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July 20, 2007

US: Hershey profits tumble in H1

US confectionery group Hershey has recorded a sharp drop in net income for the first half of the year from US$220.4m to $97m due to costs from its global supply chain revamp.

US confectionery group Hershey has recorded a sharp drop in net income for the first half of the year from US$220.4m to $97m due to costs from its global supply chain revamp.

The company also warned of a decline in earnings per share for the full year.

Charges related to the plan, which was announced in February, totalled some $164.8m.

However, net income from operations excluding net charges, was also down, falling by 7% to $200.5m. Sales were marginally higher at $2.2bn.

“Hershey’s results during the first half did not meet expectations,” said CEO Richard Lenny. “Focused investment behind our core brands has proven to be beneficial. However, new product innovation must become more sustainable. We fully intend to address this through accelerated close-in core brand innovation and new product platforms, primarily within dark and premium chocolate.”

Lenny added “solid progress” had been made on Hershey’s strategic initiatives, and that the global supply chain revamp was on track.

The company reported that construction was well underway at its manufacturing facility in Mexico, while in India official approval had been received for its joint venture Godrej Hershey Foods and Beverages Co. “The business is now up and running and we expect this to be a major contributor to Hershey’s growth over the long term,” Lenny said, adding that in China, Hershey’s manufacturing joint venture with Lotte was on schedule with production having begun.

However, while Lenny said Hershey expected sequential improvement in organic net sales in the second half, earnings per share were expected to show a decline for the full year. “Higher dairy costs will continue to pressure margins for the balance of the year, and combined with our commitment to brand investment, will result in a mid-single digit decline in earnings per share-diluted from operations for 2007,” he said.

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