Higher Prices Boost Hershey’s First Quarter Results

“We’ll see Hershey posted some sweet numbers. Robert Gray takes a closer look. There’s nothing like chocolate in a recession.

…So they raised their own prices. People sort of going down market to the Hershey shares. Still looking to stand behind 2 to 3%. Earnings may not be as robust as they earlier said. Expecting a challenging business environment, but we like what Hershey’s is doing, like the margins there. That premium chocolate I was mentioning, they see that trend slowing as well. We’ll see that continue to help boost Hershey’s bottom line. Hershey’s, even though I went to just 19 times estimated earnings, trailing was 27. Some may say still beaten down.” Fox Business Network 4/23/2009.

It seems more people have been seeking the comfort in chocolate recently, as Hershey (HSY) posted a quarterly profit that exceeded analysts expectations. The company also reported that they have benefited from raising their prices, and this has apparently not had an adverse effect on sales. The longer period in lead of to the Easter season was a great for the company. Furthermore, some of the designer chocolate companies that offer higher end but also more expensive chocolate have fallen off quite a bit, and Hershey has benefited from the trade down from those premium sweets.

HersheyHershey’s receives a Fairly Valued valuation from Ockham at present, but we are considering an upgrade for next week. The results were better than expected, and based on the current fundamentals we would not be surprised to see Hershey’s trading in the low $40’s before long. For example, the current price-to-sales for HSY is about 1.55x, whereas the historically normal range for this company is actually 1.84 to 2.5. So, with another solid quarter in the books it would be rational to expect Hershey to come closer into alignment with its historically normal valuation ranges.

Hershey’s Sweet Quarter

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

Be the first to comment

Leave a Reply

Your email address will not be published.