US chocolate giant Hershey has indicated it will step up its investment in overseas markets as it plans to drive the growth of its five “global brands”.
The company today (31 January) increased its forecast for 2013 earnings, citing rising volumes in the US and overseas expansion.
Speaking to analysts during a conference call, management outlined ambitious plans to increase distribution and build its brands, particularly in the key markets of China, Mexico and Brazil.
Hershey’s brands outside North America generate sales of around US$700m, with the majority of revenue coming from the group’s “key geographies”. The firm expects to increase this figure by 30% over the next two years.
“Outside of the US and Canada our business continues to grow and… we are on track to deliver net sales of US$1bn by 2014,” John Bilbrey revealed.
During 2012, Bilbrey said the strong dollar weighed on international sales, which nevertheless made “solid progress”. Overseas revenues were up 12% in the year, below the group’s target of 15-20%. In 2013, however, Hershey said – at current exchange rates – it expects to deliver growth in the 15-20% target range.
In international markets, Hershey is focused on growing its five “global brands” – Hershey’s, Reese’s, Ice Breakers, Kisses and Jolly Rancher.
Kisses is Hershey’s largest international brand and overseas sales represent 32% of revenue from the brand. “As we begin to expand out other brands we would hope to begin to see that sort of profile… that is a significant opportunity for us,” Bilbrey said.
In order to do this, the group indicated it is increasing the proportion of its capital investment spent outside the US.
“A greater proportion of that capital [expenditure] is non-US in 2013… [we] need to expand for volume growth in Asia specifically… A lot of our capital [investment] is margin enhancing and business building so more of our capital will be deployed outside the US in 2013. And you might see more of that going forward because we feel good about our footprint in the US,” management revealed.
Hershey plans to grow its overseas business by expanding distribution of these brands, which operate in growing categories. Hershey said its “primary” focus was on growing the international business organically. The company said much of its capex would be on improving infrastructure in these markets.
However, the group added it “has the right balance sheet” to fund M&A when opportunities arise.
“M&A is still a priority for us where we can expand the business inorganically…. We are going to do our best to find good value opportunities,” management said.
The company is also launching products in overseas markets. In China, Hershey plans to build on its existing offering, which is “doing very well”, with the addition of a premium Kisses variant and a Hershey bar. Meanwhile, in Brazil the group plans to launch Hershey mice.
In order to support the growth of its brands, Hershey said it will raise its level of marketing. Accross the group, Hershey said that its advertising spend would increase by 20% in 2013.