Candymaker’s Quarterly Profit Slips

By Tom Dochat, The Patriot-News, Harrisburg, Pa.

Jan. 25–When The Hershey Co. warned last month that its sales and earnings would not meet projections for 2006, it apparently didn’t raise enough red flags with analysts.

Hershey reported Wednesday that fourth-quarter sales were down 0.7 percent and earnings were less than consensus analysts’ estimates.

Net income for the quarter was $153.6 million, or 65 cents a share, down from $170.4 million, or 69 cents, a year earlier. Results this year were affected by a charge of 2 cents a share for restructuring costs. Analysts had anticipated earnings of 71 cents a share.

The lower-than-expected earnings caused Hershey stock to drop 3 percent Wednesday. The shares closed at $50.78, down $1.59, on the New York Stock Exchange.

Hershey said performance in the fourth quarter was affected by the three-week closing of a Canadian plant due to salmonella bacteria issues and a higher amount of obsolescence expense from markdowns and returns of some products.

Richard H. Lenny, chairman, president and CEO, said the results weren’t “what we’ve come to expect or what we’re capable of delivering.”

To reverse the sales trends, Hershey plans to focus on improving the performance of its iconic brands such as Kisses, and its higher-growth categories of dark chocolate and Ice Breakers products.

Lenny announced that David J. West, who had been senior vice president and chief financial officer, will immediately begin new duties as chief operating officer. West will oversee Hershey’s North American operations and its global businesses.

Lenny said he wants to get the “core U.S. business growing again” and sees “significant growth opportunities outside the U.S.”

Hershey plans to make a major announcement on Monday about an alliance with the leading Asian food and confectionery group that will enable Hershey to make inroads in China. Lenny offered no details.

The company said it expects sales growth this year to meet its goal of 3 percent to 4 percent. Earnings growth is projected at 7 percent to 9 percent, which would be less than its earlier goal of 9 percent to 11 percent. In 2006, sales totaled $4.9 billion, up 2.6 percent from 2005.

Hershey also said it has made adjustments in past financial statements to recognize revenue from sales to retail customers. West explained that the revenue will now be accounted for when products are delivered, not while they are in transit.

West, who will continue as chief financial officer until a successor is named, said the accounting change had no material impact on the fourth-quarter or fiscal 2006 results.

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