With a $42.21 billion market cap, The Hershey Company (HSY) manufactures and sells confectionery products and pantry items in the United States and internationally. The company operates through three segments: North America Confectionery; North America Salty Snacks; and International.
The company provides its products primarily under Hershey's, Reese's, Kisses, Jolly Rancher, Almond Joy, Brookside, Cadbury, Good & Plenty, Heath, Kit Kat, Twizzlers, ONE Bar, and other brands. It markets and sells its products to wholesale distributors, mass merchandisers, chain drug stores, wholesale clubs, convenience stores, and department stores.
HSY reported solid second-quarter results and raised its full-year financial guidance. “These results reflect the strength and resilience of our categories, consumers' love for our brands, the investments we are making in our business, and the exceptional execution of our dedicated employees,” said Michele Buck, HSY’s President, and CEO.
“We are raising our financial expectations for the year and investing more heavily in our brands, capabilities and people in the second half to continue this momentum into 2023,” he added.
HSY now expects net sales growth of 12% to 14%, compared with a prior outlook of 10% and 12%. It forecasts reported earnings per share growth between 9% and 12%, up from the previous guidance of 8% to 11%. In addition, the company expects adjusted earnings per share growth between 12% and 14%, up from the previously guided range of 10% to 12%.
Furthermore, the company is known for paying high dividends. HSY pays $4.14 as dividends annually, which yields 1.84% on the current price. Its 4-year average dividend yield translates to 2.08%. Its dividends have increased at a CAGR of 7.7% over the past three years and 7.8% over the past five years. In addition, the company’s annual dividend has grown for 12 consecutive years.
HSY’s shares have gained 19.1% in price year-to-date and 28.4% over the past year to close the last trading session at $230.32.
Here is what could influence HSY’s performance in the upcoming months:
Robust Financials
HSY’s net sales increased 19.3% year-over-year to $2.37 billion, and its non-GAAP gross profit grew 12.8% year-over-year to $1.04 billion in the fiscal 2022 second quarter ended July 3, 2022. The company's non-GAAP operating profit amounted to $526.91 million, up 14.7% year-over-year.
Furthermore, the company’s non-GAAP net income and earnings per share came in at $372.42 million and $1.80, registering increases of 21.8% and 22.4% from the prior-year period, respectively.
Favorable Analyst Estimates
Analysts expect HSY’s revenue for the fiscal 2022 fourth quarter (ending December 2022) to come in at $2.58 billion, representing an increase of 11% from the same period in 2021. The $1.76 consensus EPS estimate for the next quarter indicates a 4.1% year-over-year increase. The company has surpassed the consensus EPS estimates in each of the trailing four quarters.
In addition, HSY’s revenue and EPS for the fiscal year 2022 (ending December 2022) are expected to rise 13.9% and 12.7% year-over-year, respectively. Also, analysts expect the company’s revenue and EPS for the next year to grow 5.8% and 7.9% year-over-year, respectively.
High Profitability
HSY's trailing-12-month gross profit margin of 44.42% is 38% higher than the 32.18% industry average. Its trailing-12-month EBITDA margin of 26.34% is 114.1% higher than the 12.3% industry average. Likewise, the stock's trailing-12-month net income margin of 16.76% is 226.9% higher than the industry average of 5.13%.
Furthermore, HSY’s trailing-12-month ROCE, ROTC, and ROTA of 63.20%, 18.45%, and 15.39% are higher than the industry averages of 12.21%, 6.21%, and 4.78%, respectively.
Power Ratings Show Promise
HSY's overall B rating equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
HSY has a B grade for Quality, which is in sync with its higher-than-industry profitability multiples.
HSY is ranked #32 out of 85 stocks in the B-rated Food Makers industry.
Beyond what I have stated above, we have also given HSY grades for Sentiment, Momentum, Value, Growth, and Stability. Get access to all the HSY ratings here.
Bottom Line
HSY reported solid top and bottom-line growth in the fiscal 2022 second quarter and raised its full-year guidance. The improved outlook reflects continued strength in consumer demand, net price realization, and an expected improvement in performance in the second half of the year.
Given the company’s strong financials, reliable dividend payments, higher-than-industry profitability, and solid revenue and earnings growth estimates, we think it could be wise to invest in the stock now.
How Does Hershey Company (HSY) Stack Up Against its Peers?
HSY has an overall POWR Rating of B. One could also check out these other stocks within the B-rated Food Makers industry with an A (Strong Buy) rating: Grupo Bimbo, S.A.B. de C.V. (GRBMF), Industrias Bachoco, S.A.B de C.V. (IBA), and Sanderson Farms, Inc. (SAFM).
HSY shares were unchanged in premarket trading Tuesday. Year-to-date, HSY has gained 20.10%, versus a -9.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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