pm :-)
No. of Recommendations: 9
Contrary to what Jim said I found that I don't have to be that generous, that my orders which are usually only 1/3 on the way from bid to ask will indeed remain open most of the day - but that a good part of them will be executed shortly before the market closes, in the last moment.
I've noted the same thing. The market maker software seems to be much easier to please in the last minute. Their little pea brains seem to be thinking "better to rack up even a small profit today than nothing at all".
But during the day, for major stocks with wide gaps, I usually budget on getting a fill at about 3/4 the way across the gap.
For Berkshire options I do a little bit better than that on average, but I prefer pleasant surprises to unpleasant ones.
I suspect there is a difference between securities with one market maker (presumably a bot) versus securities with two or more players. For example, when single stock futures were available, it wasn't possible to shave a single penny off the asking price. I think that's because there was only a single player in the game.
Jim
No. of Recommendations: 0
Took my first dip (toe) at 180.
No. of Recommendations: 4
No. of Recommendations: 6
A bit of napkin math. Google tells me that the Hershey chocolate bar is 43g (1.55 oz) and is 11% cocoa.
If cocoa is EUR 9600 per metric ton (as per the article) that's enough for 211,416 chocolate bars or about 4.5 euro cents per bar.
I'm sure there's some poor assumptions there but as a ballpark calculation it doesn't look like it's too bad for the maker of low quality chocolate (11% compared with 20% for the average bar, according to the article).
No. of Recommendations: 5
A bit of napkin math. Google tells me that the Hershey chocolate bar is 43g (1.55 oz) and is 11% cocoa.
Though I think your line of reasoning is probably valid...cocoa is expensive, but not the biggest part of the cost of a bar...did you remember the cocoa butter? Very expensive stuff.
If a 43 gram bar is 21 grams of added sugar, that's 22 grams of "other", which is mostly condensed skimmed milk, cocoa, and cocoa butter, with (in this case) some dairy butter. The other ingredients are negligible by weight. So I guess you have to guess how much condensed milk there is--subtract that from 22 and you probably won't be far off from the total cocoa mass weight (powder+cocoa butter combined).
Jim
No. of Recommendations: 0
No. of Recommendations: 0
Eg typical UK Mars Bar 48 pack x51g (62pence per bar and £1.24 per 100g) on Amazon for £30 vs Sees Candies box of £12.49 for 100g or £113 for a 907g (2lbs box)
No. of Recommendations: 8
Thanks for the comments Jim. My understanding is that the cocoa percentage listed on a chocolate bar wrapper (European chocolate and dark chocolates here in NA) includes both the cocoa solids and cocoa butter. Dark chocolate usually is 65-85%. The proportions of cocoa solids and cocoa butter vary which is why you get different flavour/texture even for different chocolate with the same cocoa levels. Typically the cocoa butter is removed and then partially added back to adjust the taste and "mouthfeel".
Unfortunately Hershey's bars don't list this number, so I've had to get it from Google (11%). This may be wrong but it seems to be a widely quoted number, and makes sense as the minimum required by the FDA is 10%. However it might just be the cocoa solids, as you've pointed out.
Assuming that's the case, we can estimate the butter component from the other direction. Cocoa beans are 54% fat (cacao butter) and 46% solids (cacao), so if solids are 11% then there is at most 11% * 54/46 = 13% cocoa butter. I doubt Hershey's adds back this much butter, but anyways.
Current prices from Wigmore Wholesale:
Cocoa liquor (solids) wholesale around USD 5850 / metric tonne
Cocoa butter wholesale around USD 7350 / metric tonne
43g * 11% * USD 5850/1M = 2.8 cents
43g * 13% * USD 7350/1M = 4.1 cents
So still not a huge factor in the price of a cheap chocolate bar, and probably even less than that.
(That's probably more than I ever wanted to learn about chocolate!)
No. of Recommendations: 5
(That's probably more than I ever wanted to learn about chocolate!)Speaking of which, I was extremely surprised to learn that Hershey uses condensed milk as an ingredient.
The usual rule is that you have to create milk chocolate with milk powder because chocolate hates moisture,
but Hershey's has a web site describing how the founder spent years trying to find a way to use milk directly.
https://hersheyarchives.org/encyclopedia/origins-o...This may be one of the factors that makes Hershey chocolate taste different from any other brand.
Jim
No. of Recommendations: 8
I'm surprised how much people are willing to spend on a box of Sees Candies though!?
As a Christmas treat, my wife and I buy a two pound box of See's candy each year. We go to the See's store in town and pick out exactly what we want to go in it. Then we eat it a couple of pieces a day during December. We finished this year's box last night. Yes, it's expensive, but worth every penny.
