Hershey is standing by its long-term target for underlying sales to grow by 2-4% each year after the largest confectionery producer in the US reported pressure on its top line in 2017 and forecast muted growth in 2018.
In a statement yesterday (1 February), the maker of Reese’s and Twizzlers, said full-year sales edged up 1% to US$7.52bn, a marginal improvement over the 0.7% increase in 2016 but short of the targeted growth for 2017 of 2-3% the company laid out this time last year.
Hershey envisages its December acquisition of Amplify Snack Brands will strengthen its presence in the salty snacks aisle and add five percentage points to its top line in 2018. However, the company forecast its organic sales growth – which filters out that purchase – will be “slightly up to around 2%” this year.
To achieve Hershey’s longer-term sales target of 2-4%, chief executive Michele Buck is pinning her hopes on recent and upcoming product launches within its core branded chocolate categories and existing products taken under its wing from the Amplify purchase – SkinnyPop popcorn, Tyrrells, Oatmega and Paqui.
Buck said in yesterday’s earnings statement, albeit a reiteration of previous comments: “We will continue to invest in our core brands and build on our capabilities and strategies to drive growth as we work towards our vision of being an innovative snacking powerhouse.”
Hershey has its new Reese’s Outrageous chocolate bars geared up to hit US retailers around the middle of this year, while under its namesake brand Hershey’s Gold Bars have just come on-stream. In 2017, the company launched Hershey’s Cookie Layer Crunch, a precursor to Hershey’s Cookie Layer Crunch Triple Chocolate, which came out just before Christmas.
Asked on a follow-up call with investors and analysts yesterday on whether she thought the 2-4% target was still doable, Buck answered a confident “I do. We’re making investments.”
She added: “We’ve got Amplify that we have a lot of confidence in. So we continue to feel good about our ability to get to that long-term sales guidance over our strategic planning horizon.”
Looking at 2018, Buck expects sales growth to be loaded towards the second half of the year, although she envisages some pick-up in the first quarter compared to the final three months of 2017.
Buck explained the long weekend Easter holiday – which runs over four days starting with Good Friday on 30 March 30 – and the timing of the launch of Reese’s Outrageous in the middle of the year, would tend to push out when to expect sales growth.
“But I think it’s very fair to say that the strongest performance will be in the back half of the year,” Buck said. “Certainly, the first half of the year will be lapping the long Easter, which that alone creates a differential in terms of the first-half, second-half performance. And then the pacing of our innovation.”
To support the increase in capacity for the core US chocolate brands, Hershey plans to increase capital expenditure in 2018, which CFO Patricia Little estimates will be around $330-$350m, compared to almost $258m last year. Of that, $10-$15m will be funnelled to the needs of Amplify, she added.
Hershey also intends to reinvest cash gains as a result of last year’s amendments to US tax regulations, which it said will lower corporate contributions and have a “favourable” impact on the company’s net income, as well as other metrics such as earnings per share.
According to Hershey’s preliminary estimate, its effective tax rate should fall to around 20% to 22% in 2018.
“The company is evaluating the cash benefit of tax reform and believes that it will complement its existing cash usage priorities such as business investment, including both brand building and capital expenditures that result in growth, dividends, share buybacks and debt reduction,” Hershey’s earnings statement concluded about the reforms.
CEO Buck told investors on the conference call with respect to the tax benefits: “And really, the way we’re looking at it is, it gives us an opportunity to accelerate enacting them [investments], and therefore, accelerate our project progress to our strategic goals.”