The Hershey Company (HSY) recently reported better-than-expected first quarter results as higher selling prices and expanding profit margins drove double-digit EPS growth.
Management raised its guidance for the remainder of the year, prompting analysts to revise their estimates higher. It is a Zacks #2 Rank (Buy).
The company also pays a dividend that yields a stellar 2.3%.
Hershey's is the largest producer of chocolate in North America and a global leader in chocolate and sugar confectionery. Along with the Hershey's brand it owns Reese's, Kit Kat, Almonds Joy, York, Jolly Rancher and Twizzlers.
It was founded in 1894 and is headquartered in Hershey, Pennsylvania. It has a market cap of $14.8 billion.
First Quarter Results
Hershey's reported better-than-expected results for the first quarter on April 24. Earnings per share came in at 96 cents, beating the Zacks Consensus Estimate by 15 cents. It was a 32% increase over the same quarter in 2011.
Net sales rose 11% to $1.732 billion, ahead of the Zacks Consensus Estimate of $1.659 billion. Sales were driven by an 11% increase in net price realization while volumes were essentially flat.
Meanwhile, the adjusted gross profit margin expanded from 42.4% to 44.2% of net sales, while the adjusted operating margin expanded 290 basis points to 21.3%.
Following solid Q1 results, management raised its guidance for the remainder of 2012. The company now expects adjusted EPS growth of 10-12% (from 9-11%) on sales growth of 7-9% (from 6.5-8.5%). The company stated that it is confident of its plans and expects organic volume to be up slightly for the full year.
This prompted analysts to revise their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy). The Zacks Consensus Estimate for 2012 is now $3.21, representing 14% EPS growth, which is slightly above guidance. The 2013 consensus is currently 11% higher at $3.55.
As you can see in the company's Price & Consensus chart, consensus estimates have steadily climbed higher for Hershey's over the last several months:
HSY: The Hershey Company Price & Consensus Chart
On top of strong earnings growth, Hershey's has been steadily increasing its dividend over the last several years. Since 2000, for instance, it has raised its dividend at a compound annual growth rate of 9%.
It currently yields a solid 2.3%.
The valuation picture looks reasonable for this wide-moat business. Shares trade at 19.7x 12-month forward earnings, a premium to the industry average of 13.4x but in-line with its 10-year median.
The Bottom Line
Hershey's continues to deliver strong results despite a difficult consumer environment. With rising earnings estimates, rising dividends and reasonable valuation, HSY offers plenty to like.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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