The Hershey Food Company was founded in 1905 by Milton S Hershey and went into public in 1927. The Company has it's headquarter in Hershey, Pennsylvania an unincorporated village within Derry Township and employed some 6200 of the township's 21,000 residents.
Objectives of the Company
Twin goals behind the creation of the Hershey Food Company
1. To be a Pioneer in the mass production of chocolate.
2. To Create Utopian Community.
Milton Hershey Goal - To Create "Sweetest Place on Earth"
Company deals in..
Following Chart Depicts the product groups in which the company deals with.
Some of the popular brands of Hershey Group in...
Control on the Market
Hershey Food control a large portion of chocolate market, however since 2001 there is
increasing competition from Mars and Nestle, but still the company is determined to maintain
it's market share.
Competitors at a glance
Mars and Nestle are the competitors to the Hershey Food, in 2002 Mars a private
limited company holds approximately 27% of the market whereas Nestle a public
limited company holds 12% of the market.
Both are more diversified companies dealt in cat and dog food products among non
chocolate items, had sales of $64.3 billion and $16.2 billion in 2002.
STRATEGIC ANALYSIS OF THE COMPANY
Strategic Posture.
Strategic posture of the company can be studied and analysed under four major heads viz,
Current Mission
Current Objectives
Current Strategies
Current Policies
STRATEGIC ANALYSIS OF THE COMPANY
Strategic posture of the company can be studied and analysed under four major heads viz,
Current Mission
Current Objectives
Current Strategies
Current Policies
A. PAST PERFORMANCE INDEXES
Holding large portion of Chocolate Market
In 2002 - Had Increasing competition from Mars and Nestle, but determined to maintain
its market share
Hershey Trust Company - Responsible for M S Hershey Foundation, the Milton S
Hershey School and the Milton Hershey School Trust
Laying off of 400 employees.
Refusal to allow the school to advertise on Hershey Candy bars.
B. STRATEGIC POSTURES
CURRENT MISSION: - To be pioneer in the mass production of chocolates
Positive Factors :
There is no change in the Mission of the company.
Mission statement paves the way to lead the production of chocolates in the chocolate industry.
Negative Factors:
Mission statement would have included much more broader scope, the same is confined to production of Chocolates
Comments:
Adequate Efforts were not put-in to accomplish Mission
Change in the strategic bearings has adversely affected the company in achieving its mission
CURRENT OBJECTIVES: To Create a utopian community
Positive Factors:
An Overall development of the town
Negative Factors:
The Objective was purely based on the assumptions
Comments:
Less Practical to plan an Ideal Community.
Creating a utopian community is a imagination of a community with some of the illusionary factors which will never be brought into existence.
CURRENT STRATEGIES: - Increase in the "Shareholders value"
Positive Factors:
Increase in the Company's Profit
Increase in the returns to the shareholders
Negative Factors:
Share holders becoming Board of Directors
Comments:
Complete dilution of Board of Directors Authorities.
Company cannot run on "Whims & Fancies" of all the members.
Biased approach - threat to the development.
CURRENT POLICIES: Cost Cutting and outsourcing.
Positive Factors:
Reduction in Administrative Cost
Reduction in Labor Cost
Reduction in Fixed Cost
Negative Factors:
Lay-off of the Employees (Reducing the %age of Township-6200)
Comments:
A step against the mission of the company
SWOT ANALYSIS
II. CORPORATE GOVERNANCE
A. BOARD OF DIRECTORS
Board of Directors of the Company
Jon A Boscia, Chairman and Chief Executive Officer of Lincoln Financial Group in Philadelphia, PA
Robert H Campbell, Chairman of Board and CEO of Sunoco, Inc. In Philadelphia, PA.
Gary P Coughlin, Senior Vice President and CFO of Abott Laboratories.
Bonnie G Hill, President of B Hill Enterprises in Los Angeles, CA.
J Robert Hillier, Chairman of the Board and Founder, The Hillier Group, Princeton.
John C Jamison, Chairman of Mallardee Associates, Williamsburg.
Richard H. Lenny, Chairman of the Board, President and CEO of Hershey Foods Corporation.
Mack J Mc Donald, Chairman, President and CEO of VF Corporation.
John M Pietruski, Chairman of Board of Texas Biotechnology Corporation.
Positive Factors:
Learned & Experienced Board of Directors
Board of Directors from different disciplines
Negative Factors:
Relationship of the Company with the Trust
Devotion of Board of Directors
Payment and Status of the Directors
Comments:
Company's Board of Directors failed to maintain good relation with Hershey Trust.
Lack of Willingness to defer for the trust
Highly paid, possessing high status.
B. TOP MANAGEMENT
Positive Factors:
Top management of the company comprise the most experienced and competent personals in their respective fields.
Top management maintained the integrity and trusts in the beginning of the years and builds up the giant empire.
Negative Factors:
Top management did not succeed in retaining the Board Member, as we can see the quitting of some of the experienced directors.
Losing of the trust of the community in large and Board in specific, as votes were casted to remove Wolfe and Dick Zimmerman.
