I’m a fan of old-line companies that stay up with the times. Hershey Company (HSY) is one such company, asserts Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.
While the company remains a confectionary giant, Hershey has expanded its offerings to become a player in the salty snacks industry. The continued transformation of its product line is helping to drive healthy growth for the firm.
Per-share profits and revenues both beat analysts’ estimates in the latest quarter, and the firm upped its revenue and earnings guidance for the year overall. The stock has behaved well of late in trading around its 52-week high.
However, I think investors are only beginning to catch up to the transformation story at Hershey, which means there is plenty of upside ahead for these shares. The stock, yielding a sweet 1.9%, offers a solid “Steady Eddie” selection for investors needing exposure to the consumer-products sector.
Corporate Profile
Hershey’s stable of confectionary brands is well-known. The firm’s namesake chocolate products are sold all over the world. Other popular brands in the confectionary area include KitKat, Reese’s, Ice Breakers, Jolly Rancher, and Twizzlers.
What might surprise some readers are the company’s brands in the salty snack area, which include Pirate’s Booty and SkinnyPop. Salty snacks business was up a solid 10% so far this year, led by market-share gains in SkinnyPop.
Overall, Hershey posted revenue growth of nearly 13% in the quarter. Strong North American business and continued recovery in international business helped fuel the gains.
The company concedes that it will be challenging to maintain that double digit growth rate. Some of the company’s brands have benefited from the stockpiling that has occurred during Covid lockdowns.
However, increased mobility will help some of the company’s products, particularly those that sell well in convenience stores and restaurants and are prominent fixtures at family gatherings, parties, and schools.
For 2021 overall, the firm is looking for revenue growth in the 4% to 6% range, up from previous guidance of 2% to 4%. Earnings per share are expected to be in the range of $6.79 to $6.92, an 8% to 10% increase over 2020 results.
Long term, I expect further transformation of the company’s product line, paced by strategic product divestitures, organic product development, and acquisitions. Continued earnings gains should spark higher dividends. The firm raised the dividend 4% last year, and I expect a dividend hike at least matching 4% in the second half of this year.
Conclusion
I grew up about 20 minutes from Hershey’s headquarters and made many trips to the company’s factories and entertainment complexes — the firm operates a theme park as well as a sports center in its hometown. So I’ve always been an admirer of the company products.
There have been times, however, when I have been less of a fan of the stock. However, Hershey is making me a believer, and I think the stock is worth a bite at these levels. P
Please note Hershey offers a direct purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $250.
