How do I love thee? Let me count the ways. While Elizabeth Barrett Browning was waxing poetically about her husband, how many of us could utter those words about chocolate? We could indeed count the ways: Dark, milk, white, Kisses, bars, boxed…
Sure, you could buy chocolate to celebrate today, but you could also invest in chocolate — as in buy the stock of companies that produce those dark, milk, white, Kisses, bars and boxed chocolates.
Let’s take a look at the buying of chocolate, followed by the investing in chocolate companies.
Valentine’s Day & Chocolate
Here’s some Valentine’s Day chocolate trivia:
- More than 36 million heart-shaped boxes of chocolate will be sold for Valentine’s Day.
- Richard Cadbury is credited with selling the first heart-shaped box of chocolates in 1868.
- Russell Stover Candies produced eight of the top 10 Valentine gift boxes in 2008.
- Hershey first offered its famous Kisses wrapped in red and silver foil for Valentine’s Day in 1986.
Top 10 Chocolate Manufacturers Worldwide
Here are the top ten global confectionery companies that manufacture some form of chocolate, listed by confectionery sales in 2011:
If you want to invest in chocolate–and stick with trading on a major U.S. stock exchange–Hershey (HSY) and Kraft (KFT) are your only two options.
Nestle, Lindt, and Meiji are also public companies, but they trade on foreign exchanges. The other five companies are privately owned. However, Yildiz Holdings does have a publicly traded unit, the Ulker Group, which bought Godiva Chocolatiers in 2007 from Campbell Soup, which had owned the Belgium-founded company since 1967.
Hershey Company & Kraft Foods: Showing Investors the Love
Hershey Company (HSY) and Kraft Foods (KFT), two of the world’s largest publicly traded chocolate companies, have posted 1-year and longer-term stock market returns that could compel even the faintest of heart to wax poetically.
Here’s a chart showing the total one-year (to Feb 7) returns for the two companies, along with that of the S&P 500:
Hershey Company is North America’s largest chocolate producer with about 42% of the U.S. chocolate market. The company sells its chocolates and other confectionary products throughout the world, but the bulk of its revenue (about 90 percent in 2010) comes from the U.S.
A few of its better-known products include its Hershey’s chocolate bars and Kisses, and Reese’s Peanut Butter Cups. The company is based in Hershey, PA, and was founded in 1893.
Hershey Stock Prices & Stats
The stock price is up 21.4% over the past 1-year period (to Feb.7) vs. 1.5% for the S&P 500. Quarterly (Dec. 31) operating and profit margins are 18% and 10.4%, respectively. Last quarter’s revenue growth was 5%, while earnings grew 9.2% (earnings growing faster than revenue = expanding margins, a positive). Trailing P/E is 22. Free cash flow (FCF) is 8.2% of revenue.
HSY has a sweet 2.5% dividend yield, and extremely low beta of .22 (meaning the stock price is only 22% as volatile as the overall market).
Kraft Foods, based in Northfield, Illinois, is the second largest food and beverage company in the world after Nestle. The company manufactures and sells packaged food products, including chocolates, gums, snacks, beverages, cheeses, convenient meals and various packaged grocery products.
Kraft became the largest chocolate and confectionary company in the world when it outbid Hershey to buy Cadbury Schweppes for $19.5 billion in January 2010.
Kraft Stock Prices & Stats
The stock price is up 24.3% over the past 1-year period. Operating and profit margins are 13.2 and 6.1%, respectively. Last quarter’s (Sept. 30) revenue growth was 11.5%, while earnings grew 22.3% (like Hershey, expanding margins–a positive). P/E is 21. FCF is 4.5% of revenue.
KFT has a 3.0% dividend yield, and beta of .57.
Kraft will release its 4th quarter 2011 and full-year 2011 financial results on Feb. 21.
Hershey vs. Kraft: Stock & Financial Stats
If you want to invest in chocolate, this chart format should help you compare these two companies. Included are the stock stats discussed above, as well as some additional ones.
Hershey: Sweetening it’s Lagging Cocoa Sourcing Social Responsibility Efforts
So you buy chocolates, and may want to invest in chocolate companies, but prefer to give your dollars to companies with decent social responsibility records?
If so, you might have kissed off Hershey until recently. Labor issues have long been occurring in the Côte d’Ivoire (Ivory Coast) region of West Africa, where cocoa farmers live in poverty, with forced labor, human trafficking and child labor said to be rampant.
The bulk (70%) of the global cocoa supply comes from West Africa, with 40% from Côte d’Ivoire. The other 30% comes from Brazil, Mexico, Malaysia, and Indonesia.
Hershey just announced on Jan. 30 its stepped-up efforts on the social responsibility front. Highlights from its press release, “Hershey Expands Responsible Cocoa Community Programs in West Africa,” include:
- Hershey to source cocoa for Hershey’s Bliss® chocolates from Rainforest Alliance Certified™ farms.
- Hershey to invest $10 million by 2017 to reduce child labor and improve cocoa supply in West Africa.
Do these efforts put Hershey on par with the other major chocolate manufactures in terms of social responsibility in the sourcing of cocoa? Investors who value social responsibility might want to investigate further.
Top 10 Chocolate Consuming Countries
Here are the top 10 chocolate consuming countries, listed by average pounds per year consumed per person.
The Swiss are famous for their chocolate–and in addition to producing it, they also obviously like to gobble it up!
China and India are not on this list, as chocolate has largely been a luxury item few in those and other so-called developing countries have been able to afford. However, with the fast-growing middle classes, the market for chocolate is growing annually in the double-digits in those countries, while its growth rate is only about 3% in the mature markets of the U.S. and Europe.
Hershey and Kraft, as well as other major chocolate companies, are targeting these countries for continued growth. Potential investors in Hershey and/or Kraft should keep an eye out for the companies’ results in those under-tapped areas.
In honor of the Swiss, who are largely responsible for introducing solid chocolate to the world, Glückliches Valentine’s-Tag!