Battle for the bean - High costs and their consequences: How Nestlé, Hershey & Co. fight
Last year was a challenge for the food and consumer goods industry like never before. The sharp rise in input costs - particularly for raw materials such as cocoa, sugar and milk - hit even industry giants such as $NESN (+1.12%), $MDLZ (-0.3%)
$HSY (-0.46%) and
Meiji ($2269) (+0.97%) - Asia's largest chocolate producer from Japan - were hit hard. These companies have had to deal with exploding costs that have put massive pressure on both margins and share prices. At the same time, they have developed various strategies to counter this pressure - with mixed success, as their latest quarterly reports show.
A look at the past year
2024 was characterized by exceptionally high commodity prices. Cocoa reached record highs. Due to droughts and weather disasters, the price of a tonne of beans doubled to around 8,700 euros. And transportation costs also rose due to global supply chain problems. These developments were directly reflected in the margins.
At #hershey for example, the gross margin fell by 3.6 percentage points in the third quarter of 2024, despite significant price adjustments. Nestlé fared similarly, with its operating margin shrinking to around 17%, which is below previous peak values.
Meiji, achieved sales growth of 4.2% in the first half of 2024, but operating profit in the food segment fell by 6.9%.
Attempts to curb costs
The companies have responded to the challenges with various measures:
Price adjustments
- Nestlé implemented price adjustments of 1.6% in the first nine months of 2024. However, these were not enough to compensate for the increase in input costs.
- Mondelēz increased prices by 5.1% in the third quarter of 2024. While this supported sales growth of 5.4%, the success was largely based on the price increases and not on increased sales volumes.
- Hershey was able to stabilize in the short term with price adjustments, but recorded a 1.4% decline in sales in the third quarter of 2024.
Efficiency gains
- Nestlé and Hershey invested in automation and digital transformation to reduce costs in the long term.
- Meiji implemented optimizations in production and focused on higher-margin products.
Portfolio optimization
- Mondelēz expanded its portfolio in high-margin segments, which contributed to an improvement in the gross margin. It acquired the Chinese cookie manufacturer Evirth in order to gain a foothold in the Asian market.
- Meiji restructured its sales organization in Asia to focus on profitable markets.
Despite these efforts, most companies were only able to partially offset the increased costs. Consumers react sensitively to price adjustments, and inflation puts additional pressure on purchasing power. This limits the scope for further price increases.
Analysis: Which shares are still worth buying?
Despite the challenges, there are differences between the four companies that are crucial for investors. In order to make the best choice, we look at the most important key figures such as dividend growth, valuation and undervaluation.
On 'getquin' I asked the community, Which chocolate stock is your favorite?
