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Whoever said, "Don't buy the cow when you can get the milk for free," clearly wasn't working for The Hershey Company (NYSE: HSY). The nation's largest candy maker -- with brands such as Jolly Rancher, Reese's, and Kit Kat under its umbrella -- said rising dairy costs contributed negatively to the company's bottom line. This morning, Hershey reported third-quarter net income of $62.8 million, or 27 cents per share, a 69% drop from year-ago results. Excluding a restructuring charge of 41 cents per share, Hershey's would have earned 68 cents per share, or 3 cents south of the 71 cents expected on Wall Street.
Revenue fell 1.2% to $1.4 billion, on par with analysts' expectations. For 2007, Hershey now expects to earn between $2.08 and $2.12 per share, down from a prior outlook of $2.25 per share.
Increased competitive pressures also played a role in the firm's decreasing earnings. According to Sanford Bernstein analyst Alexia Howard, in the past 18 months, the company's market share has dropped 2 percentage points to 42%, while chief rival Mars -- privately-held parent of the M&Ms brand -- has seen its market share rise 1.6 percentage points to 26%.
In early trading, HSY shares have dropped nearly 4% to peg a new 52-week low. The equity has been drifting slowly lower since its May 2005 peak and recently violated its 80-month moving average for the first time since mid-2000.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
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In early trading, HSY shares have dropped nearly 4% to peg a new 52-week low. The equity has been drifting slowly lower since its May 2005 peak and recently violated its 80-month moving average for the first time since mid-2000.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
Visit AOL Money & Finance for more earnings coverage
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Reader Comments (Page 1 of 1)
10-18-2007 @ 12:23PM
Steven Danis said...
About two years ago the price of milk on the farm was at real adjusted levels not seen since the Great Depression, especially the manufacturing grade milk used by companies such as Hershey. Perhaps the management at Hershey got a little too used to that situation and didn't plan ahead for the time when milk prices would inevitably rise to a more reasonable level.