2nd UPDATE: Hershey 3Q Profit Up 30%, Beats Expectations

Hershey Co.'s (HSY) third-quarter earnings rose 30% and exceeded expectations amid charges absorbed in the year-earlier period, but sales fell as higher prices hurt volumes.

The candy maker said it expects the economic environment for consumers in the U.S. and international markets to remain challenging. For this year, Hershey gave a full-year earnings outlook above Wall Street's current estimates.

Third-quarter earnings were $162 million, or 71 cents a share, compared with $124.5 million, or 54 cents a share, a year earlier. The latest period included charges of 2 cents a share compared with 10 cents a year earlier for a supply chain program. Sales fell to $1.48 billion from $1.49 billion a year ago. Analysts polled by Thomson Reuters expected earnings of 67 cents a share on revenue of $1.5 billion.

Hershey's brands--which range from its namesake Kisses chocolate to Twizzlers--have held up reasonably well during the recession as consumers have turned away from premium chocolate to more moderately priced fare. For the full year the company projected earnings in the range of $2.12 to $2.14 a share, excluding items. Analysts currently expect earnings of $2.08 a share.

On a conference call, Hershey executives said retail customer Halloween orders are roughly on track with their expectations so far.

Hershey has come into focus in recent weeks after Kraft Foods Inc. (KFT) unveiled an offer for Cadbury PLC (CBY). That move raised speculation that Hershey might consider a counterbid.

But Hershey remained stymied in its ability to assemble a bid for Cadbury, The Wall Street Journal reported at the end of September. Hershey has no financing or strategic plan for a bid as of the time of the Journal report, according to people familiar with the matter.

Hershey is controlled by the Hershey Trust, which does charitable work and is a trustee of a school for children in need. That trust has said it will retain its controlling interest in the chocolate company, essentially indicating that it won't be open to any kind of a deal that would involve the company giving up its independence.

On Thursday's conference call Hershey said it wouldn't comment on industry merger and acquisition matters. Chief Executive David West instead said that macroeconomic pressures and commodity fluctuations are the biggest issues driving the category right now. "The biggest impacts are really macroeconomic," he said. "Obviously we continue to monitor competitors...We continue to come back to what our strengths are in our U.S. market."

For 2010, Hershey said it expects sales growth to be within the range of 3% to 5% and earnings excluding items to rise 6% to 8%, both within its long-term goals. The 2010 forecast could be viewed as disappointing, wrote Stifel Nicolaus analyst Chris Growe. At present, his $2.29 estimate for 2010 assumes about 9% growth in per-share earnings.

-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com

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