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Is Hershey Mulling Over Nestle's U.S. Candy Business Buyout?

Zacks Equity Research

The Hershey Co. HSY is likely to acquire Nestle's U.S. confectionery business, which includes brands such as Butterfinger, Baby Ruth, Sno-Caps and Laffy Taffy, per media reports. The chocolate giant may have submitted its final bids on Jan 5, 2018.

However, Ferrero, best known for its Nutella chocolate spread and Ferrero Rocher bonbons, is also believed to be among the potential bidders. Ferrero, Hershey and Nestle all declined to comment on the news.

In June 2017, Nestle revealed that it was exploring strategic options that include a possible sale of its U.S. chocolate and candy business. In July, Nestle said that the business attracted considerable interest from bidders.

Nestle's U.S. confectionery business unit is expected to be worth as much as $2.5 million.

Hershey, in a bid to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks, inked a deal last month to acquire Amplify Snack Brands Inc. (BETR), the maker of SkinnyPop and Tyrrell’s potato chips for $1.6 billion. In the last two years, Hershey acquired brands like Krave meat jerky and Ripple Brand Collective's barkTHINS as well.

Hershey’s president and CEO, Michele Buck, had earlier expressed that the company is optimistic about its chocolate portfolio and is expected to leverage its snack business through potential mergers and acquisitions.

Notably, the company’s top-line performance was weak since 2014.  Sales increased a meager 0.7% in 2016 and 1.9% in the first nine months of 2017. Much of the sales debacle could be attributable to consumers’ changing eating patterns and their evolving preferences for healthy, fresh and organic food products. Hence, Hershey is looking for ways to boost its top line.

Currently, Hershey and other food companies, like General Mills Inc. GIS, Kellogg Co. K, Conagra Brands Inc. CAG and others, are regularly adding new products and innovating its core brands to meet consumer demand and needs that are not addressed by its current portfolio. Hershey expects innovation to help it achieve its long-term net sales growth target of 2% to 4%.

Shares of this Zacks Rank #2 (Buy) company have gained 7.6% in the last six months against the industry’s loss of 6.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Hershey’s earnings estimates for 2018 have moved 1.2% north over the last 30 days, reflecting analysts’ optimism about the stock’s potential in the near term.


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