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Hershey fourth quarter profit rises

January 27, 2009 10:55:39 AM PST
Hershey, the nation's second-biggest candy maker, said Tuesday that its fourth-quarter sales and profit rose, helped by lower restructuring costs, higher prices and a huge advertising investment behind its core Reese's and Hershey's brands. The Hershey Co. earned $82.2 million, or 36 cents per share, in the fourth quarter, up from $54.3 million, or 24 cents per share, a year earlier, when it was spending heavily to expand overseas and streamline its domestic supply chain.

Shares rose $1.65 in morning trading, or 4.7 percent, to $36.75.

President and Chief Executive David J. West credited a 26 percent boost in advertising spending with fueling sales in spite of the impact of higher commodity costs and unfavorable foreign currency-exchange rates.

"That focus on the core (brands) is clearly paying off for us," West told analysts on a conference call. "We are more efficient and profitable by getting that core to work hard for us and we think that strategy is still working out."

The positive results capped a year in which Hershey pulled out of a two-year skid that claimed the jobs of West's predecessor and a majority of the board.

The company revamped its domestic strategy to adjust to toughening competition and revive lackluster sales, and has gotten some relief from easing dairy and gas prices.

Hershey also is nearing the end of a costly, $600 million effort announced in 2007 to close underperforming domestic plants and shift more production to countries where labor is cheaper and consumption growth is explosive. Fourth-quarter costs for the restructuring were $34 million, compared with more than $90 million in the fourth quarter of 2007.

Sales climbed 2.6 percent to $1.38 billion from $1.34 billion, to meet a consensus estimate of analysts by Thomson Reuters. West said sales in the fourth quarter would have been about 2 percentage points higher, but customers bought more in the third quarter to beat an August price increase.

Although overall sales volume declined, West said the company has reversed its declining market share, thanks to the advertising blitz. The Hershey, Pa.-based company also makes Bliss chocolates, Mr. Goodbar, York peppermint patties and Ice Breakers gum and mints, and employs about 12,000 worldwide.

Stifel Nicolaus & Co. analyst Christopher Growe, who has labeled Hershey shares a "sell," said in a client note that chocolate trends showed signs of improvement, but not enough to sustain the stock's current price.

Citigroup analyst David Driscoll, who has a buy rating on the company, said Hershey turned in solid sales and margin growth.

"We continue to believe there is significant upside to the stock given current valuation levels," he wrote in a client note.

Not counting 23 cents per share in charges related to its restructuring and a charge related to trademark values, Hershey earned 59 cents per share.

Analysts surveyed by Thomson Reuters forecast profit of 54 cents per share. The estimates typically exclude one-time items.

For all of fiscal 2008, Hershey reported sales of $5.13 billion, up 3.8 percent from $4.95 billion in 2007. Full-year profit came to $311.4 million, or $1.36 per share, compared with $214.2 million, or 93 cents per share for 2007.

Hershey reiterated its expectations for 2009 of sales growth of 2 percent to 3 percent and profit to grow below the company's long-term goal of 6 percent to 8 percent.

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