The Hershey Co., whose name has been synonymous with U.S. candymaking for more than a century, is moving a bigger chunk of its production to Mexico.
A day after Valentine sweethearts across the country enjoyed bags of Hershey Kisses, the company on Thursday announced a restructuring plan that will scale back its work force by 1,500 jobs and force some plants to close.
Hershey said the three-year blueprint would reduce the number of production lines by more than one-third while saving the company as much as $190 million a year.
The maker of Hershey’s Kisses, Reese’s peanut butter cups and Mounds bars currently employs about 13,000 people at 20 plants in the United States, Canada, Mexico and Brazil. The planned cuts amount to 11.5 percent of that work force.
The proportion of Hershey’s manufacturing done in the U.S. and Canada will shrink, from 90 percent currently to 80 percent, and the impact will vary from one plant to another.
“Some will be expanded, some will be downsized and some will close,” said Hershey spokesman Kirk Saville. He declined to elaborate.
“We recognize this will involve considerable change over the next three years, and intend to make this transformation of our supply chain as smooth as possible for our employees and customers,” said Richard H. Lenny, Hershey’s president, chairman and CEO.
A union leader suggested that the planned new plant in Monterrey, Mexico, would make the job cuts in the United States and Canada particularly acute.
Dennis Bomberger, business manager for Chocolate Workers Local 464, which represents 2,500 workers at Hershey plants in Hershey and Reading, speculated that the actual job cuts could have to be deeper to achieve a net work force reduction of 1,500.
“They’re going to gain some jobs in Mexico ... so there’s going to be a higher number lost” in the U.S. and Canada, Bomberger said. “Whenever they move something out the country, that’s not good news for any company from the workers’ standpoint.”
Saville declined to discuss any details about the job cuts or the Mexico plant. Hershey managers began holding meeting with employees Thursday to discuss the changes ahead.
“We will communicate with our employees and (their) union representatives,” he said.
Hershey’s stock rose 1.6 percent Thursday on the New York Stock Exchange, to close at $52.10, up 80 cents.
Hershey, the nation’s largest candy maker, reported a 10 percent drop in fourth-quarter earnings last month on lackluster sales. Results lagged due to weak merchandising, the company said, as well as a recall of products made at a plant in Canada last year after salmonella bacteria was discovered.
Reaction to Thursday’s announcement among financial analysts was mixed.
“Bottom-line, this plan should provide (Hershey) with far more marketing firepower, behind which to invest in its core brands ... as well as new platforms,” such as premium chocolate and dark chocolate, “while still delivering margin improvement,” wrote Andrew Lazar of Lehman Brothers.
Wachovia Securities analyst Jonathan P. Feeney said the plan leaves fundamental problems unaddressed.
“We are skeptical that pulling capacity out of the system while allocating capital away from the core business accomplishes the critical mission, which is to reinvigorate consumer response to its core chocolate products,” Feeney wrote.
The company said it will outsource production of low value-added items and that the new Mexico plant would help meet growing demand for its products in that country.
“The long-term benefits will include a significant, sustainable increase in investment behind Hershey’s iconic brands and new product innovation, as well as targeted, profitable international expansion,” said Chief Operating Officer David J. West.
Hershey reaffirmed its long-term target for sales growth of 3 percent to 4 percent.