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Hershey (HSY) Up on Solid Brands & Pricing Amid Rising Costs
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The Hershey Company (HSY - Free Report) is on track with strategic acquisitions and consumer-friendly innovation to boost portfolio strength. The global leader in chocolate and non-chocolate confectionery is benefiting from effective pricing actions amid rising inflation.
Let’s delve deeper.
Buyouts & Innovations Boosting Portfolio
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. 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.
In the third quarter of 2022, net sales included a 4.1-point benefit from the Pretzels and Dot's buyouts. The impact of Pretzels, Dot's and Lily's buyouts is likely to add a 4-5 point benefit to net sales.
Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. The company anticipates momentum to continue into the Holiday season, with its products already out in stores and selling well. In addition, it is committed to supporting brands through solid media marketing. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.
Image Source: Zacks Investment Research
Will Cost Hurdles be Countered?
In the third quarter of 2022, Hershey’s adjusted gross margin came in at 42.5%, down 180 basis points (bps). The downside was caused by raw material, packaging and logistics inflation and labor investments. Increased supply chain costs stemming from sustained consumer demand also hurt the metric. In addition, an unfavorable mix from recent buyouts was a hurdle. These factors were somewhat offset by net price realization and volume gains.
For 2022, management expects the adjusted gross margin to decline by nearly 120 bps. In its last earnings call, management highlighted that it expects the operating environment to remain dynamic in 2023. The company anticipates high single-digit cost inflation for commodities, packaging, logistics, wages and other general operating expenses. That being said, the focus on strategic pricing actions is helping Hershey mitigate the impacts of rising inflation.
We note that Hershey is undertaking strategic pricing initiatives to improve its performance. In third-quarter 2022, net price realization contributed 7.7 points to net sales growth. In the North America Confectionery segment, net price realization contributed 7.7 points to net sales. In the North America Salty Snacks segment, net price realization contributed 12.5 points to net sales growth. Price realization contributed 4.4 points to sales in the International unit.
The Zacks Rank #3 (Hold) stock has rallied 24.7% in a year compared with the industry’s 19.9% growth.
The Chef's Warehouse, which distributes specialty food products, currently sports a Zacks Rank #1 (Strong Buy). Chef's Warehouse has a trailing four-quarter earnings surprise of 93.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CHEF’s current financial year sales suggests growth of 46.5% from the year-ago reported number, while earnings indicate significant growth.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2 (Buy). CAG has a trailing four-quarter earnings surprise of 1.8%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current financial year sales and earnings suggests growth of 5.3% and 3.4%, respectively, from the corresponding year-ago reported figures.
McCormick, a manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2. MKC delivered an earnings surprise of 6.2% in the last reported quarter.
The Zacks Consensus Estimate for McCormick’s current financial year sales suggests growth of 1.8% from the year-ago reported figure.
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Hershey (HSY) Up on Solid Brands & Pricing Amid Rising Costs
The Hershey Company (HSY - Free Report) is on track with strategic acquisitions and consumer-friendly innovation to boost portfolio strength. The global leader in chocolate and non-chocolate confectionery is benefiting from effective pricing actions amid rising inflation.
Let’s delve deeper.
Buyouts & Innovations Boosting Portfolio
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. 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.
In the third quarter of 2022, net sales included a 4.1-point benefit from the Pretzels and Dot's buyouts. The impact of Pretzels, Dot's and Lily's buyouts is likely to add a 4-5 point benefit to net sales.
Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. The company anticipates momentum to continue into the Holiday season, with its products already out in stores and selling well. In addition, it is committed to supporting brands through solid media marketing. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.
Image Source: Zacks Investment Research
Will Cost Hurdles be Countered?
In the third quarter of 2022, Hershey’s adjusted gross margin came in at 42.5%, down 180 basis points (bps). The downside was caused by raw material, packaging and logistics inflation and labor investments. Increased supply chain costs stemming from sustained consumer demand also hurt the metric. In addition, an unfavorable mix from recent buyouts was a hurdle. These factors were somewhat offset by net price realization and volume gains.
For 2022, management expects the adjusted gross margin to decline by nearly 120 bps. In its last earnings call, management highlighted that it expects the operating environment to remain dynamic in 2023. The company anticipates high single-digit cost inflation for commodities, packaging, logistics, wages and other general operating expenses. That being said, the focus on strategic pricing actions is helping Hershey mitigate the impacts of rising inflation.
We note that Hershey is undertaking strategic pricing initiatives to improve its performance. In third-quarter 2022, net price realization contributed 7.7 points to net sales growth. In the North America Confectionery segment, net price realization contributed 7.7 points to net sales. In the North America Salty Snacks segment, net price realization contributed 12.5 points to net sales growth. Price realization contributed 4.4 points to sales in the International unit.
The Zacks Rank #3 (Hold) stock has rallied 24.7% in a year compared with the industry’s 19.9% growth.
3 Solid Food Picks
Some better-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , Conagra Brands (CAG - Free Report) and McCormick & Company (MKC - Free Report) .
The Chef's Warehouse, which distributes specialty food products, currently sports a Zacks Rank #1 (Strong Buy). Chef's Warehouse has a trailing four-quarter earnings surprise of 93.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CHEF’s current financial year sales suggests growth of 46.5% from the year-ago reported number, while earnings indicate significant growth.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2 (Buy). CAG has a trailing four-quarter earnings surprise of 1.8%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current financial year sales and earnings suggests growth of 5.3% and 3.4%, respectively, from the corresponding year-ago reported figures.
McCormick, a manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2. MKC delivered an earnings surprise of 6.2% in the last reported quarter.
The Zacks Consensus Estimate for McCormick’s current financial year sales suggests growth of 1.8% from the year-ago reported figure.