This Popular Candymaker Has Been Rewarding Shareholders for 90 Years
Earnings season is in full swing...
Over the next few weeks, we'll get quarterly reports and business updates from most companies in the S&P 500, Dow Jones, and Nasdaq 100 indexes.
The content of those reports typically provides near-term catalysts for stocks and the markets overall. Sales and earnings insights can propel prices up or down... but usually just for the short term.
If earnings come in above expectations, that can boost the markets. On the other hand, lower-than-expected earnings can be a short-term headwind for stock prices.
It's easy to get lost in the earnings-season "noise"... But that doesn't mean the reports aren't relevant or useful. Here at Stansberry Research, though, we know the power of investing for the long term.
Using that investment mindset, we look for companies where management treats shareholders well. But sometimes, that's easier said than done... Too often, management couldn't care less about its owners. Instead, it treats corporate profits recklessly by enriching itself personally and squandering money on bad ventures.
That's not the case with today's company, though. This business is one of the best around at rewarding its shareholders...
Chocolatier Hershey (NYSE: HSY) is one of the most recognizable brands in America. Longtime Stansberry Research readers are familiar with it as well. In fact, our company founder Porter Stansberry first recommended Hershey shares back in December 2007.
It boasts a portfolio of well-known brands that folks tend to see an awful lot during this time of year. After all, the Halloween season accounts for about 10% of Hershey's annual sales.
Candy brands like Kit-Kat, Reese's, and Twizzlers (as well as the flagship Hershey brand itself) all fall under Hershey's umbrella. These are among the top-selling candy brands in the U.S.
Of course, Hershey is not just about candy and sweets. The company has also been building out a portfolio of healthier snack brands to keep up with changing consumer preferences. This includes popular products like Skinny Pop Popcorn and Pirate's Booty Rice & Corn Puffs.
These brands are well-established... and are consumed by people of all ages. Our grandparents enjoyed Hershey's chocolate bars 50 years ago. And our great-grandchildren will probably enjoy them 50 years from now.
Hershey's enduring brands continue to drive steady sales growth. Over the past five years, Hershey has delivered about $38.9 billion in sales. Over that same period, it reported $5.7 billion in free cash flow ("FCF"). So, for every $1 in sales, 15% trickled down to FCF. That's a great FCF margin.
On top of that, Hershey is extremely capital efficient... As its sales and profits grow, its capital investments don't. Hershey only spent between $300 million and $400 million per year in capital expenditures over the same period. That's nothing for a company that generates about $8 billion in annual sales.
Hershey loves to reward shareholders with its cash flow. It has paid a dividend for more than 90 consecutive years, raising it in each of the past 12 years. Hershey is also a serial buyer of its own shares... The company has bought back $1.4 billion in stock over the past five years.
Even better, Hershey is a thriving business. In its most recent quarterly report, Hershey beat Wall Street's estimates for both earnings and revenue. But what really stood out was the company's commentary and outlook...
CEO Michele Buck said, "Consumer demand... has remained robust on both a one- and two-year basis." In fact, the higher-than-anticipated demand led Hershey to increase its sales and earnings guidance for 2021. That, along with improved branding, will likely "offset higher supply-chain costs and inflation."
Hershey now sees full-year revenue growth of 8% to 9% – up from its prior guidance of 6% to 8%. The midpoint of Hershey's new growth range (+8.5%) exceeds the Wall Street estimate of 8.3%.
Hershey also raised its 2021 earnings-per-share outlook to a range of $6.98 to $7.11. Compare that with the previous expectation of $6.79 to $6.92 and analysts' estimate of $6.91 for the year.
On its own, Hershey's third-quarter report was strong. But as we said above, one strong earnings report doesn't make a trend...
Solid results are what we've come to expect from Hershey. It has an outstanding track record, and we can expect more of the same in the future. That's what makes it a stock you could expect to hold forever.
Sometimes investing is simple.