Tags: HSY | Hershey | food | stocks | investing | chocolate

Golden Ticket: Hershey Enjoys Branding Power

Thursday, 19 May 2011 03:07 PM

For food products makers, good old-fashioned business practices and a solid brand serve as the ingredients for success in this economy. Take The Hershey Company (HSY). Sales and profits were up in the first quarter of this year.

Revenue hit $1.56 billion, up 11 percent from the $1.41 billion during the first quarter of 2010. Net income for the first quarter of 2011 hit $160.1 million or 70 cents per diluted share, compared with $147.4 million or 64 cents per diluted share for the comparable period of 2010.

"Hershey's first quarter results represent a good start to the year, and we maintained our marketplace momentum," says then-company CEO David J. West, who recently left to head up Del Monte Foods. "Net sales gains were driven by core brand growth in both U.S. and international markets, new products and a seasonal shift in volume from the fourth quarter of last year to the first quarter of this year."

Like any other food producer, input costs are on the rise although Hershey's efforts to streamline production have offset those costs. Plus Hershey is an icon in the chocolate confectionery industry, and people know its brands, which gives the company leeway when passing costs onto the consumer.

In March, Hershey announced a 9.7 percent price increase for many of its products to offset cost inflation, although buyers shouldn't fret, as price hikes will be spread out through Easter 2012.

Gradual increases

"Hershey's success in passing through rising costs in recent years partly reflects an effective pricing strategy that rolls out increases gradually giving customers long lead times to adjust," Moody's Investors Service writes in a ratings note.

"For example, the company was still benefiting in 2010 from a 10 percent price increase in 2008 that was implemented over the course of 15 months, giving retailers an opportunity to purchase some seasonal inventory at legacy prices."

While hiking up prices does carry certain risks — as does any business decision — it does allow the company to avoid sharp volume declines due to retailer destocking that often occurs with abrupt price increases, Moody's adds.

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For food products makers, good old-fashioned business practices and a solid brand serve as the ingredients for success in this economy. Take The Hershey Company (HSY). Sales and profits were up in the first quarter of this year. Revenue hit $1.56 billion, up 11 percent...
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Thursday, 19 May 2011 03:07 PM
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