Hershey's First Quarter Sales Up, Net Income Down

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Hershey's First Quarter Sales Up, Net Income Down

Saying sales of its core brands are expected to grow in the last part of 2007, The Hershey Co.'s consolidated net sales for its first quarter ended April 1 were $1.153 billion, up slightly from $1.139 billion for the first quarter of 2006.

Net income for the first quarter of 2007 was $93,473,000, down from $122,471,000 in the comparable 2006 period.

"Results for the first quarter were essentially in-line with our expectations," said Richard H. Lenny, Hershey's chairman, president and CEO. "Net sales increased 1.2 percent, as we're building momentum behind our new products and continue to benefit from the growth in dark chocolate."

A rebound in Canada provided additional growth during the quarter, he added. "However, growth was adversely affected by slower single-serve sales. This is being driven in part by marketplace performance that has not yet achieved desired levels. While we did experience an improvement in core brand takeaway, the residual impact of last year's limited editions and discontinued items resulted in only a 1.5- percent increase in measured takeaway. The price increase announced on April 4, 2007, had no impact during the quarter."

Core brand growth is anticipated to accelerate into the second half of the year, Lenny said. "The combination of stronger consumer programming and more effective in-store support should deliver an improvement in retail takeaway and sales growth. Where brands have already received strong programming, the response has been solid. Specifically, investment in the Reese's franchise, including the recently launched Reese's Crispy Crunchy, resulted in an increase of over 5 percent in retail takeaway."

New product platforms, including premium and dark chocolate, are expected to make meaningful contributions in 2007, the chocolate company executive said. "Hershey's Cacao Reserve distribution is on track, and we'll continue to invest in trial-driving initiatives to establish this brand."

Cacao Reserve is the fastest-growing new item at retail, with York Tins and Ice Breaker Sours Gum also ranked as Top 10 new brands in the first quarter, he noted. "These new products are consistent with our strategy of delivering a premium value proposition while extending Hershey's iconic brands.

"As we look ahead to the balance of 2007, core brand investment, improved customer programming and innovative new products will enable the company to meet its objectives with momentum building throughout the year," Lenny continued. For the full year 2007, he expects net sales growth of 3 percent to 4 percent.

In other Hershey related news, some chocolate makers are fighting Hershey and other candy makers who have petitioned the U.S. Food and Drug Administration to redefine what constitutes chocolate.

Hershey and others want to make chocolate without the required ingredients of cocoa butter and cocoa solids, using instead artificial sweeteners, milk substitutes and vegetable fats such as hydrogenated and trans fat, according to a Bloomberg news report.

"They are trying to pull one over on us," said Cybele May, 40, publisher of CandyBlog, on which she has encouraged more than 200 people to write the FDA to protest what she calls "mockolate."

"What they are asking for is permission to confuse the consumer for what we readily accept as chocolate."

Gary Guittard, fourth-generation owner of Guittard Chocolate Co., has enlisted the support of high-end companies such as billionaire Warren Buffett's See's Candies to fight the big chocolate makers. "The process of this thing going through, it wasn't transparent, and it needs to be brought out into the light'," Guittard told the news service.

Hershey, the largest U.S. candy maker, says that broader labeling is needed to keep up with changing consumer tastes.

"The petition would modernize all food standards, increasing flexibility to accommodate changes in technology," Kirk Saville, spokesman for the Hershey, Pa.-based company, told the news organization. "Changes, if adopted, would provide the flexibility to make changes based on consumer taste preference, ingredient costs and availability, and shelf life.''

Cocoa prices in New York have surged about 28 percent in the past six months. A pound of chocolate contains roughly 25 percent cocoa butter at a cost of $2.30, while vegetable oils are as little as 70 cents a pound, Bloomberg reported.

U.S. chocolate manufacturers used $1.4 billion of cocoa and cocoa products in 2005, according to the latest data from the Chocolate Manufacturers Association.