Mondelez International, Inc. (MDLZ) in Chicago and The Hershey Company (HSY) in Hershey, Pa. are two well-known confectioners in the United States. MDLZ manufactures snack food and beverage products for consumers worldwide. HSY produces chocolate and sugar confectionery products, gum and mint refreshment products, and pantry items. Both companies sell their products to wholesalers, mass merchandisers, drug stores, convenience stores, and department stores.
As Americans resume outdoor activities, companies in the food industry are likely to witness rising sales amid rising consumer spending. To keep pace with changing consumer tastes, food makers are developing new products, including fat-free snacks and confectioneries, by collaborating with leading companies. This should help them offset rising commodity costs. The global confectionery market is expected to grow at a 4% CAGR to $21.46 billion by 2026.
While MDLZ gained 1.4% over the past month, HSY advanced 2.5%. HSY is a clear winner with 17.1% gains versus MDLZ’s 8.5% in terms of year-to-date performance. But, which of these stocks is a better pick now? Let’s find out.
On June 24, 2021, MDLZ announced a new food transparency program with Triscuit, a snack cracker brand. This data-driven, consumer-centric supply chain transparency pilot program reinforces the company’s commitment to ESG, including expanded insight into the provenance of essential ingredients.
On May 26, 2021, MDLZ agreed to acquire Chipita S.A., a Greek food company. Adding Chipita’s delicious pastry products to the MDLZ family of products advances its strategy to become the global leader in broader snack foods. Based on its significant scale across favorable geographies, MDLZ is looking forward to expanded market reach across Europe and beyond.
Through its North American broker Brand Activation Company, on August 2, 2021, HSY announced the expansion of its general merchandise business to a line of toy products. New collaborations and the addition of products are part of HSY’s growth strategy for its portfolio of brands.
On June 25, HSY completed the acquisition of Lily’s, a manufacturer of low-sugar confectionery products, for $425 million. HSY expects Lily’s popular low-sugar products will be a great addition to HSY’s growing portfolio of better-for-you snacking brands.
Recent Financial Results
MDLZ’s net revenue for its fiscal second quarter, ended June 30, 2021, increased 12.4% year-over-year to $6.64 billion. The company’s non-GAAP gross profit came in at $2.65 billion, up 12.9% from the prior-year period. Its non-GAAP operating income is reported to be $1.08 billion for the quarter, representing a 14.3% improvement year-over-year. While its non-GAAP net income increased 6.7% year-over-year to $940 million, its non-GAAP EPS increased 8.2% year-over-year to $0.66. The company had $1.94 billion in cash and cash equivalents as of June 30, 2021.
For its fiscal second quarter ended July 4, 2021, HSY’s net sales increased 16.5% year-over-year to $1.99 billion. The company’s non-GAAP gross profit came in at $923.10 million, up 16.4% from the prior-year period. Its non-GAAP operating income has been reported at $459.91 million for the quarter, up 19% from its year-ago period. HSY’s non-GAAP net income came in at $305.83 million, representing a 12% year-over-year improvement. Its non-GAAP EPS increased 12.2% year-over-year to $1.47. As of July 4, 2021, the company had $426.20 million in cash and cash equivalents.
Past and Expected Financial Performance
MDLZ’s revenue and net income have grown at CAGRs of 1.8% and 12.4%, respectively, over the past three years. Its EPS has increased at a 14.5% CAGR over the past three years.
Analysts expect MDLZ’s revenue to increase 5.8% year-over-year in the current quarter (ending September 30, 2021), 7.6% in the current year, and 4% next year. Its EPS is expected to increase 13.9% year-over-year in the current quarter, 12.6% in the current year, and 7.3% next year. Analysts expect the stock’s EPS to grow at a 9.6% rate per annum over the next five years.
In comparison, HSY’s revenue and net income increased at CAGRs of 4.1% and 11.7%, respectively, over the past three years. Its EPS increased at a 12.3% CAGR over the past three years.
Analysts expect HSY’s revenue to increase 3.1% year-over-year in the current quarter (ending September 30, 2021), 8% in the current year, and 2.1% next year. Its EPS is expected to increase 6.6% year-over-year in the current quarter, 9.6% in the current year, and 7.6% next year. The stock’s EPS is expected to grow at 8.7% per annum over the next five years.
MDLZ’s trailing-12-month revenue is 3.2 times than HSY’s. However, HSY is more profitable, with a 27.1% EBITDA margin versus MDLZ’s 22.1%.
Also, HSY’s ROE, ROA and ROTC values of 71.3%, 14.4%, and 18.6%, respectively, compare favorably with MDLZ’s 16.1%, 4.8%, and 6.7%.
In terms of non-GAAP forward P/E, HSY is currently trading at 25.87x, which is 18.8% higher than MDLZ’s 21.77x.
In terms of forward EV/Sales, HSY’s 4.65x is 25% higher than MDLZ’s 3.72x.
Both MDLZ and HSY have an overall C grade, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Both stocks have been graded a B for Quality, consistent with their higher-than-industry profitability ratios. MDLZ’s 15.5% trailing-12-month net income margin is 192.7% higher than the 5.3% industry average. And HSY’s 16.5% trailing-12-month net income margin is 212.1% higher than the 5.3% industry average.
Both MDLZ and HSY have a B grade for Stability, which is in sync with its lower volatility versus the broader market. In addition, MDLY has a 0.67 beta, while HSY has a 0.37 beta.
Of the 81 stocks in the B-rated Food Makers industry, MDLZ is ranked #38, while HSY is ranked #33.
Beyond what we’ve stated above, our POWR Ratings system has also rated MDLZ and HSY for Momentum, Growth, Sentiment, and Value. Get all HSY ratings here. Also, click here to see the additional POWR Ratings for MDLZ.
Although the industry possesses decent growth prospects, HSY and MDLZ may not have enough upside in the near term. So, we think it could be wise to wait for better entry opportunities in these stocks.
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MDLZ shares were trading at $63.39 per share on Tuesday afternoon, down $0.07 (-0.11%). Year-to-date, MDLZ has gained 9.53%, versus a 18.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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