Hershey's China growth target in peril as sales tumble

[NEW YORK] "There's a Smile in Every Hershey's Bar", the famous slogan goes, but Hershey Co Inc doesn't seem to have a lot to smile about in China these days.

Sales of the maker of The Great American Chocolate Bar nearly halved in the world's most populous country in the first quarter of the year compared with the same period of 2014.

The company said on Thursday it was sticking to its plan for China. It had set an annual sales target of US$450 million for the country in February.

Analysts said a slowdown in discretionary spending has put made that target difficult to meet. "It doesn't seem like that's achievable," said Philip Van Deusen, director of research at Tigress Financial Partners.

With China's economic growth slowing to a six-year low of 7 per cent in the first quarter, consumers held back on spending on gifts and indulgences, even during the festive Chinese New Year period in February. "While we were seeing some slowdown, in December we weren't planning for as poor a performance (during the Chinese New Year quarter)," Chief Executive John Bilbrey said on a post-earnings call.

China is key to Hershey if it is to achieve its goal of US$10 billion in global sales by 2017. The company reported sales of US$7.4 billion in 2014.

Hershey does not break out sales by region. But based on the company's 2015 target, sales in China were about US$333 million in 2014, according to Reuters calculations.

Hershey's shares fell as much as 5 per cent to a more than five-month low of US$93.82 on Thursday.

The candy maker's woes in China come at a time when it is struggling to woo consumers in the United States, who increasingly prefer healthier snacks over chocolates. High dairy and cocoa costs are adding to its problems.

Hershey boosted its presence in China by buying candy maker Shanghai Golden Monkey Co (SGM) for US$584 million in 2014. "We did not anticipate the lower levels of growth in China within the biggest cities and hypermarkets," Mark Pogharian, Hershey's vice president of investor relations, said on the call.

The setback in China led Hershey to lower its overall 2015 organic sales growth to 3.5-4.5 per cent from 4-6 per cent.

The company also said it would make some "adjustments,"including pulling forward its expansion plans into Chinese Tier-2 cities and increasing levels of in-store sampling.

REUTERS