Hershey (NYSE: HSY) did a good job in its first quarter of the year. The big confectioner said it earned $0.38 per share on an adjusted basis. According to this news article, that beat the analysts by three solid pennies.
Not only did the bottom line fare well, but the top line didn't do so badly, either. It increased well over 6%. Okay, that's not a rocketing growth rate, certainly, but all things considered, I think it was a decent performance. Hershey benefited from pricing strategies and the Easter holiday. If you ask me, I think the recent rally in the markets helped to bolster consumer confidence. That may have helped Hershey sell a lot of its candy. Management seemed pretty pleased with volume trends and the response to its marketing initiatives, judging by comments made in the release.
The gross margin saw a nice increase. If you take a look at the line dedicated to total costs and expenses, you'll note that the statistic hardly moved. Hershey was going for efficiency, and the company seemed to achieve its goals in this area.
The big question now, is, can Hershey keep up the momentum? Thing is, Easter is gone, so the company won't have that holiday to leverage. Mother's Day is coming up, of course, but I don't think you can compare that to Easter. And Halloween is a long way off.
I think Hershey will need to work hard to retain its Q1 success story. The release does talk about commodity costs and price elasticity. Basically, Hershey wants to make sure that investors brace themselves for decreases in volumes should it have to hike prices even further and/or if it gets hit on the gross margin.
As I write this, Hershey's stock is trading up 4.7%. No way would I buy Hershey on strength. Try to pick this name up on a pullback and a higher dividend yield. Although Hershey does have some defensive characteristics, it probably isn't as defensive a name as say a Kraft (NYSE: KFT) or a Campbell Soup (NYSE: CPB) is, so you definitely have to be careful in terms of the price you get this name at.
Disclosure: I don't own any company mentioned; positions can change without notice.
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