The lone recent negative would be the quarterly decline in gross margins, but according to Morningstar analyst Erin Lash, this stemmed from the company’s Project Next Century restructuring initiative. The goal is to transition production from the company’s century-old facility on East Chocolate Avenue in Hershey, Pa., to a more modern facility. Management anticipates margins will improve by 75 basis points this year as volumes accelerate.
Hershey increased its dividend over 10% to 38 cents per share from last quarter and has grown it 21% the past three years. That’s what the top performers do: return rising cash flow to shareholders.
The company feels strong about its future, as Bilbrey raised the company’s previous 2012 earnings growth guidance from a 6%-8% range to a 9%-11% range. This is despite the fact that overall, the production of candy in the U.S. grew by just 2.8% in 2011.
Hershey’s sales in the core candy, gum and mint segments are trending higher, as they grew 4.5% last quarter, above the average historical growth of 3% to 4% annually. Margin improvements and international expansion is what will drive this candy maker in the future.
From a seasonal point of view, moreover, the next 21 days tend to be very sweet indeed, as HSY has risen over that span by an average of 3.5% in each of the past seven years, with spikes as high as 5% to 9% from here. I love how Hershey tends to do well in the years that are the toughest for all other stocks. It advanced in rough-and-tumble 2001 in the next 21 days by as much as 13%, and in dreary early 2008 and 2009 by as much as 4.7%.
You can buy Hershey now, or if you are patient you probably will have a chance to buy the stock on a dip back to $59.50 on a modest market setback, or at $55 on a larger one.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and a long-term investment service, Strategic Advantage. Check out his Top Stock for 2012 here.