It seems that candy giant Hershey is taking actions to protect its profits amid super hot inflation in raw materials such as sugar and transportation by raising prices considerably, according to research from Goldman Sachs.
In a recent note to clients, Goldman analyst Jason English stated that Hershey has enacted "broad-based" price increases across its candy portfolio that "collectively amount to a 14% weighted average increase." English cited price increases of 17% on standard Hershey bars, 13% on "King" bars, and hikes on various pouch products.
"Management says that the incremental pricing is in response to incremental cost pressure as some hedge expirations approach," English explained. "While higher pricing on higher costs is not unique to the company, we believe Hershey is enacting the increases to preserve its growth algorithm which contrasts meaningfully with center-of-plate food companies who are raising prices to minimize earnings declines."
A Hershey spokesperson did not respond to Yahoo Finance's request for comment.
Hershey has been one of the strongest performing stocks in the market the past year as investors seek safe haven plays and fundamentals benefit from an innovation burst and heightened consumer snacking.
The stock is up 24.5% in the past 12 months, compared to a 10.9% drop for the S&P 500 over that time.
The company's first-quarter sales and adjusted earnings rose 16.1% and 31.8%, respectively.
English reiterated a Buy rating on Hershey stock and lifted his price target to $245 from $239.
"In the wake of the announced price increases, and in consideration of the likely mounting cost pressure, we make various changes to our model," he said. "We increase our FY22/FY23/FY24 revenue forecasts by 1%/4%/5% as we raise our price growth expectation while trimming our volume forecast to account for a likely elasticity impact."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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