US confectionery group Hershey has posted a 9.9% decline in fourth-quarter net income to US$153.6m, below analysts’ forecasts, with quarterly sales down by 0.7% at $1.34bn.
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The company’s chairman, president and CEO Richard H. Lenny conceded that the results were below par. “Hershey’s results for the fourth quarter were below expectations,” he said. “Although marketplace trends showed improvement, with retail takeaway up 3%, net sales declined by approximately 1% as growth from new product platforms and seasons didn’t offset slower base business shipments. Further, the impact of a product recall in Canada affected both sales and profitability.”
Lenny added that Hershey’s profitability was also affected by a higher level of obsolescence expense, in addition to the lower sales level and a sales mix profile that was less profitable than expected.
However, he said the company would be able to reverse these trends in 2007 with a growth plan driven by a step-up in core brand investment and support of new product platforms that is clearly focused on improving both sales and profitability.
For the full year, consolidated net sales were up by 2.6% at $4.94bn, with reported net income rising to $559m, or $2.34 per share-diluted, from $488m, or $1.97 per share-diluted, in 2005. “2006 was a difficult year for Hershey,” Lenny said. “Following a solid first half, we experienced a slowdown in retail performance. The necessary shift from line extensions to innovative new product platforms took longer than anticipated.”
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By GlobalDataLenny said the priorities for 2007 were to restore core brand growth through increased investment, accelerate programmes supporting new product platforms, and in selected high potential global markets, follow a disciplined approach in “pursuing appropriate growth opportunities”.
A. G. Edwards & Sons analyst Christopher Growe said the coming year would be “challenging” for Hershey, as competitors had picked up their marketing efforts. In particular, Mars has gained share at Hershey’s expense in the US market.
Hershey is forecasting that diluted earnings per share from operations for 2007 will increase by between 7% and 9% to between $2.54 and $2.58 a share, with sales expected to rise by between 3% and 4% to $5.14bn.
