Hershey to cut workforce by 10%

Hershey to cut workforce by 10%
By Jonathan Birchallin New York
Copyright The Financial Times Limited 2007
Published: February 16 2007 02:00 | Last updated: February 16 2007 02:00


Hershey, the largest US chocolate maker, is to cut over 10 per cent of its workers in a reorganisation of its manufacturing that will include building a new factory in Mexico.

The company said it expected to cut about 1,500 jobs over the next three years from its current workforce of more than 13,000. It will also reduce the number of manufacturing lines it operates by almost a third as it seeks to reduce costs.

The restructuring is expected to cost $575m but deliver annual savings that will rise to between $170 and $190 by 2010, the company said.

David West, chief operating officer, said the savings would allow the company to increase investment in promoting Hershey's brands and to pursue the development of new products, as well as further international expansion.

Hershey, which has lost market share to its arch rival Mars, recently announced the setting up of a manufacturing joint venture in China with Lotte Confectionery of South Korea. It said the factory in Mexico would also be focused on both low-value added products and on emerging markets.

Andrew Lazar, analyst at Lehman Brothers, said in a note to investors that the magnitude of the plan and associated savings "are likely quite a bit larger than previously forecast", and that "bottom-line, this plan should provide Hershey with far more marketing firepower".

The supply chain changes follow a reorganisation 14 months ago of Hershey's management operations, centred in the small town of Hershey in central Pennsylvania, that included a new focus on international growth.

Since a controversial and ultimately unsuccessful takeover battle over the company in 2002, Hershey has introduced new variations of its traditional lines, such as Hershey's Chocolate Kisses and Reese's Peanut Butter Cups, while adding more premium and snack products.

It shares rose over 2 per cent on news of the supply chain changes yesterday to $52.52 at lunchtime in New York.