Hershey announced layoffs Thursday after reporting its quarterly earnings were hit by the soaring cost of cocoa and inflation-weary shoppers who cut back on the company’s expensive chocolates and candies.
The Pennsylvania-based company said it would slash 5% of its workforce, resulting in as much as $60 million in severance costs.
It wasn’t immediately clear how many jobs among the company’s workforce of roughly 18,075 full-time and nearly 2,000 part-time staffers would be affected, or what teams would be impacted.
“We do not expect significant disruption or impact to our employee base with impact being less than 5% of our workforce,” a Hershey spokesperson told The Post on Thursday.
The Reese’s Peanut Butter Cups-maker said that the layoffs are part of a new multi-year productivity initiative to generate long-term savings as the company looks to offset declining sales in the face of rising cocoa, sugar and labor costs.
The move is intended to generate pre-tax costs of $200 million to $250 million from inception through 2026.
Hershey’s organic sales volumes fell 6.6% in the fourth quarter, the company said.
Hershey forecast 2024 net sales to increase between 2% and 3% year-on-year, compared with analysts’ estimates of growth of 3.4%, as per LSEG data.
The data also sees the annual adjusted profit per share to be flat, compared with a year earlier. Analysts were expecting adjusted earnings growth of 3.3% to $9.82 per share.
Hershey’s weaker-than-expected projections come after a rough Halloween season for Hershey, which up-charged trick-or-treaters a frightening 13% year-over-year after raising its prices by at least 7% in each of the last seven quarters.
The figure was more than double the 6% increase across grocery prices generally.
“While cocoa is expected to limit earnings growth this year, we believe our business strategies will enable us to grow our categories and profitably expand market share over time,” Hershey CEO and Chair Michele Buck said during the conference call.
Cocoa prices are nearly 65% higher than they were this time last year, Food Engineering Magazine reported.
While consumer demand remains relatively strong, per the magazine, so do elevated cocoa costs, as West African farmers grapple with ongoing unfavorable growing conditions and crop disease.
“The cocoa issues come at a particularly challenging time for manufacturers,” Billy Roberts, senior food and beverage economist for CoBank, told Food Engineering Magazine, “considering the increase in sugar prices they’ve been coping with over the past three years.”
In 2020, the price of sugar averaged about $0.1288 per pound, according to Macrotrends. At the time of writing, roughly three years later, the price surged some 86%, to $0.24 per pound.
According to the latest Consumer Price Index — which tracks changes in the costs of everyday goods and services — inflation rose a stiffer-than-expected 3.4% in December.
As a result, “consumers are spending less during non-seasonal periods, a trend that will likely continue throughout 2024,” which is impacting Hershey’s bottom line, according to CFRA Research’s analyst Arun Sundaram.
The Bureau of Labor Statistics is set to release January’s inflation reading on Feb. 13.
Analysts have been hoping that the figure will inch closer to the Federal Reserve’s 2% goal so that central bankers will begin lowering interest rates.
At the first policy meeting of 2024 last month, central bankers unanimously decided to keep interest rates at their current 22-year high, between 5.25% and 5.5%.
Fed Chair Jerome Powell squashed Wall Street’s hopes that the first of three highly-anticipated rate cuts could come in March.
“I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting” to lower rates, “but that’s to be seen,” Powell said in a closely-watched press conference following the policy meeting.
With Post wires.