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updated: 7/26/2011 11:15 AM

Hershey 2Q profit rises, as do its expectations

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Associated Press

After yet another strong quarter for Hershey, the nation's second-largest candymaker raised its outlook for the full year Tuesday, predicting that sales will rise by 6 percent and earnings will jump by 10 percent.

Shares struck a nearly 6-year high in early trading after the company, based in Hershey, Pa., posted its fourth-straight quarter of profit growth.

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Sweets have resisted the gravitational tug of inflation in the U.S. that has threatened almost every industry, from clothing to appliances, and big candy companies like Hershey are jockeying for position in high-growth regions of the developing world.

"In the second quarter, Hershey's net sales increased 7.5 percent, somewhat greater than our initial expectations, driven by volume growth, primarily new products, in both U.S. and international markets," said John P. Bilbrey, who became Hershey's president and chief executive officer just six weeks ago.

The Hershey Co. nearly tripled its second-quarter profit, largely because of one-time costs that dampened profits a year ago. But the company also posted strong sales thanks to higher prices, better foreign currency exchange rates and some earlier-than-expected orders.

Second-quarter profit hit $130 million, or 56 cents per share. Analysts had expected 55 cents per share.

The company also is riding momentum from the recent launch of three new products that spin off its best-known lines: the Air Delight aerated chocolate bar and Kisses; Reese's Minis; and Hershey's Drops.

The company, famous for its chocolate bars, Hershey's Kisses and Reese's peanut butter cups, reported earnings of $46.7 million, or 20 cents per share, a year ago. However, discounting charges for restructuring and to write down the value of a joint venture in India, the company said it would have earned 51 cents per share last year.

Revenue rose 7.5 percent to more than $1.3 billion. After accounting for a one-time credit of $1.8 million, it met Wall Street's expectations.

Previously, Hershey had forecast 2011 sales to rise by 3 percent to 5 percent and profit to rise by 6 percent to 8 percent.

The company earlier this year said it was raising prices by nearly 10 percent to offset rising prices for raw materials including sugar, fuel and packaging. Those prices aren't expected to trickle down to store shelves until next year.

Citigroup analyst David Driscoll called it a "stellar quarter" and reiterated his "buy" rating on Hershey, although he warned that rising costs are a risk that can be seen in the company's declining gross margin.

Frost & Sullivan analyst Christopher Shanahan pointed out that people continue to buy sweets, despite rising prices. But he also said that Hershey is having a rough time breaking into fast-growing foreign markets, including China and India, and may need to reassess its approach there.

"In the long run, it's all a matter of watching their global strategy, but in the short-term, this is a good company in terms of a place to put your money," Shanahan said.

The vast majority of Hershey's sales are from North America, which is considered a relatively slow-growing, although large, market. Hershey is now competing with larger rivals, such as Mars Inc., to grab customers in countries where sales are growing more quickly.

During a conference call, analysts pressed Bilbrey, who replaced the departed David J. West last month, for details on the fate of a joint venture in India and whether Hershey had bid on Chinese candymaker Hsu Fu Chi International.

Bilbrey would not say whether Hershey had bid -- Swiss food giant Nestle SA said two weeks ago that it is buying a majority stake in on Hsu Fu Chi -- and he would not say whether Hershey will maintain a joint venture in India with Godrej Industries Ltd.

However, Bilbrey said Hershey remains devoted to China and India, and that he wants to accelerate the company's sales in those countries.

Company shares rose 28 cents to $58.60 after hitting a nearly 6-year high of 59.45 earlier in the day. Shares last traded above $59 in 2005.

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