Why Credit Suisse raised Hershey's outlook

Dive Brief:

  • Hershey's rating was boosted from "neutral" to "outperform" by Credit Suisse, and the credit agency increased Hershey’s target price to $117 per share from $106, Baking Business reported.
  • Credit Suisse analyst Robert Moskow named four factors influencing this change. Internal factors included "a strong finish to 2016 behind significant flexibility in guidance and strong seasonal confectionery sales in the United States; more room to 'right-size' the overhead costs of the business to adjust to a more realistic outlook for growth; (and) ...above-peer sales growth driven by a longer Easter selling season and more product innovation in the United States," according to Baking Business. 
  • Externally, Moskow pointed to "a sharp downturn in cocoa commodity costs that bodes well for 2018."

Dive Insight:

Hershey has struggled with both internal and external factors in recent years. Most notably, that has included rising cocoa commodity costs and increasing competition from startups and other confections manufacturers.

Cocoa commodity costs may be out of Hershey's hands, but the company has found ways to diversify to alleviate its dependence on this volatile crop. The company has expanded to health-conscious categories such as meat snacks and other high-protein foods under the Krave and SoFit brands, which has enabled the company to bring more better-for-you ingredients into its supply chain.

But while Credit Suisse took commodity prices and innovation tactics into account for its latest assessment of Hershey, what arguably may have had the largest impact could be recent leadership changes at the upper echelons of corporate management. Primarily, that includes current CEO John Bilbrey vacating his president and CEO roles so that current COO Michele Buck can assume leadership of the candy giant effective March 1.

Fresh management can take a company in a new direction, for better or for worse. But in this case, Buck has already overseen many of the successful growth initiatives that Hershey has undertaken in recent years, positioning her as both a company veteran and a seasoned executive who can foresee where the future might take the company going forward.

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Filed Under: Manufacturing Corporate
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