Hershey Reports Third-Quarter Earnings Up 98%

Increased Advertising Helps Propel Impressive Surge

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CHICAGO (AdAge.com) -- Hershey Co.'s third-quarter earnings nearly doubled to $125 million from $63 million a year ago, a turnaround helped by the confectioner boosting ad support sharply this year to stem share loss to rival Mars.
Hershey's has focused its efforts on the recently launched, female-focused Hershey's Bliss, Reese's, Twizzlers and Kit Kat brands, as well as international markets.
Hershey's has focused its efforts on the recently launched, female-focused Hershey's Bliss, Reese's, Twizzlers and Kit Kat brands, as well as international markets.

"Hershey's third-quarter results reflect the progress we continue to make implementing our consumer-driven demand model," CEO David West said in a statement. "This growth was driven by price realization, overall growth in core brands and new products, partially offset by softness in snacks and refreshment." Looking into the fourth quarter, he added that the Halloween candy season is off to a good start.

Investing in advertising
Hershey's ad spending will be up about 25% for the full year. It rose 23% during the third quarter. The company has focused its efforts on its Hershey's Bliss, Reese's, Twizzlers and Kit Kat brands, as well as international markets.

"We are encouraged on several of the brands where we'd made the investment," Mr. West said during the company's earnings call today, citing specific improvement in Reese's, and promising repeat business for the recently launched, female-focused Hershey's Bliss. He added that Hershey has done more radio than TV advertising with Kit Kat and Twizzlers, and "we've been feeling pretty good about the brand responses there."

Of course there's still work to be done. "We have some things left in the tail of the portfolio," Mr. West said. "We're working our way through our refreshment business, which hasn't done that well, and we have yet to deploy the kind of investment and insights into the Kisses brand we would like."

Credit where due
"This should be perceived as something of a victory for the company given the weakening economy and the management team's damaged reputation with investors," wrote Credit Suisse analyst Robert Moskow in a research note. But he cautioned that while core brands seem to be selling well and responding to marketing support, premium brands like Starbucks and Cacao Reserve "are weakening in the tough economy."

Hershey has also vowed to increase ad spending by another 20% in 2009, continuing to focus on core brands. "We'll continue to invest and make sure that we get the continuity levels across all the core brands, and that's really our goal in 2009 with the increase," Mr. West said. "I think once we get to the latter part of 2009, we'll take a look at how the brands are responding, but until then I would say we've given you as much visibility as we can about the level of increase required in '09."

Hershey's agencies are Arnold, TracyLocke and North Castle Partners.

Following the April announcement that Mars would acquire Wrigley, most expected Hershey to follow as a merger partner. Nestle, Cadbury and Kraft have all been identified as potential suitors, but the iconic chocolatier has worked hard to dampen takeover speculation in recent months.
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