Stocks

• The Hershey Company (“HSY”) is a multi-brand iconic U.S. confectionery maker with a $37 billion market cap. Its most famous brands include Hershey’s, Reese’s, Almond Joy, and Mounds, which rank among the top products in consumer trust and appreciation. In 2023, HSY generated 81% of net sales and 91% of income from its North American confectionery segment.
• PFAS, or “forever chemicals,” are carcinogenic, and a ban or phase-out for plastic food and candy packaging was introduced until 2024 in at least 13 U.S. states. Children are especially vulnerable to PFAS toxins. PFAS in higher concentration usually originates from anti-grease and anti-soak coatings that serve no direct function for consumers in plastic wrappers.
• In the U.S. alone, PFAS polluting companies have already paid a total of $11.5 billion in damages, with many cases still outstanding. PFAS expert attorney Bilott, who was instrumental in a $4 billion PFAS settlement case against DuPont, Cehmours and Corteva, estimates that PFAS-related damage claims are “potentially much larger in scope and scale” than the tobacco settlements of $200 billion.
• We commissioned the mass testing of the packaging of about 40 different food products for U.S. consumer retail. We used a novel test method based on light spectroscopy, and a Reese’s Pieces pouch tested positive for strong PFAS contamination on the packaging inside in an “inhomogeneous pattern.” It was one of only two flagged products in total.
• We commissioned four different test labs in the U.S., Germany, and China with four different testing methods to independently test HSY’s best-selling chocolate candy products against competitors’ best-selling plastic-wrapped products in the U.S. by Mars, Nestlé, and Ferrero. All four labs found heightened traces of PFAS in various HSY’s products but none or negligible amounts in products by Mars and Nestlé. The U.S. sales of affected brands represent about 43% of HSY’s total revenue and a much larger portion of income, with further brands likely being also affected.
• Among all tested products, surprisingly high amounts of the PFAS over 10 mg/kg were found in wrappers of Hershey’s Milk Chocolate bar (by HSY), Hershey’s Cookies’ n’ Creme bar (HSY), Reese’s Pieces pouch for the U.S. market (HSY), Reese’s Pieces pouch for the E.U. market (HSY), Almond Joy bar (HSY), Mounds bar (HSY), Reese’s Peanut Butter Cups (paper cups, HSY), Reese’s Peanut Butter Cups (wrapping foil, HSY), Hershey’s Kisses (HSY), KitKat (HSY) and in one test each but none of the replication tests, Butterfinger bar (Ferrero). In 50 tests, the labs found 20 cases of high contamination over 10 mg/kg, of which 19 were in HSY’s wrappers. The highest reading was 81.5 mg/kg of total fluorine. All three comparison best-selling products by Mars, and the one comparison best-selling product by Nestlé were free of heightened PFAS levels in all tests.
• Experts we talked to were very surprised about the high levels of PFAS we found in HSY candy wrappers because plastic wrappers do not need anti-stick or anti-grease treatment. Experts suggested the data might be explained by foil dusting with PFAS for easier production processes, unclean production processes or aesthetic concerns.
• Our labs found the highest fluorine amounts in Reese’s Pieces pouches for E.U. distribution, but none of the most common PFAS compounds. Our expert heading this case believes that HSY deliberately uses uncommon, harder-to-detect PFAS compounds to avoid detection and bans, while the negative health implications of such uncommon substances remain similar.
• According to our understanding, the use of PFAS despite the ban must be authorized by the FDA via the Food Contact Notifications process. As of today, the Inventory of Effective Food Contact Substance (FCS) Notifications database does not show any authorization of PFAS use for HSY
• We believe Hershey’s, Reese’s and other HSY brands have severe PFAS contamination that the direct competition can avoid. This can materially affect these brands’ recognition and add material reputational and litigation risk to HSY.