Hershey or Mondelez: Which Chocolate Powerhouse Had the Better First Quarter?

Hershey (NYSE: HSY  ) , the company behind brands such as Hershey's, Twizzlers, and Ice Breakers, and Mondelez International (NASDAQ: MDLZ  ) , the company behind brands such as Cadbury, Sour Patch, and Trident, are two of the largest producers of candy, mint, and gum in the world and both have recently released their first-quarter reports. Let's compare the companies' earnings results and outlooks on the rest of the year to determine which had the better quarter and which could provide the highest returns for investors going forward.

Breaking it all down

Source: Hershey's Facebook

Hershey released its first-quarter report on April 24 and the results were mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:

Metric Reported Expected
Earnings Per Share $1.15 $1.14
Revenue $1.87 billion $1.91 billion

Source: Benzinga

  • Earnings per share increased 5.5%
  • Revenue increased 2.4%
  • Global volume increased 3.2%
  • Gross profit increased 2.3% to $870.83 million
  • Gross margin contracted 10 basis points to 46.5%
  • Repurchased approximately $272 million worth of its common stock
  • Paid dividends of approximately $105 million
  • Dividend update: On April 28, Hershey announced that it would be maintaining its quarterly dividend of $0.485.
  • Other most notable update: On May 15, Hershey announced that Reese's Peanut Butter Cups will expand into the Brazilian market by the end of the month. Reese's will join other Hershey brands that are already available in the market, such as Hershey's Kisses, so the company expects a smooth and efficient expansion process.

Source: Cadbury's Facebook

On May 7, Mondelez released its first-quarter report and the results exceeded analysts' expectations on both the top and bottom lines; here's a breakdown and year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.39 $0.33
Revenue $8.64 billion $8.63 billion

Source: Estimize

  • Earnings per share increased 17.1% on a constant-currency basis
  • Revenue decreased 1.2%
  • Gross profit decreased 1.2% to $3.20 billion
  • Gross margin was unchanged at 37.1%
  • Repurchased approximately $468 million worth of its common stock
  • Paid dividends of approximately $238 million
  • Dividend update: Mondelez did not set a date for its next dividend payment, but it is expected to maintain its quarterly dividend of $0.14.
  • Other most notable update: On May 7, Mondelez announced it had entered into an agreement with D.E. Master Blenders 1753 to combine their respective coffee businesses to create the largest pure-play coffee company in the world. The newly formed company is to be named Jacobs Douwe Egberts and will be based in the Netherlands.

What will the rest of the year hold?

Source: Hershey's Facebook

In its report, Hershey noted that it expects sales to "accelerate over the remainder of the year" and this allowed the company to reaffirm its full-year guidance; here's a summary of what the company expects to achieve:

  • Earnings per share in the range of $4.05-$4.13, which represents growth of 9%-11% from fiscal 2013
  • Revenue growth of 5%-7%
  • Gross margin expansion of approximately 20 basis points
Hershey added that it will be launching new products that will include York Minis and Brookside Crunchy Clusters. Also, it will further expand Hershey's Chocolates, Hershey's Kisses, and Reese's Peanut Butter Cups into new markets in the second half of the year; these plans will help Hershey accomplish the growth it expects for the full year and will set the company up for continued success going forward.

Source: Cadbury UK

In Mondelez's report, the company reaffirmed its profit outlook for the full year of fiscal 2014, but it lowered its organic revenue target; here's a summary of the updated expectations:

  • Earnings per share in the range $1.73-$1.78 on a constant-currency basis
  • Organic revenue growth of 3%, down from its previous estimate of 4%
Mondelez's earnings per share guidance calls for growth of 14.6%-17.9% from fiscal 2013 and the company noted that the lowered organic revenue growth estimate is a result of weakness in the emerging markets and lower coffee prices. Also, Mondelez informed investors that it expects its deal with D.E. Master Blenders 1753 to close in 2015 and the deal will result in $5 billion of cash proceeds, which the company will use to repurchase shares and reduce its debt.

Source: Hershey's Kiss

And the winner is...
After reviewing the companies' quarterly results and outlooks on the rest of the year, I must conclude that Mondelez International had the stronger quarter; it showed much better growth on the bottom line, expects much higher earnings growth for the fiscal year, and its deal with D.E. Master Blenders 1753 will create an absolute force in the coffee industry next year.

However, even though Mondelez had the better quarter, I believe Hershey represents the better investment opportunity today. Hershey has been innovating and expanding its brands' presences rapidly, and I believe this will lead the company to record revenues over the next few quarters. Today, Hershey's stock sits more than 10% below its 52-week high, which represents a picturesque buying opportunity, so Foolish investors should strongly consider initiating long-term positions right now.

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  • Report this Comment On May 22, 2014, at 8:07 AM, BradReeseCom wrote:

    Hi Joseph,

    The fact that Hershey's accounts receivables soared +$103.9 million on a mere +$44.387 million increase in net sales is a huge "red flag" in my opinion.

    By comparison, the accounts receivables of Mondelez dropped -$365 million on a -$103 million decrease in net sales.

    Sincerely,

    Brad Reese

  • Report this Comment On June 04, 2014, at 5:15 PM, lutherwilliam wrote:

    The author came to the right conclusion, for those opportunistic enough to take advantage of it. Ignore the numbers. The empirical evidence tells you that Hershey is presently waaaay undervalued and is due to pop--or, if you prefer, to explode to the upside like a rocket. Investors will soon be paying for further growth, with no firm number for the P.E. in sight because the future is so promising. I'm placing a big bet on the stock--LNG has maxed out, but HSY hasn't. It's the energy that powers American energy cells and sugar addicts the world over.

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