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Hershey's Tepid Annual Forecast Overshadows Quarterly Profit Beat

By Dayeeta Das
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Chocolate maker Hershey Co said its new price hikes would not add to its profit and sales in the remaining two quarters and gave a dull full-year forecast.

Hershey last week said it would hike wholesale prices on its single-serve products, which account for about a third of its total sales, by 10% and it will be implemented on products shipped later this year.

The company, which beat Wall Street estimates for quarterly profit, has so far this year raised prices by 2.5% on average to offset higher labor and raw material costs.

Packaged food companies have been facing a dearth of drivers, higher diesel prices and rising prices for some commodities, forcing them to pass on the higher costs to consumers.

'Transition Period'

"We will have a transition period for our retailers to adjust to these new prices and we do not expect a material sales or earnings impact in 2019 from this pricing action," chief executive officer Michele Buck said on a post-earnings call.

The Kisses chocolate maker said it expected full-year sales to grow around 2% compared to a prior forecast of an increase of as much as 3%.

The company raised the lower end of its full-year profit forecast. It now expects adjusted profit for the year to be between $5.68 to $5.74 per share, below analysts' expectation of $5.75 per share.

"The bigger issue is that guidance was not raised enough for investors who have made (Hershey) one of the best stocks in our coverage recently," J.P. Morgan analyst Ken Goldman said.

"We suspect that guidance is conservative even without considering the upcoming price increase on single bars."

A weak spot for the maker of Reese's Peanut Butter Cups was North America, its biggest market, which rose just 0.5% to $1.57 billion in the quarter, as the price increases hurt volumes.

Slowest Sales Growth

Hershey also posted its slowest sales growth in over a year, rising merely 1% to $1.77 billion (€1.58 billion), which was in line with expectations.

However, adjusted gross profit margin grow 200 basis points to 46.5%, powering a 13 cents profit beat in the quarter.

Excluding items, Hershey earned $1.31 per share and beat analysts' average estimate of $1.18 per share, according to IBES data from Refinitiv.

Shares of the company, which were down at $143.98, have risen about 37% so far this year.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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