Hershey chief Dave West yesterday (2 February) struck an upbeat tone when discussing the US confectionery giant’s prospects for 2011, insisting advertising and innovation will drive sales at home and abroad.
Speaking to analysts after Hershey posted an 18% rise in profits for 2010 and accelerating sales growth in the fourth quarter, West said the company would “get off to a fast start” in 2011.
Go deeper with GlobalData
West said Hershey would benefit from increased distribution in the US for two recently-launched products – Hershey’s Drops and Reese’s Minis – and from “a longer Easter selling season”. With Good Friday falling on 22 April this year, Hershey – like the rest of the confectionery category – will benefit from a longer period of merchandising in stores, West explained.
Reflecting more broadly on the outlook for Hershey in 2011, West said Hershey had lined up “many exciting products, promotions and programmes in merchandising in place across all channels”. Hershey, he said, also plans to increase its advertising spend by “mid-single digits” in 2011, with more investment in the US and internationally. Since 2006, the company has “tripled” its advertising spend, West noted.
“We remain confident in our core US business, and advertising will be up in the US again in 2011,” West said. “The consumer-centric approach to brand activation that has worked in the US is being rolled out globally, and it’s working. In certain international markets, we are gaining momentum and expect it to continue in 2011, as advertising in these focus markets will increase double digits on a percentage basis, albeit off of a much smaller base.”
Reporting its 2010 results yesterday, West predicted that Hershey’s net sales would rise by “around the top” of the company’s long-term target for top-line growth of 3.5%. West also forecast that Hershey’s adjusted earnings per share-diluted would increase by near the top of its long-term growth target for that metric, which is 6-8%.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHowever, with cocoa, sugar and dairy costs remaining volatile, analysts were keen to hear Hershey’s views on how raw-materials could affect margins in 2011. The company had seen input costs accelerate in the fourth quarter of 2010. West said Hershey expects input costs to be “meaningfully” higher in 2011 but insisted “productivity and cost-savings initiatives” were in place to ensure that adjusted gross margin “will be about the same as last year”.
West and CFO Bert Alfonso also faced questions about the level of cash on Hershey’s balance sheet. Alfonso said that, by the end of 2010, Hershey’s cash-on-hand stood at $885m and analysts asked what Hershey was planning to do its cash.
Alfonso was coy about how Hershey would use the cash but indicated that the company did expect higher spending on capital expenditure in 2011.
However, he admitted that Hershey was “in a strong position from a cash perspective” and added: “We said in the past that M&A particularly, on a bolt-on basis, is interesting for us and something that we’re spending more time on. And then the question that we get frequently around buybacks is something that’s in active discussion with our board. We understand our responsibility to return cash to shareholders and we appreciate the patience while we develop those strategic options.”
Looking at Hershey’s international business, West said the company would give more detail on its business outside the US at the CAGNY conference later this month.
West declined to give a specific figure for how much Hershey’s international sales grew – he said that organic sales growth from that part of the business had been “in the range” of the compound annual growth rate of 14% seen “in the last few years”.
However, West said Hershey had continued to invest in initiatives around brand building and distribution. He also pointed to the creation of two global strategic business units – one focusing on chocolate and the other on sugar confectionery – that, he said, will drive Hershey’s international business forward.
“Starting in June 2008, when we talked about our long-term growth strategy, we talked about international growth as being additive to our growth in the US. We’ve certainly put our money where our mouth is with respect to organic growth in the last couple of years,” West said.
Hershey’s shares closed up 2.4% at $48.61 in New York yesterday.
