Hershey results disappoint as demand hurt by China

China one of biggest markets of American chocolate company

PUBLISHED : Saturday, 04 February, 2017, 1:33am
UPDATED : Saturday, 04 February, 2017, 4:17am

Hershey, the maker of Hershey’s Kisses and Reese’s Peanut Butter Cups, posted quarterly sales below Wall Street estimates, hurt by a drop in demand in China, one of its biggest markets.

The Pennsylvania-based company’s shares fell as much as 3.8 per cent to US$101.61 in morning trading on Friday, but pared some losses to trade marginally up later in the session.

China sales fell 16.6 per cent, in the fourth quarter ended December 31, hurt by macroeconomic conditions in the country, Hershey said.

The company has struggled to increase its business in the world’s most populous country since an acquisition of local chocolatier Shanghai Golden Monkey in 2014 went awry.

Hershey took a big write down for the acquisition and its sales in the Chinese market have decreased for several quarters. Shopping for chocolate in China has largely moved online, hurting Hershey’s investments in brick-and-mortar outlets such as supermarkets and hypermarkets, Berenberg analyst Fintan Ryan told Reuters.

Another issue the company is facing is that it is yet to pick-up the traditional tastes of the Chinese consumers in its products, Ryan added.

“You can’t sell the same product that you do in North America or Europe. Chinese consumers are getting sophisticated. They want their own tastes, own variance ... which you don’t see here (United States).”

Still, Hershey issued an upbeat outlook for the full-year. The company said it expects adjusted earnings per share of US$4.72-US$4.81, ahead of analysts’ average estimate of US$4.64, according to Thomson Reuters I/B/E/S.

The candy maker also announced plans for a new cost-saving programme called “Margin for Growth,” through which it aims to boost operating margins in 2018 and 2019 by reducing administrative costs and improving its supply chain.

Hershey forecast a 2-3 per cent increase in sales in 2017, which translates to US$7.59 billion-US$7.67 billion, in line with analysts’ average estimate of US$7.63 billion.

North America sales, which account for about 85 per cent of total sales, rose 3.8 per cent to US$1.69 billion in the quarter. Excluding certain items, Hershey earned US$1.17 per share, handily beating analysts’ average estimate of US$1.08. Net sales rose 3.2 per cent to US$1.97 billion. Analysts on average had expected US$1.99 billion.