A recent report by the research firm said Hershey’s sales trends have been weak since 2014, while the US chocolate giant has also slashed its revenue outlook four times in 2015.
In addition, Hershey’s net sales of $1.96bn at the end of the third quarter missed the Zacks Consensus Estimate of $1.97bn by 0.6%, according to the report. “Net sales were flat year over year including the impact of currency and acquisitions/divestitures,” the report said. “Sales remain weak in the international markets, mainly China, while the North American top-line performance was below management’s expectations due to soft US marketplace consumption trends.”
Reasons for the slash
“The macroeconomic environment has been difficult for most CPG companies since 2014. Some of the factors we’ve noted include increased competition from the broader snacking category, reduced consumer shopping trips and consumers concentrating on perimeter of the store,” Hershey’s media relations, Jeff Beckman, told ConfectioneryNews.
Before Hershey's fourth quarter 2014 earnings call, Beckman said the company’s guidance for 2015 was net sales growth of +5.5% to +7.5%. However, Hershey had to cut the revenue outlook due to lower than expected sales in China.
“Hershey’s China chocolate retail takeaway declined approximately 14% in the third quarter, resulting in a market share loss of 1.7%,” Zacks’ report said. “China chocolate category growth slowed down in the third quarter due to macroeconomic challenges and shift in consumer shopping behavior to more online purchases.”
The report suggested Hershey's Chinese candy business Golden Monkey has performed below par since Hershey’s acquisition last year.
CEO’s positive vision on China’s market
Given that 2016 is the zodiac year of the monkey, Hershey’s CEO John Bilbrey said during the company’s third quarter earnings call: “We’re cautiously optimistic that we’ll be able to leverage the core Golden Monkey products in the Chinese New Year period.”
As for the chocolate category in China, Bilbrey expects marketplace trends to slightly improve in the fourth quarter, but no longer expects the category to increase high single digits for the full year.
“As we entered the fourth quarter, Brookside advertising is on air, displays are being activated at retail, and a digital campaign on WeChat [Chinese counterpart of SnapChat] has been established, and we continue to build on our e-commerce momentum.”
Bilbrey said Hershey's remaining 2015 sales will be driven by the US. “We have strong innovation in Q4 that will carry over into 2016. We should also see slightly favorable comparisons in 2016 versus 2015 for our China business," he continued.