Hershey records 5.4% net sales drop in its fourth-quarter results

USA – Confectionery group Hershey has announced a 5.4% decline in net sales for its confectionery business, with the North American sales recording the lowest drop of about 1%.

According to Reuters, the company also recorded a drop in net income per share, which was estimated at US$1.03, where its chocolate business in Pennsylvania recorded US$41.94 billion sales, a slight decline in value compared to the previous earnings.

The Pennsylvania market might have been boosted through its new innovations including the launch of Hershey’s Cookie Layer Crunch bar launched in December 2016.

The bar gained popularity in the region by offering consumers with a variety of combinations: NEW Triple Chocolate, Caramel, Vanilla Creme and Mint Crème.

Struggles with higher freight costs, distribution costs and supply chain expenses have amounted to strains as the company tries to leverage its overall sales in both the North American and the International divisions.

The sales, which dropped lower than expected in the last three months, could be attributed to a lower demand for its candy recipes and sweets in the North American market.

As the consumer trend moves toward healthier foods, Swiss UBS company reported that chocolate sales in the developed world- which makes up two-thirds of the market – will slow in 2018, from long-term annual growth of 2 to 3% a year.

With a move to boost its offering given the changing consumer tastes and preferences, Hershey has been engaging in acquisitions as it tries to enhance its brand recognition.

The company acquired KRAVE Pure Foods-a snack brand, to tap into the rapidly growing meat snacks category and further expand into the broader snacks space.

The acquisition encouraged a venture into the snack portfolio considered to have a lower margin to that of confectionery allowing the company to operate at a profitable level.

In December 2017, Hershey acquired Amplify Snack Brands with the aim to strengthen its position in the snacking aisle and broadens its portfolio of innovative savory snacking brands.

According to Hershey, combined effort with Amplify Snack Brands was a process of achieving annual run-rate synergies of US$20 million in two years through cost savings and portfolio optimization.

“We estimate modest EPS accretion for Hershey in 2018 from this transaction,” Stifel analyst Chris Growe wrote in a client note.

However, Hershey revealed that the company was expecting 5-7% growth in sales this year.

This would be as a result of expected federal tax cuts, drop in cocoa prices and cost-cutting measures that will foster growth, dividends and reduce on the company’s debts.

Hershey expressed their confidence that the company was expecting to invest more, build on their brand and spur capital expenditures given the new developments.

“While we continue to expect falling cocoa prices to benefit gross margin, the positive margin impact may not materialize until the second-half of 2018 given the near-term headwinds,” said Alexia Howard, Stifel analyst.

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