Pricing, advertising drive Hershey earnings

by Staff
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HERSHEY, PA. — Price increases and stepped-up advertising helped drive a 72% gain in net income at The Hershey Co. during the second quarter.

For the quarter ended July 5, the company had income of $71,298,000, equal to 32c per share on the common stock, which compared with $41,467,000, or 19c per share, during the same quarter of the previous year. The company had sales of $1,171,183,000 during the quarter, up 6% from $1,105,437,000 during the same quarter of the previous year.

"Despite the challenging economic environment, we have maintained strong momentum," said David J. West, president and chief executive officer. "As we enter the third quarter, we are well-positioned to deliver on our financial objectives. Brand-building initiatives are having the desired effect and have helped to mitigate volume declines due to price elasticity.

"We expect consumers to see markedly higher promoted price points in the upcoming Halloween and holiday seasons, which represent approximately one-third of our U.S. revenues in the second half of the year. Additionally, in the fourth quarter we begin to lap the August 2008 every day price increase. We intend to make necessary consumer investments to ensure the category continues to perform well in the second half of the year and are closely monitoring consumer and competitor response to our pricing models. Therefore, we are planning additional increases in advertising for the full year."

For the six months ended July 5, the company had income of $147,192,000, or 66c per share, up 41% from $104,712,000, or 47c per share, during the same period of the previous year. Sales for the quarter were $2,407,214,000, up 6% from $2,265,779,000 during the same period of the previous year.

Despite the positive earnings news, Hershey announced it is discontinuing its on-line gift business, Cacao Reserve brand and its partnership with the Starbucks Coffee Co. The on-line gift business was scheduled to be discontinued on July 31 and the company stopped shipping the Cacao Reserve brand during the second quarter. The Starbucks chocolate products are scheduled to be discontinued Oct. 1.

"These Q2 actions were not in our original 2009 plans," said Mr. West during a conference call with financial analysts on July 23. "Product currently on the shelf will sell through. Obviously these actions in gifts and premium will be a drag on second-half net sales growth detracting a couple of point of sales growth in Q4 versus our original plans.

Bert Alfonso, the company’s senior vice-president and chief financial officer, said Hershey’s new manufacturing facility in Monterrey, Mexico, is on schedule.

"We are on schedule with our implementation and entering the final phase of relocation, installation of manufacturing lines," he said.

Hershey also is expecting its net sales growth for the full-year 2009 to be in the 3% to 5% range, and the company is increasing its adjusted earnings-per-share growth to be slightly above the 6% to 8% range.

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