The Hershey Company (HSY) is one of the few food companies in the United States (SPY) that have managed to improve sales despite the challenging landscape. However, the company’s sales growth rate hasn’t exactly been eye catching, reflecting weakness across the industry. Increased manufacturing and freight costs have also remained a drag on its margins.
However, Hershey’s recent announcement that it would acquire Amplify Snack Brands (BETR) will boost the company’s product offerings and is anticipated to drive its sales higher in the coming years. Hershey will shell out $1.6 billion, or $12 per share, to acquire all of Amplify’s outstanding shares, including its net debt, and it plans to finance the deal through cash and new debt.
Why it’s important
Amplify Snack Brands has generated sales of $371.7 million in the last 12 months for the period that ended on September 30, 2017. Meanwhile, the company’s organic sales are growing rapidly thanks to the strong growth in its ready-to-eat popcorn brand.
Hershey’s top line could benefit from Amplify’s fast-growing and popular snack brands, including SkinnyPop popcorn, Paqui, and Tyrrell’s, to name a few. Meanwhile, the ready-to-eat popcorn category is witnessing strong growth, which should favor Hershey’s sales—Amplify remains the second-largest manufacturer in that category with a market share of 17.5%.
The deal, subject to regulatory approvals, is expected to close during 1Q18. Besides sales, the deal is estimated to generate significant cost synergies, boost the company’s margins owing to higher product margins, and be accretive to the company’s adjusted EPS (earnings per share) in the first year following its closing.
Hershey’s top line of recent has been driven by higher sales from its acquisition of the barkTHINS brand. Meanwhile, its new product launches, including the launches of Cookie Layer Crunch, Chocolate Dipped Pretzels, and Popped Snack Mix, continue to resonate well with changing consumer demand and are generating higher sales.
Analysts expect Hershey’s sales to rise 1.3% in 2017 and 1.9% in 2018.