New York: Hershey Co said quarterly profit nearly doubled, helped by higher prices for the Valentine’s Day and Easter holidays, and the US chocolate maker also raised its full-year forecast, sending shares to a nearly three-year high on Thursday.
Hershey benefited from better-than-expected sales volumes and higher prices, as well as an overhaul of its supply chain during the quarter.
The results and forecast seemed to assuage investors’ fears that Hershey would suffer as a relatively small player as it faces stepped-up competition after Kraft Foods Inc bought British candymaker Cadbury earlier this year.
Shares rose as much as 7.4% to $48.16, the highest level since August 2007, and were still up 5.7% at $47.38 on the New York Stock Exchange in early afternoon.
“They are benefiting from investment in their supply chain as well as marketing in their core brands,” said Morningstar analyst Erin Swanson.
Across the Atlantic, rival Nestle, the world’s largest food group and maker of Nescafe coffee and Kit Kat chocolate bars, also reported growth in all regions and categories. The Swiss company kept its upbeat outlook for the rest of 2010.
Hershey’s profit rose 94.2%, hitting $147.4 million, or 64 cents a share, in the first quarter, compared with $75.9 million, or 33 cents a share, a year earlier.
Analysts were expecting 47 cents per share, according to Thomson Reuters.
During the first quarter, which ended April 4, sales rose 13.9% to $1.41 billion, beating analysts’ forecasts of $1.29 billion. Net margin rose 4.4% points to 10.5%.
The company expects full-year sales to rise to at least 6%, up from an earlier range of 3% to 5%.
Hershey also forecast adjusted earnings per share to rise by low to mid-teen percentage points. Earlier it had forecast an increase of between 6% and 8%.
It is also betting that new products will spur sales. Hershey said that the December launches of new products such as Hershey’s Special Dark and York Pieces “are off to a strong start” and credited the company’s advertising efforts.
Battle For Market Share
Hershey has benefited from a better US economy, and also from the fact that the momentum is sufficiently modest to prevent customers from trading up to more expensive chocolates.
“It remains a category where customers are loyal and it’s an affordable indulgence,” said Swanson, who nonetheless has concerns about the intense competition Hershey faces from larger rival Mars-Wrigley, and higher commodity prices.
Hershey, named for its hometown in Pennsylvania, significantly raised advertising spending during the quarter and said it will continue to ramp up those efforts through the year.
On a conference call with analysts, chief executive David West said that Hershey had gained market share during the first part of the quarter and appeared to have continued that momentum into the Easter holiday on 4 April as well.
Hershey plans to raise advertising spending by up to 40% this year to promote such products as Kisses, Kit Kat and Twizzlers, rather than the 25% to 30% range it had previously forecast.
Hershey generates about 85% of its sales in the United States, which analysts have said puts it at a disadvantage to rivals. For example, Nestle’s business in emerging markets grew more than 10%.
While Hershey is controlled by a charity trust that would make it difficult to take over, it could still be tempted to make acquisitions and diversify beyond the United States.
“We wouldn’t be surprised to see that company look to expand its geographic exposure, particularly in key emerging markets,” Morningstar’s Swanson said.
At a conference in February, Hershey executives said they saw opportunities for acquisitions overseas.