Easter Bunny Stealing Hershey's Profits?

Hershey (NYSE: HSY  ) just can't seem to get it together. Last year's well-publicized issues triggered a major management change, but the new folks seem to be having the same issues that the previous team had.

I'm not sure what left the most bitter aftertaste: a 0.6% increase in sales for a quarter that featured an early Easter, or a 16% jump in SG&A expenses. Cost of goods sold rose 6%, but that's more understandable, given the recent increases in commodity prices, especially in the milk that makes Hershey's chocolate so good. Accordingly, EPS dropped by 28%, from $0.51 to $0.37, excluding special charges.

Out of this distasteful report of numbers, though, I think the worst part of today's first-quarter earnings release was the explanation for the failure. This time, Hershey has blamed the Easter Bunny for its trouble, citing an "unusually early Easter" combined with the Ice Breakers PACS rollout for revenue hits.

An early Easter could have meant less people bought candy (somewhat unlikely), but if anything, it should have delivered more quarterly revenue, since the entire Easter season was contained in the quarter. Does an early Easter mean that Americans decided to forgo Reese's Peanut Butter Eggs in mass quantity? I don't think so.

This does not fare well for the Hershey's team, and it will certainly reinforce lingering speculation regarding a merger with Cadbury Schweppes (NYSE: CSG  ) , which saw 7% first-quarter confectionary revenue growth on higher prices. Increasing prices doesn't look like a bad idea these days, with ConAgra (NYSE: CAG  ) and General Mills (NYSE: GIS  ) raising prices to avoid margin erosion, which ultimately leads to a declining bottom line.

Hershey has to be hoping that its new product offerings, including a joint venture with Starbucks (Nasdaq: SBUX  ) , will boost sales soon. Long term, the company needs to get SG&A costs in line, closely monitoring new management and product launch expenses, because commodity prices don't look like they'll be declining anytime soon. The Easter Bunny only comes once a year, so he can't be blamed for future misses.

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