The Hershey Company (HSY Quick QuoteHSY - Free Report) is well-positioned to boost portfolio strength, courtesy of strategic acquisitions. The leading snacks company’s focus on innovations is fueling growth. In addition, HSY’s effective pricing actions are worth mentioning.

Encouragingly, management expects solid seasonal performance, driven by increased consumer engagement and record-level sell-throughs in 2022. Management envisions net sales growth in the band of 8-10% for 2022 with 3-4 point benefit from the Dot’s, Pretzel’s and Lily’s acquisition. Net sales are likely to be backed by higher list prices across all the segments. Hershey expects adjusted earnings per share (EPS) to increase 9-11% for the year, while reported EPS growth is likely to be in the 7-10% band.

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The Zacks Rank #2 (Buy) stock has rallied 16.8% year to date compared with the industry’s 12.9% growth. The stock has comfortably outperformed the Zacks Consumer Staples sector’s 2% decline in the period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Buyouts: A 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 expands Hershey’s snacking and production capabilities. In its last earnings call, management highlighted that Dot’s increased more than 55% in 2021 on distribution and velocity gains. 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 on creating an impressive BFY confection portfolio as part of its multi-pronged better-for-you snacking strategy.

Several other companies in the food space are benefiting from acquisitions, including Post Holdings, Inc. (POST Quick QuotePOST - Free Report) , The Kraft Heinz Company (KHC Quick QuoteKHC - Free Report) and Hormel Foods Corporation (HRL Quick QuoteHRL - Free Report) .

During the first quarter of fiscal 2022, Post Holdings’ top line included $97.8 million in net sales from acquisitions. This includes the Private label ready-to-eat (PL RTE) cereal business, Egg Beaters liquid egg brand, Almark Foods business and related assets as well as the Peter Pan nut butter brand. On Feb 1, 2021, POST acquired Almark Foods, which is renowned for its hard-cooked and deviled egg products and provides conventional, organic and cage-free products. Also, on Jan 25, Post Holdings acquired the Peter Pan peanut butter brand.

Kraft Heinz recently acquired a majority stake in a Brazil-based condiments and sauces company — Companhia Hemmer Indústria e Comércio ("Hemmer"). The buyout will widen Kraft Heinz's International Taste Elevation platform and enhance its presence across emerging markets. In January 2022, KHC acquired an 85% stake in Germany-based Just Spices GmbH (“Just Spices”). The buyout enhances its direct-to-consumer operations and go-to-market expansion.

On Jun 7, 2021, Hormel Foods acquired Planters snacking portfolio from Kraft Heinz. In its last earnings call, HRL highlighted that Planters continues to perform at the high end of its expectations. Hormel Foods acquired a Texas-based pit-smoked meats company, Sadler's Smokehouse in March 2020. The buyout is in sync with its initiatives to strengthen its position in the foodservice space.

Innovations Fueling Brand Strength  

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. Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. In its last earnings call, management highlighted that it witnessed positive retail sales growth in every one of its top 20 confection franchises in 2021. Hershey expanded its presence in better-for-you confections and gummy sweets. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.

Pricing Actions Bode Well

Hershey is undertaking strategic pricing initiatives to improve its performance. Net price realization drove Hershey’s fourth-quarter 2021 top line by 6.1 points, courtesy of higher list prices at all segments and slightly lower promotional activity levels compared with the prior year’s levels. In the North America Confectionery segment, price realization contributed 4.3 points to growth. In the North America Salty Snacks segment, price realization contributed 15.9 points to the upside. Across the International segment, price realization contributed 19.7 points to sales.

We believe that such well-chalked out pricing endeavors along with the aforementioned upsides, are likely to help HSY stay in investors’ good books.