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Hershey (HSY) on Track With Pricing Actions Amid Higher Costs
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The Hershey Company (HSY - Free Report) boosts a portfolio of solid brands courtesy of prudent buyouts. The leading snacks company continues to invest in its brands and capabilities to drive growth. Management is on track with strategic pricing efforts. However, HSY is not immune to the high-cost environment.
Let’s delve deeper.
Strategic Buyouts: Key Driver
Hershey is undertaking buyouts to augment portfolio strength and boost revenues. In April 2023, the company signed an agreement to acquire two production facilities from Weaver Popcorn Manufacturing — a well-known leader in popcorn production and co-packing and a co-manufacturer of Hershey’s SkinnyPop brand.
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. Dot’s Pretzels remained strong in the third quarter of 2023, fueled by solid category growth and share gains in measured and non-measured channels. The company also purchased Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition expands its snacking and production capabilities.
Image Source: Zacks Investment Research
Innovation on Track
Hershey markets some of the world’s leading brands, which enjoy widespread consumer acceptance. The company is a global leader in sugar confectionery products, which is an attractive category as confectionery products are readily available, affordable and highly indulgent, thus making the industry almost recession-resistant. 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 has a robust pipeline of innovations for 2024. It is committed to supporting brands through solid media marketing.
Robust Pricing Efforts
The Zacks Rank #3 (Hold) company is undertaking strategic pricing initiatives to improve its performance. The trend continued in the third quarter of 2023 with solid top-line growth and improved margins. Quarterly organic sales on a constant-currency (cc) basis increased 10.7%, fueled by price realization. In the North America Confectionery segment, price realization contributed 11 points of growth. Management expects pricing to have a high-single-digit benefit for the segment during the fourth quarter. The North America Salty Snacks segment’s net sales increased 25.5%, courtesy of favorable price realization and volumes.
Is All Rosy For Hershey?
Hershey has been grappling with higher selling, marketing and administrative expenses for a while. In the third quarter of 2023, the company’s SG&A expenses rose 13.1% on increased levels of media and capability investments. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased by 9.9% due to wage and benefits inflation, capability and technology investments.
In the fourth quarter, management expects advertising spending to grow to double-digits as it continues to support the sell-through of seasonal items and starts to reactivate the Salty Snacks brands post-ERP transition. The company expects non-advertising SG&A spending to rise in low-single-digits, reflecting some increase in technology and capability investments.
All said the upsides mentioned above are likely to offer some respite amid such a rise in costs.
HSY’s stock has dropped 9.1% in the past three months compared with the industry’s 7.1% decline.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145% on average.
The Zacks Consensus Estimate for Vital Farms’ current financial year sales suggests growth of 29.4% from the year-ago reported figure.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial year sales and earnings suggests growth of 1% and 6.5%, respectively, from the year-ago reported numbers.
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Hershey (HSY) on Track With Pricing Actions Amid Higher Costs
The Hershey Company (HSY - Free Report) boosts a portfolio of solid brands courtesy of prudent buyouts. The leading snacks company continues to invest in its brands and capabilities to drive growth. Management is on track with strategic pricing efforts. However, HSY is not immune to the high-cost environment.
Let’s delve deeper.
Strategic Buyouts: Key Driver
Hershey is undertaking buyouts to augment portfolio strength and boost revenues. In April 2023, the company signed an agreement to acquire two production facilities from Weaver Popcorn Manufacturing — a well-known leader in popcorn production and co-packing and a co-manufacturer of Hershey’s SkinnyPop brand.
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. Dot’s Pretzels remained strong in the third quarter of 2023, fueled by solid category growth and share gains in measured and non-measured channels. The company also purchased Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition expands its snacking and production capabilities.
Image Source: Zacks Investment Research
Innovation on Track
Hershey markets some of the world’s leading brands, which enjoy widespread consumer acceptance. The company is a global leader in sugar confectionery products, which is an attractive category as confectionery products are readily available, affordable and highly indulgent, thus making the industry almost recession-resistant. 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 has a robust pipeline of innovations for 2024. It is committed to supporting brands through solid media marketing.
Robust Pricing Efforts
The Zacks Rank #3 (Hold) company is undertaking strategic pricing initiatives to improve its performance. The trend continued in the third quarter of 2023 with solid top-line growth and improved margins. Quarterly organic sales on a constant-currency (cc) basis increased 10.7%, fueled by price realization. In the North America Confectionery segment, price realization contributed 11 points of growth. Management expects pricing to have a high-single-digit benefit for the segment during the fourth quarter. The North America Salty Snacks segment’s net sales increased 25.5%, courtesy of favorable price realization and volumes.
Is All Rosy For Hershey?
Hershey has been grappling with higher selling, marketing and administrative expenses for a while. In the third quarter of 2023, the company’s SG&A expenses rose 13.1% on increased levels of media and capability investments. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased by 9.9% due to wage and benefits inflation, capability and technology investments.
In the fourth quarter, management expects advertising spending to grow to double-digits as it continues to support the sell-through of seasonal items and starts to reactivate the Salty Snacks brands post-ERP transition. The company expects non-advertising SG&A spending to rise in low-single-digits, reflecting some increase in technology and capability investments.
All said the upsides mentioned above are likely to offer some respite amid such a rise in costs.
HSY’s stock has dropped 9.1% in the past three months compared with the industry’s 7.1% decline.
Top 3 Staple Bets
MGP Ingredients, Inc. (MGPI - Free Report) produces and markets ingredients and distillery products to the packaged goods industry. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145% on average.
The Zacks Consensus Estimate for Vital Farms’ current financial year sales suggests growth of 29.4% from the year-ago reported figure.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial year sales and earnings suggests growth of 1% and 6.5%, respectively, from the year-ago reported numbers.