Higher dairy costs in the US have forced the country’s largest candy maker, Hershey, to lower its earnings forecast for this year.
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Chocolate giant Hershey, which is busy streamlining its business in North America to reduce costs, today (10 May) said its expenditure on dairy is rising.
“Within the past few weeks, the impact of higher dairy costs has significantly increased our cost profile for the remainder of the year,” said Richard Lenny, Hershey’s chairman, president and CEO.
As a consequence, Hershey warned investors that it now expects earnings per share to grow by only 4-6%. Last month, the company was targeting growth of 7-9%.
Yesterday, the company reportedly announced the closure of its last Canadian factory. Hershey is said to be closing its site in Nova Scotia with the loss of some 580 jobs.
The company has embarked on a streamlining programme that will axe 1,500 jobs and cut its production lines in the US and Canada by a third.
The US chocolate market as a whole is only growing at around 2% a year and, according to industry watchers, Hershey has not been quick enough to tap into rising demand at the premium end of the category where growth is fastest.
Alexia Howard, an industry analyst at US bank Sanford C. Bernstein, told just-food earlier this month that competition from the likes of Mars in the US is putting Hershey’s domestic profits under pressure.
Howard said the rivalry has led to Hershey’s decision to take “an even bigger axe” to its cost base in North America. “The market is growing at 2% on average and their margins are very, very high already,” Howard said. “They had thought they could push them higher but for the competition of Mars, so it’s become increasingly hard to generate margin expansion.”
