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Hershey Hits 52-Week High on Robust Buyouts & Saving Efforts

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The Hershey Company (HSY - Free Report) touched a 52-week high of $116.73, before closing the session a tad lower at $116.02 on Apr 9. Notably, the company has been gaining from an impressive brand portfolio, which can be attributable to its focus on innovation and buyouts. Also, it is on track to boost savings through SKU rationalizing and the Margin for Growth program.

Backed by these tailwinds, shares of this Zacks Rank #3 (Hold) company have gained 24.4% in a year, outperforming the industry’s growth of 22.8%.



Let’s take a closer look at the aspects driving the company’s performance.

Factors Narrating Hershey’s Growth Story

Hershey has been undertaking buyouts to augment portfolio strength and revenues. In fact, net impact from buyouts and divestitures boosted sales growth by 3 points during the fourth quarter of 2018. Hershey’s top line is steadily gaining from the acquisition of Amplify Snack Brands. Hershey acquired Amplify in January 2018 in a bid to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks. It expects greater yields from this buyout in the forthcoming periods.

In September 2018, the company acquired Pirate Brands, which is aimed at augmenting Hershey’s snacking business. In the fourth quarter, the takeover of Amplify and Pirate Brands boosted sales in the North American unit by almost 4.8 points. Going forward, management expects such well-chalked buyouts to boost performance.

The company’s core brands include Hershey’s, Reese’s, Kisses, Jolly Rancher, Brookside, Sofit and Ice Breakers. These brands have been growing strongly on the back of advertising investments, in-store merchandising, and programming and innovation. In fact, the company regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. Also, Hershey's Gold and Reese's Outrageous, which were launched in 2018, have proved conducive. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.

Apart from these, Hershey is on track with its Margin for Growth multi-year program. Per this initiative, the company will reduce its global workforce outside the United States by 15%. This is also intended at improving overall operating margin through supply-chain optimization, a streamlined operating model and reduced administrative expenses. 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. Hershey has also undertaken strategic pricing initiatives to improve mix, which is likely to bolster its performance in 2019.

Though high freight and logistics costs and stiff competition pose threats, we expect Hershey’s strategic endeavors to address these challenges and help sustain momentum.

3 Stocks to Watch
 
Medifast, Inc. (MED - Free Report) delivered average positive earnings surprise of 10.5% in the trailing four quarters. It has a long-term earnings growth rate of 20% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lamb Weston Holdings, Inc. (LW - Free Report) has a long-term earnings growth rate of 12.4% and a Zacks Rank #2 (Buy).

General Mills, Inc. (GIS - Free Report) has a long-term earnings growth rate of 7.5% and a Zacks Rank of 2.

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