In a scenario when many food companies are under significant cost and competitive pressure, The Hershey Company (HSY - Free Report) has managed to counter these hurdles with its robust strategies. This has helped this renowned chocolate maker showcase a solid bull run in the past six months, with its shares having rallied 15%, outperforming the industry’s growth of close to 9%.
Let’s delve deeper into the factors, which are likely to continue fueling this Zacks Rank #2 (Buy) stock.
Buyouts — A Key Driver
Hershey has been undertaking buyouts to augment portfolio strength and boost revenues. In a bid to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks, Hershey acquired Amplify — the maker of SkinnyPop and Tyrrell’s potato chips — in January 2018. Markedly, Hershey’s sales gained 3.7 points during the third quarter of 2018, from this acquisition. Hershey expects greater yields from this buyout in the forthcoming periods. Earlier, Hershey had acquired Pirate Brands from B&G Foods (BGS). Net benefits from buyouts and divestitures are expected to be 3.5 points in 2018. Notably, the addition of barkTHINS to its portfolio has also been aiding the company’s better-for-you snacks category, since April 2016. Going ahead, management expects these well-chalked buyouts to continue supporting performance of the company.
Solid Productivity Improvements and Cost-Saving Plans
Hershey focuses on optimizing its portfolio to deliver increased profitability. In this respect, the company’s SKU rationalizing efforts have been progressing well. In addition, the company is well on track with its Margin for Growth multi-year program, per which Hershey plans to reduce its workforce outside the United States by 15%. The program is also intended to improve overall operating margin through supply-chain optimization, streamline operating model and reduce administrative expenses, with savings primarily being achieved in 2018 and 2019. These moves are anticipated to boost efficiency, leverage global shared services and common processes, and increase capacity utilization. Management expects to reap savings of approximately $150-$175 million from this program. Additionally, the company has undertaken strategic pricing initiatives to improve mix, which are likely to benefit performance in 2019. We hope that such efforts will boost savings that can in turn be invested in endeavors to drive growth.
Hershey regularly brings innovation to its core brands to meet consumer demands and needs that are not addressed by its current portfolio. In this respect, Hershey's Gold and Reese's Outrageous, which were launched in 2018, have been doing well. Further, the company is excited regarding the launch of Reese's Thins in March 2019. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.
These factors along with Hershey’s efforts to augment its international presence are likely to help the company sustain its solid record.
2 More Food Stocks to Bank On
McCormick & Company, Incorporated (MKC - Free Report) has long-term earnings per share growth rate of 9% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Campbell Soup Company (CPB - Free Report) , with long-term earnings per share growth rate of 5.5%, also carries a Zacks Rank #2.
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