Due to growing expenses associated with cocoa, which are driving up chocolate prices, Hershey is issuing a warning on its projected profit growth for 2024.
(Photo : by Scott Olson/Getty Images)Due to growing expenses associated with cocoa, which are driving up chocolate prices, Hershey is issuing a warning on its projected profit growth for 2024.
Over the last year, the price of cocoa futures has doubled, and on Friday, it reached an all-time high of $5,874 per metric ton. Cocoa prices are rising as a result of crop harvests being harmed by bad weather in West Africa.
During the company's quarterly earnings conference call, Buck emphasized Hershey's proactive approach in managing business challenges, including the volatility in cocoa prices. The company anticipates its full-year earnings per share to remain relatively stable, despite facing higher costs associated with cocoa and sugar.
Margins could experience pressure, particularly in the confection business due to cocoa-related factors, according to Chief Financial Officer Steven Voskuil during the call.
Hershey's stock closed Friday with a decline of 3.4%.
Hershey Co. announced last Thursday that it will lay off 5% of its employees as fourth quarter earnings were impacted by historically high cocoa prices and consumers sick of inflation.
Over 60% of the world's cocoa is produced in West Africa, where climate problems are destroying crop yields, limiting the supply, and driving up costs.
Cocoa futures have soared, more than tripling in the last year and rising by 40% since January; the cost of labor, sugar, and other ingredients has also increased. Customers will eventually pay more since they would have to spend more money to indulge in their chocolate pleasures.
This is also being felt by other firms. According to Li-Lac Chocolates, which bills itself as Manhattan's oldest chocolate shop, raw chocolate costs have increased by 13% in February of this year over last.
However, Li-Lac has maintained the same pricing for a significant range of chocolate goods: "We haven't raised prices on Valentine's Day products for our customers since 2022," the business stated via email.
In a research released earlier this month, Billy Roberts, senior food and beverage economist at CoBank, stated that retail chocolate prices have increased by around 17% in the last two years and are expected to grow further.
The National Confectioners Association reports that over 92% of Americans say they will be sharing chocolate and candies on Valentine's Day this year. Sales of chocolate and candies for Valentine's Day surpassed $4 billion in 2023, according to the NCA.
Over 60% of the world's cocoa supply comes from Ivory Coast and Ghana, where hazards related to climate change exist for the crop. "The cocoa output volume was compressed this past year due to the drought in West Africa, which resulted in a significant increase in prices," stated Will Kletter, vice president of operations and strategy at Silicon Valley firm ClimateAi.
An up to 30% decrease in output is possible, according to ClimateAi's agronomist Sabi Ibarra Guerrero in Ghana and Ivory Coast. Early in the growing season, high temperatures and heavy rain are predicted to be the main causes of these losses since they raise the risk of black pod disease.
In a similar vein, the International Cocoa Organization's December 2023 market report identified swollen shoot virus and black pod disease as threats to the cocoa crop supply.
Regarding his own property, Issaka remarked, "This intense rainfall brings fungi. And you have to use fungicide because this fungus turns the cocoa pod black."
