Net sales increased 2.6% to $2.1m, with net income up nearly a quarter to $325m compared to this time last year. In North America, sales neared $1.9m, up 2.7% from 2018 – led by a 6% takeaway bump in SkinnyPop and 2% jump in candy, mint and gum.
Internationally, sales increased nearly 2%, led by high single-digit growth in Mexico and China. India has also grown through the launch of Hershey Kisses. In Brazil, the company has faced international competition and a ‘difficult macroeconomic environment.’
“We are feeling good and performing well,” said CEO Michele Buck of the company’s international performance. “In most of those markets we are gaining share.”
As a result, Hershey raised its full-year outlook to 2.5%, from the previous guidance of 2%.
“The power of our core brands, breadth of our product lineup, and incremental capacity are enabling us to deliver great assortments and innovative packaging for our consumers,” said Buck in a conference call with investors. Halloween sales are strong, she added, referencing a partnership with the Addams Family movie, as are ecommerce – which enjoyed a whopping 50% bump in net sales growth.
Hershey’s price increases not unique in US candy
GlobalData analyst Richard Parker told ConfectioneryNews that Hershey’s positive performance this quarter mirrors that of other US confectioners – many of whom increased prices over the summer.
“In the near-term, this is likely to put Hershey in a good position in Q4 too, but is not heralding a resurgence in chocolate demand as such,” he said, noting suppressed volume as retailers adjust to what will amount to a 10% wholesaler price spike.
Indeed, Hershey first bumped up prices in 2018, followed by another increase in July with another on the way. Buck confirmed in a conference call with investors that the trend would continue in 2020 at an average rate of about 2%.
Some retailers have been taking higher margins in anticipation of the next price increase, she acknowledged, leading a slight decrease in volume; that conversion timeframe is ‘typical.’
CFO Steve Voskuil, who took the helm in April, expects volume and price to ‘tighen up’ in the fourth quarter and into the first quarter of 2020.
ONE, Fulfil propel Hershey into serious snack territory
In addition to increasing consumer marketing spend by more than 10%, the Pennsylvania-based company shelled out nearly $400m for ONE and staked a minority stake in Fulfil, an Irish bar brand. It also bought into Blue Stripe, an experiential cacao retailer and restaurant.
GlobalData’s Parker said the ONE acquisition in particular solidifies Hershey’s foothold in the snack market – “crucial at a time when consumers’ attitudes are swinging towards the health and wellness credentials of such types of snack bar as an alternative to classic confectionery items, such as the chocolate bars that the Hershey brand is built on.”
He added that Hershey is one to watch for further acquisitions in the snack bar sphere, “where health claims and functional benefits are more credible and give consumers what they are looking for on-the-go, as meal replacements, healthy alternatives, etc.”
Meanwhile, Hershey’s previous snack investments are playing out in different ways. SkinnyPop is beating other RTE popcorn brands at retail but Pirates Booty is struggling. Buck admitted that performance in the latter was lacking, but expressed confidence “in the strength of the brand and our visibility into recapturing lost distribution as planograms reset.”
On positives, she called out media targeting, digital commerce, new business models and supply chain improvements as key to recent success: “These capabilities – in addition to our investment in innovation, advertising, seasons and distribution – are driving balanced sustainable growth in the marketplace.”
Reese's and KitKat lead 2020 push
The fourth quarter will include the prime of Halloween sales, while the company gears up for its winter holiday programming – led by this year’s ‘hero innovation,’ Reese’s Mystery Shapes.’
The first new holiday shape in 20 years for the $2bn brand marries “the anticipation and surprise of the holidays with the perfect ratio of peanut butter and chocolate that our consumers crave during the season,” said Buck. Reese’s Thins continue to perform well, and the late-summer launch of Reese’s Take 5 has paid off with 50% growth so far.
Hershey will also launch the much-teased KitKat Duos in December, first in a dark chocolate and mint combo, accompanied by targeted merchandising, digital media and advertising. Buck added that KitKat will “certainly be a brand…with a lot of focus next year.”
Price increases aside, Hershey will continue to seek a balance between everyday core brands and smaller players such as Rolo or Heath. Those brands are ‘very stable,’ said Buck, but “with a slight amount of increase in advertising we can drive a little bit of growth.”