I like Hershey (NYSE: HSY), but I can't say that its latest quarter was as mouthwatering as one of its delicious bars of chocolate.
Top-line growth was anything but spectacular -- Hershey eked out a minuscule 1.2% net sales gain for the first quarter. Net income decreased 20% to $0.40 per diluted share.
Adjusting for business realignments, net income was unchanged at $0.51 per diluted share. That's about what Wall Street expected the company to do -- which means that Wall Street wasn't happy.
When dealing with a blue-chip brand like Hershey, however, I would say to forget short-term woes and focus on long-term potential. This isn't to say that the quarter's lacking performance should be ignored. Hershey's fundamentals definitely have room for improvement.
Hershey is in a bad phase. This past February, Rick Munarriz mentioned in one of his look-back pieces that the confectioner was in the midst of laying off well over a thousand workers. There was also some bad guidance issued in December. In addition, I found, while covering one of the earnings reports last year, that Hershey wasn't necessarily wowing the shareholders.
Recently, some merger talk has surrounded the company. Cadbury Schweppes (NYSE: CSG) is looking to split its confection business from its beverage business, leaving some to wonder if Hershey and Cadbury would join forces; such a combination could make sense, especially since Hershey has a distribution arrangement with Cadbury for some of the latter's products and since both have powerhouse brands. It's difficult to predict the exact chances for a merger, and I suppose this issue could put some volatility into the shares.
I think Hershey remains a viable long-term idea on its own, even with its current growth problems, since it owns a valuable portfolio of famous consumer brands that generates a good amount of cash. The confection industry has some strong names out there, such as Wrigley (NYSE: WWY) and Tootsie Roll (NYSE: TR), but Hershey will hold its own.
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Fool contributor Steven Mallas owns none of the companies mentioned. After writing this, he is in the mood for a Mounds bar. As of this writing, he was ranked 14,635 out of 27,496 investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
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