Hershey, the Pennsylvania-based candy company known for brands like Reese’s and KitKat, has recently faced challenges due to a decline in consumer spending and sticky inflation. This has resulted in a significant drop in sales, leading the company to slash its yearly profit and sales guidance.
In the second quarter, Hershey reported a 17% decrease in sales, causing shares to initially plummet 4.5%. However, they quickly rebounded and rose by 5%. Despite the economic slowdown, Hershey had previously managed to maintain and even grow its market share. Unfortunately, this trend seems to have changed, and demand for their products has taken a downturn.
Hershey’s CEO, Michele Buck, acknowledged the challenging operating environment, stating that consumers are pulling back on discretionary spending. This has impacted the company’s performance, with net sales falling to $2.07 billion, below analysts’ expectations. The North America segment, which accounts for 80% of Hershey’s revenue, experienced a significant decline in net sales, dropping from $1.99 billion to $1.58 billion.
Adjusted earnings per share also saw a decline of 36.8% compared to the same period last year, falling to $1.27 per share. This is below analysts’ estimates of $1.43 per share. Additionally, organic volume plunged by 18%, and gross margin decreased from 45.5% to 40.2% year-on-year.
As a result of these challenges, Hershey has revised its full-year sales and earnings guidance. The company now expects sales growth of 2%, compared to the previous guidance of 2% to 3%. Adjusted earnings per share are also expected to decline slightly, contrary to the initial expectation of no change.
Despite the overall decline in sales, Hershey has seen growth in its salty snacks segment. The company’s salty snack collection, which includes brands like Dot’s Homestyle Pretzels, Pirate’s Booty, and SkinnyPop, experienced net sales of $289.9 million, a 6.4% increase from the previous year. This growth can be attributed to volume growth, which has positively impacted the segment’s income, increasing by 19.2% to $52.2 million.
On the other hand, Hershey’s dominant North America Confectionery segment saw a 20.7% decrease in net sales compared to the same period last year. The segment’s income also declined by 29.3%, amounting to $464.5 million.
Overall, Hershey’s recent struggles can be attributed to a consumer pullback on spending and the challenges posed by sticky inflation. While their candy and chocolate sales have suffered, the company has found success in the salty snacks segment. Despite the uncertainties and fluctuations in the market, Hershey remains optimistic about the growth potential in the confection category and the momentum building in their salty snacks portfolio.
