On the money: Hershey ups ad spend, focuses on innovation
Continued investment in core brands helped boost Hershey's earnings in the first quarter
Hershey has said it will increase its full-year advertising spend and focus on innovation during the remainder of the year after booking an increase in first-quarter profits this morning (24 April).
Continued investment in core brands in both the US and key international markets and price increases helped to boost Hershey's earnings in the firm's first-quarter.
The confectionery group booked a 24% increase in net profits to US$198.6m in the three months ended 1 April. EBIT amounted to $334.5m, a 20.9% increase on the prior-year period, while consolidated net sales climbed 10.9% to reach $1.73bn.
Heading into the remainder of the year, president and CEO John Bilbrey said advertising, new products, merchandising and programming, will allow Hershey to keep "on track" with its projections and "help mitigate declines" due to price elasticity.
"As we look to the remainder of the year we have many exciting new products, promotions and merchandising across all channels. Some of the activity we have planned includes programmes that will run throughout the key summer period... a couple of Twizzler programmes that will tie in with the upcoming Spiderman movie...as well as a summer Reese's and Coca-Cola promotion," Bilbrey told analysts on the firm's earnings call today.
He added that Hershey is on-track to increase full-year advertising expenditure, in the low double-digits, for the total company on a percentage basis versus last year. "[This will] support new product launches in core brands in the US and international markets," he said.
"We have innovation across all our markets over the balance of the year, but the ones we've talk about are the ones we're going to be focused on. We feel we have a good slate of innovation that will be beneficial to us."
Talking of the firm's acquisition of Canadian confectionery firm Brookside Foods in December last year, Bilbrey said the purchase will create additional capacity later in the year.
"This will help position us for a much broader expansion in the US market in 2013," he told analysts. "Today that business is doing very well and we will be able go much further in terms of capacity than we already have and we are excited about the potential of that. 2013 will be the big change in capacity and volume change."
Separately, Bilbrey said the company will implement pricing in the second and third quarters in a bid to offset high input costs, but added that it will be "nowhere near" as much as in the first quarter.
"We continue to estimate that the input costs will be higher in 2012 than last year. Despite this increase, pricing, productivity and cost initiatives are in place and at this time we estimate that full-year 2012 gross margin will increase 90-100 bps. In the quarter, gross margin widened to 42.9% from 41.9% in the comparable period last year.
"We feel very good about the financial performance of the company and we believe that over time we continue to deliver quality share growth," Bilbrey told analysts. "Sometimes you can look at numbers that might feel good but not be quality results but we are confident our numbers were quality results.
"Macroeconomic challenges still exist, however, and we feel good about the prospect that confectionery has proved to be resilient and the continued investment in the category in the form of innovation and advertising. Over the remainder of the year we are confident that our innovation, advertising and in-store execution will continue to drive top line growth," he added.
Hershey's share price increased 6.68% to $66.45 at 10:34 ET today.
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