Hershey 2Q profit, sales up after price increase

Raising prices and streamlining its production lines helped Hershey to dramatically higher second-quarter sales and profit, the nation's largest candy maker said Wednesday, even as it absorbs spiraling commodity costs and puts new emphasis on marketing muscle.

The Hershey Co. said it earned $41.5 million, or 18 cents a share, for the three months ended June 29, compared with last year's second-quarter profit of $3.6 million, or a penny per share, as it spent heavily to transform its production lines.

Sales rose 5 percent to $1.1 billion, slightly above analyst estimates. They were boosted by a price increase and growth in some key brands, while Hershey reaffirmed its 2008 guidance of sales growth of 3 percent to 4 percent and earnings of $1.85 to $1.90 per share.

Shares of the Hershey, Pa.-based maker of Hershey's Kisses and Reese's jumped $1.90, or 5.4 percent, to $36.85 in trading Wednesday.

The upbeat report comes as Hershey works to pull out of two years of lackluster sales amid tougher competition, volatile dairy and cocoa prices, and a costly effort to shift production overseas to where populations are younger and growing faster.

Company President and Chief Executive David J. West said a new marketing plan, marked by a 30 percent increase in spending, is driving the company's better performance in the relatively slow-growing, but dominant U.S. candy market.

"We're not satisfied with where we are, but we're pleased that we're starting to get some traction," West told analysts on a conference call.

Hershey's recent market share losses are flattening out, its high-end Bliss bar is the best-selling new product in the chocolate sector and the company is getting bang for its new marketing bucks, West said.

UBS analyst David S. Palmer said Hershey shares could rise in the coming months, considering it set a lowered threshold for success, commodity prices are beginning to ease and high-margin Bliss and Starbucks products are padding the bottom line.

However, Goldman Sachs analysts cautioned that Hershey's increased spending on sales and marketing will hurt margins, that competitive pressure could curtail sales and the rising price of its premium products could dissuade repeat customers.

Discounting pretax charges of $39.3 million, or 11 cents a share, Hershey said it would have earned nearly $67 million, or 29 cents a share.

Based on those numbers, analysts surveyed by Thomson Financial expected 28 cents per share. Still, after discounting pretax charges, Hershey earned more in last year's second quarter, $81.7 million or 35 cents a share.

In January, Hershey boosted wholesale prices by 13 percent on about one-third of its domestic candy line, including many of its biggest-selling products.

Hershey is also in the process of closing six U.S. and Canadian plants and cutting more than 3,000 jobs, while it looks to a new plant in Mexico and joint ventures in India, China and Brazil to capitalize on booming growth in those countries.

For the first six months of 2008, Hershey earned $104.7 million, or 46 cents a share, not including pretax charges, compared with $97 million, or 42 cents a share, in the first half of 2007. Sales rose 2.8 percent in the six-month period to $2.27 billion.