Hershey or Mondelez: Which One had the Sweeter Quarter?

Hershey (NYSE: HSY  ) and Mondelez (NASDAQ: MDLZ  )  are two of the most popular chocolate, candy, and gum producers in the world. These companies are home to numerous billion-dollar brands, making for a fierce competition in the global marketplace. These giants have recently reported their quarterly results and provided their outlooks on 2014, causing both stocks to move higher. Let's compare the results of Hershey and Mondelez and decide which one had the better quarter and where we should invest our money today.

The chocolate giants
Hershey is arguably the most popular chocolate producer in the United States and the company has more than 80 global brands, including Hershey's, Reese's, Kit Kat, Jolly Rancher, York, and Twizzlers. Hershey also has lines of premium chocolates, with the most popular of these brands being Scharffen Berger and Dagoba, which allows the company to appeal to all tastes.

Source: Hershey.

Mondelez International is home to several of the world's most popular chocolate brands, including Cadbury, Milka, and Lacta. The company also owns numerous snack food brands such as Oreo, Nabisco, and Ritz. Mondelez was formed when Kraft Foods split into two separate companies in October 2012, which unlocked shareholder value and allowed the two newly formed companies to focus on their brand families.

Source: Cadbury.

The earnings reports
Hershey released its fourth-quarter report for fiscal 2013 on Jan. 30 and the results either met or exceeded expectations. Here's an overview of the report and a year-over-year comparison:

Metric Reported Expected
Earnings per share $0.86 $0.86
Revenue $1.96 billion $1.89 billion
  • Earnings per share increased 16.2%.
  • Revenue increased 11.7%.
  • Gross profit rose 13.7% to $857.4 million.
  • Gross margin expanded 80 basis points to 43.8%.
  • Quarterly dividend: maintained at $0.485, resulting in a yield of about 1.9% at current levels.
  • Hershey updated its CMG (candy, mint, and gum) market share information, showing a 31.1% share in the United States and a 10.2% share in China.

Feb. 12 brought Mondelez's fourth-quarter report for fiscal 2013 and the results came in below analyst estimates. Here's a breakdown of the report and a year-over-year comparison:

Metric Reported Expected
Earnings per share $0.42 $0.44
Revenue $9.49 billion $9.59 billion
  • Earnings per share increased 16.7%.
  • Revenue decreased 0.1%.
  • Gross profit fell 1.6% to $3.49 billion.
  • Gross margin declined 60 basis points to 36.8%.
  • Quarterly dividend: no update given, but it appears the dividend will remain at $0.14, giving the stock a yield of 1.7% at current levels.
  • Mondelez's power brands, including Cadbury Dairy Milk, Milka, and Lacta, continued to grow faster than the company average and they were up 4.1% overall.

Outlook on the year
In its report, Hershey affirmed its outlook for fiscal 2014. For the year, the company expects the following:

  • Adjusted earnings per share of $4.05-$4.13, an increase of 9%-11% from fiscal 2013.
  • Revenue growth of 5%-7%. 

This outlook was right in line with analyst expectations, which called for earnings per share of $4.12 on revenue of $7.6 billion. Hershey added that it expects sales to be driven by core brand volume growth as well as its new products in the marketplace, including Hershey's Spreads and Lancaster Soft Cremes. Overall, strong earnings and an in-line outlook were welcomed with open arms by Wall Street, and as a result the company's shares have risen more than 7% since the report.

After Mondelez's earnings and revenues came in weaker than expected, the company surprised investors when it handed over better-than-expected guidance for fiscal 2014. Here is what the company expects the year will hold:

  • Earnings per share of $1.73-$1.78, an increase of 14.6%-17.9% from fiscal 2013.
  • Organic revenue growth of 4%.

The consensus analyst estimate was for 2014's earnings to be guided at $1.71 per share, which is less than the low end of Mondelez's actual outlook. This was a huge positive of the report and I believe it prevented a large-scale sell-off in the stock. When it comes to investing, we must focus on where a company is going, not where it's been, so I believe Mondelez's strong outlook outweighs the earnings miss; the market seems to agree, as it pushed shares more than 2% higher following the release.

And the winner is...
After comparing these companies' earnings reports and outlooks for fiscal 2014, the clear-cup champion in this match-up is Hershey. Its growth had begun to slow in recent years, but the company has made numerous moves to expand its presence and I believe it will make even more in 2014. I think its new products will be instant hits and its international expansion efforts will allow it to continue to grow its global market share. All of this will lead to much higher share prices and the company will add to the returns via its healthy 1.9% dividend. I believe Hershey belongs in all portfolios, so investors who don't own it should strongly consider initiating positions right now, before the stock heads higher. 

Our top stock for 2014
Hershey and Mondelez are both very good stocks, but there's a huge difference between a very good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 14, 2014, at 2:26 PM, BradReeseCom wrote:

    Hi Joseph,

    You inaccurately state:

    "These companies are home to numerous billion-dollar brands, making for a fierce competition in the global marketplace."

