HERSHEY, PA. — High dairy prices and slow improvement in the company’s U.S. business contributed to a sharp decline in income for The Hershey Co. during the second quarter.
Hershey posted net income of $3,554,000, equal to 2c per share on the common stock, for the quarter ended July 1, down 96% compared with $97,897,000, or 42c per share, during the same quarter of the previous year.
Net sales were $1,051,916,000, nearly flat compared with $1,051,912,000 during the same quarter of the previous year.
"Results for the second quarter were in-line with the expectations that were communicated in May," said Richard H. Lenny, chairman, president and chief executive officer. "Higher dairy prices and a slower-than-expected improvement in the U.S. business adversely impacted results for the second quarter. Focused investment behind Reese’s, Hershey’s, and Kisses delivered a 4% gain in retail takeaway on these brands. In addition, retail sales of dark and premium chocolate, behind stronger programming, achieved sequentially higher growth. However, this performance was more than offset by lower velocities of some previously introduced new items and heightened competitive activity within the refreshment segment. As a result, total retail takeaway was down slightly, 0.4%, for the quarter."
The second-quarter results also included a net pre-tax charge of $124.4 million as a result of the global supply chain transformation program the company announced in February.
For the six months ended July 1, net income was $97,027,000, or 43c per share, down 56% from $220,368,000, or 95c per share, during the same period of the previous year. Net sales for the period were $2,205,025,000, nearly flat compared with $2,191,419,000 during the first half of fiscal 2006.
"Hershey’s results during the first half did not meet expectations," Mr. Lenny said. "Focused investment behind our core brands has proven to be beneficial. However, new product innovation must become more sustainable. We fully intend to address this through accelerated close-in core brand innovation and new product platforms, primarily within dark and premium chocolate."
Mr. Lenny said high dairy costs will continue to pressure margins for the remainder of the year.