Hershey cuts profit goal to focus on major brands

By Brad Dorfman

CHICAGO (Reuters) - Hershey Co (HSY.N) cut its long-term earnings growth target on Tuesday and laid out a strategic plan to boost its biggest U.S. brands with more advertising and greater focus on popular candies.

The largest U.S. chocolate company, which has been losing U.S. market share to Mars Inc, also stood by its 2008 earnings forecast, which is above the average Wall Street estimate. It said it expects profit to increase in 2009, but be limited by rising commodity costs.

Some analysts questioned whether the company's plan to increase advertising spending by 20 percent in each of the next two years would boost sales enough to overcome soaring costs for items like cocoa and energy. Hershey has also had trouble reaping the benefits when it increases list prices because deals it had with retailers required it to offer price-cutting promotions.

"Given the increase in commodity costs and the company's inability to realize price, we believe such an increase in advertising may be insufficient to drive earnings growth this year and next," J.P. Morgan Securities analyst Terry Bivens said.

Hershey, whose shares were down 1.7 percent in afternoon trading, spent $127.9 million on advertising in 2007. Its advertising agency is Arnold Worldwide, a unit of France's Havas SA (EURC.PA).

Unveiling the strategic plan to analysts, David West, who was promoted to chief executive from chief financial officer last year, acknowledged that attempts to move into areas like cookies and snack bars had hurt the company's mainstay products like Hershey chocolate bars and Reese's peanut butter cups.

The moves in recent years "diverted key resources, both financial and human, away from our core at a time when others were ramping up," West said.

Rival Mars upped the stakes even more in April when it agreed to buy chewing gum maker Wm Wrigley Jr Co WWY.N in a deal that would make it the world's largest confectionary company.