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Candymakers Raise Prices; Hershey Co. Updates Outlook

Posted On: 8/27/2008

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HERSHEY, PA -- Hershey Co. for a second time this year raised wholesale prices to offset rising fuel and raw-material costs. A weighted average 11% increase on its instant consumable, multipack and packaged candy line went into effect on August 15. The confectionery company also voiced caution about its outlook for 2008 and 2009.

Mars also announced a jump in wholesale prices to offset higher input costs, according to the Associated Press. The candy company said the majority of price increases -- the second round since last winter -- will be effective October 17 but did not specify the products that will be affected, or by how much. Additionally, package weights will decrease as prices increase in Mars Snackfoods U.S. products at regular intervals from October 17 through March 2009, as a result of soaring material and production costs.

Chocolate and confection giant Nestlé, the world's largest food company by sales, achieved strong profit during the first half of the year in part by offsetting the impact of rising ingredient prices across its broad portfolio through price increases on thousands of products in recent months.

"Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," said David J. West, president and chief executive of Hershey Co. "Market prices for ingredients such as cocoa, corn sweeteners, sugar and peanuts are up 20% to 45% since the beginning of the year."

Hershey said hedging strategies for 2009 will add $10 million to $12 million, or 3¢ a share, to the company's original estimate of a $100 million increase in 2008 raw-material costs. The chocolate giant expects 2008 earnings per share from operations to be at the low end of its forecast of $1.85 to $1.90. It anticipates net sales growth of 3% to 4% for the year, with volume falling below expectations because of the price increases.

The chocolate and candymaker expects 2009 commodity price increases to be more than double those in 2008. At the consumer level, price increases are expected to curb sales growth, leading to net sales growth of 2% to 3% and earnings-per-share growth less than the long-term target of 6% to 8%. The company had said earnings might fall below targets, but that it anticipates 2009 net sales growth of 3% to 5%.

Hershey in January raised prices by an average of 13% on one-third of its domestic confectionery lines after reporting declining profit in the fourth quarter.

"Hershey remains committed to providing the world's best chocolate and confectionery products made with the highest quality ingredients," West concluded. "Our consumers and customers understand this and realize that Hershey products will continue to represent outstanding quality and excellent value."