Hershey: Updates Financial Outlook for 2015

Hershey / PA. (thc) The Hershey Company, a global leader in confection, announced that it has updated its financial outlook for 2015. The company´s North America confectionery business is on track to deliver on its 2015 financial objectives, driven by solid gross margin expansion, and continues to gain market share. New product and Halloween orders are solid and the company expects this segment to build on its momentum in the second half of the year.

In China, Hershey chocolate growth was below expectations in April and May. As a result, the company has tempered its expectations for organic net sales and operating income growth. Macroeconomic challenges and trends are affecting consumer shopping behaviour resulting in continued softness within the China modern trade, particularly the tier one hypermarkets where the company generates the majority of its chocolate sales. Additionally, increased chocolate category competitive activity and the accelerated momentum of e-commerce and online purchases are impacting results and prolonging trade inventory de-stocking. Over the remainder of the year and in 2016, the company´s efforts related to its chocolate business in China will focus on: distribution gains in smaller format stores, core SKUs and brands that deliver the highest return, and determination of the optimal organization structure to drive future growth.

The company is moderating its full-year net sales expectation for the Shanghai Golden Monkey (SGM) acquisition. Recent market visits with valuable sales and distribution networks have indicated that the slowdown in the economy is affecting many consumers, resulting in lower than expected retail velocities. Additionally, distributor trade inventory is at greater than optimal levels. The company also is working with representatives of Shanghai Golden Monkey Food Joint Stock Company Limited, to reassess the value of the business, including the 20 percent of outstanding shares that Hershey is scheduled to acquire on the one-year anniversary of the initial close as well as other assets acquired in connection with the acquisition.

The company estimates full-year 2015 net sales will increase around 2.5 percent to 3.5 percent, including a net benefit from acquisitions and divestitures of about 1.5 percentage points and unfavourable foreign currency exchange of approximately 1.5 percentage points. Excluding unfavorable foreign currency exchange rates, full-year net sales are expected to increase about 4.0 percent to 5.0 percent. This is less than the previous estimate of 6.0 percent to 7.0 percent, primarily due to lower than expected confectionery category growth within the China modern and traditional trades that has impacted the company´s chocolate and SGM businesses. For the full year, the company expects gross margin expansion of 135 to 145 basis points as solid North America gains, driven by price realization, are partially offset by the impact of increased direct trade related to the China trade inventory de-stocking. As a result, full-year reported earnings per share-diluted, including charges related to the productivity program of 0.29 USD to 0.35 USD per share-diluted, is expected to be in the 3.62 USD to 3.79 USD range. In 2015, the company expects to achieve approximately 15 percent to 20 percent of the aforementioned productivity program total pre-tax savings of 65 million USD to 75 million USD. The company expects adjusted earnings per share-diluted to be in the 4.10 USD to 4.18 USD range, an increase of three percent to five percent versus 2014, including dilution from acquisitions and divestitures of around 0.20 USD per share.