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Hershey (HSY) Rallies More Than 30% in a Year: Here's Why

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The Hershey Company (HSY - Free Report) looks well-placed courtesy of prudent acquisitions and robust innovations. The company continues to benefit from a recovery in away-from-home consumption. Robust at-home consumption has also been driving growth.

Thanks to such upsides, shares of the Zacks Rank #2 (Buy) stock have increased 30.5% in the past year compared with the industry’s growth of 28.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper.

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Robust Demand Drives Growth

Hershey reported stellar third-quarter 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year over year. Solid consumer demand for brands contributed to this upbeat performance. The company witnessed growth in the North America and International and Other segments. Hershey’s market share remained above pre-pandemic levels, with confectionery share gain of nearly 100 basis points (bps) and snacking share improvement of 220 bps compared with third-quarter 2019 levels. Volumes drove 1.3-point benefit as at-home consumption remained robust and away-from-home consumption improved.

Acquisitions Driving Growth

Hershey has been undertaking buyouts to augment portfolio strength and boost revenues. Recently, the company concluded the buyout of Dot's Pretzels — the owner of Dot's Homestyle Pretzels — and Pretzels Inc. — a well-known manufacturer of pretzels in the United States. The addition of Dot's Pretzels — the fastest-growing U.S. pretzel brand — bodes well for Hershey's snacking powerhouse vision. The Pretzels Inc. buyout brings the pretzel manufacturing capability in-house, which will aid Dot’s growth and provide expertise to drive future snacking innovations. 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. The acquisition of Lily's benefited net sales by 1.4 points in third-quarter 2021. Earlier, the company acquired ONE Brands, LLC in September 2019 to solidify its footing in the snacking category.

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 the acquisitions made in 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. 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.

Brand Strength

Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. In third-quarter earnings call, management highlighted that Reese’s brand continued to witness double-digit growth. The brand saw almost 20% growth on a two-year basis backed by media support, new packaging, seasonal gains, pricing and innovation. The company is on track to add a new Reese’s capacity throughout 2022 and 2023. Kisses and Jolly Ranchers brands witnessed solid growth during the quarter. Hershey expanded its presence in better-for-you confection and gummy sweets. 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.

Well, strength in Hershey’s core brand along with the aforementioned upsides is likely to keep its growth story going.