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Hershey (HSY) Looks Appetizing on Brand Strength & Buyouts

The Hershey Company HSY boasts a solid brand portfolio, which is acting as an upside. The leading snacks company’s effective pricing actions are working. The company is keen on expanding its business through acquisitions.

Let’s delve deeper.

Portfolio Strength Fuels 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. The company regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio.

On its last earnings call, management highlighted that it expects increased inventory levels, advertising and merchandising to fuel everyday sales and share performance in the second half of 2022. It expects seasonal consumer engagement with high single-digit sales growth during Halloween and the holiday season. In addition, it is committed to supporting brands through solid media marketing.

Pricing Power: Upside

Hershey is undertaking strategic pricing initiatives to improve performance. In the second quarter of 2022, net price realization contributed 9.5 points to net sales growth, fueled by higher list prices and reduced levels of promotional activity. In the North America Confectionery segment, net price realization contributed 9.8 points of growth, led by higher list price increases and reduced promotional activity. In the North America Salty Snacks segment, net price realization contributed 14.6 points to the upside. Price realization contributed 3 points to sales in the International unit.

Strategic Acquisitions: Key Driver

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 purchased Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition further expands Hershey’s production capabilities.

On Jun 25, 2021, Hershey concluded the acquisition of Lily's, a leading better-for-you (BFY) confectionery brand. The buyout was in tandem with Hershey’s focus on creating an impressive BFY confection portfolio as part of its multipronged better-for-you snacking strategy. In the second quarter of 2022, net sales included a 5.3-point benefit from the Pretzels, Dot's and Lily's buyouts.

Other Food Companies Benefiting From Acquisitions

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 of its 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.

Coming back to Hershey, the abovementioned upsides are likely to keep the company well placed.

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Hershey Company The (HSY): Free Stock Analysis Report
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