Hershey Co. (NYSE:HSY) reported increased business in emerging markets that helped drive overall sales and profits for its first quarter. The candy maker also cited sales of new products, as well as increased advertising for driving its quarter, and reaffirmed its previous outlook, as well.

TUTORIAL: Fundamental Analysis

Costs And Pricing Rise
Hershey announced price increases a month ago, which aren't expected to materially impact its 2011 results. The company had significantly higher input costs for the quarter, and suggested it's looking at meaningfully higher input costs down the road. This continues a theme in all industries, but is especially noticed in the food sector, since our consumer-based economy feels the impact so directly. Hershey maintained that it has visibility on costs so that it doesn't see the commodity price increases hurting profits this year. (For more on commodities, see Commodity Funds 101.)

Overseas Growth
Sales in Mexico, Brazil and China drove revenue for the confectioner to $1.564 billion in the quarter, compared to $1.408 billion in the year ago quarter. Domestic sales were also strong, helped as the late Easter pushed sales into the first quarter. U.S. sales were up 6.7%, even excluding the Easter period. Hershey's new Drops and Reese's Minis, along with a vigorous ad campaign, boosted sales.

Net margins slipped to 10.2% from 10.5%, while gross margins came in at 41.9% compared to 42.2% in last year's same quarter. Still, the company battled the rising commodity costs fairly well. Hershey's reported net income was $160 million, or 70 cents per diluted share (72 cents on an adjusted, non-GAAP basis), compared to $147 million, or 64 cents, in last year's quarter. (For more, see Understanding BRIC Investments.)

International Opportunity
Hershey's plans are to expand more overseas. It has a small presence in the U.K., but the international trade is where future growth lies. Kraft Foods (NYSE:KFT), with Cadbury and Nestle (OTC:NSRGY), have a wider global footprint, for example, while smaller mostly U.S. niche player Tootsie Roll (NYSE:TR) doesn't.

The chocolate industry is wider than just candy makers, however. Even general food companies such as Con Agra (NYSE:CAG) with its Snack Pack Puddings and Unilever (OTC:UNLNF) with its many brands of ice cream and strong U.S. presence find themselves more than tangentially in the chocolate business. Still, Hershey's performance for now with its U.S. dominant business is doing well enough.

Solid Outlook
The company reaffirmed its outlook, with 3-5% sales growth for fiscal year 2011, while looking for 6-8% long term growth in earnings. Hershey expects to report full year earnings in the $2.54-2.63 per diluted share range, and adopted a new $250 million share repurchase authorization.

The Bottom Line
Hershey may experience slowing growth, given the headwinds with continually rising input costs. Its designs on international markets will face strong competition from local and global confectioners, so there's some risk. Still, with its 2.40% dividend yield, Hershey is one of those solid dividend-paying stocks that has mostly managed to avoid trouble while offering decent returns, and should continue. (For more, see Dividend Facts You May Not Know.)

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