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Hershey's profit beats estimates as costs drop

Hershey's candy bars are displayed at a gas station in Phoenix, Arizona October 27, 2011. REUTERS/Joshua Lott
Hershey's candy bars are displayed at a gas station in Phoenix, Arizona October 27, 2011. REUTERS/Joshua Lott

By Maria Ajit Thomas

(Reuters) - Chocolate maker Hershey Co reported a better-than-expected quarterly profit and boosted its full-year profit forecast as lower commodity prices and new products boosted margins.

The maker of Kit Kat, Twizzlers and Reese's Peanut Butter Cups benefited from lower cocoa prices, which fell to an 11-month low in March.

"We continue to expect overall cost deflation in 2013," Chief Financial Officer Humberto Alfonso said on a conference call with analysts.

UBS Investment Research analyst David Palmer said lower costs will help fuel reinvestment and provide earnings security.

Hershey posted a 6 percent increase in revenue to $1.83 billion, driven by higher sales in the United States, its largest market, and the introduction of products from Brookside Foods Ltd into its line-up.

Brookside Foods, which was acquired in December 2011, makes chocolate-covered fruit juice pieces in flavors such as pomegranate and acai.

"It's a high-margin product that seems to have market niche and doesn't overlap directly with what they have," Janney Capital Markets analyst Jonathan Feeney told Reuters.

Hershey's gross margin expanded 2.4 percentage points to 46.5 percent in the quarter ended March 31. The candymaker expects gross margin to rise by 1.9 to 2.1 percentage points for the full year.

Hershey has also stepped up its advertising spending, particularly for brands such as Twizzlers, Hershey Drops, Rolo and Jolly Rancher.

"It's really impressive to see how the company's investments have paid off in terms of volume and (the results are) suggestive that these trends can continue," Feeney said.

Hershey, which also makes Ice Breakers gum and mints, said it now expects full-year profit in a range of $3.61 per share to $3.65 per share, up from the earlier forecast of $3.56 per share to $3.63 per share. Analysts estimate $3.64 per share, according to Thomson Reuters I/B/E/S.

The net income rose to $241.9 million, or $1.06 per share, from $198.7 million, or 87 cents per share, a year earlier.

On an adjusted basis, Hershey earned $1.09 per share.

Analysts on average were expecting profit of $1.04 per share, on revenue of $1.84 billion, according to Thomson Reuters I/B/E/S.

Shares of the Hershey, Pennsylvania-based company were up slightly at $89.93 in morning trade on the New York Stock Exchange.

(Reporting By Maria Ajit Thomas in Bangalore; Editing by Sreejiraj Eluvangal)

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