Hershey (HSY) presented an investor update this morning to showcase its global expansion plans, and five year growth projections. After reading through all 263 slides, I wanted to summarize the highlights in an article.
Hershey sells its products in over 70 countries through 14 manufacturing plants around the world. The company's brands include:
· Kit Kat, Reesees, Rolo, Milk Duds, Twizzlers, Mounds, Jolly Rancher, Good & Plenty, Oh Henry, Pay Day, Kisses, Hershey's, Whopper, Ice Breakers, York, Heath, Cookies 'n' Crème
The global brands sold around the world are: Hershey, Kisses, Reesees, Jolly Rancher, and Ice Breakers. Among the global brands, two have sales of $2 billion or more, one has sales of $1 billion, and the other is responsible for $500 million. Therefore five brands are responsible for $5.5 billion of the total $6.1 billion in net sales.
Hershey has laid out the following key drivers for its growth plans:
· Deliver predictable, profitable and sustainable North America business
· Expand our geographical footprint in focus market
· Create and expand a consumer-centric portfolio across key geographies
· Win with talent & knowledge to create a capable, high performance culture
· Execute with excellence
In the United States, Hershey is number one in the chocolate category with a 43.2% market share. Mars holds second place with 30.8%, while Nestle has a 5.9% share. With its dominant position in the United States, the company is trying to expand its presence overseas. The company saw international sales make up 15.6% of its 2011 net sales. Back in 2004, only 9.8% of net sales came from outside the United States.
Hershey reported net sales of $6.1 billion for fiscal 2011. The company's goal is $10 billion in net sales by 2017. In 2011, Hershey saw net sales increases across all its operating geographies.
· United States +6%
· MBCI (Mexico, Brazil, China, India) +26%
· Canada +1%
· Export & Other Regions +20%
Hershey plans to accelerate its international growth through acquisitions. The company is targeting Mexico, South America, and Asia as its key growth opportunities. Long term targets for year over year growth are listed below:
· United States +4%
· Rest of World +2%
· Total 5-7%
Other plans for growth call for:
· Win Now: Targeting China and North America in the short term
· Expand: Long term goal to grow sales in Middle East & North Africa, Brazil, and Southeast Asia
· Participate for Future Growth: India, Emerging West & South Africa, and Eastern Europe
· Sweets and Refreshment segment to add $450 million by 2016. Twizzler's is number one in sweets, while Ice Breakers (#1 Mints) and Jolly Rancher (#1 Growth) also have a number one position.
I see the recent acquisition of the Brookside business paying off big for Hershey's. When the company was purchased it was only available in club stores. By 2017, Brookside will be available in all retail stores. Brookside had net sales of $85 million (Canadian). Brookside has a patented process for creating filling of confectionery products based on fruit juices. The company sells chocolate products with nuts and dried fruit inside. Products are sold in Canada, Japan, and the United States. Once the company's products are expanded, it could double or triple sales through Hershey's distribution.
Hershey continues to reward shareholders through the form of dividends and share buybacks. In the last 10 years, Hershey's has paid out $4.5 billion in dividends and share buybacks to shareholders. The dividend continues to grow and has grown an average of 9.2% each of the last ten years. The current annual payout of $1.52 represents a yield of 2.2%.
Hershey guided higher sales for 2012 and the next five years. The company sees revenue growth of 7-9%. Earnings per share are now expected to hit $3.11-$3.17 (adjusted), and $2.82-$2.92 (diluted). In 2011, earnings per share were $2.83 (adjusted). Analysts on Yahoo Finance see Hershey beating these goals and reporting $3.21 for fiscal 2012. Earnings per share are expected to grow 8-10%. This is an increase in guidance over Hershey's previously stated goal of 6-8%.
Hershey is a great stock for the long term holder. The company has a great five year plan to grow net sales and in turn earnings per share. The company is shareholder friendly, as it seeks to pay out over 50% of profits in the form of dividends each year. Hershey will use its cash to make international acquisitions. With sales in 70 countries, Hershey has plenty of growth ahead of it and should reward shareholders.