Reese’s innovation gives Hershey Q3 sales uplift

Hershey launched Reese's Pieces Cups in mid-July. Photo: Hershey

Hershey has posted a 2% rise in third quarter sales, driven by innovations in North America, such as Reese’s Pieces Cups, Big Kat and birthday-themed Kisses.

However, it continues to face challenges in China.

The company’s third quarter consolidated net sales grew 2.2% to $2bn. Reported net income climbed 47% to $227.4m.

This took consolidated net sales to $5.47bn for the first nine months of 2016, 0.1% down on the same period last year.

North America: Brand extensions drive growth

North America sales – which account for around 88% of company revenues – were up 1.8% to $1.76bn in Q3. Segment income for the region rose 3.3% to $563.9m, driven by a lower marketing spend.

Hershey said its joint candy, mint and gum (CMG) market share was unchanged in Q3 year-on-year at 31%.

Company CEO J.P. Bilbrey said Hershey had benefited from Olympics marketing and the launch of Reese’s Pieces Cups.

The Reese’s brand grew 8% in Q3 supported by the brand extension and a marketing tie-up with NCAA basketball.

The company also enjoyed increased KitKat sales, accelerated by new launch Big Kat. Hershey produces and sells KitKat in the US under license from Nestlé.

Hershey’s Kisses also contributed to growth led by new birthday-themed packaging.

But Bilbrey said Hershey’s chocolate brand performance “isn’t where we really want it to be.”

“We believe the launch and related support of Hershey’s Cookie Layer Crunch will reenergize and make the brand fresh,” he said during an earnings call on Friday.

Challenging China

Hershey posted a 5.3% rise in Q3 net sales for its ‘International and Other’ segment to $238.9m, while segment income for this region was $4.3m compared to a loss of $13.5m in Q3 2015.

The company reported strong growth in Brazil and Mexico, but saw gross sales declines in China. Hershey said China chocolate category retail sales fell 4% in Q3.

“In China, the modern trade hypermarket environment continues to be challenging across many categories,” said Bilbrey.

India net sales also declined in Q3 versus the prior year.

Bilbrey said Hershey would assess its investment in challenging international markets given the uncertain outlook.

However, Hershey remained strong in China’s e-commerce segment, where it holds a 10% market share. It hopes to build on the burgeoning channel over Singles Day in November.

Cookie Layer Crunch and full-year outlook

Hershey has forecast full-year net revenue growth of 1%. This was in line with its full-year forecast in Q2, but represents a downgrade from its 1.5% growth forecast made when announcing its Q1 results in April.

The company hopes recent launch ‘Hershey's Cookie Layer Crunch bar’ will contribute to growth in Q4 after its December rollout in the US.

The launch comes as competitor Mondelēz International announced in September it would roll out Milka Oreo across the US shortly after its $23bn bid to acquire Hershey failed.

Hershey expects China gross sales to decline in 2016, but anticipates a rise in net sales in the country.

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