Although things have improved significantly from within the sector, there was no way to predict intelligently what would have been the end result -- particularly after almost the entire sector was forced to raise prices, including Hershey. From that standpoint, the company's management deserves a considerable amount of credit for not only having navigated the company from a difficult economic environment, but for having delivered an exceptional start to 2012 and, more specifically, its recent first quarter.

The quarter that was
In its most recent quarter, the company reported net income of $198.7 million or 87 cents per share on revenues of $1.73 billion, representing a 24% increase over the same period a year ago, when it earned $160.1 million while revenue rose 10% annually. Even more impressive, and rubbing salt in my wounds, is the fact that not only is this the third consecutive quarter of revenue increases, but the company continues to raise its margins year-over-year after inching up 1% from last year. It is hard to describe how impressive a performance this was, but realizing that the company doubled its revenue expectations (which were 5%) by reaching 10% while also improving gross margins, it really puts things in perspective.

As great as these numbers were, it did disappoint some analysts that the company did not raise full-year guidance for the second quarter, resulting in a downward adjustment to 63 cents per share from 64 cents and down a penny to $3.13 per share for the full year. But be that as it may, this did little to restrict an analyst at Argus from upgrading the stock and adding a projected 16% increase in value to the shares to $78.

Bottom line
As great of a performance as this has been for Hershey, it has been an even bigger learning experience for me as an investor. While price, value and various relative appraisal methods will always have a place in my model of stock selection, Hershey will forever stand out as one of the ones where the model failed. From a current investment perspective, it is still a challenge to think that the stock is anything but expensive at this level, particularly as Kellogg and Kraft (and for that matter Coca-Cola ( KO) and Pepsi ( PEP) are trading at much lower valuations.

Wait a minute, this all sounds familiar ...

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