Hershey again cuts sales forecast

Hershey again cuts sales forecast

Hershey has once again lowered its full-year sales forecast as third-quarter North American revenue came in below expectations and its Chinese arm continued to weigh on the business.

The Reese's maker said today (28 October) it now anticipates full-year sales to be "about the same, to slightly up" versus 2014. It was the fifth time Hershey has cut its sales guidance this year. Most recently, in August, Hershey lowered its sales forecast from a range of growth of 2.5-3.5% to 1.5-2.5%.

The company added it anticipates full-year earnings will come in at the "lower end" of its range of growth of 3-5%, a tweak to its August forecast when it said growth would fall between 3% and 5%.

During the third quarter, Hershey said net sales were in line with last year, totalling US$1.96bn in the three months to 4 October. Organic net sales were up 1.5%, the company said. 

Hershey revealed its North American sales increased 2.4% to US1$1.73bn in the quarter. "US net sales were below expectations due to lower-than-expected candy, mint and gum retail takeaway in the third quarter. This softness also impacted broader mainstream snacks, where consumption trends during the quarter were less than the June year-to-date increase," Hershey CEO John Bilbrey said. 

Bilbrey was nevertheless upbeat on the group's positioning going into the key Hallowe'en trading period. "In October, candy, mint and gum in-store merchandising and programming has been executed which, while preliminary, should result in Hershey share gains in the important Halloween season.”

In its international unit, sales dropped 15.2% to $226.9m "primarily" due to lower chocolate sales in China, Hershey said. In the second quarter, Hershey was forced to register an impairment charge on its China Shanghai Golden Monkey business, in which it acquired an 80% stake last year. 

Hershey reported a 220 basis point improvement in gross margin, which rose to 46% in the quarter due to price realisation and productivity initiatives, partially offset by higher commodity costs and an unfavourable sales mix.

However, operating profit was hit by goodwill writedowns and business realignment charges, falling to $303m versus $358.7m last year. Net income for the third quarter was also lower at $154.8m compared with $223.7m.