Hershey, Pa. – Hershey Co., the largest U.S. candymaker, will close more than a third of its assembly lines and eliminate 12 percent of its workforce after sales fell for the first time in 3 1/2 years.
The maker of Hershey’s Kisses and Reese’s Peanut Butter Cups will cut 1,500 jobs over the next three years and open a new factory in Monterrey, Mexico. The reductions will cost as much as $575 million before taxes, the company said in a statement Thursday. The company also will let other companies manufacture some of its products.
Hershey lost market share last year to Mars Inc., the maker of Snickers, which introduced new varieties of M&Ms and Dove bars. Hershey said last month that its attempt to boost revenue with cookies and brownies distracted it from selling chocolate and that it posted a fourth-quarter sales decline of 0.7 percent.
“Hershey is under intense pressure,” said Marvin Roffman of Roffman Miller Associates in Philadelphia, who follows Hershey and manages more than $410 million in assets. “If your costs are squeezing you, you have to find ways to save money.”
Huge savings seen
Hershey expects the reductions to save it $170 million to $190 million annually by 2010.
The company estimates $300 million of the expenses will occur this year. Hershey will close some factories, spokesman Kirk Saville said, but he wasn’t more specific.
When the plan is completed, Hershey expects 80 percent of its production to be in the U.S. and Canada.
Shares of Hershey rose 80 cents, or 1.6 percent, to $52.10 Thursday in New York Stock Exchange composite trading.
The chocolate maker reiterated its long-term forecast of sales growth of 3 percent to 4 percent and earnings-per- share growth from operations of 9 percent to 11 percent.
For 2007, the company sees a revenue increase of 3 percent to 4 percent and a per- share profit advance of 7 percent to 9 percent, to between $2.54 and $2.58.
Market share slips
Hershey’s U.S. market share fell to 42.5 percent in the 13 weeks through Dec. 24 from 43.5 percent at the end of the fourth quarter of 2005, according to Information Resources Inc. Mars’ share rose to 25.9 percent from 24.2 percent. The data exclude sales to Wal-Mart Stores Inc., the world’s largest retailer.
Hershey chief executive Rich ard Lenny last month promoted former chief financial officer David West to the new position of chief operating officer. Under Lenny, who has been CEO since 2001, the company’s stock price has gained 61 percent. He is trying to stem the recent sales decline and the 9.9 percent drop in Hershey’s shares last year.
The restructuring is the third of Lenny’s tenure after the company cut 5 percent of its salaried workforce in 2005 and announced plans in 2001 to eliminate 8 percent of its salaried workers and close three plants.
