US candy, mint and gum category not picking up as quickly as Hershey would like

US candy, mint and gum category not picking up as quickly as Hershey would like

Hershey has again lowered its full-year sales forecast, citing macroeconomic conditions in China and a weaker outlook for the candy, mint and gum category in the US

Delivering its second-quarter results, the Reese's Pieces maker said constant-currency net sales are now expected to grow by 2% - lower than the firm's previous estimate of 2.5%. Hershey already lowered its full-year constant currency sales outlook in April from earlier guidance of sales growth of "around" 3%.

Full-year 2016 net sales will increase by around 1%, including a net benefit from acquisitions of about 0.5 points and the impact of unfavourable foreign currency exchange rates of 1 point, the company predicted today (28 July). 

Margins are also under pressure, the US confectionery group continued, and gross margin is now likely to be "slightly below last year" due to "unfavorable sales mix and higher commodity costs". 

The group did however insist that it is on-track to meet savings targets for the year, which were also adjusted in April. Hershey had been targeting savings of around US$50-70m a year but the group said it now expects to deliver an additional $10-15m this year. From 2017-2019, Hershey will have a target of saving "about $100m" through the initiatives. "Business productivity and cost savings programmes are on-track with our targets," Hershey said today. 

The company affirmed its full-year earnings forecast for adjusted earnings per share to grow 3-4% this year to $4.24-4.28. In January, the company had estimated adjusted EPS-diluted would increase by "about 6%". 

Despite the downbeat sales outlook, Hershey said its second-quarter operating results were "better than our estimates" thanks to sequential revenue growth. Consolidated net sales were $1.64bn, compared with $1.58bn for the second quarter of 2015. Reported operating profit of $262.8m increased $255.3m versus the same period last year, the company said. Reported net income for the second quarter of 2016 was $146m, compared with a net loss of $99.9m for the comparable period of 2015.

Chairman and CEO John Bilbrey said: "Performance partially benefited from the timing of select merchandising and program net sales that occurred in the second quarter that were initially expected to ship in the third quarter."

Looking specifically at the candy, mint and gum category in the US, he said that the market had not picked up to the extent that Hershey was expecting. "Non-seasonal candy, mint and gum category growth progressed in the second quarter; however, given the amount of activity in the marketplace, category growth was less than what we anticipated. We've yet to experience consistent broad-based marketplace gains that are reflective of the attractive CMG category and Hershey's competitive advantages."

Bilbrey said Hershey will continue to work to revive the CMG category in the US. "In the coming quarters we will begin to share the results of the work being performed that should benefit the company in the near and long term. Over the remainder of 2016, our CMG in-store merchandising, new products and consumer investment will be strong and should result in a sequential improvement in retail takeaway performance," he said.