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February 24, 2011

CAGNY: Hershey aims for US$1bn in international sales by 2015

US confectioner Hershey has insisted it is "excited" about its international prospects and has set a target for that side of the business to create US$1bn in sales by 2015.

US confectioner Hershey has insisted it is “excited” about its prospects overseas and has set a target for that side of the business to create US$1bn in sales by 2015.

The company has long faced questions about how ambitious it is internationally, with the bulk of its sales coming from a US market seen as more mature than some overseas.

Speaking at the CAGNY investment conference in Florida yesterday (22 February), Hershey COO J.P. Bilbrey said the company makes 15% of its sales outside the US – but organic sales growth from that part of the business was at 15% a year, or 19% including acquisitions.

“We’re excited about our growth prospects outside of the US and Canada. We are on pace to achieve US$1bn in net sales in our international markets [including Canada] by 2015. And this only requires growth consistent with market growth,” Bilbrey said.

Canada and the rest of the world accounted for 15.2% of Hershey’s US$5.67bn sales in 2010, which equates to around $862m in sales being made outside the US.

Hershey president and CEO Dave West said the global confectionery sector remained “fragmented” even after the two “large” deals of the last four years – Mars Inc.’s 2007 acquisition of Wrigley and Kraft Foods’ takeover of Cadbury last year. “This is among the least consolidated of any major global category – so the players with a two, three or five share of the market have meaningful global businesses.”

Nonetheless, Hershey is committed to expanding in key markets including Mexico, China and India, with investment in distribution and marketing. The company has structured its business around three regions – the US, the Americas and Asia – and also created two strategic business units to focus on chocolate and sugar confectionery, which Bilbrey leads.

Asked when Hershey would expect to see its international operations contribute significantly to its bottom line, West said the company had invested “up front” in “go-to-market capabilities” in markets like China and said that “over time, as we grow into that infrastructure, we should start to see better margins”.

Analysts have questioned Hershey about the cash on its balance sheet. By the end of 2010, Hershey’s cash-on-hand stood at $885m and Hershey has faced questions about what it plans to do with the cash and its M&A ambitions.

“We are continuing to look at alternatives for bolt-ons, we talked a lot about Latin America and Asia and we are going to be very disciplined about that,” West said. “The changes in the landscape that occurred – first Mars-Wrigley and then Kraft-Cadbury – certainly changed the landscape and it wasn’t until the early part of last year when the dust all settled that we started to take a look at the landscape again.”

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