Chocolates Have A Feel Good Factor
Somnath is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chocolate is believed to boost serotonin and endorphin levels in the brain, which have an uplifting effect. The so-called 'chocolate high' is due in part to the substance phenylethylamine (PEA), which occurs naturally in the brain and is allegedly released at times of emotional arousal. Hence the traditional lover's gift of a box of chocolates, and the craving for chocolate that some people report when they feel depressed. No doubt, while Americans have struggled with a financial crisis, the U.S. chocolate market has been growing around 6% a year and shareholders continue to see good return on their investment.
The candy and confection industry remained strong through the recent recession, with the chocolate industry in particular having strong sales despite belt tightening. Considered a luxury, chocolate surprised many industry observers with continued sales strength over the last several years. Though people spent less on big ticket items like vacations, consumers refused to give up the little ways they spoil themselves at home. A chocolate bar is often considered an “affordable luxury.” The Hershey Company and Kraft Foods, two of the world's largest publicly traded chocolate companies, have posted 1-year and longer-term stock market returns. Also on the heels is Rocky Mountain Chocolate Factory, Inc.
The Hershey Company (NYSE: HSY) on 18th September announced the official opening of world’s most technologically advanced chocolate making facility – a $300 million investment in Hershey, Pa., that positions the company for its next 100 years of global growth. The new facility features proprietary, state-of-the-art technology never before used in the manufacture of confectionery. The new technology was developed specifically for the plant, including highly automated, large-scale Hershey’s Kisses Chocolate operations. The plant’s advanced Information Technology systems include automated, real-time diagnostics systems to help keep operations running smoothly 24 hours a day. The company has a high ROE of 64.8% and its three year net profit margin, which averages 9.19%. The current closing price is $70.95. In August the company declared a quarterly dividend of $0.38.
Kraft Foods (NASDAQ: KRFT) is a holding company. Through its subsidiaries, manufactures and markets packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. As of Dec. 31, 2011, company’s portfolio included brands such as Oreo, Nabisco and LU biscuits; Milka and Cadbury chocolates; Trident gum; Jacobs and Maxwell House coffees; Philadelphia cream cheeses; Kraft cheeses, dinners and dressings; Oscar Mayer meats; and Tang powdered beverage. Its reportable segments are U.S. Beverages, U.S. Cheese, U.S. Convenient Meals, U.S. Grocery, U.S. Snacks, Canada and North America Foodservice, Kraft Foods Europe and Kraft Foods Developing Markets. The ROE of KFT is low at 9.6% and its three year net profit margin averages 7.55%. The current closing price is $41.32. In September the company declared a quarterly dividend of $0.29.
Rocky Mountain Chocolate Factory (NASDAQ: RMCF), another confectionary manufacturer, is an international franchisor, confectionery manufacturer and retail operator. It manufactures a line of chocolate candies and other confectionery products, which include clusters, caramels, creams, mints and truffles. In addition, RMCF operates eight trucks and ships a substantial portion of its products from the factory on its own fleet and delivers its products to the stores. They back-haul its own ingredients and supplies, as well as products from third parties, on return trips. At Mar 31 2011, there were 12 Co.-owned, 42 licensee-owned and 302 franchised Rocky Mountain Chocolate Factory stores operating in 37 states, Canada, and the United Arab Emirates. The current closing price is $12.30 per share. The company has a high ROE of 22.3% and its three year net profit margin, averages 12.12%. In August the company declared a quarterly dividend of $0.11.
The U.S. is ranked 11th in chocolate consumption with the average American consuming 12 pounds of chocolate per year. The Swiss, Austrians, Germans, Irish, British, Norwegians, Danes, Belgians, Swedes and Australians all consume more chocolate than Americans. In China, chocolate sales have increased more than 40% since 2009 and demand in other emerging markets is expected to grow more than 60% by 2016.
Feeling good already
The chocolate industry has proven both resilient during the recession and innovative to meet changing consumer tastes and criteria. Growth will remain strong as chocolate gains in popularity in new markets and the global economy powers ahead. Healthier varieties are gaining market share and discerning consumers are willing to pay a premium for ethical production, but through it all, chocolate demand continues to grow. With the rise in demand, even the the stocks of chocolate companies will give investor a feel good factor.
SomnathGuha has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.