HERSHEY, PA. — Thinner peanut butter cups have been a big success for the Hershey Co. Could thinner peppermint patties be next?
Michele G. Buck, president and chief executive officer, said the company is considering product innovation opportunities following the successful launch of Reese’s Thins in the marketplace earlier this year.
“Certainly, we always look as we develop innovation to see if there’s an opportunity to develop the platform,” Ms. Buck said during an Oct. 24 earnings call. “And certainly, this does feel like one that could cut across multiple brands, and that’s certainly an opportunity that we are evaluating.”
Other chocolate brands in the Hershey portfolio include Mounds, Almond Joy, York, KitKat and Rolo. Available in milk and dark chocolate, Reese’s Thins is approximately 40% thinner than the original cup. Reese’s, a $2 billion business, grew U.S. retail sales by more than 6% in the latest quarter, Ms. Buck said.
“I think (the thing) we always try and focus on with our platform is not spreading it too far but having it focused on a couple of brands where it really makes the most sense,” Ms. Buck said. “And clearly, if you look at the history of how we’ve built other brands in the past and just the size of brands, Reese’s, given its size, will definitely be the largest of opportunities, but I do believe that there can be growth beyond that.”
Net income attributable to the Hershey Co. in the third quarter ended Sept. 29 totaled $325,307,000, equal to $1.59 per share on the common stock, up 23% from $263,713,000, or $1.29 per share, in the prior-year period. Items affecting comparability included derivative mark-to-market losses, business realignment activities, acquisition-related costs, pension settlement charges and long-lived asset impairment charges. Adjusted net income was $340,261,000, up 4.3% from $326,287,000.
Net sales increased to $2,134,422,000, up 2.6% from $2,079,593,000.
Hershey’s North America net sales increased 2.7% to $1,894,033,000, driven by price increases and the impact of acquisitions, offsetting lower volumes.
“We are pleased with our third-quarter results and the momentum we are seeing on our core business, investments in our brands and capabilities as well as strong execution for driving solid confection sales and share gains in both our U.S. and international markets,” Ms. Buck said. “Our Amplify portfolio continues to deliver mid- to high-single-digit growth. And we continue to execute against our broader snacking ambition with the acquisition of One Brands, a portfolio of high-growth, better-for-you nutrition bars that enables us to capture incremental consumer occasions.”
Hershey acquired One Brands for $397 million, or approximately $325 million net of tax benefits, in September. The addition of the business, which generates annual net sales of approximately $100 million, broadens Hershey’s presence in the $3 billion nutrition bar category, which is growing mid- to high-single digits, Ms. Buck said. The “sweet spot” of the total snack bar market is high protein with low sugar, she added.
“What we really liked about it is it’s very consistent and fits right into our stated desire for scale, growing assets in attractive categories that give us access to incremental snacking occasions,” Ms. Buck said. “High protein, low sugar, it provides on-the-go convenience. It also gives us a play in the morning snacking occasion where we are underdeveloped.
“That business has a strong presence in growth in e-commerce and nontraditional channels, which again provides some incrementality for us. And we certainly like the growth rate that we’re seeing on this business. We think it fits in a sweet spot for us in terms of where we can add value because there’s still distribution opportunity.”
She added, “We like the fact that this asset has good margins that are in line with Hershey margins, and that’s one thing that’s always been important to us. Those are the kind of businesses that we run best. And then of course, we will capture any opportunities for supply chain and procurement synergies. … Our primary focus for growth will be around the close end — at least for the next several years — the close end driving against the core. So unlike perhaps some of the other assets in that space, where maybe some of their focus is expanding to a lot of other categories, I think there’s a lot of upside within expanding within snack bars, but then later some opportunity to take that one trademark more broadly in terms of the platform it stands for.”
Hershey management updated its full-year forecast to include the acquisition of One Brands. Net sales for the year are expected to increase by 2.5% from the year before, up from a previous estimate of 2%.
Shares of the Hershey Co. trading on the New York Stock Exchange closed at $146.37 on Oct. 24, down 2.2% from $149.71 the day before. Year to date, Hershey’s shares are up 34%.