Hershey posts ‘solid’ third-quarter numbers
Company points to nearly 6 percent volume growth in the quarter. However, higher commodity costs, especially dairy, reduce gross margins.
CEO and President John Bilbrey announced that The Hershey Co. made “good progress against our third-quarter objectives as net sales, retail takeaway and market share trends improved versus the first half of the year.”
Although revenues rose nearly 6 percent, rising to $1.96 billion this year compared to $1.85 in 2013, income dropped 4 percent, falling to $223.7 million this quarter as opposed to $233 million a year ago. Gross margins declined in the third quarter, pressured primarily by high dairy costs, the company reported.
Nonetheless, Bilbrey praised the company’s “solid” performance for the quarter, noting that it had posted market share across all segments — chocolate, non-chocolate candy, gum and mint.
“Halloween seasonal orders and net sales were slightly better than our estimates,” Bilbrey says. “While preliminary, Nielsen data indicates Halloween sell through is on track and that we will gain market share in this important season. By class-of-trade, our marketplace performance was solid in the convenience store, large mass and value channels. I was particularly pleased with our third quarter convenience store retail takeaway of 4.0 percent and market share gain of 0.2 points. However, retail store traffic and consumer trips continue to be irregular within the food channel. This has adversely impacted purchases of non-seasonal everyday candy products.”
As a result, Bilbrey indicates the company would be focused on driving non-seasonal and seasonal net sales growth, across all channels during the remainder of the year and into 2015, using an “optimal mix of innovation, advertising, merchandising and programming that we believe positions us to win across the confectionery and broader snacks categories.”
Bilbrey also touches on the company recently closing its acquisition of an 80 percent stake in Shanghai Golden Monkey.
“We intend to leverage Shanghai Golden Monkey’s diverse product portfolio and strong sales force to build on the organic growth we’ve delivered in China over the past several years. With the acquisition of Shanghai Golden Monkey, China is expected to be Hershey’s second largest market by year-end 2015 with net sales of around $500 million on a constant currency basis.”
Looking toward the fourth quarter, the company says its U.S. launches of Brookside Crunchy Clusters, Reese’s Crunchy Cup and Reese’s Spreads in a take-home jar are on track.
While holiday seasonal orders are solid, the sales of non-seasonal candies are tracking slightly below initial expectations, the company reveals.
It also announced that because of the complex manufacturing process used to produce Ice Breakers Cool Blasts Chews, as well as the greater than expected customer demand, the launch date for the new item was pushed back to early 2015 instead of the fourth quarter 2014.
“In 2015, we have many exciting new products that will bring variety, news and excitement to the category,” Bilbrey added. “In addition to the fourth-quarter carryover benefit of Brookside Crunchy Clusters, Reese’s Crunchy Cup and Reese’s Spreads take home jar, we’ll launch Kit Kat White Minis, Hershey’s Caramels, Ice Breakers Cool Blasts Chews, Reese’s Spreads Snacksters Graham Dippers, as well as some other yet-to-be-announced new products.”
The company estimates full-year 2015 net sales will increase about 7 percent to 9 percent, including the impact of foreign currency exchange rates and a contribution from acquisitions of around 2.5 points.
While early in the planning cycle, the company expects the previously announced price increase, as well as productivity and cost savings, to result in gross margin expansion next year and to drive 2015 growth in adjusted earnings per share-diluted in the 9 to 11 percent range.