Hershey (NYSE: HSY) reported superb fourth-quarter and full year-earnings on February 2nd. It seems like a smooth, sweet victory in a relatively tough year, but it was overshadowed by concerns for the candy maker's place in the industry, given Kraft Foods' (NYSE:KFT) January takeover of Cadbury PLC (NYSE:CBY). (Learn more about takeovers in The Basics Of Mergers And Acquisitions and The Wacky World of M&As.)

IN PICTURES: 10 Retirement-Wrecking Moves

Sweet Numbers, Sour Concerns
Hershey earned $126.8 million, or 55 cents per share, compared with $82.2 million, or 36 cents per share in last year's same quarter. Revenue was up 2% to $1.41 billion. Hershey was able to raise prices to offset some cost increases, helping drive profits. For the year, revenue increased from $5.13 billion to $5.3 billion while EPS soared from $1.36 to $1.90.

With the Kraft-Cadbury $19.5 billion deal nearly completed, a larger, potentially stronger Kraft looms as a competitor. Hershey said it will consider looking for acquisitions in the future. Many observers believe it will have to if it wants to keep pace with the competition. Hershey ultimately didn't bid on Cadbury, a decision which it defended. Despite Cadbury's and Hershey's history of working together as distribution partners, Hershey was unable to pull together financing to make an offer. The maker of Reese's Peanut Butter Cups and Hershey's Kisses still insisted on its strong growth prospects as a stand-alone entity.

Candy Land
Other candy makers face varying prospects. Iconic Tootsie Roll (NYSE:TR) was cited for its decades of fabulous total return given the combination of its reliable dividend and historic, steady growth. This is a great company that's hardly even mentioned, with all the Kraft-Cadbury news. Kraft, considered a "mega cap", still has an attractive dividend yield, currently 4.2%, and should resume earnings growth when it assimilates Cadbury. Smaller companies such as Rocky Mountain Chocolate Factory (Nasdaq:RMCF), which just reported negative earnings, will have a harder go.

Scale is an increasingly important factor in the candy business, which brings us back to Hershey. The overarching issue of sugar prices, which are expected to rise, is always an issue in the industry. Investors watching the business of suppliers such as Brazilian giant Cosan (NYSE:CZZ) can get a cue on sugar supply issues. What's less convincing is the prospect that concerns about sugar's affect on health will dampen demand for candy. (Learn more about investing in sugar in Sugar: A Sweet Deal For Investors.)

Near Term for Hershey
Hershey's has Kisses, but Kraft and Cadbury have a whole wedding. No doubt Hershey can survive on its own. Thriving and growing is another thing. The new Kraft-Cadbury conglomeration will be the new No.1 candy maker in the world, and Hershey still faces stiff competition from privately held Mars. Right now, revenue increases are hard to come by and competition is tight, especially in the US market for domestic candymakers.

Hershey will have to stay focused on operations while it keeps an eye out for potential acquisitions. Even as the economy recovers, Hershey could face slow times. Keep an eye on the company, but don't buy in until it clearly shows it can navigate in the new world of larger consolidated candymakers. Watch of course for any acquisition moves, but particularly watch Hershey's top line for revenue increases before buying the stock.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!