Hershey Posts a Sweet Quarter

Hershey (NYSE: HSY  ) posted higher-than-expected second-quarter profits of $130 million and forecasted a strong year. Things look pretty sweet for the second-largest U.S. candy maker, although its attempts to make global inroads still look a little shaky.

This marks the fourth consecutive quarter of profit growth for the maker of Reese's and Kit Kat, which benefited from higher sales despite the tug of inflation. It's interesting to see how Hershey manages to keep a lid on costs as high dairy and cocoa prices threaten to eat into chocolate consumption.

Hershey forecasted full-year earnings per share to grow 10%, up from an earlier outlook of 6% to 8%. Sales for the period are now expected to grow 6% versus its earlier estimate of 3% to 5%.

By the numbers
Revenue for the quarter increased 7.5%, to $1.32 billion. Volume growth, mainly in new products, in both the U.S. and international markets helped the sales increase, as did earlier-than-expected product shipments.

Net income rose to $130.0 million, compared with just $46.7 million in the year-ago quarter. EPS of $0.56 inched above the market's expectation of $0.55.

Hershey's operating margin significantly improved to 17.2% from 10.1% last year, indicating that higher pricing and good momentum in newly launched products contributed to the company's efficiency.

Weak global strategy
On the downside, Hershey's expansion plans, with the exception of India and China, don't paint a picture of confidence. Although the company hasn't ruled out acquisitions in its pursuit of growth, it remains to be seen how strategically the company moves on the acquisition front.

Hershey faces problems making inroads into the global market. Analysts say the company has often ventured into foreign projects without testing the waters and ended up facing difficulty with competitors.

Hershey's CEO plans to spend more time on rapidly growing economies such as India and China to expand sales and catch up with rivals such as Kraft Foods (NYSE: KFT  ) , which recently took over the legendary Cadbury brand and now appears to be spinning it off. With the growing purchasing power of the middle class in these emerging economies, it's almost a necessity to expand there.

The Foolish bottom line
Hershey has a positive outlook in terms of revenue and profit this year, and it seems to be geared up for its upcoming challenges, at least in the short run. As long as the company addresses its global strategy and implements it correctly, its long-term health looks good, too. Given its strong fundamentals and the insatiable demand for chocolate, this stock should continue to be a tasty investment.

Fool contributor Navjot Kaur owns no shares of any of the companies mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


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