US: Hershey sees sales growth slowing
By: just-food.com | 16 October 2008
US chocolate maker Hershey has said that it expects full-year sales to come in at the low end of its forecast, as rising prices and tough economic conditions drive down volumes.
Posting its third-quarter results today (16 October), the Pennsylvania-based confectioner also predicted that sales growth would continue to slow in 2009 as price hikes are expected to hit volumes.
Hershey's net income from operations, which is adjusted to exclude charges, was down 6% from US$145.81m, or $0.64 per share, in the third quarter of 2008, to $157.23m, or $0.68 per share, in 2007.
Sales were up 6.4% to $1.49bn.
"This growth was driven by price realisation, overall growth in core brands and new products, partially offset by softness in snacks and refreshment. Halloween is off to a good start with solid programming and merchandising in place," president and CEO David West observed.
In a bid to drive lacklustre sales, the maker of Reece's Pieces has launched a number of new products, including premium Bliss and Starbucks lines.
Nevertheless, Hershey conceded today, that it expects earnings before one-time items to be toward the lower end of its $1.85 to $1.90 forecast range. Sales are expected to grow by 3-4%.
"In 2009, we expect net sales growth of 2-3% as the pricing action previously announced will be partially offset by lower volumes. We expect 2009 earnings per share-diluted from operations to increase, however, it will be at a rate below our long-term objective of 6-8% growth due to higher commodity prices, which remain at levels well above a year ago despite recent declines, as well as greater levels of consumer investment," West concluded.
Sectors: Confectionery
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There is currently 1 comment on this article
The company's sales growth rate expectations are pretty low for Q4 2008 and FY 2009 considering (a) the company talked a lot about how the chocolate category was pretty resilient in a downturn, (b) that there are a lot of price increases going through at the moment and (c) that advertising will have been increased by a whopping 25% by the end of the year. Is management deliberately low-balling?
The company slightly lost FDM share in the relevant 12 weeks of Nielsen data (-10bp), which does not exactly thrill given the advertising up-tick. Admittedly, the company has a tough comparison with last year's centennial activities, but it does make the 2-3% expectations for next year seem a little conservative. With 40%-plus market share, Hershey is the market, after all...
One thing that caught my ear was the lack of success of the Starbuck's range outside of Starbuck's. Remember my comment on Unilever's cooperation with Starbuck's on ice cream? I wasn't very excited by that either. Starbuck's is an experience, not a collection of products. This is brand extension that doesn't work and ultimately doesn't help the brand. You can extend the brand within its own channel but not outside of it.
Something that made me chuckle was Hershey's promotional activities surrounding its 'retro-packaging' designs. I'm not going to go on about the pros and cons of the 'nostalgia thing': everyone's doing it and there's much debate over its benefits. My only point is that all of Hershey's packaging designs are retro... (Oops, there goes another potential client!)
Finally, a 'useful' conclusion... I like chocolate generally, not just to eat, but from an investment standpoint. However, I would still put my chocolate coins into Lindt, Cadbury or Barry Callebaut rather than Hershey.
TheFoodAnalyst.com said at 5:15 pm, October 16, 2008
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