NEW YORK Hershey Co announced a 9.7 percent increase in prices on its chocolates and other candies, paving the way for similar actions from competitors.
The world's largest chocolate maker is aiming to offset soaring costs for ingredients such as sugar, the price of which has more than doubled in the past year, and cocoa, which jumped earlier this year, but has since retreated somewhat.
Hershey, which makes Reese's Peanut Butter Cups and Twizzlers, said the wholesale price increase went into effect on Wednesday and was meant to help offset increased costs for raw materials, packaging, fuel, utilities and transportation. The last time it raised prices was in August 2008.
"I wouldn't be surprised if we heard competitors taking similar actions," said Morningstar analyst Erin Lash, referring to companies such as Kraft Foods Inc, which owns Cadbury and privately held Mars Inc, which makes M&Ms.
Kraft, which also makes Oscar Mayer lunch meat and Philadelphia cream cheese, has already raised prices on most products it sells in Europe and more than half of those in North America. It plans more increases for the second half of this year.
Swiss chocolate maker Lindt & Spruengli said earlier this month that it could also increase prices to consumers in the second half of the year to offset higher prices. Cocoa prices have been driven up this year by financial speculation and post-election violence in Ivory Coast, a top cocoa grower.
Due to seasonal buying, Hershey said the price increase will not impact its financial results this year. It expects to see the majority of the financial benefit in fiscal 2012.
As a result Hershey said it still expects its 2011 net sales and earnings to be around the high end of its long-term targets, which call for a 3 to 5 percent rise in net sales and a 6 to 8 percent rise in earnings per share.
The company's outlook calls for 2011 earnings of $2.70 to $2.76 per share, excluding realignment and impairment charges expected to range from 13 cents to 16 cents per share. Analysts on average were expecting earnings of $2.78 per share, according to Thomson Reuters I/B/E/S.
Hershey shares were up 1 cent at $54.70 in after-hours trade.
(Additional reporting by Lisa Baertlein in Los Angeles; Editing by Richard Chang and Carol Bishopric)
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