Hershey Predicts Lower-Than-Expected 2014 Profits On Higher Milk and Cocoa Prices

Despite strong Halloween orders, Hershey Co.'s earnings this year won't be as sweet as the company once thought. The candymaker lowered its full-year earnings projection Wednesday and gave a downbeat outlook for 2015, citing lower-than-expected international sales amid greater macroeconomic challenges. Hershey now expects net sales to grow by an annual 4.75 percent this year, down from a previous forecast of 5 to 7 percent.

The lower forecast is due to "the impact of unfavorable product mix and volatility in the commodity markets, primarily dairy," the company said. Net sales growth this year is expected to be in the low single digits versus last year, down from the company's previous forecast of 15 percent. Also, the company delayed the launch of Ice Breakers Cool Blasts chews, a new chewing gum, until early 2015 due to manufacturing process problems and more orders than expected. Hershey said the move will push those sales into 2015.

Hershey expects net sales in 2015 to increase 7 to 9 percent, including the impact of foreign currency changes. Chief Executive John P. Bilbrey told investors that retail store traffic is still “irregular,” which has hurt sales of nonseasonal candy products like Hershey's Kisses.

The candy maker reported a nearly 4 percent drop in third-quarter profit, weighed down by higher prices for key ingredients like milk and cocoa. But sales climbed nearly 6 percent over the quarter on Halloween orders, about 4 percent in the U.S. and 18 percent in international markets.

Net income over the quarter ended Sept. 28 fell to $223.7 million or a $1 per share from $233 million or $1.03 per share over the period last year. Excluding one-time factors, earnings were $1.05 per share, below the FactSet consensus analyst estimate of $1.08. Revenue rose to $1.96 billion from last year’s $1.85 billion, with Halloween seasonal orders slightly higher than the company anticipated. Hershey's stock had fallen about 3 percent by midmorning after the news.

Earlier this year, the maker of Hershey’s Milk Chocolate Bars and other familiar candies like Reese’s and Kit Kat said it would increase prices by an average 8 percent to cover higher utility and transportation costs as well as higher costs for cocoa, dairy and nuts.

Hershey is also expanding its market share in China, one of the world’s fastest-growing markets for sweets. Earlier this year, the company acquired Chinese candy maker Shanghai Golden Monkey Food Joint Stock Co. Hershey told investors Wednesday that it expects China to be its second-largest market by the end of next year with annual net sales of about $500 million.