Sponsor Content Above the Clutter with Pete Krainik
Episode Seven: Man And Machine
Brought to you by: IBM
Hershey Co., which has been among the most aggressive food advertisers in recent years, cut spending in the first quarter as it pared back investment in smaller brands.
The candy giant reduced ad spending by about 3% for the three months ending March 30, according to the company's quarterly earnings statement. The cut represents the first spending reduction since the fourth quarter of 2011, pointed out Thilo Wrede, an analyst for Jefferies, in a note to investors.
Hershey also said that advertising and "related consumer marketing expense" will increase by "mid-single digits" for the full year, which is slightly less than an earlier forecast.
Executives, who were repeatedly quizzed on the ad cuts by analysts on an earnings call, downplayed the change. "We've really taken a look at some of the secondary brands that we've been supporting … and we've limited some of our advertising there," CEO John Bilbrey said. "On our core brands, there really isn't any reduction."
He confirmed that the brands getting reduced support include Hershey's Bliss, which is marketed as having a "richer, longer-lasting chocolate," and Hershey's Simple Pleasures, a lower-fat cream-filled chocolate brand that launched in 2012.
The brands getting less ad dollars "have ended up playing more of a niche role than maybe we would have hoped at one point in time," Mr. Bilbrey said.
For the quarter, net sales increased to $1.87 billion from $1.82 billion in the first quarter of 2013. Net income was $252.5 million, compared with $241.9 million for the year-earlier period.
The 2.4% sales increase was less than forecast. The company blamed the drop partly on consumers taking fewer trips to "instant consumable" store channels such as convenience stores and dollar stores. Meanwhile, when consumers shopped at traditional grocery stores, they put an emphasis on buying "consumer staples," which would not include candy, executives said.
Mr. Bilbrey cited as causes inclement weather as well as "changes in some of the government programs that people had to adjust to." He did not mention the programs by name. One factor food companies have dealt with is a recent cut in food stamp benefits.
Still, Mr. Bilbray said that by the "end of March and into April, it appears that consumer shopping behavior was returning to normal." Notably, Hershey did not change its 2014 net sales growth forecast of a 5% to 7% increase.