Hershey 2Q Profit, Sales up After Price Increase

July 23, 2008 6:38:10 AM PDT
A price increase and streamlined production lines helped Hershey to a dramatically higher second-quarter sales and profit, the company said Wednesday, as the nation's largest candy maker absorbs spiraling commodity costs and puts new emphasis on marketing muscle. The Hershey Co. said it earned $41.5 million, or 18 cents a share, for the three months ended June 29, compared with last year's second-quarter gain of $3.6 million, or a penny per share, as it spent heavily to transform its production lines.

Sales rose 5 percent to $1.1 billion, boosted by a price increase and growth in some key brands, while Hershey reaffirmed its 2008 guidance of sales growth of 3 to 4 percent and earnings of $1.85 to $1.90 per share.

The upbeat report from Hershey comes as it works to pull out of two years of lackluster sales amid toughening competition, volatile dairy and cocoa prices, and a costly effort to shift production overseas to where populations are younger and growing faster.

Company president and Chief Executive David J. West said a new marketing plan, marked by a 30 percent increase in spending, is driving an improved performance in the relatively slow-growing, but dominant U.S. candy market.

"We're pleased with our U.S. marketplace performance in the second quarter as we improved in all classes of trade," West said in a statement. "The category has and will continue to grow."

Discounting pretax charges of $39.3 million, or 11 cents a share, the Hershey, Pa.-based maker of Hershey's Kisses and Reese's said it would have earned nearly $67 million, or 29 cents a share.

Based on those numbers, analysts surveyed by Thomson Financial expected 28 cents per share. Still, after discounting pretax charges, Hershey earned more in last year's second quarter, $81.7 million or 35 cents a share.

In January, Hershey boosted wholesale prices by 13 percent on about one-third of its domestic candy line, including many of its biggest-selling products.

Hershey is also in the process of closing six U.S. and Canadian plants and cutting more than 3,000 jobs, while it looks to a new plant in Mexico and joint ventures in India, China and Brazil to capitalize on booming growth in those countries.

For the first six months of 2008, Hershey gained $104.7 million, or 46 cents a share, not including pretax charges, compared with $97 million, or 42 cents a share, in the first half of 2007. Sales rose 2.8 percent in the six-month period to $2.27 billion.