No. of Recommendations: 3
two pound box of See's candy each year..... Then we eat it a couple of pieces a day during December
Amateurs!
Ever seen Charlie during an Annual Meeting? It was fascinating. I could hardly believe it - the best part of the live stream 😂
No. of Recommendations: 0
So how much is a 2 lbs milk chocolate box in the shop that's on Amazon for £113?
No. of Recommendations: 5
Along those same lines, my 85yo mother in NC had heard me talk of See’s and knew of the dynamic duo’s fondness for their brittle. So I sent a large $30 box (+$20 shipping from CHI center), but it was with every dime when it arrived to her & her friends’ delight! She still brings it up on occasion. Must admit, I much prefer their chocolate walnut fudge!
No. of Recommendations: 0
So how much is a 2 lbs milk chocolate box in the shop that's on Amazon for £113?
I think our two pound box was about $60 dollars. We also bought some other stuff as gifts for relatives. The milk and dark chocolates are the same price when you have them build a custom box for you.
No. of Recommendations: 0
No. of Recommendations: 1
OT but I wonder when Hershey and others will start using Precision Fermentation.
https://seminalbioscience.com/#homeThey describe this wonder as
"non – cacao bean based cocoa butter"Ummm, just shoot the marketers. If it's not cocoa bean based, it's not cocoa butter. What's that word they use to describe a statement that isn't true...?
True cocoa butter has some very interesting properties, starting with its microstructure during tempering.
It is the only fat that is solid at room temperature that does not seem to have bad effects on heart health...I hear your body turns the bulk of it into unsaturated oleic acid.
That's a good thing: oleic acid generally reduces LDL and increases HDL.
As for how soon Hershey would switch to fake cocoa butter: as soon as they can if it's cheaper, I assume.
Jim
No. of Recommendations: 0
FDA minimum to be called chocolate is 10%. Hershey is probably already close to that.
No. of Recommendations: 2
"Eg typical UK Mars Bar 48 pack x51g (62pence per bar and £1.24 per 100g) on Amazon for £30 vs Sees Candies box of £12.49 for 100g or £113 for a 907g (2lbs box)"
All though the point may still stand, I'm not sure this is the most appropriate comparison. Surely, a better comparison would be with say Thornton's (in the UK) or perhaps something from hotel chocolate? (not sure of the alternatives in the States) - Chocolates aimed at gifting rather than a box of mars bars?
No. of Recommendations: 0
No. of Recommendations: 0
Dave Ryan, IDB/William O'Neill, just flagged HSY as bullish reversal on volume. TECHNICAL CALL.
He is 3x US Investment Champion
No. of Recommendations: 1
Briefing.com:
Hershey Foods as a 2024 Investment Idea; dominant market positioning can help fuel a recovery (HSY):
Hershey Foods (HSY) is beginning to sweeten after a lengthy sell‐off that ensued shortly after shares broke to all‐time highs in May 2023. Consumer staples stocks fell out of favor rapidly during the back half of the year as capital flooded riskier assets, reflecting enthusiasm over AI and a possible pause on interest rates from the Fed. At the same time, weight loss drugs (GLP‐1s) started to gain popularity, fueling concerns of a sharp contraction in food consumption.
However, with shares sliding over 30%, these headwinds are likely priced in. Meanwhile, HSY boasts several competitive advantages, making it a solid turnaround play for 2024. Recent 2024 Investment Ideas include Tyson Foods (TSN), Walt Disney (DIS), and MongoDB (MDB).
HSY boasts an exceptional market share. Why we like HSY over many other consumer staple names is its command over close to half of the U.S. chocolate market. Candy brands such as Reese's, Milk Duds, and more may have private label competition, but with cocoa prices continuing to climb, off‐brands struggle to compete on price. Instead, many of HSY's competitors market themselves more as premium options. While substitutes may always find shelf space, HSY's sturdy positioning will likely remain mostly unthreatened.
Diversification should help in 2024. HSY has added many brands to its salty snacks portfolio, including Skinny Pop and Dot's Homestyle Pretzels, complementing its sweeter lineup. Combinations such as Reese's Popcorn and Hershey‐dipped Pretzels underscore the smart decision to add salty snacks that pair well with sweeter options.
Margins were a weak point in 2023, but with pricing and efficiency initiatives flowing through to 2024, HSY can offset persistent headwinds. For example, all‐time high cocoa prices are not cooling down, largely due to weather, which is taking a bite out of margins. At the same time, HSY is undergoing business modernization efforts, which will create inventory issues during the first part of the year. However, management is confident that given its market leadership, it can lean on pricing and other productivity enhancements to cushion against potential margin headwinds this year.
