Hershey reported a nearly 4% drop in third-quarter net income on Wednesday, as the high cost of dairy ate into the candy maker’s gross margins. Here are the most important points from the earnings report.
What you need to know: Hershey (HSY) has struck a bullish tone about the key Halloween selling season. The company said seasonal orders and net sales are “slightly better than our estimates,” and while the data are preliminary, Hershey says it will gain market share for that important season. North American net sales in the latest quarter increased 4.2%, bolstered by demand for the Halloween holiday. That would indicate Hershey is performing better than its peers, as the National Confectioners Association recently projected overall candy sales would reach $2.5 billion this Halloween, barely above the $2.4 billion projection for 2013.
The big number: Gross margin in the latest period tumbled to 43.8% from 46.1% a year ago as higher costs, primarily for dairy, hurt profitability. Hershey said dairy prices remained at “elevated levels throughout the third quarter,” and the company said other supply chain costs also more than offset efforts to trim overhead expenses. Ad and marketing spending, meanwhile, inched up 1%.
The company’s sales grew 5.8% to $1.96 billion, slightly under the $1.97 billion projected by analysts surveyed by Bloomberg.
What you might have missed: Hershey, which calls itself a “gross margin focused company,” said it expects margins will decline in 2014, but should improve next year as a result of cost cutting and an increase in prices that the company announced in July. Hershey has moved to raise prices as the costs for ingredients such as cocoa, dairy and nuts have all increased since the beginning of the year.
The company is also targeting 2015 net sales growth between 7% to 9%, and is planning to launch a variety of new products to help sweeten its top line performance, including the debut of Kit Kat White Minis and Hershey’s Caramels.