Hershey 3Q profit up 30 pct, aided by lower costs

By MARC LEVY

posted: 34 DAYS 22 HOURS AGO

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HARRISBURG, Pa. -Hershey, the nation's second-largest candymaker, said Thursday that its third-quarter profit rose 30 percent, helped by price increases and lower restructuring costs.

The results beat Wall Street expectations, although The Hershey Co. shares plunged in morning trading after the company said third-quarter revenue dipped slightly and suggested it might discount its candy to win over dollar-conscious shoppers.

The fourth quarter will bring Halloween and Christmas — usually a brisk sales period for the maker of Hershey's chocolate bars, bite-sized Kisses and Reese's peanut butter cups — but consumers will be paying higher prices for Hershey's candies than last year.

That means some candy could be left on store shelves as shoppers look for cheaper prices.

Hershey's president and CEO, David J. West, promised a heavier marketing presence, including coupons, if it is necessary to help persuade dollar-conscious buyers.

"We'll make the necessary consumer investments in the coming weeks and months to ensure a healthy category and Halloween and holiday sell-through at the retail level," West said.

Halloween-specific promotions, merchandising and advertising are currently under way, and Hershey is planning a bigger advertising effort in the next three months, West said.

All told, that should boost Hershey's full-year, 2009 advertising expense by 50 percent above last year's, he said.

Consumers can expect to see some of that advertising effort centered around the December launches of Hershey's Bliss white chocolate and Hershey's Special Dark, Almond Joy and York Pieces, an expansion of the Reese's Pieces format.

In morning trading, Hershey's shares dropped $2.68, or 6.6 percent, to $37.99, a market reaction that Edward Jones analyst Jack Russo attributed to disappointment with Hershey's sales, despite its heavy investment in marketing and advertising.

"The market is looking at that more closely right now," Russo said. "A lot of companies have cut costs and trimmed expenses, and that's all well and good, but I think the market's going to reward companies where they see sales progress, so Hershey is going to have to work at it."

The Hershey, Pa.-based candymaker said it earned $162 million, or 71 cents a share, in the three months ended Oct. 3, up from $124.5 million in last year's quarter.

Excluding one-time expenses, such as costs connected to a three-year effort to consolidate its supply chain, Hershey said it would have earned $168.5 million, or 73 cents a share. In last year's third quarter, the company reported spending $20 million more on the streamlining effort.

Analysts expected 67 cents per share on revenue of $1.54 billion.

Revenue slid less than 1 percent to $1.48 billion, as the company cited artificially inflated sales in last year's third quarter because of heavy purchasing by retailers to beat an average 11 percent wholesale price increase on Hershey's candy.

That price increase took effect Jan. 1 at the retail level as Hershey sought to counteract high prices for cocoa and sugar, key commodities for the candymaker that are near record-high prices.

2009-10-22 11:04:20