Dive Brief:
- Hershey’s sales for the third quarter increased 2.3% to $2.08 billion,according to the latest earnings report. Sales struggled this quarter because of high prices that were about 1.2% lower last year. Sales increased in most markets, with Hershey’s dominant North American segment posting 3.1% growth. But as the company faced increased freight and shipping costs this quarter, Hershey's margins shrank.Its operating profit during the third quarter was$406.3 million.
- The $1.55 earnings per share for the third quartermatched expectations. However, the 2018 earnings per share for the full year are expected to increase by 14% to 16% from 2017 to between $5.33 to $5.43 per share. Michele Buck, Hershey's president and chief executive officer, said the company remains "on track to achieve the financial targets we shared earlier this year."
- Hershey plans to increaseprices of a fifth of its products by about 2.5% starting next yearas lower prices and higher costs squeeze margins,according to CNN.
Dive Insight:
Hershey remains confident that upcoming holiday sales and itsrecent acquisitionof Pirate Brands for $420M last month will boost earnings for the year. Hershey has been busy since Buck took over in early 2017 and vowed to make Hershey an"innovative snackfection powerhouse."
While the company is known for chocolate it has been aggressively expanding into snacks. Hershey has transformed from the largest chocolate maker in the country tothe second largest snack makerbehind PepsiCo, thanks to recent purchases ofKravein 2015, snacking chocolatebarkTHINS in 2016and last year's big$1.6B Amplify acquisition. It recentlypurchased Pirate Brands from B&G Foods for $420 million,which could give Hershey another leg up in the better-for-you snacking category and continue to drive sales and growth for the company.
Todd Tillemans, president of Hershey U.S.,told Food Divethat acquisitions — specifically in the snacking space — will continue to play a major role in the company's growth strategy.
Although snacking acquisitions and divestitures helped deliver a 3.5 point benefit this quarter, it’s not just savory that’s driving growth. Buckrecently told CNBCthat Hershey’s legacy brands are "outpacing the category growth by double in the past three years."Hershey's U.S. candy, mint and gum retail increased 0.4% this quarter.
"Our U.S. core confection retail takeaway and share trends are sequentially improving, in line with our expectations, driven by strongHalloweenresults and distribution gains on core items," Buck said in the Thursday's earnings report.
Much of that could have to do with Hershey’s willingness to adapt to customer demands. Earlier this year,the candy maker debuted a redesignof center aisles at 20 locations of three retailers, which responded to consumer complaints. Additionally, Hershey has worked to streamline its e-commerce options after research has shown that consumers arelikely to spend six times as muchif there is a seamless transition between all of its platforms.
At the same time, Hershey has reduced its advertising and related consumer marketing expenses by 16.5% in the third quarter. Instead, it is focusing on earned media and retailer education with itsrecently unveiled mobile research center. This reduction in marketing costs has helped offset gross margin pressures driven by higher freight and logistics costs, as well as incremental investments in trade and packaging. Adjusted gross margin was 44% in the third quarter of 2018, a decrease from 45.3% in the third quarter of 2017.
For the rest of fiscal 2018, the company expects sales to increase due to the holiday season.
By gaining a strong foothold in snacking, Hershey is positioning itself to better respond to changing consumer ideas about what constitutes a meal as well as the competingdesires for indulgence和好处的打包选项。
