Hershey investing to keep pace with changing retail market

by Keith Nunes
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Hershey chocolate
The Hershey Co.’s sales for the quarter rose slightly to $1,662,991,000 from $1,637,671,000 the previous year.
 

HERSHEY, PA. — Positive performance during the second quarter of fiscal 2017 supported management’s contention The Hershey Co.’s business is trending in the right direction. Yet despite the results, the company issued a tepid forecast for the rest of the year and emphasized it is investing heavily to keep pace with the rapid pace of change occurring at retail.

Michele Buck, Hershey
Michele Buck, president and c.e.o. of Hershey

“Hershey’s second-quarter results were solid, with particular strength in market share and e.p.s. delivery …,” said Michele G. Buck, president and chief executive officer, during a July 26 conference call with financial analysts to discuss the results.

Net income attributable to the company for the quarter ended July 2 rose to $203,501,000, equal to 98c per share on the common stock, and an increase from the same period of the previous year when the company earned $145,956,000, or 70c per share.

Sales for the quarter rose slightly to $1,662,991,000 from $1,637,671,000 the previous year.

Hershey Easter candy
Hershey gained 1.6 market share points during the Easter season.
 

“I was pleased with our innovation performance and solid second-quarter U.S. retail takeaway of 4%, driven both by our core brands and Easter, where we gained 1.6 market share points in this important season,” Ms. Buck said.

The company is forecasting full-year growth in retail take-away and market share, but said broader retail industry challenges will hinder performance and expects full-year sales to be around 1%. The forecast is below the company’s previously issued guidance of sales growth around 2% to 3%.

Patricia Little, Hershey
Patricia Little, c.f.o. of Hershey

“While our second half of the year profile is not as robust as we’d like, recall that we’re lapping our strongest period of quarterly sales growth,” said Patricia A. Little, chief financial officer. “Combined with the macroeconomic and consumer challenges at retail, we believe the plans we have in place will enable us to achieve our full-year sales target of around 1%, including the impact of unfavorable currency exchange rates of 25 basis points.”

Analysts participating in the conference call noted that despite the positive earnings performance during the second quarter, Hershey did not raise its year-end guidance. Ms. Buck said investments to be made in the second half were one reason the company held its earnings guidance, which is forecast to end the year at the top of its range.

Hershey e-commerce
Hershey is focusing more on e-commerce.
 

“We’ve been focused on e-commerce, but we are doubling down a bit more than we had in the past with the dedicated team, a reinvestment of additional resources and really partnering closely with our customers,” Ms. Buck said. “One of the biggest changes I’ve seen in the marketplace is a lot of our brick-and-mortar partners are now really dialing up their efforts on omnichannel. Those click-and-collect and multiple forms of home delivery and then, of course, there are the pure plays out there.

“So, I guess, I think about that business in two ways. One, I think that we have an opportunity to say, how do we capture the planned nature of how consumers purchase in that channel and dial that up and really capture that on our business. And at the same time, several of our retail partners have come to us and asked us to partner with them in terms of figuring out how to optimize impulse in an e-commerce world. I can’t tell you I have the answer to that right now, but I can tell you, I think we are in a good position to really be partnering with our retailers on that.”

A challenge the company may face in the future is the possibility of diminished impulse buying in the event consumers shop brick-and-mortar retail less.

Hershey candy in checkout lane
Hershey may be challenged by a decrease in checkout-aisle impulse buys.
 

“The way that we think about the business is, we need to win with growing customers,” Ms. Buck said. “Our goal is always to outperform the marketplace and to gain market share so that if there is softness, we get even more of our growth from market share gains. And we’re heavily focused on that because it’s our profit engine. 

“At the same time, I would tell you, I think about this marketplace as a time where we have a great core business that we’re going to continue to drive. And at the same time, we have some opportunities to evolve our product and brand portfolio and also to evolve our channel mix to adapt to the changing marketplace.”

Later she added, “What we now want to do is expand our portfolio so that we can participate in even more snack occasions and ensure that we have the right portfolio and channel development to maximize those opportunities. You will see us both doing snacking innovation and also continuing to evaluate and consider M.&A. as a lever in that growth agenda as well.”

Hershey snack mixes and snack bites
Hershey plans to expand its snacks portfolio to participate in more snack occasions.
 

During the first six months of fiscal 2017, The Hershey Co.’s net income totaled $328,545,000, equal to $1.58 per share, and was down compared to the same period of the previous year when earnings were $375,788,000, or $1.79 per share.

Sales for the period rose slightly to $3,542,669,000 compared with $3,466,483,000 the previous year. 
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