Hershey to reduce workforce by 15%, seeking to acquire snack brands

by Monica Watrous
Share This:
Search for similar articles by keyword: [Hershey]

Hershey bar
Hershey executives share strategic objectives during the company's investor conference.

HERSHEY, PA. — The Hershey Co. plans to eliminate approximately 15% of its global workforce as part of a new multi-year restructuring program designed to improve operating profit margin. The company currently employs more than 18,000 employees around the world.

Executives discussed strategic initiatives during an investor conference held on March 1. The company anticipates the program will result in total cumulative pre-tax charges of $375 million to $425 million, including one-time employee separation benefits of $80 million to $100 million, with the portion of non-cash program costs expected to be between $200 million to $225 million. Hershey expects cash savings to reach an annual run-rate of between $150 million and $175 million by the end of 2019.

Part of Hershey’s plan includes paring back its investment in international markets, where the company generates a small portion of its revenues, said Michele Buck, chief executive officer.

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

“While we still believe strongly that our targeted emerging markets will provide long-term growth, the uncertain macroeconomic environment in many of these markets is expected to continue,” Ms. Buck said. “As we stated earlier this year, the investments in these international markets need to be relative to the size of the opportunity.”

She said the company expects about half of the savings from its restructuring plan will be generated in this business segment. Other initiatives include supply chain optimization, a streamlined operating model and reduced administrative expenses. Through these efforts, Hershey hopes to achieve an adjusted operating profit margin of 22% to 23% by the end of 2019, versus 20.4% in 2016, Ms. Buck said.

Hershey Cookie Layer Crunch
Hershey hopes to broaden its snack presence through innovation.

“We expect to grow our top line in the range of 2% to 4% annually,” she added. “This is less than our previous target of 3% to 5% and reflects key learnings and the realities of today’s uncertain U.S. consumer environment and macroeconomic challenges in emerging markets. There is no change to our long-term adjusted earnings per share diluted growth of 6% to 8%.”

To improve top-line growth, Hershey is seeking to broaden its presence in the $1 trillion global snack market through innovation and acquisition. With a 7.5% market share in the $103 billion U.S. snacking market, Hershey holds the No. 2 position, behind PepsiCo but ahead of Mars, Mondelez and Kellogg, Ms. Buck said.

“We will reignite our core confection business and broaden our participation across snacking to capture new snacking users and new snacking usage occasions,” she said. “Innovation is an important lever in this variety seeking category, but it’s also hard work. Some of the innovation that we’ve launched over the past several years just hasn’t been as sustainable as we would have liked. We have incorporated the learnings from these launches into our current strategy.”

Krave jerky, Barkthins - Hershey
Hershey is leveraging the learnings from recent transactions, such as Krave jerky and barkThins chocolate.

The company also is leveraging the learnings from recent transactions, such as Krave jerky and barkThins chocolate, as it evaluates opportunities for mergers and acquisitions, said Patricia Little, chief financial officer.

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

“As we think about m.&a., we’re particularly interested in companies with accelerating revenue growth within the U.S. $100 billion snack wheel,” Ms. Little said. “An ideal acquisition candidate is a brand or company that complements our strong core confectionery portfolio and our go-to-market capabilities. We have the ability to make any snack that tastes good, but we’re brand builders at heart with enormous distribution capabilities. If it adds strength and diversification to our offerings and allows Hershey to satisfy more consumer snacking occasions, then we are certainly interested.

“Our preference is to seek acquisitions that would be e.p.s. accretive by year two. While this is our objective, for the right strategic acquisition we would consider accretion further out.

“Over the last few years, we’ve made four acquisitions, and by learning from each of them we have improved our m.&a. due diligence and integration capabilities. We feel good about our approach and can move quickly when the right opportunity arises.” 
Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.

 

 


The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.