The Hershey Company has posted an increase in third quarter sales of 3.3%, but the maker of Hershey Kisses and Reese's peanut butter cups said that the results were disappointing, taking a somewhat cautious look at full year expectations.

Sales for the quarter ended 1 October increased to US$1.41bn, up from $1.37bn reported for the comparable period of last year. Net income totalled $183.7m, or $0.77 per share, up from $114.2m, or $0.46 per share. Expense control and the impact of the company's share buyback scheme resulted in an 8.3% increase in EPS, Hershey noted.
Excluding the impact of net pre-tax charges of $1.7m and $101.4m, or $0.01 and $0.26 per share respectively, Hershey would have earned $0.78, or $184.8m during the quarter.

"Hershey's results for the third quarter were below expectations," said Richard Lenny, chairman, president and chief executive. "Following a period of sustained in-market success, we experienced a slowdown in consumer takeaway and thus, a loss of market share. While we had solid growth within both our sugar confectionery and refreshment businesses, within chocolate, the shift from line extensions with lower incrementality to more sustainable value-added platforms has taken longer than anticipated."

Lenney added that the company's seasonal performance remains strong, with Halloween sales off to a good start.

Hershey said that it aimed to increase its leadership in the chocolate sector by increasing its presence in the premium category. "The objective for the balance of 2006 is to regain Hershey's marketplace momentum by focusing on new platforms and advantaged customers. Therefore, we've significantly increased our consumer and customer support. This investment will strengthen Hershey's leadership position within chocolate by leveraging our core brands and delivering strong introductory programming for the new platforms, most notably Cacao Reserve," Lenny stated.

In line with this strategy, in a separate announcement Hershey revealed the acquisition of natural and organic premium chocolate company Dagoba Organic Chocolate.

Looking ahead, Hershey said it expects net sales growth for 2006 to be within its long-term 3% to 4% growth range and the increase in diluted earnings per share from operations to be slightly below its 9% to 11% expectations.

For 2007, the company projected that both revenue and earnings would be in the range of its long-term goals. "Our strategic focus will be to accelerate growth behind Hershey's core brands, successfully build new platforms, primarily in dark chocolate and refreshment, and better leverage Hershey's scale at retail. While we anticipate somewhat higher input costs in 2007, we're working on plans to address these cost pressures," Lenny concluded.

After the results release yesterday (19 October), shares in Hershey dropped from an open of $50.45 to close at $50.38.