Hershey to retrench its international business, warns of low sales growth

Hershey Co. will drastically cut staff and streamline its money-losing overseas businesses to refocus on the highly profitable U.S. market, new CEO Michele Buck told Wall Street analysts Wednesday.

Buck and chief financial officer Patricia Little also warned that 2017 got off to a slow start in sales, and that they expected revenue growth over the next two years would be weak or at the low range of projections of 2 percent to 4 percent.

The Pennsylvania-based chocolate giant will eliminate about 15 percent of its workforce, or about 2,700 employees, over the next several years, using the $175 million in cost savings to boost operating margins in its legacy brands and to look to expand beyond confections in the $100 billion U.S. snack market, Buck said.

"Our vision is to be an innovative snacking powerhouse," said Buck, who started as CEO on Wednesday. The first order of business, she said, will be to "reignite" Hershey's core brands and then diversify.

The company launched Hershey Cookie Layer Crunch — which includes cookie bits and caramel — in late 2016 and has said it expects to offer new "crunchy" and "snack mix" variations of the Hershey and Reese's brands.

But Hershey will face fierce competitors such as Mondelez International, Pepsico, and Mars once it steps outside the chocolate and candy sectors, and it doesn't have a track record of diversifying into new categories. At the same time, Hershey Co. is dealing with shifting consumer and shopping trends.

Americans are eating healthier snacks and they are shopping more online, which makes them less likely to make an impulsive chocolate purchase in the checkout line. Buck said that Hershey is not looking at significantly reducing the sugar in its products, but that it is developing new store displays and packaging, such as stand-up bags, to make its products more exciting for consumers.

Brittany Weissman, a consumer analyst with Edward Jones in St. Louis, said it's a "challenging environment" as consumers have "fragmented in their shopping choices." Many are spending more time in the fresh produce and dairy areas and purchasing more protein.

Hershey's 2 percent to 4 percent sales-growth target seems realistic, Weissman said, adding that she was surprised at the emphasis the company put on expanding outside confection products.

Hershey has not said where it would cut employees but noted they will mostly come from the money-losing overseas business.

Buck's presentation in New York, which stretched more than two hours and was webcast, was being closely watched in the confections and food industries, as some view Hershey as a potential takeover target. Hershey rejected a $23 billion takeover offer from Mondelez last summer.

Hershey Co. is controlled by the $12 billion Hershey Trust and is the largest single source of cash through stock dividends to operate the scandal-plagued Milton Hershey School for impoverished children. Profits from the chocolate and candy businesses fund those dividends.

Shares rose $1.05, or 0.97 percent, to close Wednesday at $109.40.

Retreating from its overseas business is a strategic course correction for a company that over decades has failed to globalize its candy business. Hershey had said it would grow aggressively in China, India, Brazil, and Mexico, but it  has found the going harder than it thought. 

"I believe it is a place we need to be, but I think that the pacing will be different than what we thought a few years ago," Buck said of Hershey's international businesses. In China, she added, "we have certainly learned a lot through our trials and tribulations."