Hershey expects to cut 15% of global workforce

Candy maker looks to cut costs amid slowing sales growth
3/1/2017

Hershey says it expects to cut its global workforce by about 15%, with the reductions coming mostly from hourly employees outside the United States.

The Pennsylvania-based maker of Reese's, Kit Kat and Twizzlers also cut its long-term sales growth forecast to between 2% and 4%, down from the previous 3% to 5%. Hershey, which gets the majority of its revenue from North America, attributed the lowered expectations to "changes in U.S. shopping habits" and challenges overseas.

The job cuts, which could come to about 2,700 workers, are part of Hershey's plan to improve its operating profit margin over the next three years, and the company said it would share more details on the measures in the future. Other major packaged food makers including Coca-Cola, General Mills and Kellogg have been slashing costs as sales growth has slowed.

During a meeting with analysts in New York on Wednesday, Hershey CEO Michele Buck noted the chocolate and candy category was nevertheless well positioned because it is "highly impulsive" with "expandable consumption." And she noted the company planned to benefit from the snacking trend in the U.S. that has people eating more frequently throughout the day.

Already, Hershey has been trying to transform its portfolio of products to better take advantage of that behaviour, particularly as people look for snacks that promise some sort of nutritional benefit. For instance, the company recently introduced "snack mixes" that include its chocolates and ingredients like nuts and pretzel balls. It also acquired a meat jerky company in response to the demand for snacks with protein, and said it would look for other acquisition opportunities.

J.P. Morgan analyst Ken Goldman said he believed many of the job cuts announced by Hershey would come from Shanghai Golden Monkey, a Chinese candy company Hershey acquired in 2014. Hershey has reported declining chocolate sales at its China business in recent quarters, and Goldman called the acquisition "largely disappointing."

Hershey is expecting pretax charges of up to $425 million over the next three years as a result of its plan to improve the operating margin, which includes the costs of closing plants and offices and other expenses related to job cuts.

Hershey operates eight factories and eight distribution centres outside the United States. As of December, it employed approximately 16,300 full-time and 1,680 part-time employees worldwide. A 15% workforce reduction would therefore represent about 2,700 employees.

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