Scientists tell us that chocolate consumption encourages our brains to release feel-good endorphins, like when you're falling in love. While I'm stuck at home during the coronavirus crisis, I'm earnestly conducting research on this premise, all in the name of science. My preliminary conclusion supports this thesis, but more research is called for (she said, reaching for more).

Since The Hershey Company (NYSE:HSY) makes several chocolate products that are delicious, and it recently released its first-quarter earnings report, it seems like the right time to evaluate the stock to see if the chocolate will keep coming.

Hershey's results leave you wanting more

Hershey reported first-quarter 2020 earnings on April 23. The quarter was an unusual one, as could be said for most companies in the midst of the coronavirus pandemic. Hershey's management said that pre-pandemic, expectations were fully on track for both the first quarter and full year. Then the coronavirus started to spread worldwide, and everything changed.

A melting chocolate bar drips down.

Image source: Getty Images.

In March, as shelter-in-place orders were being issued, consumers were stockpiling pantry goods; total Hershey retail sales growth registered 10% in March, but dropped thereafter. 

For the quarter, North American sales increased 2.1%, its second-lowest quarterly sales growth in two years. Chinese sales fell 46.7%, due to the coronavirus lockdown, while revenue fell, though to a lesser extent, in India, Mexico, and Brazil for the same reason.

Hershey's Q1 net sales rose by 1% year over year to $2.04 billion. Diluted adjusted earnings per share were $1.63, versus $1.59 in the same quarter the previous year. First-quarter 2020 EPS missed Wall Street's expectation of $1.71.

At the earnings release, Hershey followed the trend of many companies these days and pulled its 2020 forecast. The reason was market uncertainty as consumers cut spending, but also that 2020 growth was partly predicated on increasing geographic distribution, now delayed by the pandemic.

Snacking worldwide takes a time-out

Hershey isn't only about chocolate. Its product mix also includes gum and mints; pantry items, such as baking ingredients; and snacks, like spreads, meat snacks, and bars.

The company plans international expansion to be a growth driver. Discussing the overall impact of the health crisis on individual international businesses, CFO Steve Voskuil said, "While these businesses saw a minimal COVID-19 impact during the first quarter, we expect a more significant impact in the second quarter given the shelter-in-place restrictions that were implemented in late March and early April." 

After Hershey China saw the 46.7% drop in business in the first quarter, CEO Michele Buck said regarding comeback prospects for the second quarter:

It's better than we anticipated. It's better than we saw in February, but it's clearly in a ramp-up recovery. So it's not close to back to normal yet. The move from offline to online is very real, it's continued, and just like we think it will be here in the U.S. 

As for its supply chain, West Africa, the source of most of Hershey's cocoa, has not been hit very hard yet by COVID-19, but disruption there could cause a ripple of problems for Hershey.

According to management, the procurement team anticipated this issue and has already acquired enough cocoa for the entire year's production, while also identifying alternative cocoa sources in case they're needed. The company also maintains that it is working closely with West African governments to assist in protecting the cocoa industry. 

What does this mean for investors?

The iconic Hershey brand has been around for 125 years, outlasting depressions, wars, and even pandemics. Resilience is part of the Hershey DNA, and the company will come out of the coronavirus crisis just fine. 

But let's look at today's fundamentals. The price-to-earnings ratio is 25.6, compared with the sector average of 26.2. The price-to-earnings-growth (PEG) ratio is 3.48, which suggests the stock is overvalued.

Although Hershey pays a nice 2.03% dividend, both the P/E and PEG are unfavorable at this time. It is so difficult to predict market conditions and sales at this point, that 2020 guidance has been pulled. I can see no reason to invest in Hershey at this time. The future is just too foggy to justify it.

But that won't stop me from doing everything I can to support Hershey with my chocolate consumption during the coronavirus self-quarantine. After all, scientists have said it's a feel-good treat, and we all need a little of that right now.