Hershey cut its annual profit and sales forecasts on Thursday and posted a near 17% drop in quarterly sales, highlighting cautious consumer spending for its candy and chocolates.

WHY IS IT IMPORTANT?

Hershey had been one of the few companies to gain market share even as it increased product prices to combat the impact of cost inflation.

However, demand trends have shifted as consumers across income groups turned more price conscious and sought cheaper alternatives.

MARKET REACTION

Shares of the Kit Kat maker fell about 5% in premarket trading.

CONTEXT

Packaged food peers, such as Mondelez ( MDLZ ) and Kraft Heinz, implemented double-digit price hikes over the last two years to counter rising costs of commodities, including sugar and cocoa.

However, while prices increases dented demand for Hershey's confectionary products internationally and at home, selective price reductions in salty snacks perked up its North America volumes.

BY THE NUMBERS

Hershey's net sales fell to $2.07 billion in the three months ended June 30, compared with analysts' average expectation of $2.31 billion, according to LSEG data.

Net sales for confectionary products in the North America segment, Hershey's largest market that accounted for about 80% of its annual revenue, fell to $1.58 billion from $1.99 billion a year earlier.

Excluding items, it earned $1.27 per share, below LSEG estimates of $1.43.

The company's organic price rose 1%, while organic volume slumped 18%.

The company's gross margin slipped to 40.2% in the second quarter from 45.5% a year ago.

It expects full-year net sales growth of about 2%, compared with previous view of 2% to 3%.

Hershey forecasts adjusted earnings per share to be down slightly from prior expectations of flat.