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Could Hershey Stock Return to Growth in 2018?

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Sep. 20 2018, Updated 8:01 a.m. ET

Improving fundamentals

The Hershey Company (HSY) has impressed the market with its recent financial performance. The company’s improved pricing, incremental sales from its Amplify acquisition, lower effective tax rate, and improving outlook on the input cost front are expected to drive its top and bottom lines in the upcoming quarters. However, its margins could remain low in the near term, as higher packaging and supply-chain costs are expected to remain a drag.

Hershey’s top line is expected to increase 3.5%–5.5% in 2018 driven primarily by its Amplify acquisition. Meanwhile, the company’s bottom line is expected to mark 14.0%–16.0% growth. Improved sales, price restructuring, and a lower effective tax rate are likely to support its earnings.

However, an unfavorable mix, planned divestitures, currency headwinds, and higher packaging and transportation costs could continue to hurt Hershey. Analysts expect Hershey’s top line to mark 4.2% growth in 2018. Meanwhile, its adjusted EPS are projected to rise 12.7%.

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Recent acquisition to drive sales

Hershey recently announced its acquisition of Pirate Brands from B&G Foods (BGS) for ~$420 million. Hershey’s addition of Pirate Brands to its portfolio is a strategic move to expand its offerings and strengthen its Amplify Snack Brands. The company’s management has said that it expects Pirate Brands to be accretive to its financials.

The company’s peers are also focusing on optimizing their portfolios by divesting noncore brands and expanding in fast-growing segments through acquisitions. For example, the Kellogg Company (K) has acquired RXBAR, which is driving its sales. Meanwhile, Conagra Brands’ (CAG) recent acquisitions have been the key catalysts behind its stellar sales performance.

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