Develop a Sweet Tooth for Hershey's Stock
Americans love chocolate. The U.S. is the world's chocolate-consuming capital, using a little more than 500,000 tonnes of cocoa for chocolate candy annually, according to the National Confectioners Association -- that's 13% of the world's annual cocoa production, or two-thirds of total U.S. cocoa consumption.
Though it's a mature market, as quarterly results at Hershey show, there's still room to grow. Second-quarter net sales were up 7% to $1.5 billion, driven by strong increases in the U.S., which were at the high end of its historical growth rates, and the chocolatier continues to view the domestic market as a growth opportunity.
Candy, mint, and gum account for about 90% of Hershey's U.S. retail business and saw gains of 6.8% in the quarter, which also led it to gain an additional 1.4% of market share, giving it nearly half of the entire market and putting it well ahead of second-place Mars, which is privately held. Nestle is a distant third with just a 6% share, and while Mondelez is a major chocolate player following the acquisition of Cadbury (and subsequent separation from Kraft Foods), it's primarily an international candy and snacks company.
And Mondelez is a company that Hershey is likely to start bumping heads with soon, as it also has plans for global conquest that look just as sweet.
This past quarter, Hershey saw its international business grow in line with internal forecasts, but with China, Mexico, and Brazil being particular standouts, as net sales grew at double-digit rates compared to last year. China alone saw sales expand 11%, and Hershey has already achieved a 7% market share there. With the launch of a new product specifically targeted to the Chinese market called Lancaster, Hershey is expecting its chocolate business to grow at least four to five times greater than the entire category, which is currently worth about $1.2 billion.
In Mexico, it gained 1.2 points of share as the modern trade, or supermarkets and hypermarkets, almost doubled the category rate. Brazil saw low double digits as well.
The confectioners trade group says grindings demand, which is industryspeak for the processing of cocoa beans and is in turn an indicator for commercial demand, jumped 12% in the second quarter in the U.S., far ahead of the 6% increase seen in the first quarter and well ahead of analyst forecasts of just a 3% to 4% rise. European grindings demand was up 6% in the second quarter as well.
With growth opportunities still showing up here at home and new markets around the globe -- particularly China, which it deems to be its top international priority -- Hershey has a chance to build on the gains it's already made without its stock becoming a chocolatey mess.
The article Develop a Sweet Tooth for Hershey's Stock originally appeared on Fool.com.Fool contributor Rich Duprey has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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