HERSHEY, PA – The Hershey Co. is adding capacity to several brands to keep pace with strong consumer demand. The company is seeking to alleviate constraints that limited its performance during the third quarter of fiscal 2021.

Hershey’s Reese’s brand, for example, was affected by the capacity issues. Third-quarter retail sales grew 10%, building on last year’s third quarter growth of 25%, according to the company.

“We have added three new manufacturing lines over the past four years as well as expanded peanut roasting capacity, but it still has not been enough to keep pace with this significant increase in demand,” said Michele G. Buck, chairman, president and chief executive officer, during an Oct. 28 conference call to discuss third-quarter results. “New Reese’s capacity is on track to come online throughout 2022 and 2023 to help support this tremendous growth.”

Strong consumer demand led to a good quarter for The Hershey Co. Net income for the period ended Oct. 3 was $445 million, equal to $2.22 per share on the common stock, down narrowly when compared with the same period of the previous year when earnings were $447 million, equal to $2.21 per share.

Sales for the quarter were $2.36 billon, up from $2.22 billion the previous year.

“Consumer demand for our brands has remained robust on both a one and two-year basis,” Ms. Buck said. “Our continued focus on operating with speed and flexibility has enabled us to respond quickly to changes in the marketplace and develop plans we believe will enable us to maintain elevated consumer demand, increase our supply chain output, and sustain our advantaged margin structure over the long term.”

Hershey’s North America business unit sales rose 5.5% during the quarter to $2.21 billion. The increased demand impacted inventories.

“Consumer demand was even stronger in Q3, with measured channel retail takeaway growth of almost 9% and non-measured channel growth of over 10%,” Ms. Buck said. “Changes in year-over-year inventory levels versus the prior-year period resulted in an approximate 6-point headwind to sales growth this quarter.

“While we expected inventories to contract in the third quarter, the contraction was larger than we anticipated as capacity constraints, labor shortages, and unprecedented levels of disruption in the broader supply chain network limited our ability to increase production commensurate with this significant increase in consumer demand.”

To offset the headwinds the company is adding capacity and is adding headcount to not only increase production but provide employees with more flexible scheduling and time off.

“Our board of directors approved an additional $200 million of capital in August to add more capacity on constrained brands, particularly Reese’s,” Ms. Buck said. “Our supply chain and commercial teams have partnered to further optimize and prioritize our SKUs to reduce complexity and maximize output while ensuring that we continue to support strategic initiatives for our long-term growth aspirations.

“We optimized our marketing investment to alleviate pressure on our capacity constrained brands, and last month we executed a high single digit price increase on approximately 60% of our US confection products.”

Following the third quarter, Hershey management raised full-year guidance for both sales and earnings per share. Sales are now expected to be in the range of 8% to 9%, up from the previous range of 6% to 8%. Earnings per share are now expected in a range of $6.88 to $7.04, an increase of 13% to 15% from $6.11 in fiscal 2020.

Looking ahead to fiscal 2022, Steven E. Voskuil, chief financial officer, said he expects price to be the larger contributor to overall growth in 2022, supported by pricing actions taken this year.

“Supply chain costs, specifically logistics, labor, and packaging, are expected to remain elevated, at least through the first half of the year, while raw material inflation is expected to be higher relative to 2021, as we had minimal impact this year,” he said.