Hershey Creamery, a multibagger or mediocre?

Hershey Creamery (HRCY.PK)

Price: $1750 (4/3/2012) - Note doesn't trade often beware!!

I want to thank a reader who's an avid pink sheet investor for sending me some information on this stock along with a few others.  The information sent was invaluable.

Hershey Creamery is a ice cream manufacturer and distributer located in Harrisburg Pennsylvania.  They've been in business since 1894 and were started by the Hershey brothers.  Hershey Creamery is a completely separate company and has no relation to Hershey the candy company located in Hershey PA which is just down the road from Harrisburg.

Hershey Creamery manufacturers both ice cream, ice cream novelties, smoothies, and ice cream coffee drinks.  The company has an interesting distribution arrangement, they don't distribute to common grocery stores but rather distribute to stores where they can be the dominant ice cream product.  This means if you're at a Giant Eagle you won't find Hershey Ice Cream, but if you're at MacBeth's Gift Shop in Cooksburg PA you'll find the freezer stocked full (I speak from experience regarding MacBeths).

I've had Hershey Ice Cream in the past, but wanted to try it again before doing this post.  Unfortunately the place that sells it near my house has either closed for good or hasn't opened for the season yet.  We ended up getting some ice cream at a local place down the road which was awesome, but is a moot point in researching for this post.

The company has been run by the Holder family since the 1920s.  George Hughes Holder was the President and Chairman until he passed away in 2009.  The company is now run by his three sons.

Why is the company interesting?

Hershey Creamery is a typical unlisted company, they run like a private company but have shares that seem to trade on an ad-hoc basis.  The last time Hershey Creamery shares traded was January 23rd, when six shares traded hands.  The company has 96,066 shares outstanding but most reside as treasury stock, there are only 35,359 outstanding, and the majority of those are held by the Holder family.

Here are a few interesting items regarding the company:
  • Hershey Ice Cream is sold in 28 states.
  • The company operates 22 distribution centers.
  • They're still headquartered in the same place as where they started in the 1800s.
  • In 2010 they had $94m in sales, $4m in operating income and $3.7m in net income.
  • EPS of $105.92 and a dividend of $16.80/sh
  • The company has a $61.8m market cap
  • Enterprise value of $15m if you include their portfolio of marketable securities (stocks, and cash)
  • EV/EBIT of 3.77
  • EV/FCF of 11.8
  • ROE 4.12%
  • ROE ex-cash of 8.48%
Here is the net-net worksheet:

What's it worth?

Hershey Creamery isn't a stellar business but they're pretty steady.  If you take into account the overcapitalization they're probably close to fairly valued currently.  On a cash plus operating business basis I can see maybe $2000 being a fair value, and $1750 isn't that far off, especially in the pink sheet world. 

Some people might argue that the company should trade at book value which would mean the company would be worth around $2565 a share.

The reality though is Hershey will probably trade where it's at unless either earnings explode (unlikely especially with high fuel costs) or if the company is bought out.  A buyout is the most likely way any value is going to be realized for a shareholder of Hershey Creamery.

I was able to get some stats on ice cream company buyouts over the years from Adam at ValueUncovered (big thanks!) and put together a spreadsheet showing what that might mean for Hershey Creamery.  I used price to sales because this was the most consistent ratio I could find in the dataset.

So going through the buyout data we get a range of possible values for Hershey going from $3706 a share to $10339 a share.  All significantly higher than what it trades at today, but all betting that the family that has run Hershey Creamery since 1920 decides to sell.

While there's significant upside for a shareholder if Hershey Creamery is sold I'm not optimistic that the company will actually be sold in the near future.  George Hughes Holder's sons seem intent on running the business the same way as their father did including keeping a large hoard of cash and paying out a paltry dividend.  If the company increased their payout, or something changed leading me to believe the sons were going to sell I would become very interested in Hershey Creamery, until then I'm content to watch them from the sidelines.

Talk to Nate about Hershey Creamery

Disclosure: No position


  1. If they paid a $1,000 per share special dividend it would get interesting. Their ROE would look better and it would be trading around 7 times earnings. Which would give a decent earnings yield.

    This is the challenge with many unlisted family controlled companies - there is value but management seems in no hurry to unlock it.

  2. Tim,

    Completely agree about a dividend. Right now the cash seems like a way for the Holder brothers to shelter wealth tax free and dribble it out as dividends.

    Like I mention in the post, Hershey isn't as compelling as some other unlisted companies in terms of value creation. I'll keep my eyes on them but I can't bring myself to buy shares right now.


  3. Only just found your blog yesterday and already my second comment (my way of saying great work Nate). My speculation for the high cash holdings would be a hope for a one time holiday (like repatriation that was done a few years ago for foreign cash) as the family does not need the income in the short term.

    I am confused on the valuation. At 3.7M Net income does that include the cash/marketable securities income or not? What is the income with/without it?

  4. Stock Chump,

    Thanks for the comment and compliment. The $3.7m doesn't include the securities those bypass the income statement and are recorded on the equity statement. If I remember correctly the changes from 2009 to 2010 weren't that significant, most of the securities are in bonds and fixed income investments with some mutual funds.


    1. With the net income being 3.7M the ratio and an EV of 15M it does seem cheap to me. Even though you tie up 1700 now (if you can get it at that price), that value grows every year in cash after the small dividend. So you could say that cash/marketable securities grows by 85 or so a share.

      That being said, I am not buying as the stock is not just illiquid but not trading for 2+ months. If it was trading for less then cash and growing book value I would be interested and just follow Buffett's advice. "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

  5. Nate,
    Great write up. Since the Intrinsic Value of this company is largely based on it's sales, I think it is worth looking at Management's track record on the Sales front. They had sales of about 84 Million (from Walker's Manual) in 1998. And only 94 Million in 2010....Not even keeping up with inflation. I would conclude that management is not adding value to this company (other than piling another 3,000,000 into securities each year). Even though it is selling at 50 cents on the dollar...... not cheap enough to risk sitting on this another 10 years without an increase in the Intrinsic value of the investment.

  6. Anon,

    Thanks, I agree with you, sales haven't been all that great. In the 2010 letter management thought sales might fall a bit in 2011 due to high gas prices. Considering prices have only gone up since last year I'm guessing sales have taken a hit again.

    This could be a great investment if management decided to pay out a large dividend or get serious about growing operations. Unfortunately for investors they seem happy with the status quo.


  7. I can't help but ask is Hershey Creamery related to the candy company Hershey or was it at some point in the past. Very interesting question I just had to ask.

    1. No relation at all, Hershey Creamery was started by the Hershey family near Hershey PA. Confusing I know, there have actually been a number of lawsuits back and forth over the years. The Hershey candy company has sued Hershey Creamery saying the name was an infringement. Eventually they settled and Hershey Creamery has to put a disclaimer on their website and all their products saying they're not associated with the candy company.

  8. Nate

    Where would I find financial statements for the company? Thanks

  9. I've been watching this stock. It just went up 85% today, to $6K. Anyone know what happened? Buyout offer? I can't find any news.