Hershey to acquire Pirate Brands
On September 12, Hershey (HSY) announced that it is acquiring Pirate Brands from B&G Foods (BGS) for $420 million. The acquisition of Pirate Brands is a strategic fit for Hershey, as it is expected to strengthen its Amplify Snack Brands portfolio, which is growing at a healthy rate.
Hershey’s top line is gaining significantly from its recent acquisition of Amplify Snack Brands, which added 5.9% to its net sales growth rate during the last reported quarter. Hershey’s management expects Pirate Brands to be accretive to its financials and plans to complete the acquisition during the fourth quarter of 2018.
Hershey’s portfolio improvements are likely to accelerate its sales growth rate in coming quarters. The company’s top line is projected to see 3.5%–5.5% growth in 2018, driven primarily by the Amplify Snack Brands acquisition. However, the divestitures of Golden Monkey and Tyrrells brands are likely to remain a drag in the near term.
Peers gaining from acquisitions
Packaged food manufacturers are optimizing their portfolio through acquisitions and divestitures to accelerate sales growth amid soft demand for traditional products. Besides Hershey, other major food companies like Conagra Brands (CAG), J.M. Smucker (SJM), McCormick (MKC), and Kellogg (K) also went the acquisition route to drive their top-line growth by expanding their offerings in fast-growing categories.
During the last reported quarter, Kellogg’s RXBAR acquisition and the consolidation of Multipro’s operations contributed 6.7% to its top-line growth rate. Meanwhile, Conagra Brands, which acquired Pinnacle Foods, stated that acquired brands added 3.3% to its net sales growth. J.M. Smucker’s top line got a significant boost during the last reported quarter from its Ainsworth acquisition, which added about 9% to its net sales growth rate. Meanwhile, McCormick’s top line is primarily driven by its RB Foods acquisition.
These acquisitions are likely to support the top-line growth rate of these companies. However, higher interest costs related to the funding of these acquisitions could hurt the earnings.