Milton Hershey would be 156 years old today. However, since his death in 1945, Mr. Hershey's legacy still has had an effect on Hershey's (HSY 1.83%) business. Mr. Hershey's original business, the Lancaster Caramel Company, is what has led to Hershey's most innovative product launch in the past 30 years. But is Hershey still a good investment option compared to its peers?
The Lancaster brand
The new line of soft cremes will launch in January 2014 and will come in three different flavors: caramel; vanilla and caramel; and vanilla and raspberry. According to Hershey, Lancaster soft cremes offer a long-lasting and unique taste. This unique taste is supposedly what will separate Lancaster caramel from competing brands.
Hershey didn't just launch Lancaster to honor Milton Hershey. Consumer demand for caramel is growing. Much of that demand has come from China. Hershey has already launched the brand in three Chinese cities. Thanks to high demand, Hershey will launch the brand on a broader scale in China in fiscal year 2014. This is also a potential indication that the Lancaster brand will perform well once launched in the United States. However, you should keep in mind that Chinese consumers are eager to try all kinds of new sweets after many of them have moved to middle-income territory and can now afford such luxuries. High demand in China doesn't necessarily equate to high demand in the United States. You will likely notice an aggressive advertising campaign for Lancaster soft cremes beginning in the first quarter of next year.
Strategic global expansion
Hershey recently spent $250 million building a confectionery plant in Malaysia. This location was chosen due to its strategic access to the majority of Asia and its political stability. The plant was built to support growing demand for Hershey products in Asia. It will produce Hershey's Kisses, Hershey's Milk Chocolate bars, Reese's, and Ice Breakers, utilizing high-speed wrapping technology. This plant widens Hershey's distribution network and has the potential to aid both the top and bottom lines.
Hershey expects international sales of $1 billion by the end of next year, and overall sales of $10 billion by fiscal year 2017. These are impressive numbers, but Hershey isn't the only company capitalizing on sweet tooths around the world.
Oreoholics
If Oreos are as addictive as cocaine -- as a recent study from Connecticut College suggests -- then you should expect a lot of people to continue to consume Oreos repeatedly, which would benefit Mondelez International (MDLZ 0.20%).
Even if that's not the case, this free publicity for Oreos should lead to increased sales. And Oreos are already the best-selling cookie in America. If you're not a big believer in Oreos, then you should also consider the fact that Mondelez International is the proud owner of Chips Ahoy!, as well as many other cookie and candy brands.
Mondelez International is also taking matters into its own hands with innovative technology that will allow the company to determine a customer's age and gender via a "Smart Shelf" and then produce a video or audio ad matching consumer trends for those demographics. The Smart Shelf uses Kinect for Windows with motion-tracking technology. If that sounds a little Big Brother-ish, don't worry, this technology is unable to determine personal information. It's more like a Little Brother. Whatever the case may be, Mondelez International's powerful brands and high-tech innovation should lead to future growth.
Sweet and sour
Nestle (NSRGY 0.29%) is the largest food and drink company in the world. When it comes to sweets, Nestle owns several household name brands, including Butterfinger, Smarties, Wonka, and Crunch.
Nestle recently reported a year-to-date sales increase of 4%, with growth in price, product, and geography. Europe, Asia, and Africa have all seen improvements. At the same time, Nestle admits that the economic environment is challenging and that it must be innovative, strengthen its brand portfolio, and focus on efficiency in order to thrive.
Nestle has a long-term goal of 5% to 6% organic growth on an annual basis. Many investors and analysts felt that Nestle would miss this range. The street had somewhat soured on this often-dominant company. However, Nestle now expects organic growth of 5% for the year.
Hershey vs. peers
If you're a numbers person, then consider key metric comparisons for these three companies:
| Company |
Forward P/E |
Net Margin |
ROE |
Dividend Yield |
Debt-to-Equity Ratio |
|---|---|---|---|---|---|
|
Hershey |
23 |
10.65% |
65.95% |
2.10% |
1.69 |
|
Mondelez International |
19 |
6.74% |
5.69% |
1.80% |
0.57 |
|
Nestle |
17 |
11.41% |
18.55% |
N/A |
0.45 |
Source: Company financial statements.
Nestle is the most appealing on a valuation basis and it has displayed the best debt management. Hershey is No. 1 at turning investor dollars into profits, and it offers the most impressive yield at 2.10%. Mondelez International is impressive in its own right with solid fundamentals across the board, quality debt management, and a 1.80% yield. While many readers will want a clear winner, all three companies are likely to be good long-term investments.
The winners keep winning
Hershey has rewarded its investors for decades. That doesn't happen by accident. Hershey's strong brand portfolio, strategic distribution channels, international exposure, innovation, and generous yield are all reasons to consider a long-term investment.
