The Wall Street Journal-20080125-Hershey Posts 65- Drop In Quarterly Net
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Hershey Posts 65% Drop In Quarterly Net
Hershey Co. Chief Executive David West, during his first earnings call as the top executive, faced irritated investors eager to hear his plans for turning around the chocolate company.
Mr. West was thrust into the position in December after Richard Lenny abruptly announced his retirement in October. In November, the Hershey Trust, the company's controlling shareholder, ousted six board members, in part, out offrustration with the company's declining financials. Two other directors resigned on their own and the Trust replaced all eight with its own picks.
Yesterday when Mr. West faced investors, he had more bad news: fourth-quarter net income dropped 65%, margins fell and the 2008 forecast was well below Wall Street estimates. High dairy costs, he said, was one factor.
Citi Investment Research analyst David Driscoll chastised the company during the earnings call, saying, "So this is really going to go down here as quite a disaster for Hershey. In 2007 you lose 270 basis points of operating margin, in 2008 another 200 basis points." (A basis point is one-hundredth of a percentage point.)
Mr. West vowed to boost marketing and roll out new premium chocolate products in an effort to regain market share that has been lost to rival Mars Inc., maker of such confections as Dove chocolates and M&Ms. But he didn't give investors the specifics they wanted, saying he will do that in the second quarter -- instead of in February, as planned -- giving the company more time to evaluate its strategy. "Our primary goal in 2008 is to stabilize U.S. business marketplace performance," he said. "In high-potential emerging markets we will continue to follow a disciplined approach in pursuing appropriate growth opportunities that will increase our scale."
Hershey projected earnings of $1.85 to $1.90 a share in 2008; analysts had been expecting $2.15, on average.
In a note to investors, J.P. Morgan Chase & Co. analyst Pablo Zuanic said, "Is this the end of the bad news for Hershey?" Probably not, the analyst reasoned, "particularly keeping in mind a still very aggressive Mars and the fact that a lot of the new marketing initiatives may take some time to make an impact."
In 4 p.m. New York Stock Exchange composite trading yesterday, Hershey was off 71 cents, or 2%, to $35.68.
