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hershey kisses chocolates
hershey kisses chocolates

Hershey profit tops estimates Add to ...

Hershey Co. reported a higher-than-expected quarterly profit Tuesday, as cost cuts and new products helped mitigate the squeeze from higher ingredient costs.

Hershey said ingredient costs, which include cocoa, dairy and sugar, were "significantly higher" in the first quarter, but its gross margin still expanded slightly due to improvements in its supply chain and lower selling, marketing and administrative costs.

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Sales rose 11 per cent to $1.56-billion, beating the average analyst estimate of $1.48-billion compiled by Thomson Reuters I/B/E/S and helping to support one of the highest valuations in the U.S. packaged food industry.

The stock trades at a multiple of more than 20 times estimated 2011 earnings per share, compared with a multiple of 15.7 for the Standard and Poor's packaged foods and meats index .

"Sales growth trends are key to supporting the share price at this level - any faltering on the top-line could work against the premium for the shares," Stifel Nicolaus analyst Chris Growe said in a note to clients.

Sales were helped by retailers buying products ahead of a price increase, the maker of Reese's peanut butter cups and Hershey Kisses said.

Hershey said last month that it would raise candy prices by nearly 10 per cent to offset higher ingredient costs.

However any benefit from the price increase will not be felt until next year, it said.

Profit was $160.1-million, or 70 cents per share, in the first quarter ended April 3, up from $147.4-million, or 64 cents per share, a year earlier.

Excluding charges, earnings were 72 cents per share, topping analysts' average estimate, according to Thomson Reuters I/B/E/S, by 2 cents.

Hershey also stood by its 2011 performance goals, forecasting 2011 growth to be around the top end of its target ranges of 3 to 5 per cent for net sales and 6 per cent to 8 per cent for earnings.

Hershey said it gained 0.5 percentage point of market share in the quarter, helped by new products like Hershey's Drops and Reese's Minis.

"We believe that the resilience of the confectionery category and Hershey's positioning in it was once again evident in the first quarter, as the firm posted solid sales growth and margin improvement in a challenging environment," Morningstar analyst Erin Lash said. "However, the market's current multiple seems too rich for a domestic confectionery firm."

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