Hershey 2Q profit, sales up after price increase

The Hershey Co. said it earned $41.5 million, or 18 cents a share, for the three months ended June 29, compared with last year's second-quarter profit of $3.6 million, or a penny per share, as it spent heavily to transform its production lines.

Sales rose 5 percent to $1.1 billion, slightly above analyst estimates. They were boosted by a price increase and growth in some key brands, while Hershey reaffirmed its 2008 guidance of sales growth of 3 percent to 4 percent and earnings of $1.85 to $1.90 per share.

Shares of the Hershey, Pa.-based maker of Hershey's Kisses and Reese's jumped $1.90, or 5.4 percent, to $36.85 in trading Wednesday.

The upbeat report comes as Hershey works to pull out of two years of lackluster sales amid tougher competition, volatile dairy and cocoa prices, and a costly effort to shift production overseas to where populations are younger and growing faster.

Company President and Chief Executive David J. West said a new marketing plan, marked by a 30 percent increase in spending, is driving the company's better performance in the relatively slow-growing, but dominant U.S. candy market.

"We're not satisfied with where we are, but we're pleased that we're starting to get some traction," West told analysts on a conference call.

Hershey's recent market share losses are flattening out, its high-end Bliss bar is the best-selling new product in the chocolate sector and the company is getting bang for its new marketing bucks, West said.

UBS analyst David S. Palmer said Hershey shares could rise in the coming months, considering it set a lowered threshold for success, commodity prices are beginning to ease and high-margin Bliss and Starbucks products are padding the bottom line.

However, Goldman Sachs analysts cautioned that Hershey's increased spending on sales and marketing will hurt margins, that competitive pressure could curtail sales and the rising price of its premium products could dissuade repeat customers.