(Recasts first paragraph to include milestone; adds details,
market background, analysts comments)
July 15 Hershey Co, the No. 1 candy
producer in the United States, on Tuesday hiked its chocolate
prices for the first time in three years, a sign that a
year-long soaring cocoa market is eating into confectioners'
The overall price increase, effective immediately, would be
about 8 percent and was aimed at tackling rising commodity
costs, the company said.
The maker of Reese's, Kit Kat and Ice Breakers candy expects
2014 sales growth to be at the lower end of its long-term target
of 5 to 7 percent. It also expects diluted growth in adjusted
earnings per share to be at the low end of its 9 to 11 percent
Adjusted gross margins were forecast to fall "slightly" in
2014 from last year, Hershey said. It had earlier expected
full-year adjusted margins to expand by 50 basis points.
"Commodity spot prices for ingredients such as cocoa, dairy
and nuts have increased meaningfully since the beginning of the
year," Hershey's North America head Michele Buck said in a
statement on Tuesday.
The price increases, which affect packaged candy and grocery
products, would not have an effect on earnings until next year.
Customers who buy directly from the company will be able to
buy at the pre-increase prices until Aug. 12.
Analysts said Hershey's price increase announcement will
likely trigger a flurry of similar announcements from rivals
such as Nestle SA and Kraft Foods Group Inc.
Price increases are often done quietly, analysts said.
Hershey last raised wholesale prices in 2011 by roughly 9.7
percent in the United States, a company spokesman said.
Hershey publicly announced price hikes in 2008 and 2011,
said Erin Lash, senior equity analyst for Morningstar, Inc., in
"Usually it's followed by their competitors announcing price
increases as well," Lash said.
Hershey owns the Cadbury license in the United States but
didn't specify if its prices will be affected.
The cost of cocoa butter, a byproduct of the cocoa bean that
gives chocolate its melt-in-the-mouth texture, has been high
since late 2013. The cocoa butter ratio over the price of the
bean now sits around 2.65 times, bringing the price above $8,200
per tonne for nearby needs.
Some analysts said they see this as the main driver in the
The move also comes a year after cocoa futures
started their meteoric march to near-three-year highs earlier
this month as traders worried that demand would outpace supply
from the world's top-growing region of West Africa.
Hershey estimated adjusted profit between 75 and 77 cents
per share on sales growth of 4.5 percent for the quarter ended
June 29. This translates to sales of $1.58 billion.
Analysts on average were expecting earnings of 76 cents per
share on revenue of $1.60 billion, according to Thomson Reuters
(Reporting by Mridhula Raghavan and Sruthi Ramakrishnan in
Bangalore and Marcy Nicholson in New York; Editing by Joyjeet
Das and Cynthia Osterman)