Chocolate maker Hershey Foods Corp on Thursday posted a higher-than-expected 16 percent rise in quarterly profit and said it will get into the cookie business.
The Hershey, Pennsylvania, company, whose shares rose 3 percent, sees the move into cookies as part of its strategy to extend popular brands like Reese's and Hershey's. It has also been adding products such as nutrition bars and low-carb candies to address growing health concerns in the United States.
Third-quarter earnings rose to $166.2 million, or 66 cents a share, compared with $143.6 million, or 55 cents a share, a year earlier. Analysts on average forecast 64 cents a share, according to Reuters Estimates.
Hershey forecast full-year sales above its 3 to 4 percent target range, another sign that the company has broken out of the 1 percent sales growth range it had seen previously, analysts said.
"This is critical, because in our opinion such an acceleration is key to significant further share price appreciation from current levels," Andrew Lazar, analyst at Lehman Brothers, said in a research note.
The premium end of the cookie market targeted by Hershey represents about 20 percent of the total market, company executives said in a conference call.
The cookies, which will sell for 99 cents for a single bag of four, will be based on the Hershey's, Reese's, York and Almond Joy brands, Chairman and Chief Executive Richard Lenny said in an conference call with analysts. Lenny was previously an executive with cookie and cracker maker Nabisco.
The US cookie market has been pressured by consumers seeking low-carb snacking alternatives. But Lenny said the premium end of the cookie market was growing and profitable.
While the cookie market has many manufacturers, Hershey thinks convenience stores and drug stores are ripe markets to tap. Those also happen to be retailers Hershey already serves with its candy bars.
"We think management has the right strategy by keeping this launch focused in channels where shelf space is less tight," David Nelson, analyst at Credit Suisse First Boston, said in a research note. He also praised Hershey's plan to seal single-serving packages, rather than take-home boxes of cookies.
Overall, third-quarter sales rose 5 percent to $1.25 billion.
For the year, earnings per share should increase more than the company's 9 percent to 11 percent growth target, the company said.
Hershey also said on Thursday that Frank Cerminara, chief financial officer, will retire at the end of 2005. His replacement as CFO, David West, will take over that job in January of 2005.
Hershey shares were up $1.46 at $48.82 near midday on Thursday on the New York Stock Exchange.