Hershey, the confections and salty snacks company, has recently announced plans to cut jobs as it projects a challenging year ahead in 2024. The company’s decision to reduce its workforce comes as it faces sales pressure from consumers looking to curtail spending amid high prices at the grocery store due to inflation.
The job cuts at Hershey are expected to impact less than 5% of its workforce, which currently employs about 19,000 people worldwide. The company estimates that it will incur up to $60 million in costs related to severance as a result of the job cuts. The reduction in staffing is part of a broader multi-year productivity initiative aimed at generating long-term savings for the company.
Hershey plans to identify ways to rein in spending across various aspects of its business, including its supply chain and manufacturing, while leveraging new technology and practices to simplify and automate processes. The productivity initiative is projected to lead to pre-tax costs of $200 million to $250 million through 2026, with ongoing annual savings of approximately $300 million once the program is completed.
Hershey’s sales in the most recent quarter rose by a modest 0.2% to $2.7 billion, and the company projects sales to grow by 2% to 3% in its 2024 fiscal year, primarily driven by higher prices. Organic net sales for Hershey increased by 7.2% in 2023. The company aims to strengthen its business and deliver leading performance over the long term by focusing on productivity and transformation. Hershey’s business is being weighed down by high sugar and historic cocoa prices, which are expected to limit earnings growth in 2024. The company may consider using pricing as a tool to manage the business, given the current cocoa prices.
RTM Watch’s Take
Hershey’s decision to cut jobs and implement a productivity initiative reflects the challenges it faces in the current market. The company’s focus on cost reduction and process optimization is a strategic move to improve efficiency and profitability. However, the impact of high cocoa and sugar prices on Hershey’s earnings growth remains a concern. As consumers continue to curtail spending, Hershey will need to find a balance between managing costs and maintaining competitive pricing. The success of its productivity initiative and ability to navigate market challenges will be crucial for Hershey’s performance in 2024.
