Advertising and Easter lift Hershey profits

by Keith Nunes
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HERSHEY, PA. — Increased spending on advertising and an Easter season that extended into late April helped improve The Hershey Co.’s earnings for the first quarter of fiscal 2011. Net income for the quarter ended April 3 was $160,115,000, equal to 72c per share on the common stock, up 9% from $147,394,000, or 66c per share, in the same period a year ago.

Sales for the quarter were $1,564,223,000, up 11% from $1,407,843,000 in the first quarter of fiscal 2010.

During the quarter, The Hershey Co. increased its advertising spending 30% compared with the same period during the previous year. The increased spending was due to support of core brands, new product introductions such as Hershey’s Drops and Reese’s Minis, Hershey’s Syrup and PayDay advertising campaigns, and marketing support around the longer Easter season. The company expects its full-year advertising spending to be in the mid-single digits for the full year.

“Input costs were significantly higher in the first quarter,” said David J. West, president and chief executive officer. “Despite this increase, adjusted gross margin expanded slightly due to net supply chain efficiencies, some of which were related to fixed cost absorption as sales volume was greater than year ago, as well as higher levels of supply chain productivity.”

On March 31, The Hershey Co. announced it would increase wholesale prices across its portfolio of approximately 10%. Mr. West said the price increase will not materially affect the company’s fiscal 2011 results.

“Given the timing of the announcement, net price increase benefits generated this year will partially mitigate higher than initially anticipated input costs,” Mr. West said. “Additionally, direct buying customers will be able to purchase transitional amounts of product into May and we do not expect seasonal net price realization until Easter 2012. Therefore, we expect the majority of the financial benefit from this pricing action to impact our earnings in 2012.”

In the first quarter, the company repurchased $100 million in shares, completing a share repurchase plan initially announced in 2006. Mr. West also announced a new $250 million share repurchase program.

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