Hershey (HSY) faces continued market share pressure, as Mars and other competitors are winning on the innovation front, while comparisons are likely to get tougher in the second half of the year, RBC Capital Markets said Friday.
In the first half, Hershey's rivals "out innovated" the chocolate maker, with Mars being the main gainer in chocolate candy on both a dollar and volume basis amid growing price gaps and other factors, RBC Co-Head of Global Consumer and Retail Research Nik Modi said in a note to clients.
In the second quarter in particular, Hershey lost about 115 basis points of dollar share and 190 basis points of volume share in the candy aisle, compared with a year earlier. Mars gained 130 basis points of dollar share and 220 basis points of volume share in the same period, according to RBC.
"We believe that the recent share losses are attributable to Hershey (versus) Mars price gaps, low repeats for innovation and inability to scale more premium versions of their largest brands," Modi said.
Retained shopper rates for Hershey's newly launched new products are "significantly below" those of successful ones, with Reese's Oreo collaboration being an outlier, RBC said, citing Numerator Insights data.
"This creates a very difficult comparison starting in (the third quarter)," Modi wrote. "While Hershey has flagged an innovation-packed (second-half), historical repeat rate data suggests new launches alone may not be enough to offset the Reese's Oreo lap."
RBC lowered its price target on the Hershey stock to $206 from $212 and reiterated its sector perform rating.
Citing its evaluation of recent share dynamics, RBC cut its North America confection outlook for 2027 and beyond. "We remain below the company's 2027 (earnings-per-share) algorithm given our view that (Hershey) will need to increase reinvestment to address current share losses," Modi said.
The company's shares were down 0.9% in Friday afternoon trade. The stock has gained 2.6% in value so far this year.
RBC also blamed Hershey's market share woes to the K-shaped economy. A K-shaped economy describes a situation where different parts of the economy perform in sharply diverging ways.
"Based on our investor discussions, it seems that market share trends have now become the central (key performance indicator) that will likely govern (Hershey's) relative stock price performance," Modi wrote.
Late last month, the company lifted the bottom end of its full-year growth guidance range after reporting better-than-expected second-quarter results amid "resilient" demand.
Price: $186.61, Change: $-1.70, Percent Change: -0.90%
