If the market takes a timeout to consolidate recent gains this spring, consumer staples stocks — and particularly food makers — will regain their place on center stage. In that context, let’s take a quick look at one of my favorites, Hershey (NYSE:HSY) — my pick for the Ten Best Stocks for 2012 contest, and the largest candy manufacturer in North America, controlling a whopping 43% of the market for chocolate.
The company is not dependent on its iconic product, as divisions make cookies, snack bars, baking ingredients and beverages as well as brands like Reese’s and Bubble Yum. Headquartered in Pennsylvania, it’s a sprawling $13 billion outfit whose products are sold in 60 countries. It generates more than $5 billion in annual revenues and employs nearly 14,000 people.
There are many more exciting companies around, but investing is not supposed to be exciting. Looking out over the rest of the year — which still could face a lot of fallout from European sovereign debt woes — I would rather put my hard-earned funds in the care of a proven, stable growth machine like Hershey than with some tech company whose products could be rendered obsolete by the next hotshot to emerge from Stanford with a gleam in his eye.
It’s difficult to avoid products manufactured by Hershey, as they are well placed at check-out stands around the world to capture shoppers’ impulse to indulge after a shopping session. You need clout to put your product at the cash register, and that is something the firm has in spades.
Milton Hershey founded the company in 1894 to take advantage of his invention: a cost-efficient and delicious method of making chocolate candy with milk. A century later, the process of making milk chocolate remains a trade secret as closely held as the Coca-Cola (NYSE:KO) recipe.
Today, the company remains in good hands with chief executive John Bilbrey at the helm. The former Danone (PINK:DANOY) and Procter & Gamble (NYSE:PG) exec took over recently after serving in various management roles since 2003. He knows the business from the inside out.
Click to EnlargeDespite its long and storied history, Hershey plans to stay aggressive in its growth plans, focusing on international expansion. It has a lot of room to grow, as only 15% of revenues at present come from outside the United States. Investors have rewarded Bilbrey’s overseas efforts by pushing shares up 17% over the past 52 weeks, but there is plenty of room for valuation to expand along with earnings.
The company has averaged earnings and operating income growth of 26.4% and 21.4%, respectively, during the past three years and is the best operator in its peer segment, having exhibited inventory improvement in six out of the past seven years. Hershey has done a tremendous job of reining in costs and improving efficiencies; it recently announced $180 million in annual savings, with another $80 million in additional cost savings targeted during the next three years.
Hershey reported fourth-quarter results a few weeks ago that saw organic sales and volume growth that both exceeded management guidance and analyst expectations. The firm went 4-for-4, increasing earnings and revenues, and lifting both the dividend and 2012 guidance. Plus, Hershey’s focus on expanding international sales paid off, as it reported 25% growth in its top targeted markets: Mexico, China, Brazil and India.
That means for the year, Hershey grew net income 23.4% on just over 7% revenue growth, which is very cool. Not a lot of other companies can claim an average of 26.4% earnings growth annually over the past three years.