SEOUL South Korea's Lotte Confectionery Co.
(004990.KS) has reached a deal with Hershey Co. (HSY.N) to make
candy for the U.S. group in China, a person familiar with the
deal said on Friday.
The agreement would mark a move into a potentially huge
market for the maker of Hershey's Kisses, Reese's peanut butter
cups and other products, as it faces higher costs and fierce
competition in the United States.
Hershey said earlier this week it would announce a project
to make candy in China, and on Friday, a Lotte official
confirmed that the vice chairman of the Lotte Group and the CEO
of Hershey would hold a news conference on Monday in Seoul.
The official declined comment on any deal though, and
officials at Hershey Korea could not be reached for comment.
In quarterly results this week that missed its own lowered
forecast, Hershey said it was looking to expand in China,
India, Mexico and parts of South America.
It said its planned Chinese project would manufacture candy
that will be sold there and in other parts of Asia.
Lotte bought a chocolate factory in Shanghai in 2006.
"From Hershey's point of view, choosing Lotte means lower
costs, since they won't have to secure their own production
facility," said Lee Kyoung-ju, an analyst at Korea Investment
"For Lotte, an alliance with the world's biggest chocolate
maker may translate into a boost for other Lotte products."
Hershey lowered its 2006 earnings outlook in December, but
results were still worse than expected, creating skepticism
over its 2007 earnings forecast. The company is trying to
increase sales of its core products while developing new lines
like premium dark chocolate.
Hershey shares closed down 60 cents at $50.18 on Thursday
on the New York Stock Exchange. Lotte Confectionery shares
ended down 2.24 percent at 1.135 million won, a bigger drop
than the wider market's .KS11 0.8 percent fall.