For the second quarter, Hershey's top line didn't budge a bit. It literally remained exactly the same, at $1 billion. If you think net sales were weak, then you're not going to like net income at all. It dipped, on a diluted per-share basis, by 17%, coming in at $0.35. Unfortunately, this performance has already been adjusted for charges, so don't look for any help on that front.
Expensive milk usually doesn't help a milk chocolatier, and it's sure not doing Hershey any favors, as higher dairy prices are spoiling the profit sweetness that shareholders love. Pricier milk, in fact, squished Hershey's gross margin by 7.5 percentage points. That fall dropped all the way to the bottom line, where profit shrank to the thickness of a single little Hershey bar -- from $98 million in last year's quarter to $3.6 million this quarter.
Hershey is not having a good time. Its first quarter was anything but spectacular, though the company probably would've loved to post those results again, since net income was flat instead of down at the time. And guidance for the rest of the year is quite disappointing, too -- management expects earnings to decline by an amount somewhere in the mid-single digits. Indeed, Hershey is no stranger to bitter guidance as of late.
Confections can be a great business -- just ask Tootsie Roll
Yes, milk prices are high and all, but the company must get people excited about its goodies, especially recently introduced ones. Doing so will require fresh marketing strategies and better product innovations. On a somewhat related note, management just announced a cool initiative -- Starbucks
Let's get to the bottom line -- Hershey needs to turn itself around. It's near a 52-week low, and by all accounts, it could trend lower, although I can't predict the movement of stock prices. (Who can?) I still like Hershey, however; it's got a decent yield right now of 2.2%, and its brand value is top-notch. It'll take time for management to map out a return-to-growth strategy -- and it surely needs one -- but with its great portfolio of products to leverage, I prefer to think like a long-term investor in this situation rather than a gun-slinging, short-term hedge-fund trader.
More Foolish coverage of Hershey:
Wrigley is a selection of the Motley Fool Income Investor newsletter service. Editor James Early loves to find stocks with good yields. Oh, and he's beating the market, too. Sign up for a free, no-risk trial to check out his winning portfolio.
Starbucks is a proud member of the Motley Fool Stock Advisor recommendation list.
Fool contributor Steven Mallas owns none of the companies mentioned, but he wishes he had owned a Reese's Peanut Butter Cup while he was composing this article. As of this writing, he was ranked No. 12,737 out of more than 60,000 investors in Motley Fool CAPS. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.