The confectionery industry belongs to the consumer goods sector which is largely slow-paced compared to other industries. With the economic environment in the United States becoming more favorable, confectionery companies can expect upside in their sales in this region. However, this is not the only factor that is going to make these companies good investment opportunities. Most of the companies in the consumer goods sector have global profiles, and thus, they should be analyzed on their global outlook.
Three companies which are the major representatives of the confectionery industry of the United States are Mondelez International Inc (NASDAQ:MDLZ), The Hershey Company (NYSE:HSY) and Tootsie Roll Industries, Inc. (NYSE:TR). These companies produce sweet goodies, but can they really produce some sweet results for your portfolio? Let’s analyze which one of them has this potential.
Mondelez’s unclear path
Mondelez International Inc (NASDAQ:MDLZ) revenue (TTM) is only 0.9% higher than the company’s 2012 revenue. This is a dangerous slowdown as the already mentioned change in the company’s focus on its international division should have shown some positive results. The net income and EBITDA figures for the company have decreased in the 2012-TTM period.
The company’s portfolio of products should not be overlooked, as globally they rank number one or two in their respective markets. The company is hopeful of a recovery in its performance due to the improving metrics in the emerging markets. In these countries the company’s snacks categories are growing at high single digit/double digit figures.
News is that PepsiCo, Inc. (NYSE:PEP) might acquire Mondelez International Inc (NASDAQ:MDLZ) in order to diversify itself further. At present, though, the company’s future outlook is flat.
Hershey’s strong business model
The Hershey Company (NYSE:HSY) is the largest manufacturer of chocolate in North America. The company also produces other confectionary products, gums, and mint refreshment products. The company’s revenue has been increasing steadily since 2008.
I believe the company has some solid potential for growth. Firstly, the company has developed iconic brands that are known worldwide for their superior quality.
Second, the company reported an increase of 5.7% in its candy, mint and gum retail sales, when the participants in this category reported an average increase of 3.5% in the same period. This is why 46% of the growth in this category was attributable to The Hershey Company (NYSE:HSY).
Third, The Hershey Company (NYSE:HSY) has a dedicated sales force, which deals with the company’s different retail channels, such as the food, large mass and convenience stores.
Lastly, the company has built proprietary go-to market tools for applications such as mind modeling of consumers. This would help the company understands what the brands really mean to the customers, and then design new products that appeal to them.
I believe, with such a business model and a strategy, The Hershey Company (NYSE:HSY) still has growth potential going forward.
Tootsie Roll is great for value investors
Tootsie Roll Industries, Inc. (NYSE:TR) is my last pick from the candy companies. The company has operations primarily in the United States, Canada and Mexico. Like The Hershey Company (NYSE:HSY), the company has been showing consistent increase in its revenues.
2012 was a great year for the company, as it reported a record $546 million in sales, up 3.3% from 2011. Its earnings per share growth clocked in at a whopping 20%. Tootsie Roll Industries, Inc. (NYSE:TR) is a pleasant example of a value stock.
The company pays out almost all of its earnings (91%). Last year it also paid a special dividend of $0.50 per share, making it the company’s 48th consecutive stock dividend. The company has also spent close to $24 million buying back its shares in the year 2012.
I do not perceive the company to show some impressive growth figures in the coming years, but it will maintain its current performance. Therefore, the dividends will keep on coming. The company is trading at a trailing P/E of 39.5 against an industry average of 22.5. I think value investors should find a better entry point into this company.
The takeaway
A candy company is not an attractive investment if it is just counting on the economic recovery in a country to cause its sales to go up. A candy company needs to be proactive. The Hershey Company (NYSE:HSY) is my favorite, as it enjoys a solid product line along with a proactive team that will definitely increase the company’s earnings in the years to come.
Awais Iqbal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Sweeten Up Your Portfolio With This Candy Company originally appeared on Fool.com.
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