Hershey's (NYSE: HSY ) , the largest chocolate manufacturer in the country, recently released its annual results, which beat analyst expectations. The market already seems to be in Hershey's favor, as the company's shares have appreciated nearly 20% over the past year.
Let's go behind the scenes to find out the factors that propelled Hershey's growth and what's in store for the year ahead.
What the earnings say
They say four successive years of solid top-line growth! Total revenue came in at $6.08 billion for 2011, 7.2% higher than the previous year. This was achieved through a combination of volume growth and price increases. The company has performed pretty well outside the U.S. -- it registered a 25% growth in annual sales in key markets including Mexico, China, Brazil, and India.
Hershey's well-placed distribution channels, comprising retailers such as Wal-Mart and other locations, which together account for 80% of the total business, was instrumental in lifting sales. The company did increase its prices last year, but cushioned this hike through a range of promotional tools such as coupons and programming. This resulted in customer retention and kept the pushback within expectations.
Although price increases may have been the reason behind the dip in volumes, it certainly boosted Hershey's bottom line. Hershey's operating income for the year clocked in at $1.5 billion, which is 5% more than that of the year-ago period. Also, net income stood at $629 million, which translates to a solid improvement of 23.4%.
The year ahead
Hershey's recently acquired Brookside Foods, a well-established brand in the U.S. and Canada. Brookside looks like a growth story worth buying into, with sales increasing at a compound annual growth rate of 20% over the last three years. Management expects the acquisition to add approximately $90 million to the company's top line in 2012.
After successful product launches of Reese's Minis and Hershey's Drops, Hershey's plans to introduce more products such as Jolly Rancher Crunch 'N Chew and Rolo Minis this year. These launches will be supported by a double-digit increase in its advertising budget. With new additions to its portfolio, Hershey's has raised its outlook and is expecting net sales growth in the range of 5% to 7% in 2012.
The Foolish bottom line
I feel Hershey's is on the right track, adapting itself to the subtle changes in the market. With more product lines, and fast-growing markets to take advantage of, there is reason to believe that Hershey's will enjoy another strong year.
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