Hershey Company Analysis

Executive Summary

Company Overview

The Hershey Company (NYS: HSY) is the largest producer of chocolate in North America. It engages in manufacturing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products domestically and globally. Headquartered in Hershey, PA, The Hershey Company has operations in more than 70 countries worldwide, and its chocolate products account for the majority (43.3%) of the U.S. market share. Major competitors for Hershey's confectionery brands in the United States are M&M, Mar, and Nestle, and its products also compete on a local basis with many regional brands. It sells its products through food brokers, primarily to wholesale distributors and convenient stores. In 2011, its sales to McLane Company, Inc., Hershey's largest wholesale distributors in the United States, amounted to approximately 22.3% of its total net sales. Founded in 1894, The Hershey Company is the legacy of candy manufacturer Milton Hershey, who also founded the Milton Hershey School to provide a nurturing environment, quality education, housing, and medical care at no cost to disadvantaged children in social and financial need. The current Chief Executive Officer of Hershey, John Bilbrey, has been a Hershey director since June 2011. With his extensive experience in the consumer packaged goods and thorough knowledge of all aspects of the company's business, Mr. Bilbrey has been instrumental in delivering sustainable long-term growth and executing the company's major strategic initiatives, even as the economic environment continued to be challenging. During the financial year ending December 2011, the company recorded revenues of $6.1 billion and net profit of $429 million, a 7% increase from $5.8 billion and $510 million in the same period last year. Hershey's increases in net sales and profit are principally driven by its continued focus on brand building and investment initiatives for the U.S. and key international markets.

Recommendations

While Hershey's is in a good position and has a strong foothold in the U.S. chocolate and confectionery industry, the company is subject to changing economic and competitive risks and uncertainties, such as increases in raw material and energy costs, increased marketplace competition, and fluctuating international operations. We therefore propose the following recommendations to ensure the future growth and success of The Hershey Company:

* Continue to expand international operation, particularly with focus on Mexico, Brazil, India and China

* Engage in more active conversation in social media with customers and capitalize on autobiographical advertising method to connect with consumers across a full range of touch points

* Continue to implement the Global Chain Transformation (GSCT) project to boost supply chain efficiencies

Introduction

The Hershey Company is a part of the confectionery wholesaling industry in the United States. In 2010, the industry had total revenue of $39,176 million. The Hershey Company's competitors, other major players in this industry, are Mars Inc., Nestle, and Kraft Foods, Inc. The Hershey Company is the second largest player in the industry in the U.S., with a market share of 17%. Around the world, the confectionery industry is still rapidly developing, although the U.S. market is fairly well matured compared with others. Starting with a large number of small manufacturers and distributors, the confectionery market now has grown into a mega-corporation-dominated business after large-scale consolidations that occurred between 1960-1990. This expansionary period also created large supply chains around the world. Hershey's competitive advantage is the strength of its core brands combined with higher pricing initiatives resulting from incremental sales of new products, and sales growth from the international market.

Statement of Purpose

The purpose of this analysis is to help investors to gain a clear understanding about The Hershey Company's operating performance and the company's ability to generate returns from its available capital base based upon current expectations that are subject to risks and uncertainties. This analysis will arrange the fundamental data of The Hershey Company's past performance in an unbiased way that allow investors to see the company's growth and management performance as well as the stock's investment possibilities. In the next two sections, we will assess the performance of The Hershey Company by computing key ratios and analyzing:

a. How The Hershey Company is performing relative to the industry, especially to the leading firms in the industry?

b. Is The Hershey Company well-managed enough

c. How does the current year performance compare to the previous year(s)?

d. What are the variables driving the key ratios and what do they reveal about the future prospects of the company for various stakeholders?

However, due to the aforementioned risks and uncertainties, the forward-looking statements are not guarantees of future performance; the potential risks and uncertainties could cause future results to differ materially from the statements. Therefore, in the end of this analysis we will provide three solutions to ensure that necessary actions are taken to address the risks that may hinder the further achievement of the entity's objectives and investor returns.

Qualitative Analysis

Products, Positioning & Target Segment

In the United States, Hershey and chocolate are synonymous. Milton Hershey established the Hershey Chocolate Company in 1894 with his decision to produce sweet chocolate as a coating for his caramels. The company was located in Lancaster, Pennsylvania, where there was a plentiful supply of fresh milk. Nowadays, the company has a town named after it, and a reputation as a hero of World War II, providing over a million survival ration bars to the American soldiers. After World War II, Hershey started to restructure management and recruitment of talented young people for positions as junior executives, and for the first time it recognized the need for more professional marketing and sales talents. Since the mid-80s, Hershey expanded both its domestic and international market shares through acquisitions.