Hershey has been struggling thanks to GLP-1s, says Jim Cramer

Key Concepts

• Hershey Stock Performance: Significant decline in stock price from its highs.
• Weight Loss Drugs (GLP-1s): Impact on the packaged food industry, including Hershey.
• Cocoa Prices: Volatility and its effect on Hershey's costs and hedging programs.
• New CEO Kirk Tanner: Background and potential impact on Hershey's strategy.
• Q3 Earnings Report: Mixed results, lowered full-year forecast, and stock reaction.
• Hedging Program: Strategy to manage volatile cocoa prices.
• Takeover Rumors: Past speculation regarding Mondelez.

Hershey Stock Plunge and Market Concerns

The video discusses the alarming decline in Hershey's stock price, which has fallen from a high of $196 earlier in the month to $169 as of the broadcast date. This downturn intensified after the company's recent earnings report, with the stock dropping from $175 to $171 on the day of the report and further to $169 the following day. This performance is described as "baffling" given Hershey's iconic status.

Factors Contributing to Hershey's Struggles

The primary reasons cited for Hershey's difficulties over the past two and a half years are:

• Impact of GLP-1 Weight Loss Drugs: These drugs have significantly affected the entire packaged food industry. Consumers on these medications tend to reduce their overall food intake, leading to lower demand for products like candy. The speaker humorously notes that people on these drugs "just don't want to eat anything bigger than this" (referring to a candy).
• Sky-High Cocoa Prices: While this issue has seen substantial improvement over the last 10 months, it has been a significant challenge for Hershey.

Leadership Change and Strategic Outlook

Hershey appointed a new CEO, Kirk Tanner, in the summer. Tanner has a strong background, having previously led Wendy's and spent approximately three decades at PepsiCo. He officially took over in mid-August. The speaker expresses optimism about this appointment, stating it was "really great for Hershey, not for Wendy's." However, Tanner has faced immediate challenges since assuming the role.

Q3 Earnings Report and Management's Forecast

Hershey's late July earnings report, delivered just before Tanner's official start, presented a "complicated quarter" with both top-line and bottom-line misses. Crucially, management lowered their full-year earnings forecast. This downward revision was attributed to:

• Tariffs: Unspecified tariffs impacting costs.
• Cost of Hedging Program: The expense associated with their program designed to manage the volatile price of cocoa.

Despite the negative news, the stock initially spiked on the earnings report, reaching its highest level since December. This spike was reportedly fueled by "ridiculous rumors" of a takeover by Mondelez. However, the stock quickly reversed its gains and has since experienced "choppy, turning to downright horrible" performance in recent weeks.

Technical Terms and Concepts

• GLP-1 (Glucagon-like peptide-1) drugs: A class of medications primarily used for managing type 2 diabetes and obesity, which have a known side effect of appetite suppression.
• Packaged Food Industry: A sector of the food industry that produces pre-packaged food products for consumers.
• Cocoa Prices: The market price of cocoa beans, a key ingredient in chocolate production, which can be highly volatile due to factors like weather, supply, and demand.
• Hedging Program: A financial strategy used to offset the risk of adverse price movements in an asset. In this context, Hershey uses it to mitigate the impact of fluctuating cocoa prices.
• Top and Bottom Line: In financial reporting, the "top line" refers to revenue (sales), and the "bottom line" refers to net income (profit). A "top and bottom line miss" means the company's revenue and profit were lower than expected.
• Full-Year Earnings Forecast: An estimate provided by a company of its expected earnings for the entire fiscal year.
• Tariffs: Taxes imposed on imported goods, which can increase the cost of raw materials or finished products.

Call to Action and Engagement

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Synthesis and Conclusion

Hershey's stock is currently experiencing a significant downturn, driven by the broader impact of GLP-1 weight loss drugs on the packaged food sector and past challenges with high cocoa prices. While the company has a new CEO with a strong track record, the recent Q3 earnings report, which included a lowered full-year forecast due to tariffs and hedging costs, has further pressured the stock. Despite a brief rally on takeover rumors, the stock's performance has been consistently poor, making it a "terrifying" investment for shareholders in recent weeks. The speaker suggests that the worst may be behind Hershey, but the immediate future remains challenging.