US: Hershey hikes prices to offset commodity squeeze
Hershey expects sales, earnings at "low end" of guidance
Hershey is increasing its prices by around 8% as the US confectioner sees the cost of key commodities rising.
The company is upping its prices across instant consumable, multi-pack, packaged candy and grocery lines.
Detailing its plans, Hershey said the move aimed to offset input cost volatility and expected "significant" increases in future costs.
Michele Buck, president, North America, explained: "Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year. Given these trends, we expect significant commodity cost increases in 2015. We are a gross margin focused company and remain committed to our consumer-centric business model of bringing insights to retailers that will enable us to grow our business and the category."
Hershey said it did not expect the benefit from this pricing action to show in its results until fiscal 2015. For 2014, the group said "volume elasticity" and channel mix headwinds in the US are dragging on sales and higher input costs will hit gross margins. Hershey therefore predicted both sales and earnings to come in at the "low end" of its long term targets of 5-7% and 9-11% growth respectively.
Hershey added it anticipates sales in the second quarter to 29 June to increase by 4.5% while adjusted EPS is expected to total $0.74-0.76.
Hershey Announces a Price Increase, Preliminary Second Quarter Results and Updates 2014 Outlook
HERSHEY, Pa.--(BUSINESS WIRE)-- The Hershey Company (NYSE:HSY) today announced an increase in wholesale prices across the majority of its U.S., Puerto Rico and export portfolio.
A weighted average price increase of approximately 8 percent across the company's instant consumable, multi-pack, packaged candy and grocery lines is effective today. These changes will help offset part of the significant increases in Hershey’s input costs, including raw materials, packaging, fuel, utilities and transportation, which the company expects to incur in the future.
“Over the last year key input costs have been volatile and remain at levels that are above historical averages,” said Michele G. Buck, President, North America, The Hershey Company. “Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year. Given these trends, we expect significant commodity cost increases in 2015. We are a gross margin focused company and remain committed to our consumer-centric business model of bringing insights to retailers that will enable us to grow our business and the category. During the transition period we will support our brands with higher levels of investment, including merchandising, programming, advertising and innovation, that will benefit Hershey and the category,” Buck concluded.
Direct buying customers will have an opportunity to purchase transitional amounts of product at price points prior to today’s announcement during the four-week period through August 12, 2014. The company does not expect seasonal net price realization until Halloween 2015. Given this timing, the company does not expect today’s announcement to have a material impact on its financial results in 2014. Therefore, the expectation is that the majority of the financial benefit from this pricing action will impact earnings in 2015.
Due to expected volume elasticity on everyday take home items and instant consumable products, as well as year-to-date U.S. channel mix headwinds, the company expects full-year 2014 net sales growth to be around the low end of its long-term 5 to 7 percent target, including the impact of foreign currency exchange rates. Additionally, the company expects commodity costs, primarily dairy, to be greater than its previous estimate resulting in adjusted gross margin that is slightly down versus last year. Therefore, the company anticipates 2014 adjusted earnings per share-diluted growth to be around the low end of its long-term target of 9 to 11 percent.
While preliminary, for the second quarter ended June 29, 2014, the company expects net sales and adjusted earnings per share-diluted to be relatively in line with its forecast. Specifically, second-quarter net sales are expected to increase around 4.5 percent, including an approximate 0.75 point headwind related to foreign currency exchange rates, resulting in adjusted earnings per share-diluted in the $0.75 to $0.77 range. Preliminary reported earnings per share-diluted for the second quarter is estimated to be in the $0.74 to $0.76 range.
Original source: Hershey
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