Hersheys primary focus will be on trying to develop inorganic growth

Hershey's primary focus will be on trying to develop inorganic growth

Hershey CFO Bert Alfonso has said there will be a "broad continuation" of the US chocolate maker's international strategy when he takes on a new role in charge of operations outside its domestic markets.

Alfonso is set to take the job next month as as part of a management team shake-up at Hershey. The company said the changes will "accelerate" its growth internationally. Hershey, long criticised for being slow to expand outside its home market, is building its business outside North America and is focused on four countries outside North America - China, Mexico, Brazil and India.

Speaking after Hershey reported its first-quarter results yesterday, Alfonso indicated the company's current strategy would continue.

"I think part of what you're going to see is a clot of continuation because we've all, as a senior management team, spent a lot of time together on our international strategy," Alfonso said. "It will give me the ability to look at Latin American and Asian regions on a more combined basis. We're very focused on the roll out of our five global brands and the good news is we have very solid teams in place at both the regional president level and below that at country management. We see that putting more resource as a company against that international growth trajectory."

Alfonso said Hershey CEO J.P. Bilbrey had been able to "assess things across regions" but said his new position focused on international markets would give the company some "extra insight". He added: "But I think strategically you're going to see broad continuation."

At last month's Consumer Analyst Group of Europe investor conference in London, Bilbrey said Hershey was not under "great pressure" to boost its international expansion via acquisitions. The Kisses and Reese's owner has set a target of generating up to US$2bn in sales outside the US and Canada in 2017, when it wants to have group sales of $10bn. Hershey's plans for growth are built on organic expansion and on M&A but Bilbrey indicated the company was relaxed about securing deals.

Speaking to Alfonso yesterday, BMO Capital Markets analyst Kenneth Zaslow asked the Hershey finance chief if the management changes meant the company would expand more international and whether there was a "greater probability" of acquisitions.

Alfonso was coy. "J.P. has talked in the past about other markets that are interesting for us. There is a set - there are south-east Asian markets that are interesting, to a lesser degree, Eastern Europe," Alfonso said.

"We know that western Europe is not for us in terms of the cost benefit. M&A - we're focused clearly on trying to develop growth that's inorganic, primarily in our category and possibly adjacent categories where we can get some capabilities and local brands. So it'll be primarily in the focus markets where we are today."

In the first quarter, Bilbrey said its international business was "relatively in line with our forecast". Sales in each of China, Mexico and Brazil increased at a "solid double-digit" rate compared to last year, he said.

In China, which Hershey has labelled a "win-now market" for the business, Bilbrey said the company would continue to be in "investment mode".

"As you know, we believe we have good gross margins in those businesses that we can grow into when we're not in an invest mode. But that really is not going to be the case, I don't think in the immediate future, so we're very satisfied with this," he said. "We continue to turn on advertising and build our portfolio. Our Hershey bars, as an example, is doing terrific as we've begun to expand that. And then we have what we think is a very exciting new item introduction in China that will be later in the year that we'll talk to you more about in coming time. But we really feel good about the profile of China."

Bilbrey said Hershey will continue to invest in its sales organisation and in brand development in China.

"We're not necessarily saying, 'We're going to go be number one by a specific date.' That could be a really costly and foolish thing for us to do. We want each of these [emerging] markets to be successful for us. We want them to be rewarding for our shareholders, and therefore, we have a pretty planned approach."

Hershey yesterday booked an increase in first-quarter earnings and raised its full-year profit forecast.

In the three months to the end of March, earnings climbed 21.8% to US$241.9m as lower commodity prices and cost-cutting boosted margins.

Bilbrey told analysts Hershey was pleased with its first-quarter performance.

"The strong start to 2013 is similar to 2012. The category continues to grow, and there's a lot of activity during the second quarter, which, once we get past, will give us a better perspective on our potential for the full year. The overall macroeconomic environment appears to be getting better, but it is still difficult to predict consumer sentiment and purchasing patterns."

Hershey raised its outlook for the year and now expects EPS of $3.61 to $3.65, up from $3.56 to $3.63. It maintained its sales forecast of 5% to 7%.