Hershey (HSY) Looks Appetizing on Pricing & Strategic Buyouts
The Hershey Company HSY appears well placed on a solid brand portfolio backed by strategic acquisitions and innovations. The leading snacks company’s robust pricing actions is a key driver. These factors drove the company’s fourth-quarter 2022 results, with the top and the bottom line surpassing the Zacks Consensus Estimate and increasing year over year.
Management is optimistic about delivering earnings and sales growth in 2023. The company envisions net sales growth in the band of 6-8% for 2023, fueled by net price realization, with consumer demand staying steady. Hershey envisions earnings per share (EPS) to increase 11-15% and expects adjusted EPS growth of 9-11%.
The Zacks Rank #2 (Buy) stock has risen 15.8% in the past year compared with the industry’s growth of 14.7%. Let’s delve deeper.
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Pricing Action: 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 productivity levels are likely to keep offsetting the persistent cost of goods, labor, packaging and logistics inflation through 2023.
Focus on Acquisitions
Hershey has been undertaking buyouts to augment portfolio strength and boost revenues. 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.
Brand Strength & Innovation Drive Growth
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 Reese’s retail sales grew 10.5% for 2022 despite capacity constraints. 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.
We believe that HSY’s solid brand portfolio and the abovementioned upsides are likely to keep its growth story going.
Solid Food Picks
Some other top-ranked consumer staple stocks are Post Holdings POST, General Mills GIS and Vital Farms VITL.
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 119.6% from the year-ago reported number.
General Mills, a branded consumer foods company, currently carries a Zacks Rank #2. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.
The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.9% and 7.1%, respectively, from the corresponding year-ago reported figures.
Vital Farms, which provides pasture-raised products, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 53.3%, on average.
The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales suggests an increase of 25.4% from the year-ago reported number.
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