North America turned negative
Hershey’s (HSY) North American business segment, which until now reported positive sales, declined in 4Q17. A shift in the timing of the shipments had a negative impact on volumes. The segment’s net sales declined 0.9%, which reflected a 1.6% decrease in volumes. However, pricing and favorable currency rates added 0.3% and 0.4% to the net sales growth.
Mondelēz’s (MDLZ) 4Q17 sales also remained weak in North America. The company’s sales reflected the challenging operating environment, negative mix, and declines in the biscuits business. Other major food manufacturers including Kellogg (K), J.M. Smucker (SJM), and Kraft Heinz (KHC) are also witnessing slow sales in North America. Sales are impacted by lower demand for traditional products due to consumers’ shift towards wellness food and the tough retail environment.
A shorter Easter season will likely hurt Hershey’s sales in the North America region during 1H18. However, strength in Hershey’s core chocolate brands, benefits from the Amplify acquisition, and innovation-led new product launches are expected to drive the company’s sales in 2H18.
China continues to pull down International segment
Hershey’s sales in the International and Other segment continued to slide. Strong growth in India, Brazil, and Mexico were more than offset by declines in China. Net sales declined 5.4% in 4Q17, which reflected a 6.6% decrease in volumes—partially offset by favorable currency rates. Hershey’s sales in China were impacted negatively by the company’s planned SKU optimization and new packaging initiative.