US confectioner Hershey has said it could reach its target of generating US$1bn of sales outside its domestic market earlier than planned.
The Reese’s Pieces manufacturer had said it would generate $1bn in sales outside the US but said yesterday (27 October) it would achieve that goal sooner than expected following a strong third-quarter performance.
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President and CEO John Bilbrey made the revised forecast following the announcement of a 20% jump in the company’s overseas sales in its third quarter.
A monolith in the US confectionery market, Hershey lags far behind competitors Kraft and Mars Inc internationally.
“In our focus markets of Mexico, China, Brazil and India, we are ahead of plan and are forecasted to grow a combined 20% to 25%”, Bilbrey said.
“Therefore, if our business outside the US and Canada continues to grow with the current organic rates, we could achieve our target of $1bn in sales earlier than our 2015 objective.”
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By GlobalDataHumberto Alfonso, senior vice president and CFO, said Hershey’s international sales are expected to continue to grow at the same momentum for the remainder of the year.
“The investments we’ve made in these markets are enabling our brands to gain momentum in the marketplace. We’ll continue to make disciplined investments to drive brand awareness and trial that will position the company for future growth,” he said. “As a result, organic net sales in our businesses outside of the US and Canada are on track to increase at least 20% in 2011.”
Hershey enjoyed consolidated net sales for the third quarter of US$1.6bn, up from $1.5bn a year ago. Meanwhile, reported net income for the three months was $196.6m, a $16m rise on $180.1m last year.
However, Bilbrey acknowledges that commodity cost is set to remain a problem, especially prices of key ingredients like sugar and cocoa, which are at “levels greater than their two-year average”.
Analysts have warned that US sugar stockpiles are at their lowest levels for 37 years because of spoilt crops. Floods in major sugar producer Thailand are also forecast to keep prices high.
He added: “We do expect meaningful commodity cost inflation to continue from this year into next year….but we also believe that we have good progress in place to help mitigate those.”
The company is anticipating its net sales will grow by around 7% in 2011, greater than the previous estimate of 6%. Hershey has also predicted adjusted earnings per share-diluted will rise by around 10%.
For 2012, however, Hershey has forecast a 3-5% sales increase and a 6-8% rise3 in earnings.
Despite the challenges from high raw material prices, Andrew Lazar, an analyst at Barclays Capital, said Hershey’s forecasts for growth in 2012 is conservative, citing “strong top-line momentum, impressive category growth, and greater than expected reinvestment in the business”.
“Further, looking out to 2012, with more pricing expected to flow through and volumes (thus far) largely holding up, we believe bulls will likely view management’s guidance for next year as being conservative.”
To see the full transcript of the conference call, please go to the Seeking Alpha website.
