Hershey Continues To Melt: Time For a Chocolate-Filled Shakeup

The Hershey Company (HSY) reduced 2006 guidance citing problems with a Canadian recall, as well as disappointing marketing results in the US domestic market. The two year stock chart (see below) shows a pronounced drift downwards which means the market has not been impressed with anything.

The Canadian recall, while not a joyous event, should be considered a onetime problem that will eventually be fixed. The recall is being used as an excuse to bleed out the fundamental problem which is people are not buying enough Hershey products.

"We haven't executed the types of competitively advantaged consumer and customer programs that are required to deliver superior sales and marketplace performance [in 2006]," Chief Executive Richard Lenny said in a statement. "This must and will change for 2007."

Hershey has been overly focused on low margin line extensions usually symptomatic of being stuck-in-the-muck thinking. Management does admit that “attempted shifts to sustainable value added platforms has taken longer than anticipated.” It seems that the jargon challenged business plan is experiencing execution problems.

Watch carefully as year-end and quarter bonuses and compensation are awarded. This company has been slowly slipping away and is now at a crisis point. If it takes so long to launch new products, it means that management does not have a viable view of the marketplace. This is a time when the Board of Directors needs to exert authority and shake up the team on the field.

HSY 2-yr chart: