The outlook for the rest of Hershey’s financial year looks “muted”, a leading analyst has warned, despite the US chocolate giant booking a near-doubling in first-quarter profits.
The Reese’s maker yesterday (22 April) posted net income of US$147.4m for the three months to 4 April, against $75.9m a year ago.
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Net sales jumped almost 14% thanks to a strong Easter for Hershey and a 68% hike in advertising spend in the US.
The performance prompted Hershey to forecast “a low-to-mid-teens” percentage increase in diluted, adjusted earnings per share.
Hershey is also now targeting annual sales growth of at least 6%, including an around “one-point” benefit from foreign exchange. Hershey’s long-term objective for sales growth is 3-5%.
“Hershey’s first-quarter results were strong and reflect the momentum of our core brands in the marketplace. The global investments we have made in marketing and selling capabilities are starting to pay off and we see it in our reported results, retail take away and market share,” president and CEO Dave West told analysts.
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By GlobalDataWest plans to plough more cash into advertising. Hershey is now looking to spend 35-40% more on advertising this year, compared to an earlier estimate of a 25-30% increase.
“We’ll increase advertising levels on some existing brands and in some geographies. We’ll also test return-on-investment thresholds, driving techniques and expand our digital marketing capabilities,” West said.
Hershey’s shares closed up more than 7% in New York last night. Sanford Bernstein analyst Alexia Howard recognised that Hershey had had a “monster” quarter, with US sales up 5.5% excluding Easter and the company improving its market share by 0.5%.
However, Howard sounded a note of caution on the outlook for the business for the rest of the year.
“Management commented that they over-delivered in the quarter, and expect Q2 through Q4 trends to be more modest,” she said.
“Moreover, commodity cost tailwinds in the first quarter of 2010 are expected to turn into headwinds for the rest of the year, and price growth is likely to slow going forward as the company has now anniversaried the timing of pricing actions taken over the past 18 months. As a result, margin expansion is likely to be more modest going forward.”
