Hershey to Cut Costs by $300M Due to Disappointing Forecast

Hershey has outlined a new two-year restructuring program that would generate about $300 million in pre-tax savings after projecting annual sales and profit below Wall Street expectations.

The company is implementing efforts to increase agility, enhance automation, and support a more efficient operating model to deliver its long-term business and financial goals. The initiatives are expected to generate ongoing supply chain, manufacturing, and operating expense savings, net of reinvestment, of $300 million by 2026, of which $100 million is expected to be realized in 2024.

The candy manufacturer's announcement helped shares reverse course to rise about 6% in early trading. The restructuring will impact less than 5% of the company's workforce and will result in up to $60 million in severance expenses.

Fourth-quarter net sales of $2.66 billion missed estimates of $2.71 billion. Organic sales volumes fell 6.6% as inflation-weary consumers cut back spending on the company's chocolates and candies.

As far as the retail segments, Hershey’s North America Salty Snacks segment net sales were $205.2 million in the fourth quarter of 2023, a decrease of 24.6% versus the same period last year. Other main segments — North American Confectionery and International — both grew 2.1% and 12.7% respectively.

Per Reuters, Hershey said 2024 net sales are expected to increase between 2% and 3% year-on-year, compared with analysts' estimates of growth of 3.4%, as per LSEG data. Analysts were expecting adjusted earnings growth of 3.3% to $9.82 per share.

“We continue to operate in a dynamic environment, but we are encouraged by the resilience of seasonal traditions and the consumer response to innovation within our categories,” stated Michele Buck, Hershey president and chief executive officer.

She added that cocoa prices are expected to limit earnings growth this year, but that the company's strong marketing plans, innovation, and brand investments will drive growth and meet consumers’ evolving needs.