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Hershey's Pirate Brands Buyout to Bolster Snacking Business

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Moving ahead with expansion in the snacking category, The Hershey Company (HSY - Free Report) inked a deal to buy Pirate Brands from B&G Foods, Inc. (BGS - Free Report) . The deal, worth $420 million (nearly 360 million net of tax), is anticipated to conclude in fourth-quarter 2018 through cash and short-term loans. Pirate Brands will form part of Hershey’s recently acquired Amplify, and is likely to bolster the chocolate maker’s snacking business.

Pirate Brands’ acquisition will bring Pirate’s Booty, Smart Puffs and Original Tings brands under Hershey’s umbrella. These brands will operate under Amplify, which is Hershey’s better-for-you snacking business. Amplify, which includes flavors like Skinny Pop, Paqui and Oatmega, remains focused on extending Hershey’s presence in the growing snacking space.

Notably, Hershey acquired Amplify Snack Brands in January 2018, in a bid to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks. Markedly, Hershey’s sales gained 5.9 points from this acquisition during the second quarter of 2018. This mainly augmented the performance of the company’s North American segment. Increased volumes and net price realization also benefited sales growth during the second quarter.

With several plans rolled up its sleeve to further strengthen the Amplify brands, Hershey expects greater yields from this buyout in the forthcoming periods. In prior developments, the acquisition of New York-based barkTHINS (April 2016) premium chocolate snacking brand has also been aiding the company’s better-for-you snacks portfolio.

On that note, we believe that the buyout of Pirate Brands is also set to put Hershey on a solid footing. Net sales of Pirate Brands soared 54.6% in B&G Foods’ second-quarter 2018 results, mainly fueled by favorable timing of promotional activities along with enhanced distribution. Within Pirate Brands, Pirate’s Booty is performing exceptionally well in the cheese puffs market, which is worth more than $2.5 billion. This fast-growing brand’s retail sales growth has exceeded 8% year over year, given its renowned offerings that include snacks without any artificial flavors, colors or preservatives.

That said, we expect Hershey to gain from this growth strategy. In fact, Hershey’s well-planned efforts to expand its business have helped this Zacks Rank #3 (Hold) stock rally close to 16% in the past three months, while the industry grew 11.7%. As for B&G Foods, the company intends to use the proceeds from Pirate Brands’ sale to curtail debt and undertake potential buyouts. B&G Foods, also with a Zacks Rank #3 has seen its shares gain 9.4% in the past three months.

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