First, here’s a disclaimer of sorts. This piece cites tempting chocolate confectioneries, which can lead to weight issues that agricultural commodity processor Archer Daniels Midland Company (NYSE:ADM) is addressing nowadays.
On June 21, Archer Daniels Midland Company (NYSE:ADM) said it is negotiating to sell its estimated $2 billion cocoa business, though it didn’t identify with whom it is talking with. What is certain, however, is that major confectionery producers are waiting to learn how such negotiations will pan out. Archer Daniels Midland Company (NYSE:ADM) has an extensive cocoa operation, which includes 26 cocoa-processing plants worldwide. Notably, the Archer Daniels Midland Company (NYSE:ADM) announcement comes on the heels of the $1 billion acquisition of the cocoa operations of the Singaporean group Petra Foods by the Swiss company Barry Callebaut, already the biggest manufacturer of industrial chocolate.
Cocoa woes to watch
Disruption to the cocoa supply chain and higher costs remain a concern for confectionery firms. True, the cocoa price has moderated to $1.07 per pound average in 2012 from a record high of $1.55 per pound in 2011. However, the $33 billion U.S. candy maker Mars, iconic for its M&M and Snickers, believes the world’s sustainable cocoa supply could start to run out as early next year.
As a proactive move, this privately held company as well as Hershey Co (NYSE:HSY) and Mondelez International Inc (NASDAQ:MDLZ), have launched separate campaigns to help boost cocoa farm output. These initiatives are focused in the biggest growing countries in West Africa where cocoa plantations are less organized.
Any instability there can cause supply disruption and skyrocketing prices. This can lead to the possibility of a squeeze on profitability for confectioneries, which are averse to raising retail prices that could jeopardize their market share.
For now, though, sales appear rosy for the chocolate makers as they gird for their busiest sales season, Halloween. Driven by volume growth, Hershey Co (NYSE:HSY)’s 2013 first quarter net sales amounted to $1.8 billion, up 5.5%. Net income hit $241.9 million or $1.06 per diluted share, up from $198.7 million or $0.87 per diluted share a year earlier. In the 2013 first quarter, Mondelez International Inc (NASDAQ:MDLZ) had net revenue of $8.7 billion and its organic net revenue rose 3.8%. Its diluted EPS amounted to $0.32, and its operating EPS at $0.34 was 22.6% higher.