    According to Advertising Age and Euromonitor International, The Hershey Company's ONLY "billion dollar brand" is Reese's:

    http://adage.com/article/news/snickers-surging-top-global-ca...

    Think about that for a moment, in 2012 Reese's was the #4 ranked global candy brand with just a mere $76 million of its global $2.679 BILLION in sales outside of the United States.

    If you visit The Hershey Company's International websites, the Reese's brand is "invisible" which has cost HSY shareholders untold billions in new wealth:

    http://www.thehersheycompany.com/about-hershey/hershey-inter...

    Reese's is the "BIG BRAND" and that's something Hershey's "hayseed provincial management culture" can't accept.

    Sincerely,

    Brad Reese

  • Report this Comment On February 14, 2014, at 11:22 PM, CarlBuffett wrote:

    Brad, stop your whiny, repetitive posts. Getting bit tired of seeing you jump on EVERY Motley article that is posted. The folks on Motley do a nice job covering sticks. Your posts add zero value. If Reese was that great "back in the day", your apparent relatives wouldn't have sold Reese to Hershey. Look in the mirror, take a deep breath, and say to yourself "Hershey built the Reese brand to powerhouse status". Exhale. Do this 10 times over. You will feel much better. Your posts are annoying and offer no investment relevance. Get a life. Or go picket in front of a Hershey factory with your tripe. Good grief....

  • Report this Comment On February 15, 2014, at 3:09 AM, BradReeseCom wrote:

    Hi CarlBuffett,

    My father, Charles Richard Reese, was the youngest of the 6 Reese Brothers who were the sole owners of the H.B. Reese Candy Company.

    You inaccurately state:

    "Your apparent relatives wouldn't have sold Reese to Hershey."

    It was a tax free stock-for-stock merger with the Reese Brothers restricted by an "investment letter" from selling any HSY shares:

    http://www.bradreese.com/blog/hb-reese-candy-co-hershey-choc...

    Those 666,316 Reese Brothers shares of HSY common stock valued at $23.5 million in 1963 now represent 16 million HSY shares after stock splits:

    http://www.thehersheycompany.com/investors/stock-information...

    That means The Hershey Company works for the Reese Brothers!

    Deal with it,

    Brad Reese

  • Report this Comment On February 15, 2014, at 8:11 PM, CarlBuffett wrote:

    Missed a point there the "Blah, blah, blah Brad". The point is this is an investment site and your posts offer no value. No cares about that your Daddy was somehow related to a defunct HB Reese Co. What is relevant my friend is today. Not 1963. What is relevant is the fundamentals & earnings of the HSY company today. And frankly I think the Motley writer does a pretty fair job assessing a comparison of HSY to MDLZ. I think if you asked various HSY shareholders on here they feel pretty good about the value HSY has provided. Now I'm sure you have some retort prepared, but can't convince the irrational to become rational. Let's keep responses on target here. This is an investment site, not a company genealogy site.....

  • Report this Comment On February 16, 2014, at 2:32 PM, BradReeseCom wrote:

    Hi Carl,

    Good point:

    "What is relevant is the fundamentals & earnings of the HSY company today."

    Well, according to Advertising Age and Euromonitor International during 2012 the "non-union" H.B. Reese Candy Company which manufactures both Reese's and Kit Kat (Reese manufactures Kit Kat in the United States):

    The combined 2012 Reese's Brand sales (global) plus Kit Kat sales (United States) that are BOTH manufactured by the "non-union" H.B. Reese Candy Company:

    $3.627 BILLION

    http://www.bradreese.com/top-global-candy-brands-2012.pdf

    The Hershey Company's consolidated net sales for 2012 in thousands (page 18):

    $6,644,252

    http://www.sec.gov/Archives/edgar/data/47111/000004711113000...

    3.627 divided by 6.644 = 54.59%

    Carl, you "inaccurately" state:

    "A defunct HB Reese Co."

    Here's why your above statement is "inaccurate," the "non-union" H.B. Reese Candy Company manufactures 54.59% of The Hershey Company's total consolidated net sales!

    Furthermore, here's the "running joke" among Wall Street investment bankers who have done "due diligence" on The Hershey Company's financial statements:

    The Hershey Company is nothing more than the H.B. Reese Candy Company doing business as (DBA) The Hershey Company.

    Carl, glad you're happy with the value of your HSY shares.

    However, I'm NOT satisfied with the value HSY has provided because in my personal opinion the company is still underperforming given its valuable candy brands, especially given its most successful brand, Reese's.

    For example, on January 6, 2011 Reese's Minis were announced at the Las Vegas Consumer Electronics Show:

    http://www.businesswire.com/news/home/20110106005087/en/Rees...

    Reese's Minis became the #1 new product launch in the United States in 2011 with everyday retail sales that year that exceeded $122 million (its first year of sales).

    Once again, Hershey continues to refuse to market and/or promote the Reese's Brand outside the United States and it has cost HSY shareholders untold billions in new shareholder wealth.

    So Carl if you're happy good for you, however, I'm not happy because I expect The Hershey Company to perform far, far better than it has!

    Sincerely,

    Brad Reese

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