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Hershey Looks Alluring on Strong Brands and Savings Plans

Zacks Equity Research

The Hershey Company HSY has been cheering on strong brands and gains from savings plans. These upsides have helped the stock rally 21.9% in the past three months compared with the industry’s rise of 17.7%. Let’s take a closer look at the aspects driving the company, as well as some of the hurdles in its path.

Efforts to Boost Brands Bode Well

With some of the most renowned confectionary brands in its kitty, Hershey enjoys a strong footing in the food space. Its core brands — Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher, Brookside, Sofit and Ice Breakers — have been growing on the back of advertising investments, in-store merchandising and innovation. Moreover, the company frequently launches brands to meet consumers’ changing demands and needs. An important strategy of the company is to create a unique and holistic portfolio for every season.

Further, the company is undertaking buyouts to augment portfolio and boost revenues. In this context, the buyout of the Amplify Snack Brands has been yielding. The acquisition has strengthened the company’s snacks offerings.  Other notable buyouts of the company are Pirate Brands from B&G Foods BGS and barkTHINS. We note that many food companies like Campbell Soup CPB and Mondelez MDLZ, among others, opt for growth via acquisitions.



 

Savings Plans on Track

Hershey strives to induce efficiency in its operations to enhance profitability. In this respect, the SKU rationalizing efforts are progressing well. In addition, the company remains on track with Margin for Growth multi-year program. Through this multi-year initiative, Hershey intends to improve overall operating margin through supply chain optimization, streamlining operating model and reducing administrative expenses. Management earlier stated that it expects overall savings of approximately $150-$175 million from the margin for growth initiative.

Headwinds in the Path

The company is grappling with rising advertising and marketing expenses. The metric increased 5.6% in the second quarter. It expects advertising and associated consumer marketing costs to increase in the second half of 2019 compared with the first half. This is accountable to lapping media efficiencies from last year along with higher investments in core confectionary brands.

Additionally, adverse impacts from currency fluctuations are a threat. Markedly, currency headwinds hurt net sales in the International and Other segments by nearly 1.2 points.

Wrapping Up

We expect Hershey to tide over the aforementioned headwinds on the back of consistent efforts to bolster brands and augment savings. That said, we expect this Zacks Rank #3 (hold) company to remain on growth trajectory and in investors’ good books.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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