What Happened?
Shares of chocolate company Hershey (NYSE:HSY) jumped 16.4% in the morning session after Bloomberg reported that Mondelez, the company behind Oreo cookies, is exploring a potential buyout of Hershey. Sources say the discussions are still in the early stages, and Mondelez may not make an offer.
Hershey has a history of turning down acquisition attempts. In 2016, it rejected a $23 billion takeover bid from Mondelez. Had Hershey accepted, the deal would have formed the world's largest candy company. Most acquisitions close at a premium, raising the possibility that existing investors could exit their positions at a higher price if Hershey strikes a deal with a buyer.
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What The Market Is Telling Us
Hershey’s shares are not very volatile and have had no moves greater than 5% over the last year. Moves this big are rare for Hershey and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 10 months ago when the stock gained 6.1% on the news that the company reported fourth-quarter results with non-GAAP EPS exceeding expectations, though revenue missed. Organic revenue unfortunately missed analysts' expectations during the quarter, and its operating margin missed Wall Street's estimates. Guidance for 2024 EPS also calls for no growth, implying $9.60 per share and below Wall Street analysts' estimates, with margins expected to be impacted by possible pricing pressures.
Looking ahead, the company expects FY'2024 revenue to grow 2-3% (versus consensus estimates for 3.4% y/y growth). With volume growth expected to stay flat during the year, this means the bulk of the growth will be from pricing.
However, the bright spot during the quarter was the 15% increase in the quarterly dividend to $1.37/share. The new dividend represents a healthy yield of slightly over 2.5% on the current price per share. This demonstrates the company's focus on returning value to shareholders despite the challenging quarter.
Overall, this was a mixed quarter for Hershey, with investors likely encouraged by the dividend increase.
Hershey is up 3.8% since the beginning of the year, and at $199.41 per share, it is trading close to its 52-week high of $209.51 from May 2024. Investors who bought $1,000 worth of Hershey’s shares 5 years ago would now be looking at an investment worth $1,333.
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