Quarterly Earnings

Hershey posts Q1 growth driven by Reese’s, KitKat, Kisses and other key brands

By Douglas Yu contact

- Last updated on GMT

Hershey’s core power brands, Reese’s, Hershey’s, KitKat, Kisses and Ice Breakers contributed retail sales of $5bn in 2016.  Photo: Hershey
Hershey’s core power brands, Reese’s, Hershey’s, KitKat, Kisses and Ice Breakers contributed retail sales of $5bn in 2016. Photo: Hershey
Hershey has reported total net sales of $1.88bn in Q1, 2017, growing by 2.8% compared to last year.

The company’s CEO Michele Buck mentioned that Hershey’s US retail takeaway for the 12 weeks ending April 8, 2017, in the cross-outlet markets with c-store channels declining 7.9%.

However, preliminary analysis of Easter data indicates that Hershey had a good season with sell-through in line with estimates, as the holiday season came much later compared to last year.

Buck said that puts the company in a position to gain shares in the US Easter candy​ category.

“We believe this will result in total Hershey US candy, mint, and gum, or CMG, April year-to-date retail takeaway of about 2.5%,”​ she said.

In Q1, Hershey gained market share both with and without the Easter seasonal activity, Buck added.

“In total, including the headwind from the year-ago seasonal activity, Hershey US CMG market share increased plus 0.4 points.”

Power brands drive growth

Hershey’s core power brands, Reese’s, Hershey’s, KitKat, Kisses and Ice Breakers had 2016 retail sales of $5bn and continue to perform well, the company reported.

Combined non-seasonal retail takeaway on these brands increased 5.6% in Q1, Buck said.

“Our Reese’s NCAA basketball program and the launch of Hershey’s Cookie Layer Crunch (CLC) helped drive results,”​ she said.

In addition, with the launch of Reese’s and Hershey’s Cookies ‘n’ Crème Crunchers, the company is also looking to expand its power brands to capture broader snacking occasions, Buck added.

“Our research continues to show that snacking occasions have increased throughout the day,”​ she said.

Retail growth for indulgent items

HSY Q1
Source: Hershey

During the quarterly earnings conference call, JPMorgan analyst Ken Goldman asked how Hershey deals with the risks associated with some retailers, such as CVS, moving candy away from their checkouts. Buck said Hershey services a broad range of retail customers, and they all have different strategies.

“As some of our customer partners are making certain decisions on portfolio regarding store layout or front end, we have other partners who are actually looking to add incremental space behind confection, who are looking to take some other non-durable goods off the front end and put increased consumables and edibles,”​ she said.

Buck added that Hershey is seeing growth in both indulgent and better-for-you categories, and the company’s retail partners are looking to leverage that growth.

International markets

Buck added that she was pleased with Hershey’s performance in Mexico, Brazil, and India, where constant currency first quarter net sales increased a combined 15%.

“In Mexico, our chocolate retail takeaway increased solid double digits, although slightly less than the category growth of about 15%,”​ she said.

“In Brazil, while preliminary, we estimate that the chocolate category increased 7% to 8%. Our retail takeaway in Brazil was about two-and-a-half times the category growth rate, fueled by distribution gains on core brands and the continued rollout of the Hershey’s special milk and Hershey’s special dark bars.”

“As a result, in Q1, our market share in Brazil increased 0.6 points to about 4.5%,” ​Buck added.

Additionally, constant currency net sales in India increased about 16% driven by Hershey’s investment in its branded syrup, spreads, milk booster as well as Brookside​.

“The launch of Brookside, primarily in the modern trade, is progressing and on plan,”​ Buck said. “While small, this launch gives us exposure to a segment with above-average gross margin for the India business.”

However, Hershey’s chocolate business in China underperformed the market during the period, with market share off one point, the company said.

“As we right-size our business and portfolio over the next year or two, we’re looking to prioritize cities, classes of trade, brands, and innovation to satisfy the needs of this dynamic market,”​ Buck said.

“We’re working closely with our local team, including our e-commerce group, which continues to show promise.”

Hershey said it will begin to implement the Margin for Growth Program at the end of Q2 in China. The program will focus on improving global efficiency and effectiveness, optimizing the company’s supply chain and streamlining the operating model.

Business outlook

Hershey estimates net sales growth around the low end of 2% to 3% range for full year 2017, including a net benefit from acquisitions of about 0.5 points. 

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