Is Hershey a sweet buy now?
Popular dividend growth stock, down >40% from highs
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Hershey is a popular dividend growth stock that has fallen from grace in the last year. Its shares peaked almost two years ago at a 14% 10-year CAGR, but they are now down to a 5.7% 10-year total return CAGR. Let’s quickly examine the business and see if it’s a sweet (pun intended) deal now.
Hershey
I probably don’t have to introduce Hershey’s to my US readers, but it’s not as well known internationally. Hershey’s is a leader in the snack business with a diversified portfolio of brands, focused on its North American Confectionery (Chocolate, gum and Sweets) business, contributing over 80% of sales. They own 31% of the US CMG (candy, mint, and gum) market and 45% of the Chocolate market and continue to gain market share. The company also has a small NA Salty Snacks and International business.
On paper, Hershey hits all the right spots for a well-led business:
ROIC focus (22% current, 24% 10-year median, 19% trough, 30% peak)
Lean manufacturing and automation
Driving margin improvements
Rational capital allocation policy (Reinvestment+M&A → dividend at 50% payout → opportunistic share buybacks → maintain 1.5-2 x leverage ratio)
The problems
While Hershey’s expected in its last Investor day in 2023 that 2024 would see 3-4% sales and 7-8% adjusted EPS growth, reality turned out very differently. FY 24 guidance has repeatedly been lowered throughout the year and now comes in at flat revenue and down mid-single digits for adjusted EPS.
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