Hershey has expressed its confidence in the future of its US business and the wider confectionery sector in the country after a strong first-half performance saw it gain market share across its business and lead it to up its forecasts for 2013.
The Reese’s manufacturer booked second-quarter company sales ahead of its own estimates, boosted by growth from its smaller – and much talked about in recent months – international operations. However, CEO John Bilbrey said Hershey’s US business had contributed 80% of the net sales growth seen during the period.
“In the second quarter and year-to-date period, we essentially gained market share in every channel and segment where we compete,” Bilbrey said. The Hershey president and CEO, for example, cited a 1.3 percentage point improvement in the company’s share of the US chocolate market, where it is the largest player.
The sales performance helped boost Hershey’s margins, which were also helped by cost savings and lower commodity prices. The company is now forecasting a stronger improvement in company sales, margins and earnings for the full year than it estimated when it reported its first-quarter results in April.
“The US is a growth market for the confectionery category, and we would expect that to be the case going forward. We believe retailers and consumers will continue to value the category, given its impulsivity and affordable price points,” Bilbrey told analysts. “Confectionery is an advantaged category, is highly impulsive and is a destination category, especially in the second half of the year. It’s expandable and profitable for the retailer and affordable for the consumer.
Asked about competition in the US, specifically the launch of products from competitors like Mars Inc, Bilbrey was sanguine and said innovation helped grow the category, which benefits Hershey.
“The fact that we’re seeing quality innovation across the category, continued investment in advertising and promotion to support innovation, the category has cycled pricing, I think, quite well. I think all of those things are certainly good for us,” he claimed.
Internationally, Hershey said its performance was in line with its forecasts. Sales were up 8%, although they increased 15% in its “focus” markets, including China, Brazil and Mexico. Bilbrey said Hershey had seen some issues in what he called the company’s “unstructured markets”.
Bilbrey said: “Unstructured is really more where our brands are available because there’s distributors or people who have kind of pull on that. And it really was more around those unstructured markets, where there were just some things that didn’t repeat themselves that were in the base.”
However, he added: “The real focus markets that we had, we felt very good about the results we got.”
In China, Bilbrey said the company should see its chocolate business “grow at least “four to five times greater than the category growth”. Chocolate sales in China climbed over 11% in the first six months of 2013.
In May, Hershey launched milk candy brand Lancaster in China, the first product the company, traditionally criticised for being too focused on the US, had developed for an overseas market.
Bilbrey said Hershey was targeting Lancaster at China’s “modern trade” but said the company believed the brand had “legs with deeper penetration”.
“It’s a slow build. 2014 will be a much stronger push for us on that product,” he said.
Broadly, Hershey said its international sales were expected to increase 15-20% in 2013 based on current exchange rates and were on track to hit the US$1bn target it wants to meet for the end of 2014.