Hershey Looks Appetizing On Pricing & Strategic Buyouts

The Hershey Company HSY appears well positioned on robust pricing actions. The leading snacks company has been undertaking buyouts to augment brand strength and boost revenues. These upsides fueled first-quarter 2023 results, with net sales and earnings surpassing the Zacks Consensus Estimate and increasing year over year.
Management raised its net sales and earnings per share EPS view to the high end of its earlier guidance. The Zacks Rank #2 (Buy) stock has risen 14.2% in the past three months compared with the industry's growth of 12.2%.
Let's delve deeper.

Robust Q1 Results, Raised View

In the first quarter of 2023, Hershey posted adjusted earnings of $2.96, increasing 17% on improving margins and the continued strength in consumer demand. Consolidated net sales of $2,987.6 million rose 12.1%. Organic sales on a constant-currency (cc) basis increased 12.2%. Higher list price and solid consumer demand fueled growth across all segments. The company's world travel retail business witnessed solid double-digit growth on travel rebound. Its export business performed well with high single-digit growth in the first quarter.
Management anticipates net sales growth of nearly 8% for 2023. The company envisioned net sales growth in the band of 6-8% for 2023. Hershey envisions a reported EPS increase of nearly 15% and adjusted EPS growth of almost 11%. Earlier, the company projected a reported EPS increase of 11-15% and adjusted EPS growth of 9-11%.

Pricing Actions Drive Growth

Hershey has been undertaking strategic pricing initiatives to improve its performance. In the first-quarter of 2023, organic price contributed 8.9% to organic net sales growth. In the North America Confectionery unit, organic price contributed 9.5% to organic net sales growth. In the North America Salty Snacks segment, organic price contributed 10.9% to organic net sales growth. In the International segment, organic price contributed 0.1% to organic net sales growth.

Buyouts Fuel Growth

Hershey has been undertaking buyouts to augment portfolio strength and boost revenues. In April 2023, the company signed an agreement to acquire two production facilities from Weaver Popcorn Manufacturing — a well-known leader in popcorn production and co-packing and a co-manufacturer of HSY's SkinnyPop brand. SkinnyPop has been witnessing impressive retail sales growth for ready-to-eat popcorn in the past three years. The move will likely help Hershey sustain its robust growth in the SkinnyPop brand through supply chain expansion.
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 expands Hershey's snacking and production capabilities. In its last earnings call, management highlighted that the Dot's Pretzel's performance continued to remain solid with retail sales growth of more than 25% in the first quarter of 2023, resulting in a pretzel category share gain of 100 basis points.
We believe that HSY's robust buyouts and the abovementioned upsides are likely to keep its growth story going.

Other Solid Consumer Staple Picks

Some other top-ranked consumer staple stocks are Lamb Weston LW, General Mills GIS and Conagra Brands (NYSE: CAG).
Lamb Weston, which operates as a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.6%, on average.
The Zacks Consensus Estimate for Lamb Weston's current fiscal-year sales and earnings suggests increases of 29.6% and 116.8%, respectively, from the year-ago reported number.
General Mills, a branded consumer food company, currently carries a Zacks Rank #2. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.
The Zacks Consensus Estimate for General Mills' current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the year-ago reported figures.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.
The Zacks Consensus Estimate for Conagra Brands' current fiscal year sales and earnings suggests an improvement of 7.1% and 16.5%, respectively, from the year-ago reported number.

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