Disappointing performance in China prompts executive changes, job cuts.

By Nathan Bomey
The Hershey Co. (HSY) is cutting 300 jobs and planning other cost cuts amid a sales slowdown in China.
The Pennsylvania candy giant said Friday morning that it expects to record about $65 million to $75 million in pre-tax savings through the moves, which it dubbed a “productivity initiative.”
The candy giant said its 2015 sales will be lower than it previously expected in large part because of weakness in China.
Hershey’s founder, Milton Hershey, sold caramels to China as early as the 19th Century, but the company only began manufacturing candies there in 2007.
Hershey did not specify where the job cuts would occur but said they would not affect its manufacturing business. It will offer voluntary buyouts before deciding whether to resort to layoffs.
“We have taken a fresh look at how our resources and people are deployed globally and are better aligning our structure to the company’s long-term strategies and goals,” Hershey CEO John Bilbrey said in a statement.
The cuts will result in a pre-tax charge of about $100 million to $120 million, the company said.
Consumers in China are not taking a liking to chocolate as quickly as Hershey had hoped, and it’s taking a toll on the company’s bottom line.
Although China’s middle class is nearly the size of the entire U.S. population, chocolate is not yet popular in China. It’s not uncommon to walk into a Chinese grocery store and find only a few chocolate items.
Candy companies are making slow inroads in China, but Hershey’s statement on Friday was indicative of the depth of chocolate’s challenges there.
Hershey said its global sales for 2015 will rise about 4% to 5% when excluding the impact of currency exchange rates and including one-time gains from acquisitions. That’s down from a previous projection of 6% to 7%.
To address the issues in China, the company’s chief growth market, Hershey appointed Steven Schiller to the new role of president of Hershey’s business in China and Asia. He was previously serving as regional president of the company’s Asia, Europe, Middle East and Africa division.
Sales in China disappointed in April and May, prompting the company to reconfigure its financial outlook and execute the restructuring.
“Macroeconomic challenges and trends are affecting consumer shopping behavior resulting in continued softness within the China modern trade, particularly the tier one hypermarkets where the company generates the majority of its chocolate sales,” Hershey said in a statement.
Hershey said it would focus on getting its products in more small stores in China, emphasize core products and reevaluate its corporate structure.
Hershey will also seek candidates for a new executive position in charge of emerging international markets, including Latin America, South America, the Middle East, Europe, Africa and India.
The moves come as the strong U.S. dollar is denting Hershey’s sales. Hershey said its 2015 sales will take a 1.5 percentage-point hit from currency exchange rates.
“We are confident these changes will extend our position as a global confectionery leader and create a Hershey that is even more innovative, entrepreneurial and better positioned to continue to deliver sustainable, profitable growth in an ever-changing marketplace for the long-term benefit of all of our stakeholders,” Bilbrey said.
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