UPDATE 2-Hershey results beat estimates, shares rise

Wed Jul 23, 2008 11:02am EDT

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By Brad Dorfman

CHICAGO, July 23 (Reuters) - Hershey Co (HSY.N) posted higher-than-expected quarterly sales and earnings on Wednesday as the chocolate company benefited from an overhaul of its supply chain and increased advertising spending, sending its shares up 4.5 percent.

Hershey, which has been hammered by soaring commodity costs and a loss of market share to Mars Inc, also said repeat purchases of its Bliss chocolates, an key new product launched in March, have exceeded expectations.

"It does seem as though the turnaround is gaining traction," Edward Jones analyst Matt Arnold said, noting that sales rose 5.1 percent, the company's best sales performance in two years.

Excluding one-time charges, second-quarter earnings were 29 cents a share, a penny above analysts' average forecast, according to Reuters Estimates.

Net income was $41.5 million, or 18 cents a share, compared with $3.6 million, or 1 cent a share, a year earlier.

Sales rose to $1.11 billion from $1.05 billion, helped by higher prices. Analysts' average forecast was $1.05 billion.

Hershey has been making changes in its supply chain, including moving some manufacturing to a new plant in Monterrey, Mexico, to try to save money.

The company spent 30 percent more on advertising and other "brand-building" initiatives in the quarter, focusing on its Hershey's and Reese's brands. In June, it said it would increase advertising spending by 20 percent in each of the next two years and focus on its most popular candies to try to increase sales.

Among the products receiving extra advertising are Bliss, an entry in the fast-growing premium chocolate market that Hershey hopes will help it catch up to rivals who entered that market earlier.

"The fact that they are seeing early success with Bliss is a very encouraging sign," Arnold said.

Aside from spending on its U.S. business, the company is also trying to build a larger international presence, with joint ventures in China and India among the moves it has made.

Hershey said that while it expects earnings to rise in 2009, the increase will not meet its growth target of 6 percent to 8 percent. It expects commodity costs and increased spending on advertising and international expansion to cut into profit.

For 2008, the company said it still expects sales to rise 3 percent to 4 percent, with earnings at $1.85 to $1.90 a share excluding special charges.

Hershey shares were up $1.57 to $36.52 in morning trade on the New York Stock Exchange, (Reporting by Brad Dorfman; Editing by John Wallace)

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