Hershey Profit Beats Forecasts; Job Cuts Planned

CHICAGO – Hershey Co. (HSY), the largest U.S. chocolate maker, posted a slightly better-than-expected quarterly profit Thursday on strong sales of new products and a price increase.

The company, which has been one of the best performers in the packaged food industry in recent quarters, also said it plans to cut jobs and close a plant to help free up more funds to invest in products, marketing and other items.

Hershey shares rose more than 3 percent in New York Stock Exchange (search) trading. Increased sales helped offset a decline in gross margins to 39.8 percent in the quarter from 40.3 percent a year earlier.

"We are encouraged by the faster-than-expected sales growth and lower-than-expected SGA (selling, general and administrative expense) structure," Pablo Zuanic, a food analyst a J.P. Morgan Securities, said in a research note. He rates the stock "overweight."

The job cuts will come through early retirements and buyouts, the maker of Hershey Kisses (search) and Reese's (search) peanut butter cups said. The company does not know how many of its roughly 13,500 employees will accept the voluntary packages, a spokeswoman said,

Hershey said it expects after-tax charges of $140 million to $150 million, or 41 cents to 44 cents a share, for the cost-cutting program, which also includes closing its Las Piedras, Puerto Rico, gum manufacturing plant and changing its North American operations.

The company said the program, which also will include centralizing purchasing and other cost-savings measures, will cut costs by $45 million to $50 million, annually.

Earnings were $97.4 million, or 39 cents a share, in the second quarter, compared with $147.2 million, or 56 cents a share — including a 23-cent one-time gain — a year earlier.

Analysts on average forecast 38 cents a share, according to Reuters Estimates.

Sales rose 10.6 percent to $988.4 million.

The company said it expects 2005 diluted earnings per share from operations to increase slightly above its long-term range of 9 percent to 11 percent on a sales increase of more than its long-term goal of 3 percent to 4 percent.

For 2006, the company forecast similar sales and earnings increases to 2005, excluding charges.

Hershey shares were up $1.59, at $62.49. The stock has gained about 13 percent this year, far outperforming the Standard & Poor's packaged Food Index, which has fallen more than 6 percent.

But with a stock trading at roughly 27 times 2005 earnings estimates, some analyst were hesitant to recommend the shares.

"We think the valuation remains too rich to rate above 'neutral weight'," John McMillin, analyst at Prudential Securities, said in a note.