Propelled by higher spending anticipated through the fourth quarter, the candy giant said its yearly ad expense would increase from 13% to 15% compared with 2011, up from its previous forecast of a "low double-digit" jump.
Hershey is the nation's 85th-largest advertiser, spending $463 million in the U.S. in 2011, according to the Ad Age DataCenter.
"We wouldn't continue to be advertising the way we are if we didn't think we were getting a good return on investment," CEO John Bilbrey said on Hershey's third-quarter earnings call.
Such confidence is a welcome sign for an ad industry stuck in a prolonged period of unevenness as a result of the precarious economy, uncertainty surrounding the upcoming election and pending tough federal budget choices (otherwise known as the fiscal cliff). As Ad Age pointed out last month, while advertisers are continuing to spend, they are doing so inconsistently and opportunistically.
Hershey has been buoyed by lower-than-expected commodity costs. Although the company expects higher input costs in the fourth quarter, "our current inflation outlook for the full year is slightly better than our previous forecast," Chief Financial Officer Humberto Alfonso said on the earnings call. For 2013, the company said it does not expect to see input-cost inflation.
For the third quarter, the company reported net sales of $1.7 billion, up from $1.6 billion in the year-ago quarter, and net income of $176.7 million, down from $196.7 million. The company said Halloween "has gotten off to a good start." Looking to 2013, Hershey in a statement said it expects the "economic environment for retailers and consumers will continue to be challenging. However, we believe the investments we've made have resulted in a business model that is more efficient and effective." As a result, the company expects to meet net sales growth targets of 5% to 7%.
In a note to investors, Janney Capital Markets said the company's ad spending increases and innovations "continue to bolster Hershey's pricing power." A good chunk of the ad spending is aimed at older, core products. For instance, Hershey in July started advertising for its Rolo brand for the first time in 25 years.
"We're expanding advertising across the broader part of our portfolio and in markets that we've never made advertising investments before," Mr. Bilbrey said. Asked if the company was close to the point of diminishing returns, he said: "We certainly don't feel as though that we've reached that point, and I'll reassure you that we're quite rigorous in making sure that we don't waste a single dollar."
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