Hershey Is Hitting The Sweet Spot

Many rivals are suffering lean times, but new products are a big reason for the snack-food maker's double-digit earnings growth

By Amy Barrett

Looks like it's a happy day in Candyland. Hershey Foods (HSY ) released earnings on Oct. 21, and thanks to the new-product machine put in place by Chairman and Chief Executive Officer Richard H. Lenny, the results are solid.

At a time when many food companies are struggling, Hershey's net income hit $166 million for the third quarter, a 15.7% increase. And sales were up a tasty 5.3%, to $1.3 billion. While that gain may not sound like red-hot growth, in the food industry where top lines have been increasing in the neighborhood of 1% to 2%, Hershey's performance is as enviable as a sweet chocolate Kiss.


  The key to this robust performance is that a string of new products introduced in recent years are generating excitement among consumers throughout the entire year, not simply around bonanza selling seasons like Halloween and Christmas. Hershey has cooked up a number of line extensions to its big brands, including Hershey's Kisses filled with caramel and a white-chocolate version of the Reese's peanut butter cup.

Analysts expect the new-product flow to continue, including a Reese's cookie. "Lenny really shook things up and made the company think about innovation and ways to extend the brands," says Christine L. McCracken, vice-president with FTN Midwest Research, an institutional equity-research firm.

Certainly, Hershey faces challenges. For one thing, it will take considerable creativity to keep its products making a splash in a crowded marketplace. Also, some of the categories Hershey is trying to crack, including the nutrition-bar business, are intensely competitive. At the same time, Hershey is landlocked -- it has little reach outside North America.


  But Lenny is eyeing new ways to expand market share. Hershey recently struck a deal to buy Mexican confectionary company Grupo Lorena. The CEO has told analysts he expects to import the products into the U.S., where they may prove popular with the fast-growing Hispanic population.

Beyond the acquisition, Hershey has made moves to target this group aggressively, including a marketing agreement with Mexican entertainer Thalia Sodi. Such maneuvers may allow Hershey investors to savor tasty returns in the year ahead. Even in the near term, this investment seems like a pretty sweet deal.

Barrett is BusinessWeek's Philadelphia bureau chief

Edited by Beth Belton

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