Yahoo Finance Hershey (HSY) Benefits From Robust Buyouts & Innovation
The Hershey Company HSY maintains a robust lineup of established brands through prudent acquisitions. As a leading snacks company, it actively invests in its brands and capabilities to foster growth. Management is effectively executing strategic pricing strategies. However, HSY encounters challenges posed by the current high-cost environment.
Let’s delve deeper.
Gains From Buyouts
Hershey is undertaking buyouts to augment portfolio strength and boost revenues. In April 2023, the company signed an agreement to acquire two production facilities from Weaver Popcorn Manufacturing — a well-known leader in popcorn production and co-packing and a co-manufacturer of Hershey’s SkinnyPop brand. In December 2021, HSY 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. Dot’s Pretzels remained strong in first-quarter 2024. The company also purchased Pretzels Inc from an affiliate of Peak Rock Capital. The acquisition further expands Hershey’s snacking and production capabilities.
Strong Brand Portfolio
The company markets some of the world’s leading brands, which enjoy widespread consumer acceptance. It is also a global leader in sugar confectionery products, an attractive category as confectionery products are readily available, affordable and highly indulgent, thus making the industry almost recession-resistant.
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. The company regularly brings innovation to its core brands to meet consumer demands and needs that are not addressed by its current portfolio. It has innovation, distribution and merchandising activations in the pipeline for 2024, courtesy of a significant rise in capacity.
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Pricing Strategy
The Zacks Rank #3 (Hold) company is undertaking strategic pricing initiatives to improve its performance. The trend continued in the first quarter of 2024, with price realization being up 5.2% year over year. In the North America Confectionery segment, organic pricing increased 5.9%. Organic pricing rose 1.7% in the North America Salty Snacks. In the International unit, the company’s organic pricing jumped 3.5%. The continuation of such trends bodes well for Hershey.
High-Cost Environment
Hershey is operating amid a volatile business environment. The company is not immune to rising costs, which are putting pressure on its margin performance. In the first quarter, the adjusted gross margin was 44.9%, down 170 basis points (bps) year over year due to increased commodity costs. For 2024, management expects the gross margin to decline approximately 200 bps due to high cocoa prices and elevated sugar costs.
Also, HSY has been grappling with higher selling, marketing and administrative (SG&A) expenses for a while. In the first quarter, the company’s SG&A expenses rose 6.3% on increased levels of media, capability and technology investments. Advertising and related consumer marketing expenses rose 12%, with elevated investments across all segments.
That said, its emphasis on the benefits mentioned above is likely to offer some respite. HSY’s shares have dropped 2.6% in the past six months compared with the industry’s 6% decline.
Some Better-Ranked Staple Bets
Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 62.7%, respectively, from year-ago reported numbers.
Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
Utz Brands Inc. UTZ, which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.
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Hershey Company (The) (HSY) : Free Stock Analysis Report
Freshpet, Inc. (FRPT) : Free Stock Analysis Report
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Utz Brands, Inc. (UTZ) : Free Stock Analysis Report
