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Solid Pricing & Portfolio Strength Fuel Hershey's (HSY) Growth

The Hershey Company HSY has been undertaking buyouts and innovation to augment portfolio strength and boost revenues. Focus on effective pricing actions is also driving the leading snacks company’s growth. These upsides fueled fourth-quarter 2022 results, wherein net sales and earnings surpassed the Zacks Consensus Estimate and increased year over year.

The Zacks Consensus Estimate for HSY’s upcoming quarterly sales and earnings suggests growth of 8.7% and 4.4%, respectively, from the year-ago quarter’s reported figure. The Zacks Rank #3 (Hold) stock has risen 14.2% in the past three months compared with the industry’s growth of 12.5%.

Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Factors Working Well for Hershey?

Hershey has been focused on prudent buyouts to enhance its presence. 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.

HSY 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.

The company’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 increased 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 company strategy is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.

Is All Rosy for Hershey?

Hershey has been grappling with higher selling, marketing and administrative expenses for a while. In the fourth quarter of 2022, the company’s selling, marketing and administrative expenses rose 11.5% year over year, mainly due to increased corporate expenses. Advertising and related consumer marketing expenses increased 3.3%. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, rose 15.4%.

Owing to Hershey’s solid international presence, the company remains exposed to unfavorable currency fluctuations. In the fourth quarter of 2022, the company’s net sales included a 0.3-headwind from currency movements. Thus, the volatility in exchange rates is a concern for the company.

That being said, HSY’s focus on the aforementioned upsides is likely to keep aiding growth.

Solid Staple Bets

Some better-ranked consumer staple stocks are General Mills GIS, Beyond Meat BYND and Kimberly-Clark Corporation KMB.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the corresponding year-ago reported figures.

Beyond Meat, which develops, manufactures, markets and sells plant-based meat products, currently carries a Zacks Rank #2. BYND has a trailing four-quarter negative earnings surprise of 29.3%, on average.

The Zacks Consensus Estimate for Beyond Meat’s current fiscal-year earnings suggests an increase of 39.7% from the year-ago reported number.

Kimberly Clark is engaged in the manufacture and marketing of a wide range of consumer products around the world. It currently has a Zacks Rank of 2. KMB has a trailing four-quarter earnings surprise of 1.4%, on average.

The Zacks Consensus Estimate for Kimberly Clark’s current financial year sales and earnings suggests growth of 1.7% and 5.2%, respectively, from the year-ago reported numbers.


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