Hershey CEO defends company strategy

Posted by Josette Dunn on 4th February 2010

Hershey president and CEO Dave West has stood by the US chocolate maker’s strategy and insisted the company can deliver “long-term value” for shareholders.

The business, which generates the bulk of its revenues in the US, has faced questions over its future growth after deciding not to bid for UK confectioner Cadbury.

Hershey has ventures in Brazil, India and China but industry watchers have argued the company’s international ambitions – and therefore prospects for long-term growth – could be compromised.

Kraft Foods’ acquisition of Cadbury has created the world’s largest confectioner, with the combined Mars Inc and Wrigley also dwarfing Hershey.

However, West, speaking to analysts after reporting Hershey’s 2009 results, defended the company’s decision not to bid for Cadbury and asserted the Reese’s maker could thrive at home and abroad.

“We feel that we did the right things in terms of taking a disciplined look at an asset [Cadbury] that was available. It didn’t work for us within the framework that we had established but that doesn’t mean that we’re not highly competent in our business model,” West said.

“With close to a 45% share of the US chocolate market, strong and growing businesses in Canada and Mexico and nearly a 20% compound annual growth rate outside of the US and Canada over the past five years, we continue to be encouraged by our position in the marketplace and confident in continuing future success.”

In 2009, Hershey’s sales climbed 3.2% to US$5.3bn. Annual net income, excluding costs linked to a revamp of Hershey’s supply chain, rose 13.3% to $496.8m.

Hershey does not publish its international sales but, in its core US market, revenues in 2009 were driven by price hikes.

Sales volumes fell in the fourth quarter, continuing a trend seen throughout the year, although Hershey’s management said the drop in volumes was less stark in the last three months of 2009. West was cagey about the prospects for volumes in 2010 but said “we should start to see some volume gains as we get out through the year”.

Amid the price increases, Hershey increased its share of the US confectionery sector by 0.1% in 2009. However, with Hershey ramping up its advertising spending in 2009, West faced questions over the effectiveness of the investment – especially with advertising costs set to rise by up to 30% in 2010.

“When you look at the response that we’re getting – and we track it on a regular basis – we feel pretty good about it. We think that it still makes sense as an investment,” West said. “We think that advertising is one of the reasons that we were able to improve the take-away throughout the year, our conversion and our volume declines certainly improved throughout the year.”

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