Hershey's profit tumbles 96 percent, sales go flat

Hershey, the largest U.S. candymaker, on Thursday reported its profit tumbled 96 percent in the second quarter as it spent heavily to begin transforming its production lines. Sales were flat.

The Hershey Co. earned $3.6 million (EUR 2.6 million), or a penny per share, for the three months ending July 1. That compares with a profit of $97.9 million, or 41 cents per share, in the same period a year earlier.

Not counting what Hershey spent on changes to its production and supply chain, the company's profit would have been $81.7 million (EUR 59.3 million), or 35 cents a share, matching the consensus estimate of analysts surveyed by Thomson Financial.

Revenue for the Hershey, Pennsylvania-based maker of Hershey's Kisses and Reese's was virtually steady at $1.05 billion (EUR 760 million). Analysts surveyed by Thomson Financial projected revenue to be almost $1.07 billion (EUR 780 million).

Performance was mixed in the quarter, with improving sales of dark and premium chocolate and some core brands offset by sluggish sales of other products, the company's chairman and CEO Richard H. Lenny said in a statement.

In May, Hershey slashed its outlook for the year, citing disappointing domestic sales and higher dairy costs. The company also said it is spending more on advertising to try to reinvigorate sales and fend off stiffening competition.

On Thursday, the company issued a forecast similar to May's, with sales growth in the low-single digits and earnings growth in the mid-single digits.

For the first six months of 2007, Hershey earned $97 million (EUR 70.4 million), or 42 cents a share, on revenue of $2.2 billion (EUR 1.6 billion), compared to earnings of $220.4 million, or 91 cents a share, on $2.19 billion in revenue at the same point last year.

The past year has been tumultuous for Hershey.

It has yet to recover from its stumble last fall while shifting from one product platform to the next. Advertising flopped, leaving stores backed up with its older products.

In February, Hershey announced a major restructuring designed to cut costs and excess production capacity in the United States and Canada, while expanding in Mexico, China and India, where labor is cheaper and Hershey hopes to sell more candy.

Since then, Hershey has announced it will close six U.S. and Canadian plants and cut more than 3,000 workers in the two countries, including up to 900 at its hometown plants.