Hershey (HSY 0.69%) and Mondelez (MDLZ 0.03%) are two of the most popular chocolate, candy, and gum producers in the world. These companies are home to numerous billion-dollar brands, making for a fierce competition in the global marketplace. These giants have recently reported their quarterly results and provided their outlooks on 2014, causing both stocks to move higher. Let's compare the results of Hershey and Mondelez and decide which one had the better quarter and where we should invest our money today.
The chocolate giants
Hershey is arguably the most popular chocolate producer in the United States and the company has more than 80 global brands, including Hershey's, Reese's, Kit Kat, Jolly Rancher, York, and Twizzlers. Hershey also has lines of premium chocolates, with the most popular of these brands being Scharffen Berger and Dagoba, which allows the company to appeal to all tastes.
Mondelez International is home to several of the world's most popular chocolate brands, including Cadbury, Milka, and Lacta. The company also owns numerous snack food brands such as Oreo, Nabisco, and Ritz. Mondelez was formed when Kraft Foods split into two separate companies in October 2012, which unlocked shareholder value and allowed the two newly formed companies to focus on their brand families.
The earnings reports
Hershey released its fourth-quarter report for fiscal 2013 on Jan. 30 and the results either met or exceeded expectations. Here's an overview of the report and a year-over-year comparison:
|Earnings per share||$0.86||$0.86|
|Revenue||$1.96 billion||$1.89 billion|
- Earnings per share increased 16.2%.
- Revenue increased 11.7%.
- Gross profit rose 13.7% to $857.4 million.
- Gross margin expanded 80 basis points to 43.8%.
- Quarterly dividend: maintained at $0.485, resulting in a yield of about 1.9% at current levels.
- Hershey updated its CMG (candy, mint, and gum) market share information, showing a 31.1% share in the United States and a 10.2% share in China.
Feb. 12 brought Mondelez's fourth-quarter report for fiscal 2013 and the results came in below analyst estimates. Here's a breakdown of the report and a year-over-year comparison:
|Earnings per share||$0.42||$0.44|
|Revenue||$9.49 billion||$9.59 billion|
- Earnings per share increased 16.7%.
- Revenue decreased 0.1%.
- Gross profit fell 1.6% to $3.49 billion.
- Gross margin declined 60 basis points to 36.8%.
- Quarterly dividend: no update given, but it appears the dividend will remain at $0.14, giving the stock a yield of 1.7% at current levels.
- Mondelez's power brands, including Cadbury Dairy Milk, Milka, and Lacta, continued to grow faster than the company average and they were up 4.1% overall.
Outlook on the year
In its report, Hershey affirmed its outlook for fiscal 2014. For the year, the company expects the following:
- Adjusted earnings per share of $4.05-$4.13, an increase of 9%-11% from fiscal 2013.
- Revenue growth of 5%-7%.
This outlook was right in line with analyst expectations, which called for earnings per share of $4.12 on revenue of $7.6 billion. Hershey added that it expects sales to be driven by core brand volume growth as well as its new products in the marketplace, including Hershey's Spreads and Lancaster Soft Cremes. Overall, strong earnings and an in-line outlook were welcomed with open arms by Wall Street, and as a result the company's shares have risen more than 7% since the report.
After Mondelez's earnings and revenues came in weaker than expected, the company surprised investors when it handed over better-than-expected guidance for fiscal 2014. Here is what the company expects the year will hold:
- Earnings per share of $1.73-$1.78, an increase of 14.6%-17.9% from fiscal 2013.
- Organic revenue growth of 4%.
The consensus analyst estimate was for 2014's earnings to be guided at $1.71 per share, which is less than the low end of Mondelez's actual outlook. This was a huge positive of the report and I believe it prevented a large-scale sell-off in the stock. When it comes to investing, we must focus on where a company is going, not where it's been, so I believe Mondelez's strong outlook outweighs the earnings miss; the market seems to agree, as it pushed shares more than 2% higher following the release.
And the winner is...
After comparing these companies' earnings reports and outlooks for fiscal 2014, the clear-cup champion in this match-up is Hershey. Its growth had begun to slow in recent years, but the company has made numerous moves to expand its presence and I believe it will make even more in 2014. I think its new products will be instant hits and its international expansion efforts will allow it to continue to grow its global market share. All of this will lead to much higher share prices and the company will add to the returns via its healthy 1.9% dividend. I believe Hershey belongs in all portfolios, so investors who don't own it should strongly consider initiating positions right now, before the stock heads higher.