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The Hershey Co. saw its consolidated net sales for its fourth quarter fall 0.7 percent compared to fourth-quarter 2005 results, to $1.337 billion.
Reported net income for the period, ended Dec. 31, 2006, was $153.57 million, compared with $170.4 million for the period in 2005.
"Hershey's results for the fourth quarter were below expectations," said Richard H. Lenny, chairman, president and CEO. "Although marketplace trends showed improvement, with retail takeaway up 3 percent, net sales declined by approximately 1 percent as growth from new product platforms and seasons didn't offset slower base business shipments. Further, the impact of a product recall in Canada affected both sales and profitability.
"Hershey's profitability was also affected by a higher level of obsolescence expense, in addition to the lower sales level and a sales mix profile that was less profitable than expected."
The obsolescence expense resulted from slower-than-expected retail performance and the costs associated with scaling back on certain items in the portfolio. We will reverse these trends in 2007 with a growth plan driven by a step-up in core brand investment and support of new product platforms that is clearly focused on improving both sales and profitability."
For the full year 2006, consolidated net sales were $4,944,230,000, compared with $4,819,827,000, an increase of 2.6 percent. Reported net income for 2006 was $559,061,000, or $2.34 per share-diluted, compared with $488,547,000, or $1.97 per share-diluted, for 2005.
In commenting on the full year, Lenny said, "2006 was a difficult year for Hershey. Following a solid first half, we experienced a slow down in retail performance. The necessary shift from line extensions to innovative new product platforms took longer than anticipated. Progress on new product platforms, such as dark chocolate and refreshment, has been strong, as these were Hershey's fastest-growing businesses in 2006. In addition, Hershey's seasonal business performed well, posting share gains within each seasonal timeframe.
"For 2007, our priorities are clear. First, we're committed to restoring core brand growth through increased investment behind superior consumer and customer programs. Second, we'll accelerate news and programming in support of our on-trend new product platforms, primarily dark and premium chocolate and refreshment. Within the U.S. market, we're taking the necessary steps to ensure superior retail execution in support of these two initiatives."
The company is maintaining its long-term expectations of sales growth of 3 percent to 4 percent for 2007.