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COMPANY PROFILE

The Hershey Co

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PUBLICATION DATE: 26 Jul 2018
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The Hershey Co
TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview ........................................................................................................3

Key Facts ......................................................................................................................... 3
SWOT Analysis ...............................................................................................................4

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Company Overview

Company Overview

COMPANY OVERVIEW
The Hershey Company (Hershey) manufactures and distributes chocolate and non-chocolate
confectionery. Its major products include chocolate; sugar confectionery; gum and mint refreshment
products; pantry items including baking ingredients, toppings and beverages; and snack items such as
spreads, meat snacks, bars and snack bites and mixes. The company offers its products under various
brands including Hershey’s, Reese’s, Kisses, Jolly Rancher and Ice Breakers. Hershey, through licensing
agreement, also offers several third-party brands including Kit Kat, Cadbury, York, Jolly Rancher, and
Milk Duds. The company’s major customers are food stores, drug stores, mass merchandisers,
convenience stores, clubs and military channels. Hershey is headquartered in Hershey, Pennsylvania, the
US.

The company reported revenues of (US Dollars) US$7,515.4 million for the fiscal year ended December
2017 (FY2017), an increase of 1% over FY2016. In FY2017, the company’s operating margin was 16.1%,
compared to an operating margin of 16% in FY2016. In FY2017, the company recorded a net margin of
10.4%, compared to a net margin of 9.7% in FY2016.

The company reported revenues of US$1,751.6 million for the third quarter ended July 2018, a decrease
of 11.2% over the previous quarter.
Key Facts

KEY FACTS

Head Office The Hershey Co

100 Crystal A Drive
Hershey
Pennsylvania
Hershey
Pennsylvania
USA
Phone 1 717 5344200
Fax
Web Address www.thehersheycompany.com
Revenue / turnover (USD Mn) 7,515.4
Financial Year End December
Employees 15,360
New York Stock Exchange Ticker HSY

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SWOT Analysis

SWOT Analysis

SWOT ANALYSIS
The Hershey Company (Hershey Company) manufactures and markets confectionery products. Financial
performance, distribution and marketing, and focus on R&D are the major strengths of the company, even
as liquidity position, product recalls and dependence on limited customers remain causes for concern.
Growing confectionery market in the US, launch of new products and acquisition of Amplifys are likely to
provide growth opportunities to the company. However, foreign currency risk, expansion initiatives by
competitors and government regulations could affect its business operations.

Strength Weakness

Financial Performance Liquidity Position

Distribution and Marketing Product Recalls
Focus on R&D Dependence of Limited Customers
Opportunity Threat

Acquisition of Amplify Foreign Currency Risk

Growing Confectionery Market in US Expansion Initiatives by Competitors
Launch of New Products Government Regulations

Strength

Financial Performance

The company’s financial performance improved in FY2017. Improvement in financial performance

enables the company to provide higher returns to its shareholders, enabling it to attract further
investments. Growth in revenue and profitability also enhance the company’s ability to allocate adequate
funds for growth and expansion. In FY2017, Hershey reported revenue of US$7,515.5 million as
compared to US$7,440.1 million in FY2016, representing an annual growth of 1.1%. The growth in
revenue was due to higher sales volume in the North America segment by 1.3%, as compared with last
fiscal year. The growth in the company’s total revenue was further driven by innovations and new
launches, including Hershey's Cookie Layer Crunch, Hershey's Gold and Hershey's and Reese's Popped
Snack Mix and Chocolate Dipped Pretzels. In FY2017, the company’s operating margin was 16% as
compared to 15.9% in FY2016. Improving operating performance indicates the company’s focus on
efficient cost management. Hershey’s operating cost as a percentage of sales declined from 84% in
FY2016 to 83.9% in FY2017. Similarly, the company’s net profit margin grew from 9.6% in FY2016 to
10.4% in FY2017.

Distribution and Marketing

The company has a strong distribution network. A strong distribution network helps the company to gain
operational synergies and also efficiently serves its customers. A direct relation with clients helps it to

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SWOT Analysis

regular feed-backs on their products, which in turn allows it to develop new products catered to the
changing consumer preferences. The company manufactures and markets snack food products, biscuits
(cookies, crackers and salted snacks), chocolate, gum and candy, cheese and grocery products and
powdered beverage products. It offers these products to supermarket chains, wholesalers, supercenters,
club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value
stores and other retail food outlets. Hershey conducts its distribution activities through direct store
deliveries, company-owned and satellite warehouses, distribution centers and other facilities. It also
operates through its independent sales offices and agents in various international locations. This also
helps the company to build long term relationships with its customers. These products are marketed
through on-air, print, outdoor, digital and social media advertisings, promotional campaigns, consumer
sales initiatives like coupons and rebates.

