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UPDATE 2-Hershey's sales miss as China continues to struggle
February 3, 2017 / 12:52 PM / 8 months ago

UPDATE 2-Hershey's sales miss as China continues to struggle

* Q4 sales $1.97 bln vs. est. $1.99 bln

* Q4 adj. EPS $1.17 vs. est. $1.08

* Forecasts FY17 adj. EPS $4.72-$4.81 vs. est. $4.64 (Adds analyst comments, details, shares)

By Gayathree Ganesan

Feb 3 (Reuters) - Hershey Co, maker of Hershey’s Kisses and Reese’s Peanut Butter Cups, posted quarterly sales below Wall Street estimates, hurt by a drop in demand in China, one of its biggest markets.

The Pennsylvania-based company’s shares fell as much as 3.8 percent to $101.61 in morning trading on Friday, but pared some losses to trade marginally up later in the session.

China sales fell 16.6 percent, in the fourth quarter ended Dec. 31, hurt by macroeconomic conditions in the country, Hershey said.

The company has struggled to increase its business in the world’s most populous country since an acquisition of local chocolatier Shanghai Golden Monkey in 2014 went awry.

Hershey took a big writedown for the acquisition and its sales in the Chinese market have decreased for several quarters.

Shopping for chocolate in China has largely moved online, hurting Hershey’s investments in brick-and-mortar outlets such as supermarkets and hypermarkets, Berenberg analyst Fintan Ryan told Reuters.

Another issue the company is facing is that it is yet to pick-up the traditional tastes of the Chinese consumers in its products, Ryan added.

“You can’t sell the same product that you do in North America or Europe. Chinese consumers are getting sophisticated. They want their own tastes, own variance ... which you don’t see here (United States).”

Still, Hershey issued an upbeat outlook for the full-year. The company said it expects adjusted earnings per share of 4.72-$4.81, ahead of analysts’ average estimate of $4.64, according to Thomson Reuters I/B/E/S.

The candy maker also announced plans for a new cost-saving program called “Margin for Growth,” through which it aims to boost operating margins in 2018 and 2019 by reducing administrative costs and improving its supply chain.

Hershey forecast a 2-3 percent increase in sales in 2017, which translates to $7.59 billion-$7.67 billion, in line with analysts’ average estimate of $7.63 billion.

North America sales, which account for about 85 percent of total sales, rose 3.8 percent to $1.69 billion in the quarter.

Excluding certain items, Hershey earned $1.17 per share, handily beating analysts’ average estimate of $1.08.

Net sales rose 3.2 percent to $1.97 billion. Analysts on average had expected $1.99 billion. (Reporting by Gayathree Ganesan in Bengaluru; Editing by Martina D‘Couto)

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