Hershey still seeking answers to slow growth

by Keith Nunes
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Hershey snack bites and Reese's snack mix
Hershey plans to continue seeking opportunities relating to the snack/confection hybrid concept.

HERSHEY, PA. — Executives with the Hershey Co. were somewhat coy during a conference call on April 26 with financial analysts. They noted that slower-than-expected growth in North America during the first quarter prompted the company to lower its guidance for the rest of the fiscal year, but hinted it may not be that bad in the end.

J.P. Bilbrey, Hershey
John P. “J.P.” Bilbrey, chairman, president and c.e.o. of Hershey

“ … What I would tell you is that as we look at the marketplace, and what we see is happening Q1, that we’re being prudent in the comments that we’re making,” said John P. “J.P.” Bilbrey, chairman, president and chief executive officer. “We’re optimistic within our plan, that we always want to grow share ahead of the market, and that’s what we’re going to be challenged with.”

Hershey net income for the first quarter ended April 3 totaled $229,832,000, equal to $1.09 per share on the common stock, and a decline compared with the first quarter of the previous year when net income was $244,737,000, or $1.14 per share.

Sales for the quarter fell approximately 5.6% to $1,828,812,000.

Full year net sales are expected to increase 2%, according to the company, as opposed to the previous estimate of 3% due to lower-than-expected non-seasonal candy, mint and gum growth over the remainder of the year.

What gives Mr. Bilbrey optimism about the rest of the year is he sees some of the headwinds the company has experienced the past few quarters to be short term versus structural.

“I think one of the events that makes this current period of time unique is the amount of choice that there is in the market relative to what I think we have historically seen,” he said. “That means the trial has moved around a lot.”

He noted that uncertainty related to the economy and shifting consumer trends with a focus on transparency has challenged such manufacturers as Hershey.

“But as I take a step back and just look at the overall industry, as well as the category that we compete in, I think many of the things that are happening are far more cyclical than I would think about them as structural,” he said.

To offset some of the short-term challenges, the company announced it has raised its annual savings target from continuous improvement and productivity programs from approximately $50 million per year to $70 million to $100 million per year for the next three years starting in 2017.

barkTHINS snacking chocolate, Hershey
Hershey recently acquired barkTHINS, a manufacturer of Fair Trade, Non-GMO Project Verified chocolate-based snacks.

The company also acquired barkTHINS, a manufacturer of Fair Trade, Non-GMO Project Verified chocolate-based snacks for an undisclosed amount.

“This acquisition builds on our snack strategy, and complements our strong core confectionery portfolio, the heart of our company,” Mr. Bilbrey said. “And it adds strength and diversification to our offerings that allows Hershey to satisfy more consumer needs.”

The acquisition of barkTHINS builds around a concept Mr. Bilbrey called “snackfection.”

“Confectionery is at the core of who we are and what we do,” he said. “What we’ve seen as we’ve continued to do some demand landscape work is there’s an interesting area around what we call ‘snackfection.’ And if you look at, some of our recent — like the Reese’s Mix and Bites products, those have been terrific for us. They don’t show up in our market share, because they are actually captured in snacks, but we’re very pleased with how we’ve progressed there.

Krave Jerky, Hershey
Mr. Bilbrey said Hershey is learning much from Krave, a jerky brand the company acquired early in 2015.

“We really see an immediate opportunity in this area of ‘snackfection’ for the company. And then, as you look at how consumer’s relationship with food has changed, we recognize that the snacking continuum has grown. And so, products like Krave, which we’re learning a lot from, and are very pleased, will always be part of our test and learn and grow strategies. But it doesn’t take away from our core focus.”

Hershey’s North America net sales were $1,633.5 million in the first quarter of 2016, a decline of 4.3% versus the same period last year. Volume was off by approximately 3.7 points due primarily to a shorter Easter season, according to the company.

First-quarter net sales for Hershey's International and Other segment declined 15.4% to $195.3 million, due primarily to lower net sales in China and the discontinuation of edible oil products in India.

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