US: Hershey sees profits beat expectations

Hershey, the US chocolate giant, said today (27 January) that its quarterly profits had beaten expectations as higher marketing spending and price increases boosted sales.

The company posted a 51.2% jump in fourth-quarter net income to US$82.2m for the three months to 31 December. Sales rose 2.6% to $1.38bn.

Hershey's profits included pre-tax charges of $79.7m due in part to the ongoing revamp of the company's supply chain. The figures also included a non-cash impairment charge of $45.7m, which was related to trademark values, primarily of macadamia nut brand Mauna Loa.

Excluding these charges, net income stood at $133.8m, a rise of 7.8% on the year.

During the fourth quarter of the year, Hershey said the supply chain revamp had increased "modestly" to include the closure of two manufacturing facilities of its subsidiary Artisan Confections Co.

Hershey said its revamp had generated savings of $81m. The company estimated that total ongoing annual savings would reach $175-195m by 2010.

Reflecting on Hershey's fourth-quarter results, president and CEO Dave West said the company had had "a solid end to the year". The company's performance, West said, "further validated" its strategy of focusing investment on core brands.

Hershey has struggled in recent years amid growing competition in the US from the likes of Mars, while the company had also been slower than its rivals to invest into the world's emerging confectionery markets.

Under West, Hershey has looked to increase advertising spending in a bid to win back market share in the US. West said Hershey had spent 26% more on advertising in the US than a year ago.

"Focused investment behind the Reese's and Hershey's brands delivered an 8% gain on retail takeaway for these franchises, in the channels that account for over 80% of our retail business," West said.

West said that Hershey's profits in the fourth quarter were "slightly ahead of our expectations" as sales volumes and mix trends surpassed the company's estimates in August, when it raised prices by 11%.

Hershey's annual sales rose 3.8% to $5.13bn. Reported net income jumped from $214.2m to $311.4m. Excluding charges linked to the supply chain revamp and to trademark values, net income from operations stood at $430.5m, down from $481.8m a year earlier.

West said commodity and financial markets remained "volatile" but said an estimate of the company;'s commodity cost bill fell from $225m to $175m. However, that fall was offset by a $70m increase in pension costs.

Looking ahead to 2009, West said Hershey expects to see net sales rise by 2-3%. Diluted earnings per share are expected to rise on the level seen in 2008, which stood at $2.08.

However, West added: "Due to the unprecedented commodity and pension cost increases, higher levels of core brand investment spending and current macroeconomic conditions, we expect growth to be at a rate below our long-term objective of 6-8%."