Hershey believes US candy growth has reached new level

Hershey believes US candy growth has reached new level

Hershey president and CEO J.P. Bilbrey has claimed the US confectionery category has reached a "new normal" of growth after the company lifted its forecast for annual profits.

The company yesterday (26 July) improved its guidance for underlying earnings for the year after managing to increase prices more than expected in the first six months, which boosted sales.

Bilbrey said the US candy, mint and gum category had "outpaced" the rate at which it has grown historically.

Speaking to analysts after the publication of Hershey's first-half results, Bilbrey was asked if Wall Street had to think differently about the pace at which the sector could grow. He said: "We feel as though the category growth is - I used the word, I think earlier - around the new normal." 

"If you look at the 3% to 4% historical growth rate and where the category is growing today, I think the key difference that I see that makes me a believer in continued category growth, at least in the North American mindset, is the investment that continues to be made in the category in terms of advertising," Bilbrey said.

"We've talked a lot this morning about innovation. And then don't forget, in a tough retail environment, retailers are looking for categories that are good for them and our category is good for retailers. So I think we'll continue to get our fair share as a category of overall merchandising in the store and that, I think, are all positive fundamentals to future growth."

Hershey said what it called "net price realisation" increased 6.1% in the second quarter, which although it put pressure on volumes, was better than expectations and had led to the improved profit forecast for 2012.

The company said its net volumes were down 1.1%, with volumes of its "everyday core" products falling 3%.

"While relatively in line with historical volume elasticity, second quarter core volume was slightly lower than our assumption when we last spoke," CFO Bert Alonso told analysts.

Hershey said it expected organic volumes to be up year-on-year at the end of 2012 but the company still faced questions from analysts concerned about the outlook for its core business.

However, Bilbrey said he saw signs of improvement. "Hershey's chocolate performance was impacted by a shorter Easter period and the timing of chocolate new product launches, as well as in-store promotions and programming. We have solid plans in place over the remainder of the year supporting new products in our core chocolate business and expect our chocolate marketplace performance to improve sequentially in the second half," he said.

"I think we understand what's happening in the category. So it doesn't cause alarm bells. We're still going through a period of time where we said volume would be back to 100% by the end of the year. So as we look at that on a period-to-period basis, we always see some fluctuation there."