Hershey To Cut Thousands Of Jobs Globally

February 28, 2017, 10:27 PM UTC
Hershey's chocolate bars are shown in this photo illustration in Encinitas
Hershey's chocolate bars are shown in this photo illustration in Encinitas, California January 29, 2015. REUTERS/Mike Blake/File Photo GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH 'BUSINESS WEEK AHEAD 24 OCT' FOR ALL IMAGES - RTX2Q589
Photo by Mike Blake—Reuters

Hershey plans to trim thousands of jobs from the chocolate maker’s global workforce, a restructuring that comes as many Big Food makers are enacting belt-tightening moves as the industry faces stalling sales.

On Tuesday, Hershey (HSY) said the job cuts would reduce the global workforce by 15% and is driven primarily by cuts to the company’s hourly staff outside of the U.S. Hershey employs roughly 19,000 full-time and 1,650 part-time employees globally. The layoffs are one pillar of the company’s so-called “Margin for Growth” program that is aiming to improve operating profit margins by reducing administrative expenses and improving the company’s supply chain, with savings expected to be seen in 2018 and the year after.

The program will result in pre-tax charges of $375 million to $425 million, a range that includes severance expenses. Cash savings are projected to hit between $150 million to $175 million annually by the end of 2019.

The move by Hershey to cut costs comes at a time when many major food manufacturers, including General Mills (GIS) and Kellogg (K), have been cutting jobs to restructure their operations. While the industry has been busy cutting costs to boost cash flows, the aggressiveness at 3G-backed Kraft Heinz (KHC) has put some pressure on others in the industry to step up their game.

Hershey has opted to go it alone after the chocolate maker spurned a takeover bid by snacking peer Mondelez (MDLZ) last year. The “Margin for Growth” plan is the first big initiative being implemented by Michele Buck, the incoming president and CEO who was named to those roles late last year. Buck is responsible for the strategy and vision at Hershey, which includes hitting the 2017 sales target the company set earlier this year, projecting growth of 2% to 3% due to the rollout of new Hershey’s Cookie Layer Crunch bars, expanded distribution of barkTHINS, and new Reese’s and Krave snacks.

In her prepared statement, Buck said that the initiatives announced on Tuesday would give Hershey “flexibility to invest in certain parts of our business. Our objective is to ensure that we always have the right level of innovation, marketing plans and consumer and customer expertise to drive net sales growth, especially in our North America confectionery and snacks business.” Buck and her team will present more details about that strategy at the company’s investor conference on Wednesday in New York City.

Hershey on Tuesday also updated the company’s long-term outlook and sees annual net sales growth of 2% to 4%, below the projection of 3% to 5% a year ago. That nods to the challenge that many Big Food makers are facing: growth is slowing as consumer are increasingly favoring healthier foods and also giving well-funded startups a try. That’s pressuring legacy brands owned by Hershey, General Mills and many others, who have seen sales soften. Beyond cost-cutting moves, some on Wall Street are advocating for the biggest players to consider consolidation.

Encouragingly, the industry does seem to have a better handle on profitability. Factoring in Hershey’s “Margin for Growth” initiatives, it still sees long-term adjusted earnings growth between 6% to 8%.

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