Hershey Starting to Sugar-Coat the World

by Jon Markman | September 4, 2012 12:50 pm

[1]It’s been a sweet summer in the stock market so far, which seems like as good a reason as any to update you on our favorite candy maker and my pick for InvestorPlace‘s Ten Best Stocks for 2012[2] contest, The Hershey Co. (NYSE:HSY[3]).

We last took a look at the iconic company here[4], and things continue to look bright. To bring you back up to speed, the confectionary giant generates more than $6 billion in net sales in 70 countries with 13,000 employees. Its iconic global brands include Hershey’s, Reese’s, Jolly Rancher, KitKat, Rolo and Twizzlers.

The company’s global reach is unsurpassed, and Forbes has ranked the Hershey brand fifth overall. International sales continue to grow, and now make up more than 15% of the firm’s total, up from less than 10% in 2004.

This strong growth overseas hasn’t tempered expectations, however, as HSY is focused on increasing its presence in emerging markets. Hershey has been able to improve chocolate candy sales in China, India, Eastern Europe and Latin America by double digits annually the past few years.

Despite its dominance in the chocolate market, the overall confections industry remains highly fragmented globally, presenting Hershey with a tremendous opportunity. It can be hard to imagine there being much growth left for a $16 billion company that’s already a household name. But the fact is Hershey only holds 4.7% of the global candy market, and international sales will be the primary driver for the company moving forward.

According to market research firm Euromonitor International, the global confectionery market sits at $160 billion, and has grown at 5% annually the past five years. Meanwhile, the chocolate market in the United States is largely a two-horse race between Hershey (43%) and private company Mars, Inc. (31%). The next-largest competitor, Nestle (PINK:NSRGY[5]), holds only a 6% U.S. market share.

Hershey’s revenues come primarily from the mass merchandisers (33%) and supermarket (25%) channels, followed by convenience stores and drug stores to a much lesser degree. And the company has spent the past year growing those channels by a combined 8.3% from the previous year, representing nearly a full percentage point in market-share gain from its peers.

Hershey was able to grow net sales by 7% the past two years, and the firm expects 2012 growth to come in between 7% to 9%. Meanwhile, earnings per share are expected to come in 10% to 12% higher than 2011.

John Bilbrey remains at the helm as CEO, a position he took over last year after spending time in a number of management roles since 2003. The company posted second-quarter earnings in late July[6], posting revenues of $1.4 billion that were up 6.7% from a year ago and largely in line with analyst expectations. Meanwhile, earnings grew 4.4% from a year ago to $135.7 million, marking the third consecutive quarter of rising income.

Bilbrey said the investments HSY has made during the past few years have enabled it to deliver profitable and sustainable growth, and it’s hard to argue otherwise when you examine the results.

Most recently, on Aug. 7, Hershey announced a quarterly dividend on the common stock of 38 cents per share. HSY has been a pillar of consistency, as this represents the company’s 331st consecutive dividend. Since 2000, it has been able to raise its dividend payout by 181% to $1.52 annually, good for a current 2.1% yield.

Executing its profitable and sustainable North American business model in a number of overseas markets is priority one, and Hershey continues to show it can achieve this with minimal disruption. Shares are now up more than 16% this year, creating a number of new highs in the process. Keep holding.

Jon Markman operates the investment firm Markman Capital Insights[7]. He also writes a daily trading newsletter, Trader’s Advantage[8], and a long-term investment service, Strategic Advantage[9]. Check out his Top Stock for 2012 here[10].

Source URL: https://investorplace.com/2012/09/hershey-is-sugar-coating-the-world-hsy/

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