Comments:
Top management is responsible for the management of day-to-day business, if we see the ratio analysis company's top management had not performed the responsibilities casted on them.
Top management has to review some of the decisions made on laying off of employees in the name of cutting down the expenses.
EXTERNAL ENVIRONMENT
SOCIAL ENVIRONMENT
Positive Factors:
Provided Employment to most of the people of the Derry town
Governed by the School established for imparting education to Orphans.
Contributions made to the society of Derry Town ship by establishing different Entities, some to mention-Hershey School, Museum, Garden, Theatre & community achieves.
Negative Factors:
Breakdown in the relationship between Community and Trust
Laying off of the Employees for cost cutting
Comments:
Trust should regain the trust of the community
INTERNAL ENVIRONMENT
CORPORATE STRUCTURE
Positive Factors:
1.Diversified structure
2.Includes Non-Profit Organizations, such as Hershey School & Hershey Foundation
Negative Factors:
Comments:
CORPORATE RESOURCES
I. MARKETING
Positive Factors:
Strong and dedicated marketing team.
Marketing strategy adopted by the company took it to the global level.
Negative Factors:
Comments:
Widespread popularity of the products throughout the world indicates that the marketing strategies of the company were relevant and achievable.
II. HUMAN RESOURCES
Positive Factors:
Recruitment of competent employees.
Employment opportunities to the people of the town
Negative Factors:
Laying-off of the employees created chaos in the community
Comments:
Healthy environment maintained by the Founder Mr. Hershey was not continued
RATIO ANALYSIS
NET PROFIT RATIO
Why we do profitability analysis?
An analysis of costs and revenue to determine whether or not a venture will make a profit, if so then how much. This is important information in deciding whether to make an investment. The length of time required to repay the initial investment can be a critical factor.
ANALYSIS
It measure the profitability of a business through an increase in ratio over the previous period indicates the improvement in the operational efficiency of the business provided the gross profit ratio is constant.
FORMULA
Net Profit after Taxes/Net Sales
GRAPH
INFERENCE
Increase in After-tax profits shows increase in the profit generated by each dollar of sales every year.
It also indicates company's concentrated and focused effort to increase the profitability.
Constant increase in the above ratio, year after year is definite indication of improving conditions of a business.
RETURN ON INVESTMENT
ANALYSIS
It measures the rate of return on the total assets utilised in the company.
It also measures the management's efficiency.
FORMULA
Net Profit after Taxes/Total Assets
GRAPH
INFERENCE
Decreasing trend in the ratio of return on investment shows there is no optimum utilisation of the assets of the company
It also depicts management's in-efficiency in properly channelizing the company's resources.
INVENTORY TURNOVER RATIO
ANALYSIS
It measures the number of times that average inventory of finished goods was sold
during a period of time usually a year.
FORMULA
Net Sales/Inventory
GRAPH
INFERENCE
Analysis shows that, there is a increase in inventory sales in the year 2000 as
compared to the 1999, further in the year 2001 the sale is increase, signifying
the company's efficiency to increase the sales.
CURRENT RATIO
ANALYSIS
It indicates company's ability to pay its short term liabilities from short term assets
FORMULA
Current Assets/Current Liabilities
GRAPH
INFERENCE
The ratio equal or near to 2:1 is construed as normal or satisfactory ratio, but in this case current ratio is below the standard.
High current ratio indicates that the company's liquidity is satisfactory and it has the ability to pay its current obligations in time, whereas a relatively low current ratio represents the liquidity position of the company is not good and hence not able to pay its current liabilities in time.
On an average company's current ratio is near to 2 and the same is not relatively low, signifying satisfactory ratio of the company.
INVENTORY TO NET WORKING CAPITAL
ANALYSIS
It measures the inventory balance, it also measures the extent to which the cushion of excess
current assets over current liabilities may be threatened by unfavourable changes in inventory.
FORMULA
Cash + Cash equivalent/Current Liabilities
GRAPH
ASSET TURNOVER RATIO
ANALYSIS
Measures the utilisation of the company's asset
Measures how many sales are generated by each dollar of asset.
FORMULA
Sales/Total Asset
GRAPH
INFERENCE
It is obvious from the graph there is increasing trend in asset turnover ratio, that the assets are properly utilised for the purpose of the generating the sales.
Higher the ration, greater is the concentrated or exhaustive utilization of the assets.
Company has proved its efficiency and profit earning capacity by optimum utilisation of assets.
AVERAGE COLLECTION PERIOD
ANALYSIS
It indicates average length of time in days that a company must wait to collect a sale after making it.
FORMULA
Accounts receivable/Sales ÷ 365
GRAPH
INFERENCE
The average collection period is ranging from 28 days to 33 days, this is good sign,
as the debt collection period is short and also implies that the debtors are prompt
is payment.
ACCOUNTS PAYABLE RATIO
ANALYSIS
Indicates average length of time in days that the company takes to pay its credit purchases.
FORMULA
Accounts payable/Purchases ÷ 365
GRAPH
INFERENCE
The average payment period is ranging from 18 to 22 days, it signifies that the company
is not taking the full advantage of credit facilities provided by the creditors.
