Rising prices for commodities are taking a bite out of Hershey's margins. Hershey's has tried to pass these costs onto customers; in January the company raised wholesale prices 13% for half of its domestic candy line to offset rising costs for ingredient, fuel, utilities and transportation. Despite these efforts, earnings fell 32% in the latest quarter while gross margins drop from 35.9% to 32.4%.
Mars, the makers of M&M's, has announced a deal to buy the Wrigley chewing gum company for $23 billion. The merger will create a candy-making giant and that could pose a serious threat to HSY's market share.
Although takeover bids have been made for Hershey Foods several times in the past, the Hershey Foundation’s voting control allowed it to block the sale of the company.  Especially in a tough economic environment, shares will likely drop if a takeover bid is blocked again.
Hershey’s expects a sales increase of 3-4% this year, but for diluted EPS from operations to decline from the $2.08 reported in 2007 to the $1.85-$1.90 range. And that excludes the impact of an estimated $0.37-$0.40 in restructuring charges. Since Hershey’s has reported such charges in seven of the last eight years, treating them as non-recurring stretches both my credulity and my patience.