Alongside stubbornly high commodity prices, a strained end consumer will be a meaningful obstacle facing HSY in 2024. Candy tends to be more discretionary than other snack foods. While disinflation is giving consumers some breathing room, if HSY is forced to implement additional pricing actions this year, volumes could take a beating. Management was optimistic about current consumption trends, noting strong consumer engagement and growth potential, but was cautious talking about 2024 until it released its Q4 results in February.
Still, after a sell‐off that seemingly would not let up during the back half of 2023, we view many current fears as overblown. HSY's share of the U.S. chocolate industry is dominant, and its recent M&A actions were intelligent, targeting brands that complement its core portfolio. With a solid 2.5% dividend yield, ongoing share buybacks, and a relatively attractive forward earnings multiple of 19x, HSY is a sweet choice for 2024. As always, a 20‐25% stop loss is recommended.
No. of Recommendations: 5
Jim re:
"If it's not cocoa bean based, it's not cocoa butter. What's that word they use to describe a statement that isn't true...?"
Sorry I should have provided more context around precision fermentation. That was just a link to one company I found doing it.
Precision fermentation is what they use to create "real" human insulin, that's not "human based". My understanding is that they take the appropriate protein DNA and splice it into yeast. Then they feed yeast and the yeast produce that particular protein. I'm not sure how it works for fat but I assume there's a similar pathway?
According to a recent presentation I watched by Tony Seba, it looks like in the next five to ten years precision fermentation is going to continue to get cheaper to the point that it will be cheaper to produce precision specific proteins and other foods from big vats of yeast (like they do with beer) than from the original source. The actual proteins will be molecularly the same since they will be produced from the original DNA.
One of the first markets that will likely be disrupted is the dairy industry as they will be able to produce whey and casein, the two main proteins from milk (and something like 3% of the milk by weight or volume), at a much higher efficiency than it can be retrieved from cows. Tony Seba thinks this could lead to about a third of the cow farming industry to be decimated but time will tell...
No. of Recommendations: 0
No. of Recommendations: 2
Nestle now a better idea at current prices
Jim resides in Europe and would love to hear his input on NSRGY at current price.
No. of Recommendations: 0
ISI THIS AM:
FOOD PRODUCERS (PALMER) - DEEP DIVE – REVENUE SETUP for Q1
High Level:
Volume declines set to ease but likely not end – Our base case is that average center store food company US retail volume declines will moderate from -MSD Y/Y in 1Q to down LSD over the next few quarters.
Action needed to avoid missing consensus 2Q and 3Q organic sales for some – We see downside to consensus (domestic) organic sales trends for K, BGS, HAIN and MDLZ. We believe stepped-up product innovation, and more effective promotions will be needed to improve sales trends for these companies in particular.
Value investing may start to be possible for some names – We see roughly in-line with consensus (domestic) organic sales trends for GIS, CPB, KLG, and POST – with potentially in line to slight downside for KHC and CAG. The average EV/EBITDA and P/E ratio for these names are 10x and 13x, respectively. Among these, we rate POST and KHC Outperform.
We will be watching for promotion spending with limited ROI – While we do assume some moderation in multi-year pricing, the risk is greater promotions will be needed to deliver volume stability (e.g. Conagra pricing in Frozen entrees has been negative Y/Y).
Stock specific into Q1 results:
POST, KLG, BRBR – we see upside to consensus (and domestic) organic sales trends.
KHC, HSY – expect roughly in-line.
K, BGS, MDLZ – we see downside to consensus (and domestic) organic sales trends.
No. of Recommendations: 15
Nestle now a better idea at current prices
Jim resides in Europe and would love to hear his input on NSRGY at current price.
The good news is that the price is back where it was five years ago: cheapest in ages.
The bad news is that the sales and earnings are also still right where they were five years ago.
I have enormous respect for the firm and the many merits of management. And indeed many of its products which I consider high quality, unlike some of the Hershey crap I'm invested in. And I am not one that requires high visible growth rates...a modest growth rate can also be good, depending on pricing and the goals of the portfolio.
But...hey, five years is quite a while. I don't know enough about the firm to delve deeply enough to find a plausible reason to think this situation is going to change materially any time soon. It's entirely possible that there is such a reason but I don't know it. As I don't know it, I'm sitting on my hands on this one.
And of course there is the small ghost at the banquet: the wholesale cost of cocoa is spot on 4 times what it was a year and a half ago. There are really good reasons to think the problem is not a short term one. They do WAY more things than sell chocolate, but the whole confectionery sector is facing a long term head wind. That has to be overcome with some other correspondingly good news.
