Money News

Hershey's tepid annual forecast overshadows quarterly profit beat

(Reuters) - Hershey Co reported a better-than-expected quarterly profit on Thursday, but forecast 2019 earnings below Wall Street expectations as the chocolate maker expects the benefits from recent price increases to be pushed out to next year.

FILE PHOTO: An employee shows a Hershey's chocolate bar made in USA in the "American lifestyle" store in Berlin, Germany, August 13, 2018. REUTERS/Fabrizio Bensch/File Photo

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 will implement it on products shipped later this year.

The company so far this year has raised prices by 2.5% on an average to offset higher labor and raw material costs, a problem that has plagued packaged food companies.

“We will see a dip in volume and then a year later the volume comes back, that’s how the conversion curve works,” Chief Executive Officer Michele Buck told Reuters.

“We normally have a six month delay.”

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 full-year adjusted profit to be between $5.68 to $5.74 per share from $5.63 to $5.74, but 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, where sales rose just 0.5% to $1.57 billion in the quarter, as the price increases hurt volumes.

Hershey also posted its slowest sales growth in over a year, rising merely 1% to $1.77 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 fell as much as 5%, were up marginally at $147.92, having risen about 37% so far this year.

Reporting by Soundarya J in Bengaluru; Editing by Arun Koyyur