The Hershey Company (HSY) announced that it is going to raise the wholesale prices of its instant consumable, multi-pack, packaged candy and grocery lines across the majority of its U.S., Puerto Rico and export portfolio.
The company has embarked on this policy of stepping up the weighted average price by 9.7% to combat the significant increases in Hershey’s input costs, including raw materials, packaging, fuel, utilities and transportation. The increased price is effective from March 30, 2011.
Management however promises that the price increase will be accompanied by customer trade promotion and merchandising that will foster the growth of the category. The price increase comes only weeks before the Americans start indulging themselves in savory candy treats for the coming Easter. The company expects that the benefits of the price increase will be reflected in the 2012 financial results.
The influence of the price increase is not expected to be reflected on the shelves of the stores as many retailers will be able to buy products at the old prices for about eight weeks.
The company has backed its 2011 guidance on March 30, 2010. It expects to earn between $2.70 and $2.76 a share, excluding charges. Management expects full-year 2011 net sales, including the impact of foreign currency exchange rates, and adjusted earnings per share-diluted growth to be around the top of the company’s long-term 3 to 5 percent and 6 to 8 percent objectives.
Many other chocolate producers are planning to increase prices in order to offset the cost increase. Swiss chocolate maker Lindt & Spruengli may also increase prices for consumers in the second half of the year to offset higher input prices. The decision is spurred by rising cocoa prices on account of financial speculation and post-election violence in Ivory Coast, a top cocoa grower.
Kraft Foods Inc. (KFT), owner of Oscar Mayer lunch meat and Philadelphia cream cheese, has already stepped up prices on most products it sells in Europe and more than half of those in North America. It plans more increases for the second half of this year.
Hershey currently holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock, with a short-term Hold rating.
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