recession puts hershey in sweet spot - wsj · 28/01/2009 · hershey said it expects sales growth...
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Wednesday, January 28, 2009
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JANUARY 28, 2009
Recession Puts Hershey in Sweet SpotCandy Maker's Profit Jumps 51% Amid Signs Consumers Are Trading Down but Not GivingUp Chocolate
By JULIE JARGON and ANJALI CORDEIRO
See Corrections & Amplifications below
Hershey Co.'s fourth-quarter profit and sales growth suggests that demand for chocolateremains strong despite the dismal economy.
The sweeter results also suggest a welcome shift for the Pennsylvania chocolate maker asValentine's Day nears: a slowdown in sales of pricier "premium" chocolates.
Hershey had lagged competitors in jumpingon the premium bandwagon, and just a yearago was struggling to keep pace with rivalMars Inc., which stole market share with itsline of upscale Dove dark-chocolate candies.Hershey finally responded last year with itsBliss chocolates, and helped Starbucks Corp.develop a line of chocolates in such flavorsas caramel macchiato and Madagascarvanilla bean.
But, as with coffee, eating out, and apparel,the recession has consumers trading downwith chocolate. Supermarket sales in thepremium chocolate category in the fourthquarter were flat versus last year, HersheyChief Executive David West told analystsTuesday.
Mr. West said he expects that to continue,adding that manufacturers have been makingpremium chocolates faster than consumershave been buying them and that retailersprobably will devote less shelf space to them.
High-end chocolatiers have noticed. KatrinaMarkoff, president and founder of Chicago-based Vosges Haut-Chocolat, said sales slowed inthe fourth quarter. People aren't splurging on offerings that cost $100 and up, she said, althoughsales of products in the $25-to-$50 range are growing.
Last Valentine's Day, she said, people spent an average of $75 to $80 on online orders; shethinks they will spend an average of just $50 this year. "People still want to have a little taste ofluxury and decadence," she said.
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An increase in demand for lower-priced chocolatesboosted Hershey's profit. Above, signs outside theHershey Store in New York in June.
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Recession Puts Hershey in Sweet Spot - WSJ.com http://online.wsj.com/article/SB123306391902119401.html?mo...
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At a Fannie May chocolate counter Tuesday in downtownChicago, accountant Karen Martin said the recession hasn'tdimmed her taste for chocolate -- but she is cutting back onprice.
"I still indulge but not on huge items," she said. "When Iwant a really nice treat, I go out and buy it. It's like $2 --maybe." Even thriftier, her friend Nora Wideikies snappedup four Santa Claus chocolates on sale for a dollar.
However, Jim Goldman, chief executive of Yildiz Holding'sGodiva Chocolatier Inc., said he expects sales to grow."One of our best-selling products this holiday season wasthe 'Ultimate Collection,' a $130 offering of the best ofGodiva truffles, chocolate and biscuits," Mr. Goldman saidin an interview. Lower-priced items also sold well during the
winter holidays, and he said he expects strong Valentine sales.
Swiss chocolate maker Lindt & Sprüngli AG, maker of premium Lindt chocolates, reported a5.8% sales increase in 2008, saying that was at the low end of its long-term goal of 6% to 8%annual sales growth.
"Considering the market conditions, this result is encouraging," the company said last week in anews release.
Hershey's Mr. West said consumers already have been trading downto his company's lower-priced Reese's Peanut Butter Cups, Hershey'schocolate bars and Kit Kat wafers. Hershey also has noticed anincrease in sales at discount retailers and convenience stores asgasoline prices have fallen.
Hershey reported fourth-quarter net income of $82.2 million, or 36cents a share, up 51% from $54.3 million, or 24 cents a share, a yearearlier. Excluding restructuring charges and write-downs of 23 cents ashare in the latest period, operating income climbed to 59 cents ashare from 54 cents a share. Revenue increased 3% to $1.38 billion.
Sales gains from Hershey bars and other core products were partiallyoffset by a decline in sales of Hershey's Kisses. Mr. West said the
brand suffered from an abundance of Kisses varieties, and the company is now paring thenumber of products and running new ads.
Some analysts remained skeptical of Hershey's future, though. Stifel Nicolaus analyst ChrisGrowe said in a note to clients, "Although the quarter showed some signs of modestimprovement and the stock very well could trade higher in the short run due to the [earnings]upside, the premium valuation that the company maintains is undeserved in our view and wemaintain our sell rating."
Although the prices of many commodities have fallen from their recent peaks, Hershey said anysavings from declining gasoline and ingredient prices will be offset by higher pension expensesin 2009.
Corporate pension funds have been battered by sharp declines in financial markets and costsare expected to pressure earnings across a variety of sectors as companies seek to bridge thefunding gap.
Hershey said it expects sales growth of 2% to 3% in 2009 and repeated its earlier forecast thatearnings per share in 2009 will be lower than its long-term goal of 6% to 8%.
Shares of Hershey stock rose 6.8% or $2.38 to $37.48 in 4 p.m. New York Stock Exchangecomposite trading.
—Timothy W. Martin contributed to this article.
Write to Julie Jargon at [email protected] and Anjali Cordeiro [email protected]
Corrections & Amplifications
Jim Goldman is chief executive officer of Godiva Chocolatier Inc. His last name was incorrectlyspelled as Goldsan in a previous version of this Marketplace article on chocolate sales.
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Recession Puts Hershey in Sweet Spot - WSJ.com http://online.wsj.com/article/SB123306391902119401.html?mo...
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