In 1999 former Hershey CEO Richard Zimmerman was quoted in The Emperors Of Chocolate that it would take a quarter century to compete internationally at the level of Nestle, Mars, and Mondelez.
Hershey already had gained favor in Europe in WWII as generous American soldiers gave away the bars to war-weary Europeans, again as a currency of affection. Nonetheless, Cadbury’s is the favored brand across the pond making Rosenfeld’s purchase a major coup.
Hershey has made some strategic international acquisitions but Mars and Mondelez still outsell them globally. Mars managers generally speak at least three languages. Earlier this year Hershey announced the completion of a new innovation center in Shanghai and increased spend on global rollouts of key brands, specifically Hershey Mais in Brazil and Hershey Kisses Deluxe in China.
International competition is so fierce it precipitated a price-fixing scandal in Canada involving Mondelez, Nestle, and Hershey. Hershey has been fined $3.8 million for its part.
On the domestic scene rival Tootsie Roll Industries, Inc. (NYSE:TR)’s stock has moved up 42.50% this last year. Its trailing P/E is 36.09 and has a 1.00% yield. It is a low volume ( 86,014 shares traded) and low beta stock (.84), yet has a large short interest at 16.20%. They do business in the US and Mexico.
Tootsie Roll is primarily a family company,controlled by members of the Rubin-Gordon family since The Great Depression with 93 year old Melvin Gordon as CEO and his wife Ellen, as COO. The Board rewards them with “sweet” perks like company jet use and subsidized apartment as noted by Fellow Fool Adam Wiederman.
Management seems to be content with their portfolio of vintage brands like Tootsie Roll, Sugar Daddy and Nik-L-Nip.Tootsie Roll needs a Don Draper image shake-up with sales growth expected at only 13%.
Which will fatten the wallet?
Tootsie Roll is a company with too many reasons not to buy: a crony culture on the Board, old-fashioned image, high P/E, and big short interest.
Mondelez may have the currency of affection overseas for now and slightly better growth but beloved brand Hershey has been aggressively innovating. As Don said,”Love and chocolate are tied together and that’s the story we’re going to tell.”
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article How the Currency of Affection Fattens Your Wallet originally appeared on Fool.com and is written by AnnaLisa Kraft.
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