Moskow: Bilbrey retirement seen as 'logical and orderly next step' for Hershey

by Eric Schroeder
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John P. Bilbrey, Hershey
John Bilbrey announced last week that he would step down as c.e.o. of Hershey.

NEW YORK — The announcement last week that John Bilbrey will step down as chief executive officer of The Hershey Co. was seen as a “logical and orderly next step” for the Hershey, Pa.-based company as it looks to strengthen its case for operating as a stand-alone entity rather than merging with a bigger company, according to an Oct. 14 research report from Credit Suisse.

Additionally, the fact Mr. Bilbrey will stay on board until the summer of 2017 and then continue as a non-executive chairman suggests Hershey is open to hiring someone from outside the company to lead and also indicates that Mr. Bilbrey’s relationship with the board remains strong, wrote Robert Moskow, research analyst with Credit Suisse.

One thing Hershey will need to do, though, is prove that its margins can continue to expand, Mr. Moskow said.

Robert Moskow, Credit Suisse
Robert Moskow, research analyst with Credit Suisse

“Two of the bigger concerns we hear about the company is that a) it has fallen behind the consumer packaged goods (C.P.G.) industry in terms of overhead cost controls and b) it has reached a peak in terms of where its gross margin can go,” Mr. Moskow said. “We continue to believe that Bilbrey and his management team will announce a broader cost reduction program to address this issue, especially in international markets. Perhaps the bigger question is the degree to which the company will need to reinvest those savings back into the confectionery category and its expansion into better-for-you snacks to stimulate top-line growth.”

News of Mr. Bilbrey’s retirement also raises questions about the possibility of Hershey and Mondelez International, Inc. rekindling merger talks. On Aug. 29, Mondelez said it had ended discussions with Hershey, but Mr. Moskow indicated in his Oct. 14 report that the long c.e.o. transition period may re-open the door for resumption of talks.

“It is not out of the realm of reason that the two parties could reengage, but we put a low probability on such an outcome,” he said. “Mondelez’s public statement that it is no longer pursuing Hershey means that Hershey’s board and its management team now have a fiduciary responsibility to shareholders to maximize value independently. We believe that they are firmly focused on this task.”

Credit Suisse has forecast Hershey’s earnings-per-share guidance for fiscal 2016 and fiscal 2017 at $4.30 and $4.62, respectively, which compares with e.p.s. of $4.12 in fiscal 2015. Revenue for fiscal 2016 is projected at $7,406.6 million, while fiscal 2017 revenues are forecast at $7,575.2 million, according to Credit Suisse.
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