4 Major Reasons Why Hershey Is Set To Sustain Strong Momentum

The Hershey Company (NYSE:HSY) is undoubtedly a solid bet at the moment. The renowned chocolate company has seen its shares surge as much as 46.1% year to date compared with the industry’s growth of 42.5%. Also, the company comfortably outperformed the Zacks Consumer Staples sector’s growth of 19% in the same time frame. Hershey’s robust initiatives have been driving its performance.

That said, let’s delve deeper into the factors that are likely to keep spurring this Zacks Rank #2 (Buy) stock.

Innovation a Key Driver

Hershey regularly brings innovation to its core brands to meet consumer demand. In this respect, Hershey's Gold and Reese's Outrageous, launched in 2018, have been doing well. Further, the launch of Reese's Thins is drawing customers’ attention. The Kisses brand’s launch in India is also reaping benefits. An important strategy of the company is to create a unique and holistic portfolio for every season, which can address consumers’ seasonal shopping needs.

Buyouts Depict Focus on Boosting Snacking Business

Hershey focuses on solidifying its footing in the snacking category, evident from its latest acquisition of ONE Brands. Apart from this, the company’s top line is steadily gaining from Amplify Snack Brands, which was acquired in January 2018 to expand in the snacking category. Again, in September 2018, the company acquired Pirate Brands from B&G Foods (NYSE:BGS) , which is aimed at augmenting this business. This apart, the acquisition of barkTHINS has been aiding the company’s better-for-you snacks portfolio. Notably, Hershey’s buyouts and divestitures are expected to leave a positive impact of roughly 0.5 point on net sales in 2019.

Saving Efforts Bode Well

Hershey focuses on optimizing portfolio to deliver increased profitability. In this respect, the company’s SKU rationalizing efforts have been progressing well. Additionally, the company is on track with its Margin for Growth program, per which it will reduce its global workforce outside the United States by 15%. This is also intended to improve overall operating margin through supply-chain optimization, a streamlined operating model and reduced administrative expenses, with savings achieved in 2018 and 2019. Management earlier stated that it expects overall savings of approximately $150-$175 million from the Margin for Growth initiative.

Efficient Pricing

The company has undertaken pricing initiatives to improve mix. Notably, net price realization benefited Hershey’s top line by 1.2 points in second-quarter 2019. Management expects further benefits from net price realization, which in turn is expected to continue fueling the gross margin in the second half of 2019.

We believe that the aforementioned upsides are likely to help Hershey maintain its solid position in investors’ good books.

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