Famous chocolate maker Hershey is reportedly getting ready to enter the meat snack business. According to reports, Hershey has agreed to purchase Krave Pure Foods, Inc., a beef jerky maker. As such, Hershey will enter into a new market.
The meat snack market is one of the fastest-growing so this decision provides an excellent opportunity for generating revenue. However, by offering consumers both sweets and healthier food snack choices, a wider range of customers will be reached as well.
Hershey’s net sales and operating profit in 2014 did not hit expectations. The primary reason was the growing interest for bakery and meat type snacks opposed to chocolate. Based on last year’s numbers, the 2015 forecast for sales and profits was cut. Reported numbers also led to a 7% decline in shares.
Adjusted earnings growth for 2015 was trimmed today from 9% to 11% to 8% to 10%, The reason for this adjustment was greater spending for promotions and advertising. Expectations for earnings per share growth are under a lot of pressure during the first quarter because of efforts in building the brand. In addition, the net sales growth forecast was reduced from 7% to 9% this year to 5.5% to 7.5% because of a stronger US dollar.
Climbing to $202.5 million or $.91 per share was net income during the fourth quarter, compared to $186.1 million or $.82 per share from the year prior. For revenue, this increased to $2.01 billion or 2.7%. On average, earnings of $1.06 per share on $2.07 billion of sales were expected by analysts.
As stated by Ken Goldman, analyst with JP Morgan, categories of snacking foods to include nuts, meats snacks, and trail mixes are perceived as being healthier choices. Because of this, growth is outpacing more traditional snack categories such as crackers, cookies, salty snacks, and chocolate.
As part of the deal in the Krave acquisition, Hershey will step foot into a US meat snack market valued at $2.5 billion. This market consists of healthy snacks made from pork, turkey, and beef and is currently growing in terms of percentage at a double-digit pace.
Hershey, which is also the maker of Reese’s Peanut Butter Cups, declined to disclose the price for purchasing Krave but according to insiders, the deal could have a value anywhere between $200 million and $300 million. Within the past 12 months, net sales for Krave were roughly $35 million.
Last year, the cost of Hershey chocolate increased because of higher costs for dairy and cocoa, coupled with stiff competition coming from Mars Chocolate North America and Mondelez International, Inc.