RETURN ON EQUITY
ANALYSIS
It indicates the rate of return on the book value of shareholders' total investment
in the company
FORMULA
Net profit after taxes/Shareholders' equity.
GRAPH
INFERENCE
Return on Equity ratio is a meaningful ratio the shareholders who are keen in knowing the profits earned by the company and also those profits which are made available as dividends.
The same is used for inter firm comparison, to determine whether the investments in the firm is attractive or not, as the investors would like to invest only where the return is higher.
OPERATING RATIO
ANALYSIS
It measures the cost of operations per dollar of sales.
FORMULA
[(Cost of goods sold+operating expenses)/Net Sales]*100
GRAPH.
INFERENCE
Operational ratio depicts the operational efficiency of the company.
Lower operating ratio shows the higher operating profit and vice versa
An operating ration ranging from 75% to 80% is generally considered as standard for manufacturing concerns.
In the above case the ratios are above the standard, it means the company has good operational efficiency.
FINDINGS
The Net Profit of the company has decreased continuously from 1999 to 2001 continuously. The ratio was 0.12 in the year 1999 and it has come down drastically to .05 in the year 2001.
In the case of return on investment the ratios were 0.14, 0.10 and 0.06 from the year 1999, 2000 and 2001 respectively, it has also been decreased significantly, raising a question on the efficiency of the management with respect to under utilisation of the assets of the company in generation of the profits.
Inventory Turnover ratio shows the number of times that average inventory of finished goods was sold during a period of time usually a year, a consistent growth in the ratio was noticed year by year in inventory turnover ratio, The ratios were 6.59, 6.97 and 8.90 for the year 1999,2000 and 2001 respectively.
Current ratio of the company lies near to the standard ration of 2:1, the ratio being 1.80, 1.69 and 1.93 for the year 1999, 2000 and 2001 respectively. This indicates that company needs to enhance its ability to pay its short term liabilities from the short term assets.
The inventory to networking capital has considerably decreased in the year 2000 as compared to the ratio in the year 1999 and again it has increased to the same ratio in the very next year i.e., 2001, The ratios are 0.19, 0.04 and again 0.19 for the year 1999,2000 and 2001 respectively.
It is been observed that there is increasing trend in asset turnover ratio, indicating the proper utilisation of the assets for the purpose of the generating the sales. The ratios are 1.19, 1.22 and 1.40 showing a continuous increase for the years 1999, 2000 and 2001 respectively.
Average collection period ratio indicates average length of time in terms of days that a company must wait to collect the amount of sale taken place after making the same, The average collection period in the case of Hershey Foods Company ranges from 28 days to 33 days, this is good sign, as the debt collection period is short and it also implies that the debtors make the payment promptly, without any delay.
There is triangular variation in case of Accounts payable ratio, being 21.17, 22.04 and 18.22 for the year 1999,2000 and 2001 respectively, in the last year of operation in the period considered, the same has drastically come down from 22.04 to 18.22. The average payment period adopted by the company in discharging the creditors' liability ranges from 18 to 22 days, it shows that the company is not utilising the full advantage of credit facilities provided by the creditors.
There is deep decline from 0.42 to 0.18 with a periodical distance of 1 year that is from the year 1999 to the year 2001. This ratio in particular is of much concern to the share holders who keep an eye on the profitability of the company since the same forms the base for the dividend distribution. In this case company has failed to maintain the consistent profitability ratio since it has experienced the decline in the return on equity ratio.
Although operating ratio has experienced a fall in the year 2000 but the same has recovered in the very next year 2001, the value in 1999, 2000 and 2001 are 85.94, 85.25 and 86.36 respectively.
CONCLUSION
Hershey Food Company has got good scope to be a leading chocolate manufacturer in the world as it controls major share in the chocolate market, having accelerated chocolate productivity and production.
Areas of Concern in particular recommended.
The areas on which company should specially concentrate can be listed as below.
Reduction in the administrative, selling & Distribution and other expenses.
Review of the decision taken with respect to the divestment.
Review in the decision taken for closing the plants.
Utilization of the company's assets in the best possible manner as mentioned and discussed above.
Increase in the credit period available from the creditors.
Enhancement of company's ability to pay or discharge its short term liabilities.
Some of the other related recommendations would be this organisation being a pioneer in chocolate manufacturing industry serving the society in a larger scale and diversified business which includes non profit making organisation like school for orphanage. The company facing crunch in the profitability we recommend that the company should function to at least increase the share holders' value. In view of the same, the following recommendations are made.
If the company has got any idle capacity, it is advisable to utilise the same to gear up the earning capacity. Regain the confidence and trust of the community of Derry Township.
The company should try to the level best to reduce the expenses enhancing the company's profitability and return on investment as both the factors have an considerable impact on the share holders and prospective investors decisions, since the company is looking forward to increase the shareholders value.
Though the return on investments is not satisfactory, the company has got ample of capital assets which can be utilized to rectify the adverse situations faced by the company.
