US consumers are tightening their belts in the second half of the year as pandemic savings dry up, credit card debt maxes out, and employment growth slows. Elevated inflation and high interest rates further pressure households, leading to a shaky start to the corporate earnings season. 

One week ago, Goldman analyst Natasha de la Grense told clients, “Not a great start to earnings season in Consumer, with very few positive surprises so far. Both high-end consumption and the low-income consumer are weak.”

From McDonald’s to Nestle to Pepsi, major restaurants and food companies have issued softer guidance, thanks partly to a slowdown in consumption spending. 

The latest food company to warn about consumers pulling back is chocolate bar maker Hershey, whose shares fell in the premarket after reporting a second-quarter top and bottom line miss and slashing guidance for the year. 

Shares were lower by about 3.5% in premarket. Shares have also been oscillating in a tight trading range for ten months. 

Here’s a snapshot of the second quarter earnings results (courtesy of Bloomberg): 

Adjusted EPS $1.27 vs. $2.01 y/y, estimate $1.44 (Bloomberg Consensus)

Net sales $2.07 billion, -17% y/y, estimate $2.31 billion

North America confectionery net sales $1.58 billion, -21% y/y, estimate $1.79 billion

North America salty snacks net sales $289.9 million, +6.4% y/y, estimate $279.1 million

International net sales $204.8 million, -8.9% y/y, estimate $227 million

Net sales at organic constant FX -16.8% vs. +5% y/y, estimate -7.52%

North America confectionery sales at constant FX -20.7% vs. +4.8% y/y, estimate -10%

North America salty snacks sales at constant FX +6.4% vs. +6.3% y/y, estimate +3.98%

International net sales at organic constant FX -10.4% vs. +6.2% y/y, estimate +2.28%

Adjusted gross profit $895.2 million, -20% y/y, estimate $959.9 million

Adjusted gross margin 43.2% vs. 45.2% y/y, estimate 41.7%

Organic volume/mix -18%

North America confectionery -22%

North America salty snacks +9%

International -16%

Hershey also lowered its 2024 guidance and expects net sales to slide 2%, compared with a previous outlook of 2% to 3% growth. The company expects a reported earnings per share drop of 1% to 3%, compared to its earlier outlook of flat earnings per share. On an adjusted basis, Hershey expects earnings per share to be “down slightly” from flat. 

“Today’s operating environment remains dynamic with consumers pulling back on discretionary spending,” Hershey Company President and Chief Executive Officer Michele Buck wrote in a statement, adding, “Our business has been impacted by these trends.” 

Add Hershey to the growing list of restaurants and food companies warning about a consumer slowdown.  

Goldman analysts have told clients to short low-income and mid-income consumer stocks. It’s only a matter of time before analysts start targeting upper-income consumer stocks.