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Hershey may kiss older international plants goodbye with roughly 2,700 job cuts

By Oliver Nieburg+

03-Mar-2017
Last updated on 03-Mar-2017 at 13:43 GMT2017-03-03T13:43:21Z

Hershey's 'Margin for Growth' program aims to improve profit margins by 2019. ©iStock/gsheldon
Hershey's 'Margin for Growth' program aims to improve profit margins by 2019. ©iStock/gsheldon

Hershey plans to reduce its global workforce by 15%, mainly outside of the US, under a new supply chain efficiency program.

The company launched its "Margin for Growth" program at Wednesday’s investor conference in New York.

It hopes the program will help it achieve an adjusted operating profit margin of about 22% to 23% by the end of 2019.

Its operating profit margin for 2016 was 16.2%.

Hershey expects its Margin for Growth program will cost $375m to $425m before tax, including $80m to $100m towards staff cuts.

The company will axe around 2,700 jobs “primarily by its hourly headcount outside of the United States”.

Older and newer plants overseas

Hershey has eight manufacturing facilities and eight distribution centers in its ‘International and Other‘ segment, which produce about 12% of total sales. This includes some older and newer facilities, and a joint venture plant with Lotte in China.

Some of Hershey’s International plants
  • Brazil – JV plant in São Roque and commercial office in São Paulo.
  • China – Shanghai plant in JV with Lotte.
  • India – Factory in Madhya Pradesh.
  • UAE – Co-manufacturing plant in Dubai.
  • Malaysia – Johor factory opened in 2015.

Particia Little, CFO of Hershey, said during a webcast: “Given the outlook for some of these markets and the role in our portfolio, we see leveraging our modernised facilities and improving capacity utilization in this segment as our primary opportunity to increase adjusted gross margin and an important part of moving this segment to sustainable profitability.”

Hershey opened a $250m (RM 816 million) factory in Johor, Malaysia , in 2015 that it said at the time gave it a route to 25 markets in Asia.

Hershey previously set a target to grow international sales outside the US to 20% of revenues by 2017. International sales accounted for 14% of group revenues in 2016 after the company reported a slowdown in China. International sales accounted for around 16% of Hershey business in 2012.

North American network

Hershey was upbeat about its 11 manufacturing facilities and five distribution centers in North America.

“We feel very good about our North America manufacturing and distribution foot print and capabilities,” said Little.  

“The majority of production here, nearly 85%, is manufactured at seven very large and efficient facilities – four are in Pennsylvania and one each in Virginia, Tennessee and Illinois.

“There are also four other facilities that support specific brand or pack type needs,” she said.

Growth targets

The company now anticipates annual constant currency net sales growth of 2% to 4%, driven mainly by its North America business.

“This update, versus the previous outlook, reflects changes in US shopping habits and continued macroeconomic challenges impacting growth in international markets,” it said in a release.

The company expects full-year 2017 net sales growth of about 2% to 3%.

Hershey said it would continue to invest in its core confectionery business, but said it would “expand its breadth across the snackwheel” by exploring new categories.

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