Focus on R&D

The company is well supported by its in-house robust R&D facilities. Innovation based strategies enables
the company to stay abreast of the changes in the industry and provides it with first mover advantage by
launching products ahead of competition and also delivers advanced products and services to its
customers. The company conducts its R&D activities in a number of countries, which include the US,
Mexico, Brazil, India and China. Hershey’s strives to develop new products, improve the quality of existing
products, modernize production processes, and implement new technologies to enhance the quality and
value of both current and proposed product lines. In FY2017, the company incurred total expenditure of
US$45.8 million on its R&D efforts, as compared to US$47.2 million in FY2016.

Weakness

Liquidity Position

Hershey’s liquidity position declined in FY2017. Weakening liquidity position is an indication of company’s
decreasing ease in funding its day to day operations and also limits the ability of the company while
funding any growth prospect arrive in the market. The company’s current ratio was 0.9 at the end of
FY2017. The company’s current ratio was lower than that of its major competitors, John B. Sanfilippo &
Son, Inc and Tootsie Roll Industries, Inc, which reported current ratios of 2.3 and 4.2, respectively, during
the same period. The decrease in current ratio is due to 8.7% increase in total current liabilities from
US$1,909.4 million in FY2016 to US$2,076.5 million in FY2017.

Product Recalls

The company recalled a number of products in the past. Such product recalls could have a negative
impact on the company’s brand image and result in decease in customers’ confidence in the company. In
June 2017, A & W Hollier Wholesale Distributors Pty Ltd recalled Hershey’s Cookies 'N' Crème chocolate
due to the undeclared presence of almonds, wheat or gluten. The consumers having almond or wheat
allergy may be affected by consuming this product. The recalled products includes Hershey’s kitchens
premier white chips, Hershey’s kisses creamy milk chocolate with almonds, and Hershey’s kisses cookies
'n' creme. Earlier, in June 2016, the company initiated voluntary recall on SoFit Products. The recall was
conducted by the US Food and Drug Administration (FDA) due to the presence of Listeria

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SWOT Analysis

monocytogenes in the sunflower seeds which are used in developing SoFit products. This could lead to
infectious diseases to pregnant women, young children, elderly people, and users with weakened
immune systems. These include SoFit Protein Plus Sunflower Seeds Sea Salt with codes: 72H, 72J, 79P,
82F, 82G, 82K, 82L, SoFit Protein Plus Pumpkin Seeds Sesame Garlic with codes: 73B, 73C, 81P, 81R
and SoFit Protein Plus Almonds Jalapeno Garlic with codes: 72R, 73A, 79R, 82C, 82D. Hershey
intimated its customers to stop consuming these products.

Dependence of Limited Customers

The company’s consumable customer base is an area of concern for the company. The company
manufactures and supplies its products to customers related to food industry. The industry is growing
through business gains, mergers and acquisitions and strategic alliances which enable large customers to
diversify their options. Since the purchasing power of customers is increased, it could seriously harm their
business and financial conditions if there are any price fluctuations and other quality issues. In FY2017,
the company generated 29% of revenue from McLane Company, Inc., a wholesale distributor in the US.
This could have a serious impact on the company’s total revenue.

Opportunity

Acquisition of Amplify

Strategic acquisitions could enhance the company’s operational capabilities and its future growth and
expansion plans. In December 2017, the company acquired Amplify, a Snack Brand company based in
Austin, Texas, the US. Amplify develops Skinny Pop, Tyrrells, Oatmega, Paqui and other international
brands. The acquisition is a part of company’s strategic priority in becoming a snacking power house in
the country. It also strengthens Hersheys market position in the growing healthy snacks market.

