Hershey Co reported higher-than-expected quarterly results and raised its full-year outlook, showing that consumers are willing to pay more to satisfy their sweet tooth even in a weak economy.
Like most food and beverage companies, the world's largest chocolate maker has had to raise prices to offset soaring costs for commodities such as cocoa and dairy.
But those price increases have not dented demand as much as they have in other product categories.
Candy has always been thought of as more of an affordable luxury, and that really seems to be playing out despite the pressures that consumers are under, said Morningstar analyst Erin Lash.
Hershey, home to brands such as Reese's, Kit Kat and Twizzlers, said it now expected 2011 earnings to rise by about 10 percent and sales to increase by about 6 percent. It had earlier forecast sales and earnings growth at the high end of its long-term targets, which call for gains of 3 percent to 5 percent for sales and 6 percent to 8 percent for earnings.
The company sees full-year earnings of $2.79 to $2.82 per share, excluding 11 cents to 12 cents per share in one-time charges. Analysts on average were expecting $2.81 per share, according to Thomson Reuters I/B/E/S.
PRICE INCREASES HELP SALES
Net income rose to $130.0 million, or 56 cents per share in the second quarter, from $46.7 million, or 20 cents per share, a year earlier, when the company had several one-time charges.
Analysts on average were expecting 55 cents per share.
Sales rose 7.5 percent to $1.33 billion, topping the average analyst estimate of $1.28 billion and the company's own initial forecast. Hershey cited volume gains in both the United States and abroad.
Higher prices, primarily in the United States, added 3 percentage points of growth to sales, while foreign exchange rates added a half a point, the company said.
Hershey announced a price increase in March of nearly 10 percent on some products to offset higher ingredient costs. It said on Tuesday that its outlook for commodity inflation was unchanged for the year.
Hershey shares closed at $58.32 on Monday on the New York Stock Exchange, up nearly 24 percent for the year.
(Reporting by Martinne Geller, editing by Maureen Bavdek)