Hershey has no partner overseas yet… I can’t care about the rumors, I don’t… I hear that Cadbury Schweppes plc (CBY) might buy them… so what… I just think that Cadbury might be a good partner to have… a triumphant one that would build Hershey’s overseas where the business is nill… most lately… now lately we have most focusing on trade down plays when it comes to food… you have heard us talk about Ralcorp Holdings Inc. (RAH) and Treehouse Foods Inc. (THS)… cheap store brand cereals… Treehouse for soups, baby foods, pickles, and non-dairy creamer… even with trade down retailers like Family Dollar Stores Inc. (FDO) and Wal-Mart (WMT*), which I own for my charitable trust, ActionAlertsPlus.com…

Hershey we like because this is an area where you really can’t trade down… store brand chocolate bars, not much going there… how about Chinese chocolate bars… a Moo-Goo syrup… how about, um, Ming Toy Kisses… I don’t think so.

Private label penetration is in the low single digits for chocolates and around 10% for all candies… this is an area where having a strong brand still helps… and it doesn’t get much stronger than Hershey’s… plus people love to eat compulsively when they lose a lot of money… eating a lot of chocolate is liking taking a lot of Prozac… I am not making this up… massive serotonin release to help you cope… by the way, eating chocolate did not cause Mt. Vesuvius to erupt on my face… there has never been any linkage… thank goodness for make-up… Hershey itself has one of the lowest exposure to private labels of the candy companies… 3% of the revenues, no trade down… the company also has solid market share in all respective categories, 35.8%… beyond that 94% of its US sales are in areas where it is number one in market share.

In 2008, private label gained about 8 basis points of market share…. uh…. Hershey did lose 61 basis points, but most of that was from competition from Mars… Mars, the candy… more branded candy in this trend seems to have stabilized… Hershey’s market share losses seems to have decelerated from most of 2008... Hershey Co. (HSY) does not have to worry about competition from the low end… and now the company has the ability to take control of its own destiny… a rarity in these miserable times… and regain market share thru advertising… especially since advertising costs have become so cheap… if I were Hershey, I would be heavily advertising the fact that they have one candy that actually might be good for you… Twizzlers… Hershey increased its ad spending by 23% in 2008... expect another 20% increase this year.. wow… speaking of taking market share, remember last week we had Peter Swinberg on from Molson Coors, he was talking about the possible picking up of market share because of the problems stemming from the Anheuser-Busch Companies Inc. (BUD), In-Bev merger… if Molson Coors Brewing Company (TAP) could pick up some, I say ultimately Hershey can take from Mars and Wrigley… although, so far that has not been the case.

The company also just closed a plant in Pennsylvania that made Twizzlers… it moved the work to Mexico… hey they are no longer the paternalistic Hershey that I am so used to… they are getting serious about the bottom line… last quarter, good… good start… company earned .59 cents a share… beating the streets estimate by .05... this was the first time that Hershey had grown earnings since the 3rd quarter of 2006... wow… sales for its core brands grew about 8% in the quarter… retail sales up 5%… convenience store sales up 9%… that is very important, that is the impulse… Hershey had been getting hurt by a decline in impulse buying at convenience store buying in the summer and fall.. those weaker sales corresponded to a spike in gasoline… that is over… traffic in convenience stores way up… that could give Hershey, this quarter, a big upside surprise… sales for the month up 3.6% thru the end of February… I want a 13.5% increase in price trying to gain market share… this is a different Hershey managing to put thru an aggressive price increase without causing sales to go down.. the company is on the rebound… Hershey gave modest sales growth guidance of 2% to 3%… so you have got upside potential there.

Now, like a lot of food companies… Hershey is starting to benefit from lower commodity costs at the same time that it puts thru price increases that I believe could stick.. the company cut its 2009 cost inflation outlook from $225M to $175M which is conservative… think about it cocoa, wrapping paper, the wrapper here, gasoline to take the bars to the stores… every bit of it is cheaper, every bit of it… you know I wouldn’t be this enthusiastic about this stock if it didn’t have some kind of decent, Olivia and Marathon Man, dividend yield to prop the stock up… give you income while you wait for it to go higher… Hershey is expected to pay out $1.25 this year, 4% yield… it is big… I don’t know if it is notoriously B.I.G. or juicy… this is more of a George Clinton, parliament funkadilic chocolate city stock… more importantly given that Hershey is expected to generate $3 in cash flow per share… we don’t have to worry about them cutting the dividend… heck, they might even raise it… that is a stock split… Hershey is trading at 15.8 times 2009 earnings… which is fairly expensive given the growth… but with the stock just cents above its 52 week low… nickels and dimes.. plus it is not like buying stocks on its evaluation has worked… the street, I should add, is not that positive on the stock… only Citigroup rating Hershey as a buy, 6 holds, 6 sells… that is wrong, right… there is a lot of room for estimate raisings and upgrades… if only based on much lower commodity costs… something that Hershey benefits from in a huge way.

Here is the bottom line…