Hershey’s Shift into Broader Snack Segment Propels Earnings

foodmate 2018-07-30

Tag: Snack Hershey

The Hershey Co. benefited from its acquisition of Amplify Snack Brands earlier this year during the second quarter of fiscal 2018. The company’s sales rose 5.6% during the quarter ended July 1.

“Hershey snacking sales grew 0.3% for the 12 weeks ending July 15, driven by strong Amplify growth,” said Michele Gross Buck, president and chief executive officer, during a July 26 conference call to discuss quarterly results. “Skinny Pop, ready-to-eat popcorn, grew 8.3% during the same time frame, gaining 1.2 points of marketplace share.

“This growth was balanced across class of trade and driven by gains in both household penetration and purchase frequency. The category remains healthy with growth of approximately 4% year-to-date. We have good visibility into second half plans and expect both Skinny Pop and ready-to-eat popcorn category strength to sustain as we move throughout the year. Our expansion to participate in broader snacking will continue to be an important lever in our growth.”

Confectionery category growth was 0.6% in measured channels during the 12 weeks ended July 15 and was pressured, according to the company. Candy, mint and gum category sales were down 0.4% during the same period.

“…We expected softer first-half performance due to a shorter Easter and promotional and innovation timing,” Ms. Buck said. “While measured channels are a little soft, we are seeing growth in untracked channels, as consumers’ purchase patterns become increasingly fluid. Our core franchises grew 1.3% during this period, driven by Reese’s and Ice Breakers Gum. Reese’s growth accelerated driven by the limited roll-out of Reese’s Outrageous innovation and additional media supporting a new campaign.”

During the quarter, The Hershey Co. reported net income of $226,855,000, equal to $1.11 per share on the common stock and an increase compared to the same period of the previous year when the company earned $203,501,000, equal to 98c per share.

Sales rose to $1,751,615,000 during the second quarter from $1,662,991,000 during the second quarter of fiscal 2017.

Ms. Buck expressed optimism about the company’s full-year outlook but added management is focused on improving Hershey’s gross margin outlook.

“While our margin performance is not yet wher we wanted to be, we delivered second-quarter results in line with our April outlook, and our plans and full year estimate remain unchanged,” she said. “This operating environment requires an agile approach to portfolio strategy and pricing. We continued to take a proactive approach to optimize our portfolio and deliver increased profitability. Our s.k.u. (stock-keeping unit) rationalization efforts are a great example, and we are encouraged by early results.”

A week earlier management announced the company would be raising the prices of some of its products.

“This was a targeted approach, and it included a combination of list price increases, prize pack optimization and changes to customer terms,” Ms. Buck said. “In the past, you’ve seen us take infrequent large actions across the entire portfolio that were largely commodity-driven. Our new pricing approach is much more precise, both in terms of magnitude and breadth. It utilizes more levers and will be more dynamic. This go-forward approach is critical in a fast-changing environment and enables us to balance market opportunity with operational complexity.”

On a weighted average basis, the pricing action Hershey took was about 2.5% across the total business, according to the company.

Ms. Buck emphasized that future mergers and acquisitions remain an avenue of growth for Hershey.

“We see that as an opportunity to capture more snacking occasions given our strength and core capabilities in the area of snacking,” she said.

In response to a follow-up question from an analyst, Ms. Buck said Hershey’s M.&A. focus is in the United States.