Hershey (HSY) Gains on Strategic Acquisitions & Brand Strength

The Hershey Company HSY has been undertaking buyouts to augment portfolio strength and boost revenues. Focus on consumer-friendly innovations is a key driver for the leading snacks company. In addition, the company’s robust pricing actions are yielding well.

Let’s discuss this in detail.

Acquisitions Driving Growth

The Zacks Rank #1 (Strong Buy) is on track with prudent buyouts to drive growth. In December 2021, Hershey acquired Dot’s Pretzels LLC — the owner of Dot’s Homestyle Pretzels, a leading brand in the pretzel category. The addition of Dot’s Pretzels is a perfect match for Hershey’s growing salty snacking portfolio. The company also purchased Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition further expands Hershey’s snacking and production capabilities. In the fourth quarter of 2022, Hershey’s net sales included a 3.6-point benefit from the Pretzels and Dot’s buyouts.

On Jun 25, 2021, Hershey concluded the acquisition of Lily’s, a leading better-for-you (BFY) confectionery brand. The buyout is in tandem with Hershey’s focus on creating an impressive BFY confection portfolio as part of its multi-pronged, better-for-you snacking strategy.

Zacks Investment Research

Image Source: Zacks Investment Research

Several other companies in the food space, like The Kraft Heinz Company KHC, Hormel Foods Corporation HRL and McCormick & Company, Incorporated MKC, are benefiting from acquisitions.

In April 2022, Kraft Heinz acquired a majority stake in a Brazil-based condiments and sauces company — Companhia Hemmer Indústria e Comércio (“Hemmer”). The buyout has widened Kraft Heinz’s International Taste Elevation platform and enhanced its presence across emerging markets. In January 2022, KHC acquired an 85% stake in Germany-based Just Spices GmbH (“Just Spices”). The buyout enhanced its direct-to-consumer operations and go-to-market expansion.

Hormel Foods is strengthening its business through strategic acquisitions. In June, HRL acquired the Planters snacking portfolio from Kraft Heinz. HRL acquired Texas-based pit-smoked meats company Sadler’s Smokehouse in March 2020. The buyout was in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

McCormick has strategically increased its presence through acquisitions and strengthened its portfolio. In December 2020, MKC bought a 100% stake in FONA International, LLC and some affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick acquired the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Story continues

Brand Strength & Focus on Innovation

Hershey’s core brands — Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher, Brookside, Sofit and Ice Breakers — have been growing strongly on the back of advertising investments, in-store merchandising and programming and innovation. In its last earnings call, management highlighted that its Reese’s retail sales grew 10.5% for 2022 despite capacity constraints. In fact, retail sales for Skinny Pop, Pirate’s Booty and Dot’s have more than doubled over the last three years.

Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.

Pricing Efforts: Key Driver

Hershey is undertaking strategic pricing initiatives to improve its performance. In fourth-quarter 2022, net price realization contributed 8.5 points to organic net sales growth. The company’s net price realization increased across the North America Confectionery, North America Salty Snacks and International units. In its last earnings call, management highlighted that net price realization and greater levels of productivity are likely to keep offsetting the persistent cost of goods, labor, packaging and logistics inflation through 2023.

All said, we believe that HSY’s focus on effective pricing actions and the aforementioned upsides are likely to keep it well placed.

The company’s stock has increased 13.7% in the past year, in line with the industry’s performance.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Hershey Company (The) (HSY) : Free Stock Analysis Report

Hormel Foods Corporation (HRL) : Free Stock Analysis Report

McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report

Kraft Heinz Company (KHC) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research