Global challenges weigh on Hershey's earnings

by Keith Nunes
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Hershey's recent innovation addresses some of its challenges, including the introduction of Brookside bars.

HERSHEY, PA. — A challenging global economic environment affected The Hershey Co. in fiscal 2015. China was the primary source of concern, but Brazil and Mexico also contributed to lower earnings and sales for the year.

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

“Similar to what we’ve discussed over the last year, (China’s) category performance is being impacted by macroeconomic issues and the related impact it’s having on consumer shopping behavior and confidence,” said J.P. Bilbrey, chairman, president and chief executive officer, during a Jan. 28 conference call with financial analysts. “And given the China news flow that we’ve all seen, it continues to be difficult to gauge the consumer’s behavior. We’re focused on the integration of our businesses and building distribution on our portfolio.”

For the year ended Dec. 31, 2015, The Hershey Co.’s net income was $512,951,000, equal to $2.40 per share on the common stock, and a decline compared with fiscal 2014 when earnings were $846,912,000, or $3.91 per share.

Sales for the year fell slightly to $7,386,626,000 from $7,421,768,000 during fiscal 2014.

“We believe the macroeconomic environment and competitive activity in the international markets where we operate will continue to be a headwind for the chocolate category and Hershey in 2016,” Mr. Bilbrey said. “Therefore, we estimate constant-currency International and Other segment net sales growth of mid- to high-single digits in 2016. Over the long term, we expect global economies and category trends to improve and that our International business on a constant-currency basis will contribute about 1 point to our overall long-term sales target.”

In North America, the situation was somewhat better, but the expanding snack category combined with greater competition in confectionery did pose a challenge for the company.

“As we’ve previously discussed, the category is being impacted by many of the same issues facing other food categories, including: changing shopping habits, like channel shifting; increased competitive activity and some retailers adjusting their merchandising practices; and a proliferation of broader snack s.k.u.s (stock-keeping units),” Mr. Bilbrey said. “As a result, going forward, we estimate that C.M.G. (candy, mint and gum) category growth will be in the 2.5% to 3% range. Our goal is to outpace the category and gain share on an annual basis. Additionally, we have good visibility into our developing snacks portfolio and expect positive sales contributions from it in 2016.”

Innovation the company has planned to address some of the challenges include the introduction of Brookside bars, snack mix and snack bites and the increased distribution of Krave meat snacks.

Krave meat snacks has recently gained increased distribution.

“We’ll also launch Cadbury Chocolates in a stand-up pouch, targeting the mass premium market, and begin a 500-store test featuring Scharffen Berger and Dagoba Organic brands,” Mr. Bilbrey said. “And, we’ll introduce Allan Candy sugar confectionery items in peg bags to appeal to a cost-conscious consumer. This is just a brief summary of some of the activity we have in North America this year.”

During the fourth quarter, Hershey’s net income rose to $213,384,000, or $1.01 per share, and an increase compared with the same period of the previous year when earnings totaled $202,508,000, or 94c per share.

Sales for the quarter fell to $1,909,222,000 compared with $2,010,027,000 during the previous year.

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