Life Is a Box of Chocolates for Russell Stover on Lindt Buyout

Tickers in this article: HSY

NEW YORK (TheStreet) -- Swiss chocolate maker Lindt & Sprungli announced a deal to buy Russell Stover Candies today, the third-largest U.S. chocolate manufacturer behind Hershey and M&M Mars.

No price for the private transaction has been disclosed but estimates suggest the deal was for $1.4 billion. The deal is expected to close in August or September and generate combined North American sales of $1.5 billion in 2015. Lindt, which sells under the Ghirardelli and Lindt brands, is looking to increase its influence in the high-end U.S. chocolate market.

The Lindt purchase of Russell is its largest to date and shows the importance the Swiss chocolate maker is placing on the U.S. market, which last year generated almost 30% of its total revenue.

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Russell began in 1923 in the home of Russell and Clara Stover in Denver, Colo. They opened their first store in December of that year, selling 120 pounds of chocolate and raising $90 the first day. Its three brands -- Russell Stover, Whitman's, and Pangburn's -- account for more than 60% of all U.S. boxed chocolate sales.

Tom Hanks brought even more attention to Russell in the 1994 movie, "Forrest Gump." The box of chocolates that Hanks refers to in his memorable "Life was like a box of chocolates" quote in the movie is a box of Russell's chocolate pralines.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates HERSHEY CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate HERSHEY CO (HSY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 49.20% is the gross profit margin for HERSHEY CO which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.48% is above that of the industry average.
  • HERSHEY CO's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HERSHEY CO increased its bottom line by earning $3.61 versus $2.89 in the prior year. This year, the market expects an improvement in earnings ($4.11 versus $3.61).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Food Products industry average. The net income increased by 4.4% when compared to the same quarter one year prior, going from $241.91 million to $252.50 million.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.