Hershey has upped its target for annual cost savings in a bid to be able to invest in its brands while achieving its targets on earnings, the US confectioner said today (26 April) as the Reese’s maker booked lower first-quarter sales and earnings.
The company has “continuous improvement and productivity” programmes it follows each year to control costs. From next year and to 2019, Hershey will have a target of saving “about US$100m” through the initiatives.
Hershey had been targeting savings of around US$50-70m a year. The company expects being able to save an extra US$10-15m on top of that target in 2016.
Under the revised target, the savings will come from “optimising” costs “across all segments of the business” and “should enable the company to continue to invest in its brands while also delivering on its earnings objectives”, Hershey said. Similar to previous years, Hershey expects around two-thirds of the savings from the programmes will be generated by “supply chain initiatives”.
The impact of Hershey’s new savings target was underlined in the company’s first-quarter results. It said selling, marketing and administrative expenses, excluding advertising and related consumer marketing, declined about 9% in the quarter.
Hershey’s first-quarter results also included US$54.4m in pre-tax charges, which included US$14.4m in “business realigment” costs. During the quarter, Hershey started “optimising” its business and workforce in China, where sales have been under pressure in recent quarters.
The US$54.4m of charges was partially offset by US$26.7m gain Hershey booked in its first-quarter numbers. In the fourth quarter of 2015, Hershey struck a deal with the other shareholders in Shanghai Golden Monkey, the Chinese confectioner in which the US group bought a majority stake in 2013. The agreement saw Hershey secure a deal for the investors to reduce the orignally-agreed price for the other 20% of Shanghai Golden Monkey. Hershey bought the remaining shares on 3 February.