Growing Confectionery Market in US

Growing confectionery market in the US is likely to provide new growth opportunities to the company by
increasing the demand for its products. Demand for for confectionery products in the US. Product
innovations and creation of new low-fat and low-calorie products are contributing to the demand for
sugar-free chocolates and non-chocolate confections. Promotional activities and social media marketing
are the other driving factors in the market. Products in small sized packs and innovation with different
formulations and new textures are also influencing the sales of confectionery products in the country.
According to in-house research report, the confectionery market in the US reached US$36,410.2 million
in 2016 and is projected to grow at a CAGR of 4.4% during 2016-21 to reach US$45,241.1 million by the
end of 2021. In terms of volume, the sales of confectionery products reached 2,782.9 million kg in 2016
and are projected to grow at a CAGR of 2.2% during 2016-21 to reach 3,109.6 million Kg in 2021.
Chocolate has the largest share in this market. In 2016, chocolate accounted for 56.6% of the total
market value, followed by sugar confectionery (34.3%) and gum (9.1%).

Launch of New Products

Product innovations and introductions could help the company to enjoy advantage over its peers and

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SWOT Analysis

build brand equity, besides driving overall sales growth. New product launches could provide an
opportunity for the company to cater to changing consumer tastes and serve diverse markets more
efficiently, besides keeping the product categories vital. In April 2018, the company launched a new
glitter-sprinkled gum in the US under Ice Breakers brand. The glitter gum is made from chocolate crème,
chocolate cookie bits and milk chocolate. In December2017, the company launched new triple chocolate
flavor under cookie layer crunch brand. This launch of new flavor enables the company to enhance the
market position. In March 2017, the company’s Reese’s brand launched a new product Reese’s Crunchy
Cookie Cup. The product is available in two-cup size 1.5-oz.and in king two-cup big bup size 2.8-oz
packs.

Threat

Foreign Currency Risk

The company operates in various countries and is exposed to fluctuations in foreign exchange rates
against its reporting currency. It reports financials in the US dollar for accounting purposes and as such
its revenue is exposed to the volatility of the reporting currency against other functional currencies such
as the British pound and Indonesian rupiah. To minimize risks from currency fluctuations, the company
involves in foreign exchange hedging by entering into foreign exchange forward contracts. However,
there would be no assurance that such hedging or other measures may limit the impact of movements in
exchange rates on the company’s results of operations. In FY2017, the company registered a gain of
US$19.6 million from foreign currency translation adjustment compared to a loss of US$13 million in
FY2016.

Expansion Initiatives by Competitors

The company operates in a highly competitive market, which is primarily based on product quality,
innovation, service, brand recognition, loyalty, product launches, effective advertising campaigns,
marketing programs and price. Intense competition could have a material adverse impact on the
company’s operations. To survive and succeed in a stiff competitive environment, it is very important for
the company to distinguish its product and service offerings through a clear and unique value proposition.
Its major competitors include John B. Sanfilippo & Son, Inc., Mars, Incorporated, Mondelez International,
Inc. and Nestle SA. Some of the competitors of the company took several initiatives. For instance, In
August 2017, Mondelez International, Inc signed a partnership agreement with Premier Foods to produce
and market Cadbury branded cake and ambient dessert products. This partnership would enable the
company to expand its geographic presence to 46 countries from its current ten countries. In November
2017, Mars Incorporated, acquired Preferred Brands International (Preferred Brands), a manufacturer and
marketer of all-natural, ready-to-heat Indian and Asian food products under the Tasty Bite brand. The
deal is expected to strengthen its presence in emerging markets such as India, Tasty Bite has
manufacturing unit in India, and the majority of its products are exported to the US.

Government Regulations

Hershey, being a producer and marketer of food products, is subject to various regulations by federal
governmental agencies, including the Food and Drug Administration, the Department of Agriculture, the

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SWOT Analysis

Federal Trade Commission, the Environmental Protection Agency and the Department of Commerce, as
well as various state agencies, with respect to production processes, product quality, packaging, labeling,
storage and distribution. In addition, advertising of its businesses is subject to regulation by the Federal
Trade Commission. The company is also subject to certain health and safety regulations, including those
issued under the Occupational Safety and Health Act. Many of the food commodities that the company
uses in its operations are subject to government agricultural policy and intervention. These policies have
substantial effects on prices and supplies and are subject to periodic governmental and administrative
review. For an instance, selective food taxes, nutritional labeling requirements and marketing restrictions
in markets such as Europe and Latin America; Russian sanctions on the sourcing of raw materials from
the European Union and potential labeling disclosure requirements for genetically modified ingredients in
the US. The company should comply with all such stringent governmental regulations, failure of which
may expose it to new liabilities or may hamper its existing operations.

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