Hershey second-quarter net income falls 35 percent on charges, but revenue increases

Hershey 2Q net income falls 35 pct on charges

NEW YORK — Hershey Co.’s second-quarter net income fell 35 percent because of charges for restructuring and to write down the value of a joint venture in India. But backed by a massive advertising push, revenue rose as the company sold more chocolate.

Despite the strong quarter, Hershey left its earnings outlook for the year unchanged, giving investors pause. Shares of Hershey, which is based in Hershey, Pa., fell $12.18, or 4.4 percent, to $47.64 in afternoon trading.

The maker of Hershey’s Kisses and Reese’s peanut butter cups earned $46.7 million, or 20 cents per share, for the three months ending July 4. That’s down from net income of $71.3 million, or 31 cents per share, a year earlier.

Excluding one-time items, the company earned 51 cents per share. That tops analyst expectations for 46 cents.

Revenue grew 5 percent to $1.23 billion.

Hershey has been working to cut costs and has pumped more money into advertising. Hershey’s ad spending rose 50 percent in the second quarter. The company now plans to boost advertising levels by about 45 percent to 50 percent this year, up from its previous estimate of a 35 percent to 40 percent increase. But the additional increase in advertising won’t take place until late in the year, so the effect on sales won’t be felt until 2011.

The second half of the year will be tough for Hershey because ingredient costs are expected to go higher, just as the company boosts advertising spending, said Standard & Poor’s analyst Tom Graves.

The stock was likely trading lower Thursday on expectations for a tougher second half. He raised his fiscal 2010 earnings per share estimate by 2 cents to $2.52.

The nation’s second-largest candy maker has been advertising core brands such as Kit Kat, Twizzlers and its namesake candy. It’s also launching new products such as York Pieces. Shoppers traded down to less expensive store brands in the weak economy so advertising name brands is a way to keep them buying.

CEO Dave West told analysts in a conference call the category is still strong and people are buying higher-priced candy. Retail sales for Hershey’s, Reese’s, Hershey’s Bliss, Twizzlers and Kit Kat grew in the mid-single digits.

The pace of new introductions is getting faster this year, with a mix of both limited-time products and permanent additions, West said.

Hershey boosted its outlook for the year, saying it expects to spend less on promotions and see earlier savings from its cost cutting initiatives.

The company previously announced a plan to cut costs by $80 million a year by laying off workers in its hometown, shutting down production at its flagship plant and spending up to $300 million to modernize other facilities.

For the full year, Hershey expects adjusted earnings of $2.47 to $2.52 — an increase in the low to mid teens — on a 7 percent increase in net sales. Analysts expect $2.51, according to Thomson Reuters.

The company wrote down the value of its Godrej Hershey Ltd. joint venture in India. Hershey said the business has been growing but more slowly than expected because of slower development plans and a weak environment that means lower prices and delayed expansion. However, Hershey said India is still an important market for the company.