4 Reasons Why Hershey (HSY) Stock Should be in Your Portfolio

Investors must take note of The Hershey Company’s HSY bull run before it is too late. This leading chocolate manufacturer has gained 11.1% in the past three months, surpassing the industry’s growth of 8.2%. We expect this Zacks Rank #2 (Buy) company to continue with its stellar show on the back of its robust strategic initiatives. This is also evident from management’s impressive earnings outlook for 2018.

Focus on Cost Savings

Hershey remains well on track with its Margin for Growth multi-year program. Per this multi-year initiative, Hershey will reduce its global workforce outside the United States by 15%. This is also intended to improve overall operating margin through supply-chain optimization, streamlined operating model and reduced administrative expenses, with savings primarily being achieved in 2018 and 2019. These moves are anticipated to boost efficiency, leverage global shared services and common processes, and increase capacity utilization. Incidentally, the company expects savings from its ongoing Margin for Growth program in 2018 to come between $80 million and $90 million. Additionally, the company has undertaken strategic pricing initiatives to improve mix. Also, Hershey’s SKU rationalizing efforts have been progressing well as the company focuses on optimizing its portfolio. Such efforts are likely to aid the company boost savings that can, in turn, be invested in growth driving endeavors.

Efforts to Enhance International Presence

Hershey is accelerating its business in key markets like China, India, Brazil and Mexico, where consumer spending growth is positive. Hershey is slowly activating its five core brands in these markets. Constant currency net sales in Mexico, Brazil and India increased 15% and 12% in the second and first quarter of 2018, respectively, and 11% in 2017. Among the emerging countries, the company’s special focus is on China. The country has one of the largest consumer bases, given the growing number of middle-class and affluent households. Hershey plans to add additional manufacturing capacity and resources to boost growth in the region.

Acquisitions a Major Driver

Hershey pursues strategic acquisitions to strengthen and diversify its portfolio. Earlier this month, the company inked a deal to buy Pirate Brands from B&G Foods BGS.  Pirate Brands will form part of Hershey’s recently acquired Amplify, and is likely to bolster the chocolate maker’s snacking business. Notably, the company acquired Amplify Snack Brands in January 2018, in a bid to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks. Markedly, Hershey’s sales gained 5.9 points from this acquisition during the second quarter of 2018. This mainly augmented the performance of the company’s North American segment. Increased volumes and net price realization also benefited sales growth during the second quarter. Hershey expects greater yields from this buyout in the forthcoming periods. In prior developments, the acquisition of New York-based barkTHINS (April 2016) premium chocolate snacking brand has also been aiding the company’s better-for-you snacks portfolio.

Innovation & Brand Strength: Factors Behind Hershey’s Success

Hershey’s five 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. In fact, Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. In this respect, the company launched Hershey's Gold in an instant consumable pack and take-home packages. The same holds true for Reese's Outrageous. An important strategy of the company is to create a unique and holistic portfolio for every season, which can meet consumers’ seasonal shopping needs.

Driven by such upsides, the company delivered solid second-quarter 2018 results, wherein both the top and the bottom lines increased year over year and came ahead of the Zacks Consensus Estimate. Results gained from solid demand for the company’s chocolate brands and Amplify’s buyout. Management remains positive about investments in core brands in the United States. Further, management remains impressed with the transformation of its international business, marked by strong organic growth, solid profit improvements, and sale of Tyrrells and Golden Monkey businesses. All said, Hershey continues to expect its adjusted EPS for 2018 to be $5.33-$5.43 per share, reflecting a 14-16% increase from 2017.

Looking for More? Check These Solid Picks

Medifast MED, with a Zacks Rank #1 (Strong Buy), delivered positive earnings surprise in the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chefs’ Warehouse CHEF, with long-term earnings per share growth rate of 22%, carries a Zacks Rank #2.

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