Hershey raises candy prices, blames higher costs

By Lisa Baertlein

LOS ANGELES (Reuters) - Candy maker Hershey Co (HSY.N: Quote, Profile, Research, Stock Buzz) said on Friday it was raising U.S. prices by roughly 10 percent and warned that the higher cost of ingredients such as cocoa, corn sweetener, sugar and peanuts would weigh on profits.

The maker of Hershey chocolate bars and other sweets said its 2008 profit would be at the low end of its forecast range and cut sales and earnings growth projections for 2009, sending its shares down more than 4 percent.

Food makers across the board have been raising prices as commodity costs climb. For the first seven months of this year, U.S. consumers have seen grocery store prices rise nearly 6 percent.

Hershey's price increase is effective immediately and should help offset rising commodity costs, which the company expects will more than double from 2008 to 2009.

"The size of the price increase is the real surprise," Wachovia analyst Jonathan Feeney said in a client note.

Feeney said the confection industry historically has been recession resistant.

"We continue to think the disappointments are a product of under-investment," he said.

SUGAR HIGH

Hershey said prices for ingredients such as cocoa, corn sweeteners, sugar and peanuts are up by between 20 percent and 45 percent since the beginning of the year.

"Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," Hershey Chief Executive David West said.

Citing current economic and market conditions, Hershey said it expects 2008 earnings per share to be "toward the lower end" of its previously forecast range of $1.85 to $1.90 per share. Hershey sees 2008 net sales growth of 3 percent to 4 percent.

"Consumers are likely to see higher every day and promotional retail prices as we implement the price increase and, as a result, we expect volume in the fourth quarter and next year to be lower than previously estimated," Hershey said in a statement.

The company lowered its 2009 net sales growth projection to 2 percent to 3 percent, versus its previous call for growth of 3 percent to 5 percent.

"Therefore, we continue to expect that earnings per share-diluted from operations in 2009 will increase, however, at a rate below our long-term objective of 6 percent to 8 percent growth," the company said.

Shares in Hershey closed at $41.62 on the New York Stock Exchange and fell to $39.76 in extended trade.

(Editing by Braden Reddall)