Hershey sees declines in North America and China in Q4

The Reese's maker's Q4 net sales declined 1.6% compared to the same period last year to $1.9bn.

Betting on China for international segment growth

While Hershey saw North America net sales decline 0.9% to $1.67bn in Q4, its international segment experienced a dive of 5.4% to $265m mainly caused by declining net sales in China.

“I continue to be pleased with our performance in Mexico, Brazil and India as combined Q4 and full year constant currency net sales growth in these markets increased 11% in both periods,”​ CEO Michele Buck said.

However, volume declines related to SKU optimization and Hershey’s focus on pack types that meet marketplace velocity thresholds made China Q4 net sales decline about 30%, Buck said.

But it is not all bad news from China, she pointed out.

“The SKUs that we're driving within our four focused core provinces slightly grew full year market share. Importantly, preliminary results indicate that China chocolate category sales in brick-and-mortar will be up low-single digits on a percentage basis versus last year, while e-commerce is expected to grow to around 15%,”​ said Buck.

Amplify Snack Brands

The US chocolate giant said it had finalized its $1.6bn acquisition​​ of Amplify Snack Brands, first announced last December.

Buck said it was “a step”​ for Hershey to become a “snacking powerhouse”​ in future.

“After the last several years of evaluating snack assets, I believe Amplify's scale, brand product proposition, marketplace performance and margin structure give us a strong foundation, off of which to further build,”​ Buck said during the latest earnings conference.

“Our goal is to capture more consumer-snacking occasions with a broader portfolio of brands,”​ she added.

“Amplify will continue to be based out of its current offices and operate as a standalone business as we look to maintain and leverage the entrepreneur mindset embedded in the culture, as well as the benefits of scale and synergies for certain functions that Hershey brings to the table,”​ Buck said. “We'll also share knowledge and insights between Amplify and our emerging brands group.”​

In 2018, the acquisition of Amplify is expected to add a five-point benefit to Hershey’s organic net sales, according to the company.

Core chocolate brands driving growth

Hershey’s core chocolate brands including Reese’s, KitKat and Kisses, continued to drive growth, as the combined retail takeaway on these brands in Q4 and increased about 2% and 5% for the full year respectively, said Buck.

The retail takeaway of combined CMG (candy, mint and gum) and snacks increased 1% and 1.6% during Q4 and full-year 2017 respectively, Buck pointed out. While the CMG category alone grew 1.7% in net sales during Q4.

“Within the combined chocolate and non-chocolate candy segments where we derive the majority of our U.S. sales, full year category growth was plus 2.5%,”​ she added.

Buck mentioned Hershey’s transition from lay-down bags to standup pouches on its core chocolate candy product was progressing, and the company is also implementing “program tie-ins”​ between Hershey’s Gold and the Winter Olympics.

Hershey forecasts its 2018 organic net sales will increase by 2% versus last year.