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Snacks & Candy

Hershey Tinkering with Candy, Snack Offerings

Expanding high-growth lines, cutting back on limited, seasonal products

HERSHEY, Pa. -- The Hershey Co. said that while it was expanding its offerings in high-growth categories such as dark chocolate, cookies and snack nuts, it would reduce its total number of products by 20% to 25% over the next 12 to 18 months, according to a Reuters report.

The company said it plans to do this by reducing the number of limited edition and seasonal offerings and streamlining underperforming brands.

CFO David West said the company will pare back between one-third and one-half of the products in its Mauna Loa nut [image-nocss] business, which it bought in December 2004. "We're looking at some of the other product lines in the portfolio that have lower margins that just aren't growing," West added.

He said brands that failed to do well included its Swoops, Bites and Pot of Gold chocolate candies, but stopped short of providing specifics on items to be cut.

Hershey announced sales and earnings for the first quarter ended April 2, 2006. Consolidated net sales were $1.133 billion, compared with $1.126 billion for first-quarter 2005. Net income for first-quarter 2006 was $120.97 million, compared with $113.02 million for the comparable period of 2005. Net income from operations, which excludes the net charge for first-quarter 2006, was $122.18 million, compared with $113.02 million in 2005. Modest sales growth, strong productivity, solid cost control and a lower tax rate generated an 11.1% increase in diluted earnings per share from operations.

Results for the first quarter were mixed, said Richard H. Lenny, chairman, president and CEO. Modest sales growth was leveraged through productivity improvement and cost control to deliver solid earnings from operations. Our sales performance was impacted by earlier seasonal shipments, which benefited our market share results, as well as lower single-serve shipments. This slowdown can be attributed to a price increase buy-in from last year and a reduction in retail inventory levels at selected customers. Hershey's marketplace leadership continued to strengthen. We gained market share in all major product segments and across most classes of trade on both a seasonal and everyday basis. New products such as Kissables and Ice Breaker Ice Cubes were solid contributors to our share gains.

He added, As we approach the balance of 2006, we've identified several opportunities to ensure that Hershey continues to deliver a superior value proposition to both our consumers and our customers. We're accelerating the development and introduction of innovative platforms. Specifically, we're expanding our presence within the dark chocolate, refreshment, cookies, and single-serve snack nut segments. These platforms deliver highly incremental sales and profitability while enabling Hershey to leverage its iconic brands, marketplace leadership, and in-store presence. In addition, we'll be reducing the absolute number of both existing and new products. This will streamline our business system and ensure the appropriate focus on these high growth initiatives.

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