A Sweet Quarter for the King of Chocolate

After outperforming the market in 2013, Hershey (HSY -0.53%) kicked off 2014 by releasing a strong earnings report. The results met and exceeded analyst expectations, causing the shares to rally to open the trading day. Let's dig deep into the report and decide if we should be following the market and buy right now.

Confection perfection
Hershey is one of the largest producers of chocolate and confectionery products, candy, and gum in the world. The company is home to more than 80 brands, including Hershey's, Reese's, Kit Kat, Twizzlers, Jolly Rancher, and Ice Breakers. The company also offers premium and artisan chocolate products under brands such as Scharffen Berger and Dagoba; these premium products are offered through the Artisan Confections Company, one of Hershey's wholly owned subsidiaries.

The results
Fourth-quarter results for fiscal 2013 were released before the market opened on Jan. 30. Here's an overview of the report and a year-over-year breakdown:

Earnings per share increased 16.2% and revenue increased 11.7%, driven by strong holiday sales in North America. Gross profit rose an impressive 13.7% to $857.4 million, as the gross margin expanded 80 basis points to 43.8%. The continued growth of Hershey has been a direct result of its innovation, acquisitions, and investments, and this is exactly what investors want to see. In addition, the quarterly dividend of $0.485 was maintained, leaving the yield steady at about 2%. Overall, it was another great quarter for Hershey and it sweetened the deal by handing over its full-year outlook for fiscal 2014.

Outlook on the year
In the report, Hershey also affirmed its outlook for fiscal 2014. For the year, the company expects adjusted earnings per share to be $4.05-$4.13, an increase of 9%-11%, on revenue growth of 5%-7%. This is right in-line with the consensus analyst estimates calling for earnings per share of $4.12 on revenue of $7.6 billion. I believe that these expectations are conservative and will be surpassed, driven by new products and expansion into other markets. After the strong earnings report and guidance in line with expectations, I believe Hershey could sustain a rally well above its current 52-week high.

Competitor due out shortly
One of Hershey's largest competitors, Mondelez (MDLZ -0.27%), is set to report its own set of fourth-quarter earnings. Mondelez owns many chocolate brands such as Cadbury, Cote d'Or, Suchard, and Milka, while also owning the very popular gum brands Stride and Trident. The results are due out on Feb. 12 and the current estimates look like this:

These expectations call for earnings per share to increase 22.2% and revenue to increase 1.1% year-over-year. I believe that these estimates are attainable due to Mondelez's many popular brands and I would not be surprised if the estimates were surpassed. After the strong results out of Hershey, I am even more confident in Mondelez's abilities. I still believe that Hershey is the better investment option, though, and it will be the better-performing stock over the next five years.

The Foolish bottom line
Hershey is an American icon, and it recorded four strong quarters in fiscal 2013. The company is expected to show growth on both the top and bottom lines in 2014, and its new products and expansion efforts will support this idea. I believe that Hershey is one of the best investment opportunities in the market today and should be bought by all investors on any weakness in the coming days.