With its latest earnings report due out this week (Thursday, February 1), Hershey is hoping its numbers don’t leave investors feeling salty. The acquisition strategy of the U.S. chocolate king, however, reveals that it has developed a strong taste for salty snacks—and may crave them more than sweets these days.
In December, Hershey announced that it inked a deal to pay $920 million for Amplify, the parent company of the maker of Skinny Pop popcorn and Tyrell’s chips. Hershey may explain further on its Thursday morning earnings call, but at least two forces seem to have motivated the purchase. First, Hershey has described its play for Skinny Pop as part of a move into “better-for-you” products with “clean, simple, and transparent ingredients.” Second, Hershey was starving for a deal. On a recent investor call, CFO Patricia Little stated flatly that while Hershey makes its best margins on its core products, “we do need to expand our portfolio.”
Turns out the snack category is a popular place to shop. While many food companies are struggling, Americans’ habit of eating on the go has made snacks a rare bright spot. Snack makers fetching premiums include RXBar (snapped up by Kellogg for $600 million), Kind Bar (which received investment from Mars that valued it at $3-4 billion), and Snyders-Lance (which went to Campbell’s Soup for $4.87 billion). With the Amplify deal, Hershey made sure it didn’t get left out.
The bad news for Hershey is that while snacks may be growing, sweets are on the decline. With people increasingly opting for healthier alternatives, a Morgan Stanley analyst lowered his rating for Hershey to “underweight” earlier this month. That general trend could explain why Hershey didn’t compete harder for Nestle’s U.S. chocolate business. Hershey submitted a bid, but the maker of Nutella came away with Nestle, which makes Butterfinger and Baby Ruth, among other brands.
If the demise of chocolate bars continues, Hershey may have dodged a bullet by missing out on that deal. Regardless, time will time how well Hershey’s more-balanced diet serves it.