Cocoa prices have more than doubled, impacting companies like Hershey's and Mars
From Nasdaq: 2024-10-30 07:56:00
Southwest and American Airlines are working to overcome challenges in an oversupplied air travel market. Disney is making succession plans, while UPS and Coke report earnings. McDonald’s faces E.Coli issues. Keep an eye on Compass Minerals and Remitly stocks. The commodities market and cocoa production are shaping Halloween treats. Tesla’s recent earnings report led to a 20% stock increase, bringing the EV maker into the green for 2024. They produced their 7th million vehicle on Oct. 22. Revenue was up 8% and adjusted earnings up 9% from last year. Tesla is accelerating the world’s transition to sustainable energy. Energy generation and storage revenue was up 52%. Tesla is optimistic about future vehicle growth. Elon Musk’s projections are known for optimism, but investors should be cautious. Southwest and American Airlines have released fresh earnings numbers. Investing in airlines has historically been challenging, with post-COVID recovery leading to oversupply of empty seats and low ticket prices. American Airlines reported a third-quarter loss but raised profit guidance, while Southwest’s profit fell but beat estimates. Southwest forecasts 3.5-5.5% unit revenue increase in Q4. Elliott Management gains board representation at Southwest, pushing for changes in seating and premium options. Disney announces succession planning, aiming to install a successor by early 2026. Disney is considering internal and external candidates for their next CEO. Shareholders may need to be patient as the successor won’t be named for a while. UPS reported growth on the top and bottom line for the first time in two years, with revenue up 5.6% and adjusted EPS up 12.1%. UPS acquired Frigo-Trans to enhance temperature-controlled logistics in Europe for pharmaceuticals, raising guidance for the year.
Coca-Cola’s better-than-expected results were driven by higher prices offsetting weak demand. Organic revenue was up 9% due to a 10% growth in price and mix, with unit case volume falling 1% globally. Consumers are exhibiting value-seeking behavior, impacting demand in international markets. Adjusted earnings were up 8%, with plans to normalize pricing going forward. Warren Buffett may be seeing a slowdown in Coca-Cola’s ability to exhibit pricing power. Meanwhile, McDonald’s shares dropped 9% due to an E. coli outbreak linked to quarter pounders, with 75 sick and one death. Cocoa prices have doubled, with record highs and a projected 14.2% global production fall due to adverse weather in West Africa. Cocoa prices are expected to remain high until at least September 2025, impacting companies like Hershey’s and Mars. Hershey’s President, Michelle Buck, stated that they have absorbed inflation but will need to pass some costs on to consumers. Operating profit for Hershey’s decreased by 49% in August due to rising prices and reduced yields from agricultural issues like black pod disease affecting cocoa trees.
Commodities like cocoa and oranges have seen significant price spikes this year, impacting input costs for companies. Hershey’s is projecting a 200 basis point gross margin decline this year due to rising costs. Companies often lock in commodity pricing in advance, which can lead to both headwinds and tailwinds depending on market conditions. Limited supply can result in shrinkflation, where consumers may see smaller products or different flavors.
Despite challenges in the commodity market, companies like Hershey’s are adjusting pricing to reflect rising costs. Consumers may see changes in product sizes or variety due to limited supply and increased input costs. While prices may decrease in the future, companies are preparing for continued challenges in the cocoa market. Research firm Circana reports a double-digit increase in non-chocolate Halloween candy items on shelves this year. Companies are diversifying offerings with fruit-flavored candies, gummy treats, and more. Commodities investing is cyclical and risky, with companies like Horsehead Holdings facing bankruptcy due to poor balance sheets. Investors should approach commodities with caution and consider short-term trading strategies. Investing in commodity-based companies can be a value trap for investors, as the cyclical nature of commodities can lead to unpredictable outcomes. Investors should be cautious with low PE stocks as they can turn into value traps. Halloween candy preferences were discussed, with Reese’s and Whatchamacallit being top choices. Compass Minerals (CMP) faces challenges due to mild winters affecting road salt demand. Remitly (R-E-L-Y) is on the radar for its outbound remittance services. Fun discussion on radar stocks and candy preferences concluded the segment. This week on Motley Fool Money Radio Show, Wells Fargo is highlighted as an advertising partner of The Ascent. Dylan Lewis has no positions in mentioned stocks, while Jason Moser holds positions in Chewy, Starbucks, UPS, and Disney. Rick Engdahl has positions in Starbucks, Tesla, and Disney, and Ron Gross holds positions in Starbucks and Disney. The Motley Fool recommends Chewy, Starbucks, Tesla, and Disney, and also recommends Southwest Airlines and UPS.
Disclaimer: The views expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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