A Sweet Stock for Investors
Tanya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hershey (NYSE: HSY) is the largest producer of quality chocolate in the United States and has operations throughout the world. Clocking annual turnover over $6.5 billion in 2012, Hershey produces confectionery products under more than 85 brand names, including iconic brands like Hershey's, Kit Kat, Hershey's Kisses, Hershey's Bliss, Jolly Rancher, Ice Breakers and Twizzlers.
Looking at the annualized return of Hershey, the stock provided investors a return of 23%, higher than the industry average of 15%. Hershey historically has been paying dividends well and currently sports a dividend yield of 1.9%. The high return of the stock in terms of both price appreciation and dividends makes it a darling for investors. However, Hershey has $1.9 billion in total debt on its balance sheet, which may be a point of concern in the future.
Future growth expectations high
Hershey recently released its full-year 2013 financial expectations. Its diluted earnings per share (EPS) for 2013 is expected to be in the range of $3.50 to $3.60, which is an increase of 10% over 2012. This is due to reductions in its business realignment and impairment charges. Hershey is aiming for expansion in key international markets like China, Brazil and Mexico, which is in addition to its strong competitive advantage in the United States and Canada.
Hershey expects 2013 net sales growth of 5% to 7% with an annual sales of $10 billion in the next two-to-three years primarily driven by innovation in distribution channels, core brand volume growth, the U.S. launch of the Brookside product line and other chocolates such as Kit Kat mini’s and bite-sized Twizzlers. Moreover, the company aims to diversify its portfolio with new product lines like Hershey’s Kisses Deluxe in markets like China.
Mondelez International (NASDAQ: MDLZ) is a multinational confectionery chain consisting of the brands of the former Kraft Foods. Some of the Mondelez brands are Cadbury, Oreo, Trident gum and Nabisco-branded chocolates. For the last three months, Mondelez's stock has been a better performer than most of its peers. With a market cap of $53 billion, Mondelez brands are quite popular, just like Hershey, with a wide variety of product lines tweaked to suit the tastes of the locals. The recent sales figures took a hit for the company and were down 3% to 4% due to capacity constraints, lower coffee prices and currency headwinds.
However, the emerging market exposure and the double digit growth especially in Brazil, Russia, China and India (BRIC) markets is expected to propel the company's growth in the long term. Also the increase in advertising expenditures will help Mondelez tap the growing confectionery market and grow its share. With these long-term objectives in place, the company is looking to achieve a healthy growth rate of 12% to 13% in the next five years.
Nestle (ADR) (NASDAQOTH: NSRGY) has strong brands like Butterfinger, Crunch and Wonka, which are also the most competitive. Not only confectionery products, as Nestle sells everything from bottled water to pet food. If I compare the financial performance, Nestle’s return is 10% vis-à-vis Hershey’s annualized five-year return of 20%.
Coming to growth metrics, Nestle’s five year EPS growth rate is projected to be 7% compared to Hershey’s 25%. Another metrics is return on equity (ROE), which gives an idea of how much profit a company generates with the money shareholders have invested. The ROE figure of Hershey is 71%, which suggests that it is quite profitable and has effectively utilized shareholders' money. Altogether, in spite of Nestle’s diverse portfolio and wider reach, Hershey is likely to score more points than Nestle.
Hershey: Creating a impact for more than 100 years
For years now, Hershey has been producing a positive impact in several communities around the world. It has been hitting the sweet spot for investors for years now. Perceived as a trusted brand, Hershey has huge brand equity and will always remain in the hearts of the common people. It has been performing better than most of its peers in the confectionery market. This strength, along with its new product lines and being investor friendly, makes me believe that the stock will continue to provide consistent returns in the future.
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Tanya Kanodia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!