US confectioner Hershey has insisted that it will continue to improve its gross margins in the face of rising commodity costs.
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Speaking during a conference call with analysts, Hershey president and CEO David West said that the group anticipated higher dairy prices in the fourth quarter and on into 2010. Meanwhile, cocoa and sugar prices have also increased to recent highs.
However, West said that Hershey expected margin expansion to continue in the fourth quarter, although “at a slower rate” than in the year-to-date.
West added that Hershey would continue to offset these increased input costs in fiscal 2010.
“Next year, we have some additional savings from our Global Supply Chain Transformation programme and some top-line growth that will help us offset higher commodities. We’re still targeting 6-8% [earnings growth] next year,” he said.
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By GlobalDataHershey has pushed price increases of 10-11% through this year, driving the group’s sales, which remained relatively flat in the third quarter at US$1.48bn.
Volumes declined in the first nine months of the year, West acknowledged. Nevertheless, he added that Hershey is “pretty much in-line or slightly ahead” of “where we want to be” in terms of volumes, given the expected impact of price increases.
Maintaining sales volumes despite price increases and the “challenging” economic environment was achieved thanks to the company’s growing investment in advertising, management suggested. In the year-to-date, advertising spending is up 49%, while for the full year, Hershey expects to increase its spending on advertising by 50%.
“We’ve really got our P&L model shifted around so that we are able to get gross margins up but also able to reinvest,” West said.
