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Hershey (HSY) Rises More Than 15% in 6 Months: Here's Why

The Hershey Company HSY appears well placed on the back of brand strength and pricing endeavors. The company’s focus on prudent buyouts and innovation is enhancing its brand portfolio.Courtesy of such upsides, the company’s fourth-quarter 2021 top and the bottom line increased year over year and surpassed the Zacks Consensus Estimate.

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.

The Zacks Rank #2 (Buy) stock has increased 15.1% in the past six months compared with the industry’s 12.8% growth. The stock has comfortably outperformed the Zacks Consumer Staples sector’s 1.2% decline in the period.

Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Expansions Fuel Growth

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 also purchased Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition further 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 tandem with Hershey’s focus on creating an impressive BFY confection portfolio as part of its multi-pronged better-for-you snacking strategy.

Apart from this, Hershey is investing in capacity expansion. In its fourth-quarter 2021, management highlighted that inthe last two years, it brought four new manufacturing lines online. In addition, the company added a new distribution center with state-of-the-art technology and enhanced agility. Management is on track with several additional capacity expansion initiatives associated with North American Confectionery.

Pricing Efforts

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 levels of promotional activity compared with the prior year’s levels. In the North America Confectionery, 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.

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 confection 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.

We believe that the above-mentioned upsides are likely to keep working for Hershey.

Other Solid Food Bets

Some other top-ranked stocks are Tyson Foods, Inc. TSN, Pilgrim's Pride PPC and Flowers Foods FLO.

Tyson Foods, a meat provider, currently sports a Zacks Rank #1 (Strong Buy). Shares of Tyson Foods have increased 19.5% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tyson Foods’ current financial year sales suggests growth of 9.5% from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.

Pilgrim's Pride, the provider of frozen, fresh and value-added chicken products, currently carries a Zacks Rank #2. Shares of Pilgrim's Pride have declined 14.6% in the past six months.

The Zacks Consensus Estimate for Pilgrim's Pride’s current financial year EPS suggests growth of 16.2% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.

Flowers Foods, which produces and markets packaged bakery products, carries a Zacks Rank #2. Shares of Flowers Foods have moved up 13.7% in the past six months.

The Zacks Consensus Estimate for Flowers Foods' 2022 financial year EPS suggests growth of 3.2% from the year-ago reported number. FLO has a trailing four-quarter earnings surprise of 9%, on average.

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