Capacity Constraints Limit Hershey’s Growth in Quarter | 2021-10-29

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HERSHEY, PA – The Hershey Co. is adding capacity to multiple brands to keep pace with strong consumer demand. The company seeks to alleviate the constraints that limited its performance in the third quarter of fiscal 2021.

The Hershey’s Reese brand, for example, has been affected by capacity issues. Third-quarter retail sales rose 10%, building on the 25% growth in the third quarter of last year, according to the company.

“We have added three new manufacturing lines over the past four years as well as increased peanut roasting capacity, but it still hasn’t been enough to keep pace with this significant increase in demand,” said Michele G. Buck, President, President and Chief Executive Officer. senior executive, on an Oct. 28 conference call to discuss third quarter results. “New Reese’s capacity is on track to bring online throughout 2022 and 2023 to help support this tremendous growth. “

Strong consumer demand led to a good quarter for The Hershey Co. Net income for the period ended Oct. 3 was $ 445 million, or $ 2.22 per share on common stock, down slightly from compared to the same period a year earlier when profits were $ 447 million, or $ 2.21 per share.

Sales for the quarter were $ 2.36 billion, up from $ 2.22 billion the year before.

“Consumer demand for our brands has remained strong on a one-year and two-year basis,” Ms. Buck said. “Our constant concern to operate with speed and flexibility has enabled us to react quickly to changes in the market and to develop plans that we believe will allow us to maintain high consumer demand, increase production in our line. supply and maintain our advantageous margin structure over the long term. term.”

Hershey’s North American business unit sales increased 5.5% in the quarter to $ 2.21 billion. The increase in demand had an impact on inventories.

“Consumer demand was even stronger in the third quarter, with measured channel retail sales growth of almost 9% and unmeasured channel growth of over 10%,” said Ms. Buck. “Year-over-year changes in inventory levels compared to the prior year period resulted in an approximately 6 percentage point barrier to sales growth this quarter.

“While we expected inventories to contract in the third quarter, the contraction was larger than expected as capacity constraints, labor shortages and unprecedented levels of disruption in the network of the broader supply chain have limited our ability to increase production based on this significant increase in consumption. demand.”

To compensate for headwinds, the company is increasing its capacity and increasing its workforce not only to increase production, but also to provide employees with more flexible hours and holidays.

“Our board of directors approved additional capital of $ 200 million in August to add more capacity on stressed brands, particularly Reese’s,” Ms. Buck said. “Our supply chain and sales teams have partnered to optimize and further prioritize our SKUs to reduce complexity and maximize production while ensuring that we continue to support strategic initiatives for our long-term growth aspirations. term.

“We have leveraged our marketing investment to alleviate the pressure on our limited capacity brands, and last month we achieved a high single-digit price increase on approximately 60% of our apparel products in the United States. “

After the third quarter, Hershey’s management raised its annual guidance for sales and earnings per share. Sales are now expected to be between 8-9%, down from 6-8% previously. Earnings per share are now expected to be in a range of $ 6.88 to $ 7.04, an increase of 13% to 15% from $ 6.11 for fiscal 2020.

Looking ahead to fiscal 2022, Steven E. Voskuil, chief financial officer, said he expects price to be the main contributor to overall growth in 2022, supported by pricing measures taken this year.

“Supply chain costs, especially logistics, labor and packaging, are expected to remain high, at least during the first half of the year, while commodity inflation is expected to remain high. be higher compared to 2021 because we had minimal impact this year, “he said.


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