Hershey Co.'s CEO Michelle Buck's first day on the job March 1 included a meeting with analysts, at which she explained her vision for the company in the coming years. Buck announced initiatives designed to drive continued net sales, operating profit and earnings per share-diluted growth. The plan, called the "Margin for Growth" program, is expected to enable investments and generate about 22 to 23 percent adjusted operating profit margin by year end 2019. The company's full-year net sales are expected to increase 2 to 3 percent.
Confectionery and broader snacks growth, combined with the plan's implementation initiatives focus on improving global efficiency and effectiveness, and further help position the company to deliver on its financial objectives.
The plan also calls for streamlining Hershey's international segments, including cutting its global workforce by about 15 percent, and refocusing efforts on improving and expanding the company's core snack business. The planned job cuts, which could come to about 2,700 workers, are part of Hershey's plan to improve its operating profit margin over the next three years. The company said it will share more details on the measures in the future.
Other major packaged food makers including Coca-Cola Co., General Mills Inc. and Kellogg Co. have been cutting costs as sales growth has slowed. The Pennsylvania-based maker of Reese's, Kit Kat and Twizzlers lowered its long-term sales growth forecast to between 2 and 4 percent, down from the previous 3 to 5 percent. Hershey, which gets the majority of its revenue from North America, attributed the lowered expectations to "changes in U.S. shopping habits" and challenges overseas.
Hershey anticipates the program will result in total cumulative pre-tax charges of $375 million to $425 million, including one-time employee separation benefits of $80 million to $100 million. The portion of non-cash program costs, included in the aforementioned total, are expected to be between $200 million to $225 million. Cash savings are expected to reach an annual run-rate of between $150 million to $175 million by year end 2019.
"Hershey has tremendous assets – its iconic brands, remarkable people and a history of executional excellence – that position the company well to deliver top- and bottom-line growth," noted Buck. "We're making progress against the 'Margin for Growth' related initiatives that should give us the flexibility to invest in certain parts of our business. Our objective is to ensure that we always have the right level of innovation, marketing plans and consumer and customer expertise to drive net sales growth, especially in our North America confectionery and snacks business. In addition, we're working to return our international businesses to profitability as soon as possible."
Buck pointed out that the chocolate and candy category are well positioned because they are "highly impulsive" with "expandable consumption." And she said the company plans to benefit from the snacking trend in the U.S. that has people eating more frequently throughout the day.
Hershey has been trying to reinvent its lineup of products to maximize snacking behavior, mainly as people look for snacks that promise some nutritional benefits. The company has recently introduced "snack mixes" that team its chocolates with ingredients like nuts and pretzel balls. It also broadened its portfolio by acquiring a meat jerky business as demand for snacks with protein increased, and said it will look for other acquisition opportunities.
Hershey Co. operates eight factories and eight distribution centers outside the U.S. As of December, it employed roughly 16,300 full-time and 1,680 part-time employees worldwide.