Hershey set to build on 2016 innovation successes in 2017

by Keith Nunes
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Hersheys Crunchers
New products set to debut include Hershey's and Reese's Crunchers.
 
 

HERSHEY, PA. — Innovation is moving the needle in the confectionery category, and executives with the Hershey Co. are confident the company’s new product pipeline will contribute to the company’s growth in 2017.

“… It looks like it’s going to be a big year of innovation for the category,” said Michelle Buck, the chief operating officer, who will take over as chief executive officer on March 1, during a conference call with securities analysts on Feb. 3. “As we look at the category, we anticipate that we might see growth around 2% or 2.5% — certainly accelerated growth versus what we saw in 2016. So, we think all those things are good for the category, and, certainly, as we look at our business, we like getting a nice chunk of growth from big innovation.”

Hershey introduced the Cookie Layer Crunch bars at the end of 2016.
 

 

In 2016, Hershey introduced Cookie Layer Crunch bars and expects velocities to grow in 2017 as the company invests in marketing the line. New product introductions scheduled during 2017 include Reese’s Crunch Cookie Cups and Hershey’s and Reese’s Crunchers.

“ … The Crunchers product line is targeted for that shareable snacking hand-to-mouth occasion, leveraging the appeal of sweet and texturally complex snacking,” said J.P. Bilbrey, current chief executive officer. “These light, crispy and crunchy combinations are a perfect bite-sized snack for a different and unique eating experience.”

The company also may be going back to the drawing board with its non-chocolate and Brookside confectionery brands.

“We’re not satisfied with our non-chocolate candy and Brookside performance, so work is under way to improve their trends,” Mr. Bilbrey said. “Although it will be a multi-step process, we continue to believe that candy, mint and gum is an attractive category capable of solid growth over the long term when supported with the right mix of customer and consumer marketing.”

Despite the challenges faced in the category, during fiscal 2016 retail takeaway for Hershey’s candy, mint and gum business increased more than three times the rate of the category, driven by chocolate, which was up 1.9%.

Reeses Pieces Cup
Another successful 2016 innovation was the Reese's Pieces Cup.
 

 

“Our fourth-quarter U.S. chocolate performance was solid with retail takeaway up 2.9%, resulting in a chocolate market share gain of 0.9 points,” Mr. Bilbrey said.

During fiscal 2016, ended Dec. 31, The Hershey Co.’s net income totaled $720,044,000, equal to $3.45 per share on the common stock, and an improvement when compared with fiscal 2015 when the company earned $512,951,000, or $2.40 per share.

Sales for the year rose slightly to $7,440,181,000 from $7,386,626,000 the previous year.

“In 2016, we made progress against our strategic plans that strengthened our business model and positions the company for future growth,” Mr. Bilbrey said. “Our productivity and cost savings initiatives drove EBIT margin expansion and full-year e.p.s. growth of 7%, the mid-point of our long-term target. And we continue to generate solid operating cash flow, about $1 billion in 2016, which gives us a lot of financial flexibility.”

During the year, Hershey’s North America business unit generated sales of $6,532,988,000, 1% higher than the previous year. Segment income fell 1.6% to $2,073,967,000.

The company’s International and Other business unit struggled during the year. Sales fell 1.2% to $907,193,000 and incurred a loss of $29,139,000.

“… Overall (Chinese) C.P.G. performance in the modern trade is not where we thought it would be,” said Patricia Little, chief financial officer. “As a result, many categories were sluggish, including chocolate, where the category declined about 7% for the full year.

“As expected, our China gross sales declined in the fourth quarter. Given the soft retail takeaway in the quarter, net sales were slightly off versus our previous forecast. While our Chinese New Year sell in was good, we’ll have to wait until sell-through data is available to determine our net seasonal results.”

Net income during the fourth quarter was $116,853,000, or 56c per share, down from $227,889,000, or $1.08 per share, in the same period a year ago.

Sales for the quarter were $1,970,244,000, a slight increase compared with 2015 when fourth-quarter sales totaled $1,909,222,000.
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