Why Hershey’s Sales Could Remain Soft
Challenging market conditions
Despite being one of the largest players in the snacks and confection market, Hershey’s (HSY) sales could witness muted growth in 1Q17 as softness in North America and a slowdown in China might negatively impact sales growth. Additionally, the consumer demand shift to healthier snacking options, currency fluctuations, and increased competition could hamper sales growth. Analysts expect the company to post revenue of $1.9 billion in 1Q17, up about 3.6% when compared with the corresponding quarter last year.
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Acquisitions to drive growth
As the packaged food industry faces weak demand in the US (SPY), companies such as Conagra Brands (CAG), Kellogg (K), General Mills (GIS), Campbell Soup (CPB), and JM Smucker (SJM) are witnessing lower sales and falling volumes. Moreover, as the deflationary pressure is eating into their margins, food manufacturers are focusing on cost cutting, demand-driven innovation, and strategic acquisitions to expand their product portfolios.
For instance, Hershey acquired KRAVE Jerky and barkTHINS to broaden its business and offer more satiating snacks, which is expected to contribute meaningfully to its growth in coming quarters. Meanwhile, more recently, Conagra announced the acquisition of Thanasi Brands, the maker of the fast-growing premium meat snack brand Duke’s. The move fits the company’s strategic decision to revamp its portfolio into a modern premium segment.
Incremental growth from innovative products
Hershey is expected to benefit from its robust pipeline of innovative products. Hershey’s Cookie Layer Crunch Bars, Reese’s Crunchers, and Krave meat bars and sticks are supposed to drive incremental sales in 2017. For instance, the company’s innovative Big Kat generated high demand. The company noted that the retail sales for Big Kat came in at about $50 million in 2016.
Let’s look at Hershey’s margins in the next part of this series.