Hershey Combats Sluggish Sales With Cost-Saving Initiatives
Zacks Investment Research | Dec 26, 2017 09:44PM ET
The Hershey Company’s (NYSE:HSY) cost-cutting initiatives and productivity investments serve as effective hedges to a weak top-line performance. The company has been witnessing sluggish sales growth owing to changing consumer shopping habits, intense competition from the broader snacking environment in the United States and soft international sales. In 2016, sales increased a meager 0.7%, while the first nine months of 2017 saw a rise of only 1.9%.
Therefore the company resorts to various cost-saving initiatives to drive growth. Under its continuous improvement and productivity program, management has optimized its North American manufacturing footprint, added manufacturing capabilities in international markets, increased supply chain productivity and improved the sales mix significantly.
The company’s new cost-saving program, Margin for Growth, bodes well. As part of the multi-year program, Hershey plans to reduce its global workforce outside the United States by 15%. It will also improve the overall operating margin through supply chain optimization, a streamlined operating model and reduced administrative expenses, with savings likely to be registered in 2018 and 2019.
For 2017, Hershey’s expects $25 million in savings from the Margin for Growth program. Also, this program will likely generate cash savings at an annual run-rate of $150 million to $175 million and enable Hershey to achieve adjusted operating profit margin target of about 22-23% by the end of 2019.
Productivity improvement and cost-saving initiatives have helped the stock gain 11.2% so far this year compared with the Original post
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