These companies produce some of the most globally well-known brands, but does this power make them suitable investments, or will they sour?
In 2021, the global confectionery market size was $298.23 billion and is forecast to grow at a compound annual growth rate (CAGR) of 4.3% to 2028. Higher disposable income, continued GDP growth, and attractive packaging are increasing the demand for confectionery products in the developing world.
With this anticipated growth, we investigate if the following confectioners will profit or if their expiration dates are nearing?
The Hershey Company
The Hershey Company (NYSE: HSY) operates through three segments: North American Confectionary, North American Salty Snacks, and International. Its portfolio of brands includes Hershey’s, Reese’s, Kisses, and many more. While the company offers a low dividend yield of 1.64%, this has grown at a CAGR of 9.24% between 2001 and 2021. This is a strong dividend growth rate for shareholders. The low dividend yield indicates that the stock is in demand by investors, thus lowering the yield even though payments are increasing.
Hershey’s North American Confectionary segment represents roughly 83% of the company’s total net sales. In Q1 2022, net sales grew 11.7%, driven by price increases. For investors, it is preferable to see volume growth rather than price increase as this is more sustainable in the long term. Its other two divisions — North American Salty Snacks and International — saw the bulk of their revenue come from volume growth. While small, these segments hold the future of the business, while North American Confectionary is an anchor for the business’s sales.
Mondelez International, Inc.
Mondelez International (NASDAQ: MDLZ) is the youngest company on this list, as it was only incorporated in 2000. It has the largest portfolio of brands from mergers and acquisitions, when it was known as Kraft Foods Inc. These brands include Cadbury, Milka, Toblerone, Oreo, and many more. Mondelez is a better dividend stock than The Hershey Company, as its dividend yield is higher at 2.24%. Its dividend growth rate between 2001 and 2021 was also higher at a CAGR of 10.8%.
In Q1 2022, the company’s revenues grew by 7.3%, over the previous year, with full-year revenues forecast to grow by 4% year-over-year (YoY). This increase in sales is split into two segments. Emerging markets, representing roughly 40% of sales, saw revenue increase 15.6% YoY, with volume growth the main contributor. Developed markets saw a lower growth rate of 2.7%, predominantly driven by price increases.
The growing share of developing markets shows the company has diversified its revenue more than the other stocks on this list. However, this diversification has increased the company’s exposure to supply chain issues and the war in Ukraine. These issues lowered its quarterly earnings and cut the full-year earnings growth forecast.
Tootsie Roll Industries, Inc.
Tootsie Roll Industries ( NYSE: TR) operates in the U.S., Canada, and Mexico and is the smallest stock on this list. Its portfolio includes Tootsie Rolls, Tootsie Pops, and Sugar Babies. Tootsie Roll Industries has historically been the worst dividend stock compared to The Hershey Company and Mondelez International, with a dividend yield of just 0.99% and a 20-year dividend CAGR of just 3.84%.
In Q1 2022, the company’s total revenue increased by 36% YoY from $103.23 million to $140.64 million. Net income was also up from $10.76 million to $12.02 million. The company claims this significant increase in revenue growth is because many of its products are consumed at group events, outings, and other gatherings, which returned after the lifting of COVID-19 restrictions.
Therefore, this significant growth is unlikely to be maintained over the coming quarters. Instead, sales may increase, but at lower levels. Many of its contracts with suppliers ended in 2021, leading to a substantial increase in input costs. These rising expenses have lowered the company’s profit margins, which are likely to remain deflated during the length of the contracts.