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Hershey (HSY) Benefits From Prudent Buyouts & Solid Demand

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The Hershey Company (HSY - Free Report) is undertaking strategic acquisitions to augment portfolio strength and boost revenues. The company continues to benefit from a recovery in away-from-home consumption. Robust at-home consumption is also contributing to the upside. These trends were reflected in third-quarter 2021 results, with sales and earnings beating the Zacks Consensus Estimate and rising year over year.

Better-than-expected consumer demand, an improved tax outlook and optimized brand investment prompted Hershey to lift 2021 net sales and earnings forecast. Management envisions full-year net sales growth in the band of 8-9% compared with the prior projection of 6-8% growth. Hershey anticipates adjusted earnings between $6.98 and $7.11 per share, which suggests an increase of 11-13% from earnings of $6.29 in 2020. The company had earlier anticipated an increase of 8-10% in earnings per share.

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Acquisitions Driving Growth

Hershey strategically increased its presence through acquisitions, which have been strengthening its portfolio. The company recently entered into a definitive agreement to acquire 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 announced its plans of acquiring Pretzels Inc. from an affiliate of Peak Rock Capital. The buyout will expand Hershey’s snacking and production capabilities. Management envisions concluding the transactions by the end of 2021.

On Jun 25, 2021, Hershey concluded the acquisition of Lily's, a leading better-for-you (BFY) confectionery brand. The buyout is in sync with Hershey’s focus to create an impressive BFY confection portfolio as part of its multi-pronged, better-for-you snacking strategy. The acquisition of Lily's benefited net sales by 1.4 points in the third quarter. The company acquired ONE Brands, LLC in September 2019 to solidify its footing in the snacking category. Prior to this, the company acquired Pirate Brands in October 2018 to bolster its snacking business.

Several other companies in the food space like Post Holdings, Inc. (POST - Free Report) , Hormel Foods Corporation (HRL - Free Report) and McCormick & Company, Incorporated (MKC - Free Report) are benefiting from acquisitions.

In fourth-quarter fiscal 2021, Post Holdings’ top line included $99.8 million in net sales from acquisitions made through fiscal 2021. The buyouts include Private label ready-to-eat cereal business Egg Beaters liquid egg brand, Almark Foods business and related assets and Peter Pan nut butter brand.

Hormel Foods is strengthening its business through strategic acquisitions. In June, HRL acquired the Planters snacking portfolio from The Kraft Heinz Company. Prior to this, the company acquired Texas-based pit-smoked meats company Sadler's Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

McCormick has strategically increased its presence through acquisitions, which have been strengthening its portfolio. In December 2020, McCormick 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.

Wrapping Up

Hershey is encountering higher selling, marketing and administrative expenses for a while. During third-quarter 2021, selling, marketing and administrative expenses rose 3.7% year over year due to higher corporate expenses. Management expects supply chain costs, mainly logistics, labor and packaging to remain higher, at least through the first half of 2022. Raw material inflation is likely to be higher year over year in 2022.

Nevertheless, Gains from strategic buyouts and improved consumer demand are likely to aid growth.

Shares of the Zacks Rank #3 (Hold) company have increased 16.8% year to date compared with the industry's growth of 17%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.