The Hershey Co

Hershey (HSY) declined as guidance was unchanged despite healthy upside to quarterly results. While management may be conservative, better-than-expected results partly reflect timing, which implies that sales will decelerate for the remainder of the year. Additionally, the Iran conflict and weather concerns led to an increase in cocoa prices, partially reversing a sizable decline in the first quarter, while at the same time, investors rotated away from defensive stocks. Valuation has pulled back to an attractive level, and we continue to like the company’s earnings potential over the next couple of years as margins recover.

The Hershey Company (HSY) performed well during the quarter, gaining +14.2% as cocoa costs finally retreated, reversing the extreme inflationary pressures of the past two years. As this lower-cost inventory works its way through the balance sheet, we expect input-cost pressures to ease significantly. Crucially, consumer demand has proven resilient; volumes remain above management’s original expectations despite the price hikes taken to defend margins. This reinforces our original thesis: Hershey’s brand equity is robust enough to withstand significant macro shocks without compromising its long-term competitive position. Furthermore, the company’s expansion into salty snacks continues to diversify the earnings stream and support consistent profit growth.

Hershey Foods (HSY) is a dominant North American chocolate and salty snack business that is currently facing 'headline' pressures due to a recent surge in cocoa prices and GLP-1 worries. However, the manager believes that these fears are likely overblown, which has created a seemingly attractive entry price. This positions Hershey for potential share gains and the harvesting of recently elevated investment spend, suggesting a positive outlook for the company.

The Fund continues to own shares of Hershey, as the durability of its brands should give it greater staying power. This reflects a belief in the company's resilience and ability to maintain its market position amidst changing market conditions. The performance of Hershey has been notable, contributing positively to the overall portfolio return, indicating confidence in its ongoing success.