Like millions of Americans, I can appreciate a good candy bar now and then. To that end, and like probably most of my fellow chocolate lovers, I also consider the candy bar inflation trend of the past year to be quite disturbing.
While prices for chocolate confectionaries have steadily increased since 2020, it was specifically last October that one of my favorite chocolate treats—Reese’s Peanut Butter Bar—saw the dramatic price hike of 50 cents per candy bar (up 17%), a sudden jump that was initially blamed on the start of the traditional “candy season” in North America.
The confection in question is made by Hershey, and while the run-up in chocolate prices has altered my—and many consumers’—snack preferences further away from chocolate for now, it has also prompted me to investigate what exactly is behind the startling price increases of late.
I believe this is a pertinent consideration for investors since, as consumer staples, Hershey and its snack industry peers are among the very companies whose shares are in high demand during periods of economic uncertainty like the one we’re now experiencing.
So, given the increased attraction for these consumer staples stocks, let’s explore Hershey (HSY) vs. Mondelez (MDLZ).
As it turns out, the nationwide chocolate bar increases last fall (which were categorical) are the result of a rather pronounced deterioration in the cocoa futures market, the traditional starting point of the candy bar supply chain.
Last year, the global cocoa market experienced a record deficit—the largest in over 60 years—mainly due to crop failures in major West African growing regions, which produce over 70% of the world’s cocoa.
This has directly contributed to the higher input costs chocolate makers have been forced to pay, in turn prompting Hershey to offset those higher costs by hedging with cocoa derivatives.
Hershey (HSY)
The effectiveness of the firm’s cocoa hedge is shown by its unadjusted gross margin, which increased 200% year over year on derivative mark-to-market gains, higher sales volume and supply chain efficiencies. Hershey, moreover, still has a “significant position” in the cocoa futures market to protect its bottom line from rising cocoa prices, according to Seeking Alpha.
While these offsetting strategies contributed to the company’s solid Q4 earnings report, with total revenue of nearly $3 billion increasing 9% and earnings of $2.69 a share beating estimates by 13%, management warned that it expects the surge in cocoa prices to put “significant pressure” on this year’s earnings.
What’s more, some analysts believe that Hershey’s considerable derivatives exposure could actually be contributing, at least in some measure, to high cocoa prices while also potentially leaving the chocolatier vulnerable to a sudden reversal in the futures market. Even more telling, Hershey has acknowledged that surging cocoa prices are outpacing its retail price adjustments, which is expected to negatively impact profit margins in the coming quarters.
By category, Hershey’s fourth-quarter North America candy sales were up only 6% (partly due to higher sales prices), while its sales of salty snacks increased by a much more impressive 36%. These results highlight an emerging dynamic in the snack food market, namely that of consumers switching from chocolate to non-chocolate snack options as rising cocoa prices pressure individuals’ budgets. Given that chocolate makes up two-thirds of Hershey’s total sales in the U.S., a continuation of this trend could prove problematic for the company going forward.
Mondelez International (MDLZ)
By contrast, chocolate sales comprise just 30% of total revenue for Chicago-based Mondelez International, a spinoff of Kraft Foods focused on snack foods and beverages. Its offerings include the well-known Cadbury line of chocolates, but with its lower chocolate exposure, the company is arguably in a better position than Hershey to benefit from rising salty snack sales. This is also thanks to its ownership of brands like Ritz, Triscuits and Wheat Thins, while the firm is actively working to minimize its exposure to cocoa market volatility. (Biscuits and baked snacks, in fact, comprise 80% of the firm’s portfolio.)
Not everyone is prepared to completely kiss chocolate goodbye in spite of rising prices, however. Indeed, in terms of chocolate offerings, there are reasons to believe Mondelez is being more proactive than Hershey in keeping their retail prices low so that consumers can keep feeding their love for the sweet commodity.
In its latest earnings call, Mondelez’s top brass acknowledged that chocolate is one of the indulgences that many cannot live without and vowed to “protect key price points and thresholds, so that consumers can continue to enjoy their chocolate.” To that end, the company continues to hold the price points of its low unit pricing, while making sure customers can “have consumption at all different price points,” and further implementing cost measures to protect the bottom line.
From a stock price perspective, HSY’s outsized exposure to cocoa prices is made even more obvious by virtue of a 20% drop in its share price over the last three years, which answers to a greater than 300% surge in the price of cocoa futures during that same period.
By contrast, shares of MDLZ are actually up 8% from three years ago. And as the following comparison of both stocks shows, MDLZ (green line) is in a better relative strength position vis-à-vis HSY by virtue of making higher lows over the last couple of years (while HSY has made lower lows).
For 2025, Wall Street expects Hershey’s bottom line to decline 35% from a year ago, while earnings for Mondelez are expected to be down by only 13%, in part due to the latter’s lower exposure to the chocolate market. By 2026, however, analysts see Mondelez’s bottom line growing 11% versus 9% for Hershey.
All told, I believe there is more value in Mondelez than in Hershey for 2025, and for that reason, I believe it represents a better attraction for investors who want some defensive exposure to the consumer staples sector—but without the added volatility of too much commodity market risk.
