Hershey raises 2012 growth targets

NEW YORK Wed Feb 1, 2012 1:06pm EST

Hershey's candy bars are displayed at a gas station in Phoenix, Arizona October 27, 2011. REUTERS/Joshua Lott

Hershey's candy bars are displayed at a gas station in Phoenix, Arizona October 27, 2011.

Credit: Reuters/Joshua Lott

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NEW YORK (Reuters) - Hershey Co (HSY.N) raised its 2012 earnings and sales growth targets on Wednesday, citing cost savings, productivity measures and expected increases in sales volume.

The maker of Reese's peanut butter cups, Twizzlers and Kit Kat bars also reported a fourth-quarter profit in line with analysts' expectations.

Like most food and beverage companies, Hershey has been squeezed by rising costs for commodities such as cocoa and sugar. It has said that its costs should remain higher in 2012 despite some easing on the spot futures markets.

The company raised prices on its candies, which in turn has curbed demand, leading to volume weakness. Still, Hershey is seen as having better pricing power than many other of its food industry peers, since its products can be viewed as affordable luxuries.

Hershey said it expects 2012 earnings of $2.79 to $2.89 per share, including one-time charges of 16 cents to 19 cents per share that are related to its cost-savings program. It forecast other charges of 4 cents to 5 cents per share related to a recent acquisition and 5 cents in pension expenses that the company will now no longer include in its operating results.

Excluding those items, Hershey said earnings should range from $3.08 to $3.14, which it said would represent an increase of 9 percent to 11 percent from 2011 earnings.

Analysts on average were expecting $3.12 per share, according to Thomson Reuters I/B/E/S, but some of those estimates included the pension expense.

"The Street would have been modeling that in as of yesterday, so to change it today, just means that you've given yourself another 2 percent of EPS growth," said Consumer Edge Research analyst Robert Dickerson. "So guidance and consensus are apples to oranges."

Factoring the pension expense back in, Dickerson said the new target represented growth of 7 percent to 9 percent, which is still above the company's prior forecast for growth of 6 percent to 8 percent.

The company said the profit growth will stem in part from an expected 75 basis-point improvement in gross margin and higher-than-expected sales growth. It now expects sales to increase 5 percent to 7 percent, up from a prior target of 3 percent to 5 percent.

"Sales growth in mid-single digits and lessening commodity costs are a good formula for them in 2012," said Edward Jones analyst Jack Russo.

Spot market prices for many commodities have come down off of last year's highs, though forward-buying and hedging strategies mean most food companies will not see the benefit right away. Nonetheless, analysts expect them to experience less cost inflation in 2012 than in 2011.

Hershey declined to provide a specific forecast for commodity costs, except to say that higher costs should be largely mitigated by productivity improvements and cost-savings.

"With costs on the wane, we need to keep an eye on the big boys in terms of price competition," Russo added, referring to rivals Mars and Kraft Foods Inc KFT.N, which owns Cadbury.

In the fourth quarter of 2011, Hershey's net income was $142.1 million, or 62 cents per share, up from $135.5 million, or 59 cents per share, a year earlier.

Excluding one-time items, earnings were 70 cents per share, matching analysts' estimates, according to Thomson Reuters I/B/E/S.

Sales rose nearly 6 percent to $1.57 billion, slightly topping Wall Street estimates of $1.56 billion. The growth was fueled almost entirely by price increases. Volume rose slightly.

Hershey shares were down 36 cents, or 0.8 percent, at $60.61 in midday trade on the New York Stock Exchange.

(Reporting By Martinne Geller in New York; Editing by Derek Caney and Steve Orlofsky)

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