Weak demand hurts Hershey

by Monica Watrous
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Weak demand for candy, mints and gum in North America contributed to a 31% drop in profit for Hershey.

HERSHEY, PA. — Weak demand for candy, mints and gum in North America contributed to a 31% drop in profit for The Hershey Co. in the recent quarter. The maker of Reese’s and Twizzlers reported net income for the third quarter ended Oct. 4 of $154,771,000, equal to 73c per share on the common stock, down from year-ago income of $223,741,000, or $1.03 per share. Net sales were nearly flat at $1,960,779,000, which compared with $1,961,578,000 for the prior year. Excluding the impact of foreign currency exchange, acquisitions and divestitures, sales rose 1.5%, the company said.

Based on third-quarter marketplace trends, Hershey has lowered its net sales growth target for the full year.

“2015 hasn’t unfolded the way that we had planned, but we remain focused on strong execution of our plans,” said J.P. Bilbrey, chairman, president and chief executive officer, during an Oct. 28 earnings call with financial analysts. “Candy, mint and gum has been one of the better performing categories in the store for many years. It’s a destination category, impulsive, and very profitable for retailers. As a result, it typically garners key floor space within the store as it relates to merchandising and programming. However, over the last two years, it appears that income bifurcation and expanded choice among snacking is having an impact on generating consistent (candy, mint and gum) category growth.”

During the quarter, Hershey lost market share in the category, as lower-than-expected levels of merchandising at certain retailers led to softer consumption trends. Mainstream snacking categories, including salty snacks, snack cakes and meat snacks, also saw consumption slow, and consumer retail trips were lower, down nearly 4% from the year-ago period, Mr. Bilbrey said.

John P. Bilbrey, Hershey
J.P. Bilbrey, chairman, president and c.e.o. of The Hershey Co., said 2015 has not unfolded the way the company planned.

“While overall consumer confidence is trending up, lower-income consumers continue to be fragile, as income and wage growth has been minimal,” he said. “Higher income and more confident consumers are driving premium growth, while cost-conscious consumers are driving the value segment… In 2016 we will introduce candy products and programs that will leverage our ubiquitous distribution, specifically targeting our core everyday candy business, as well as the mass premium and value segments where we are currently underrepresented.”

In the meantime, the company expects trends to improve heading into the important Halloween and holiday season. For the full year, Hershey estimates net sales will be in line with or slightly higher than 2014 net sales, including the benefit from acquisitions and divestitures and the negative impact of foreign currency exchange. In constant currencies, the company expects net sales growth of 1.5% to 2%, down from the previous projection of 3% to 4%.

“Our No. 1 goal is to regain momentum in terms of Hershey’s marketplace performance as it relates to retail takeaway and market share,” Mr. Bilbrey said. “Our fourth-quarter and 2016 plans are focused, and the investment profile is concentrated in the areas where Hershey is advantaged. Specifically, you’ll see core brand investments in the form of innovation and marketing, especially a greater focus on digital and a focus on in-store execution as it relates to merchandising and programming.”
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