Jim
No. of Recommendations: 1
Nestle is a 9% position for Tom Russo. Big for Fist Manhattan and Tweedy Brown too
Problems well known but Nestle will be here in 100 years
No. of Recommendations: 4
One area of concern is Nestle’s gradual reduction in L’Oreal stake. Many investors had hoped Nestle would retain or increase L’Oreal stake. L’Oreal is very profitable and has better growth prospects and higher valuation than the rest of Nestle. Maybe the reduction in PE reflects the reduction in look through growth.
https://www.nestle.com/ask-nestle/our-company/answ...
No. of Recommendations: 0
I have no doubt the last 5 years and Loreal reduction are concerns
My point is that the stock reflects and discounts all the concerns. Less pricing power and lower vol growth TOO.
Nestle has a permanent place in the global food industry (really coffee, dog food, water etc...). Never changing.
Global blue chip hated and on sale?
No. of Recommendations: 14
Global blue chip hated and on sale?
Well, it's definitely more out of fashion than it usually is. But only by its own standards would it be considered "on sale". It's not conventionally cheap by any means.
Sometimes things this good are actually cheap. That's the joy of equities.
Q: Mr Buffett, why do you invest so much in stocks instead of, say, real estate?
A: Because real estate prices are so much more rational.
Jim
No. of Recommendations: 1
Good to see you posting, Jim. I hope you're feeling better.
No. of Recommendations: 6
Bloomberg reported that Mondelez International is exploring an acquisition of Hershey Co.
HSY is up 13% today to 197.83
No. of Recommendations: 11
Bloomberg reported that Mondelez International is exploring an acquisition of Hershey Co.
HSY is up 13% today to 197.83
It's a bit of a cliché that when good news comes in on an optimistically priced stock pick, it typically reacts in a small way upwards. Bad news sometimes gets a big reaction downwards.
When new good news comes in on an unfashionable stock pick, it reacts in big way. Fresh bad news gets mostly ignored, as that is what is expected.
Hershey has not been in fashion, that's for sure. Almost any fresh news that isn't freshly bad can move the price quite a bit it seems. High today was +19% from yesterday's close.
Jim
No. of Recommendations: 0
Isn't Hershey majority-owned by the trust? Do they even want to sell their golden goose?
No. of Recommendations: 4
Isn't Hershey majority-owned by the trust? Do they even want to sell their golden goose?
They are in a situation a bit similar to Mr Buffett's: owners of super-voting shares, they have been converting to common (which gives up the super-voting) and selling down their position somewhat, dropping their voting power.
But only in a very tiny way. They definitely still call the shots. I think their voting power is till in the 70-80% range?
Jim
No. of Recommendations: 2
The last time Mondelez launched a hostile bid for Hershey, Pennsylvania changed the law. Any change in Hershey ownership will require Pa attorney general’s approval.
Also Mondelez reneged on promises to not shut down Cadbury’s operations and employment in UK, but did so a few years later.
All that will be raked over in any deal negotiations and review.
No. of Recommendations: 1
From NYT:
Any deal needs the blessing of the Hershey Trust Company, which was set up in 1905 by Milton Hershey, the company’s founder, to look after his chocolate producer’s hometown and, more important, the boarding school for needy children that he had created.
The Hershey Trust controls Hershey’s Class B shares, which have 10 times as much voting power as standard shares. That effectively gives the trust about 80 percent of the company’s voting power.
The trust has a specific mission: to protect the school and other Hershey-related charitable endeavors. Over the years, that has prompted the trust to block potentially transformative deals by Hershey, including:
A $12.5 billion takeover offer from the Wm. Wrigley Jr. Company in 2002, representing a 42 percent premium, at the last minute;
A potential bid for Cadbury in 2010, which allowed Kraft — the former parent company of Mondelez — to swoop in and buy the British chocolatier;
And a $23 billion acquisition bid by Mondelez in 2016.
Pennsylvania law further complicates matters. The state’s attorney general is empowered to ask a court to block any transaction that would be unnecessary “for the future economic viability of the company.”
Have times changed? The trust has been slowly selling down its holdings to diversify its portfolio. But in its annual report, Hershey warned that the trust’s current setup made “it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby may delay or prevent a change in control of the company.”
Berkshire could help the trust diversify its portfolio. Wouldn't make a dent in Berkshires cash pile, however.
No. of Recommendations: 0
We might need the legendary Willy Wonka to facilitate the Hershey deal! Would certainly add some entertainment at least.
