Hershey profits continue to tumble

By Charlotte Eyre

- Last updated on GMT

Related tags Cent Percentage point Profit Hershey

US-based Hershey yesterday posted a Q4 operating profit drop of 65
per cent, as high commodity costs, restructuring charges and
competitive US market conditions continue to dog the confectionery

Net sales for the quarter ending 31 December 07 amounted to $1.34bn, unchanged from the same period the previous 2006 results. Total costs, on the other hand, rose to $1.2bn, a 14 per cent increase from the same period in 2006. Margins therefore decreased substantially, falling 7.5 percentage points to four per cent, compared to 11.5 per cent in 2006. A large slice of the costs - $95.9m - was linked by the company to the reorganisation of its Brazilian business operations, as well as establishing the Global Supply Chain Transformation (GSCT). This initiative was first announced in February last year, with the aim of tightening the supply chain by eliminating about 1,500 Hershey suppliers. The company was also dogged by a large commodity bill, claiming that costs were at "higher levels than historical averages"​ during the quarter. According to company President David West, the unfavourable conditions in the US market, blamed in part for poor third quarter results last year, had not improved. "USbusiness is operating in a challenging environment that includes higher input costs, as well as heightened levels of competitive activity,"​ West said. "These factors did not subside in the fourth quarter,"​ he added. Results for the entire year reflected the recent difficulties, as yearly profit fell 61 per cent, from $559m to $214m. The margin decrease reflected figures for the fourth quarter, dropping seven percentages points from 11.3 per cent to 4.3 per cent. The company remained optimistic about its performance over 2008, however, and focused on the recent joint venture in China and India. West estimated that overseas investments such as these, as well as eventual GSCT savings will lead to an increase in 2008 net sales growth of three to four per cent. The latest results round off a problematic year for Hershey, whose assets lost $1bn in market value after the company released its third quarter results in October last year. During the same month the executive board encouraged six of its directors to resign, while another two handed their notice in voluntarily. The company was also slammed last month for packaging mints in what were later called "drug-like pouches". Councilman Juan Ramos accused the company of packaging the Ice Breakers Pac breath mints so they looked like parcels of crack cocaine. Hershey has now, however, responded to the criticism and withdrawn the product.

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